US jobs growth weak; US trade deficit larger; Canada trade deficit smaller; China tech in pinch; India cuts rate; Aussie retail growth timid; UST 10yr 1.51%; oil and gold lower; NZ$1 = 63.2 USc; TWI-5 = 68.6

US jobs growth weak; US trade deficit larger; Canada trade deficit smaller; China tech in pinch; India cuts rate; Aussie retail growth timid; UST 10yr 1.51%; oil and gold lower; NZ$1 = 63.2 USc; TWI-5 = 68.6

Here's our summary of key events overnight that affect New Zealand, with news the global economic downshift rolls on.

The American non-farm payrolls report came in weaker than almost all analysts expected at a gain of just +136,000, the lowest since 2017 that did not involve the aftermath of a hurricane, or a government shutdown. Factory payrolls actually decreased. In the year to September, there have been almost -20% fewer jobs created (+2,147,000) in the American economy than in the same 2018 year (+2,633,000), a shortfall of -486,000 jobs. In the same period, the US population grew by almost exactly +2 mln people to 329.4 mln. And the two significant policies enacted in that period have been tax cuts for the well off, and the building of a tariff wall.

Despite the low growth, their jobless rate fell to 3.5% and their participation rate held steady, even if it is low. Weekly earnings growth slipped to +2.9% in the past year.

The downshift was enough for markets to assume that Fed help is on the way, and Wall Street is up on the prospect. The S&P500 is up +1.2% so far. That follows similar rises in Europe in earlier end-of-week trading. Asian trade was mixed; and the ASX200 was up a modest +0.4%, the NZX50 up a bit more at +0.7%.

Meanwhile, the US trade deficit widened in August, with imports rising faster than exports. The goods deficit is rising while their services surplus is falling. But the politically sensitive goods deficit with China has fallen slightly in 2019. All that does however is signal a re-routing of imports.

In Canada, they posted a different result, with exports up, imports down, and a narrowing of their trade deficit.

In China, their tech sector is feeling the pinch, more so than the rest of their economy. But their tech sector is a very large portion of Chinese economic activity - surprisingly large. In September, it accounted for just under 28.7% of overall economic inputs. But that was down from the 29.4% in August, and in an economy as large as China's, a difference like that is large.

In Hong Kong, there has been another night of high violence on the streets after the Government extended its ban on umbrellas to face masks or face paint. China's surveillance won't work on either.

In India, their have cut their benchmark policy interest rate by -25 bps to 5.15% which is the fifth rate cut  they have made in 2019. This is in response to a slowing Indian economy. Interestingly, their central bank is saying all the responsibility for reviving growth is up the Central government and their fiscal policies.

In Australia, the RBA has released its October financial stability review and warned of the growing risk to their growth from the deeper slowdown in the global economy. They also warn of 'rapid housing price growth' that seems to be taking hold in Sydney and Melbourne.

Also out yesterday was data for August retail sales in Australia, and while they were up, the rise was much more modest than anyone expected. After a AU$15 bln tax cut flowed into consumer poockets, this was a very lame outcome and not what their Government was hoping for. The RBA will likely be concerned as well, bringing closer more official rate cuts, negative rates, even QE.

The UST 10yr yield is lower today, at 1.51% and down -3 bps from where we left it last night and down a whopping -17 bps lower than this time last week. Their 2-10 curve is positive at +11 bps. Their negative 1-5 curve is wider at -27 bps. Their 3m-10yr curve is wider at -25 bps. The Aussie Govt 10yr is down at 0.89%, an overnight fall of -1 bp and a weekly fall of -6 bps. The China Govt 10yr is unchanged at 3.16% but something to keep an eye on next week after their holiday break. The NZ Govt 10 yr is now at 1.03%, unchanged overnight but a -10 bps drop for the week.

Gold is down -US$3 overnight at US$505/oz.

The VIX volatility index is just under 18, and little-changed from this time last week. Its average over the past year is 17. The Fear & Greed index we follow has moved sharply from 'neutral' last week to 'fear' this week.

US oil prices are lower today at now just over US$52.50/bbl. The Brent benchmark is just under US$58.50. That is a -6% fall for the week. The US rig count has moved lower again, but not quite as low as some expected.

The Kiwi dollar is little-changed this morning, now at 63.2. On the cross rates we are still at 93.3 AUc. Against the euro we are still at 57.5 euro cents. All of these are firmer than this time last week. That puts the TWI-5 at just on 68.6.

Bitcoin is now at US$8,186 that is up only marginally from where we left it last night. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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14 Comments

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The relationships seems kind of obvious at this point - economic growth goes down, interest rates go down, asset prices go up, yields go down, consumer spending goes down because people spend all their income trying to buy assets/increase returns. Lowering interest rates is counter productive.

So you're suggesting that Interest rates should go up, and that would reverse asset speculation/appreciation and spook those who have capital ( and debt!) tied up in them to sell them, and apply the released funds against building productive businesses as the 'new' way of creating a return from those funds, and so the expansion of the economy from increased business activity would see more people employed and their wages rise?
Don't be silly! If that was going to work it would have been done 10 years ago...... (sarc/off)

No, I’m suggesting lowering interest rates is counter productive at this point. It’s not that interest rate reductions are universally bad, it’s that they are producing very low benefits and some big long term problems.

You also have to separate short term, medium term and long term. I think reductions are a positive in the short term but long term I think they are creating big problems.

So the US jobs reports comes in weak, and the stock market surges because it expects a handout from Uncle Sam because of it.. so remind me how that is anything but welfare for the rich? So much for the US being a bastion of capitalism.

“Fed help is on the way”
I see the situation as becoming a little more complex. Pressure was on for Trump to resolve the trade wars sooner rather than later to ensure that the negative effects on the US economy wouldn’t be an election issue for him. However moves on impeachment are now likely to dominate; I fear that not only is Trump being seemingly autocratic is going to be under increasing pressure to focus on that at the expense of trade wars, he also has the ability to dictate what the focus will be and he seems pretty able to play the victim and underdog role to appeal to his constituency.
So I am not looking to a simple outcome of resolution of trade wars with Fed off-setting current economic negative effects. My guess is more turbulence for longer.

Indeed:

Not trade wars, not strictly manufacturing. Services and the whole US economy which would not ever be driven so far off course by tariffs on Chinese goods or a max federal funds rate of not even 2.5%. These are not the kinds of factors which would move the dollar higher and produce the heavy downward economic pressures being exhibited here as well as all over the rest of the world. Link

What’s next isn’t avoiding that downturn, it’s trying to figure out how the politics will work on the other side of it (without yet knowing its depth and duration). That’s the real difference between 2008 and now. Back then, even though they screwed everything up, the global public was willing to set all that aside and give authorities the chance to put things right. There was perhaps an unusual amount of patience back then.

Those days are long gone.

Weidmann Hits Back at Draghi Bid to Silence ECB’s QE Debate

Bundesbank President Jens Weidmann switched the focus of his opposition against European Central Bank stimulus to Mario Draghi himself, suggesting the president should be more open to different points of view.

Responding to Draghi’s recent warning that discord among ECB officials could undermine the effectiveness of monetary policy, the German central-bank chief said an “intensive discussion” about far-reaching measures such as bond-buying is not only normal, but “absolutely necessary.”

Europe’s biggest insurer lambasts ECB over rates

Europe’s prime insurance coverage boss has launched a blistering assault on Mario Draghi and the European Central Financial institution over the “politicisation” of financial coverage within the area.Oliver Bäte, chief govt of Europe’s largest insurer Allianz, sharpened the language utilized by different German financiers and policymakers to criticise Mr Draghi, who fingers the presidency of the ECB to Christine Lagarde this month.Mr Bäte rebutted Mr Draghi’s assertion that it was overdue for eurozone governments to implement fiscal reforms relatively than depend on financial coverage to repair Europe’s ills, and spoke as if addressing the outgoing ECB chief immediately.“The explanation why we’re not doing fiscal [reforms] is since you’re making it simple for folks to spend cash they don’t have,” he informed the Monetary Instances in an interview. “I’m sorry. We truly created unbiased central banks to be able to have this not occur, to have central banks not print cash. [People] say Draghi is unbiased. No he isn’t.”He accused the ECB of “multiplying threat” by combining its ultra-loose financial insurance policies with a failure to interrupt the so-called doom loop of banks’ investments in authorities debt. Banks and insurers that spend money on authorities debt can maintain it as a risk-free asset with a zero capital cost — an element extensively blamed for magnifying the 2012 eurozone disaster.

“The politicians and the regulators have informed us they mounted the banking system and insurance coverage system by way of this damaging spiral of monetary sector threat morphing into sovereign threat and [looping] again,” Mr Bäte stated. “It’s the largest non-truth that exists.”Mr Draghi informed the FT this week that the necessity for governments to step up their spending was extra pressing than earlier than to counter the worldwide slowdown. The central financial institution chief added that eurozone member states wanted a long-term dedication to fiscal union if the area was to compete extra successfully with different international financial powers.The intervention follows an escalating confrontation between Mr Draghi and his detractors, notably senior figures within the German monetary institution. Christian Stitching, the Deutsche Financial institution chief govt, warned just lately that “damaging charges spoil the monetary system”, and Sabine Lautenschläger, a German member of the ECB’s governing council, resigned final week.

I believe I’m going to get very loud now as a result of within the subsequent monetary disaster the general public will say: ‘What’s it with the monetary sector? We’re actually going to make these folks utilities. They don’t seem to be allowed to do something any extra’

The ECB’s September choice to push rates of interest additional into damaging territory and reignite the quantitative easing programme of bond shopping for sparked open criticism by different policymakers, too.In a separate FT interview printed earlier this week, Jean Pierre Mustier, the UniCredit chief govt who heads the European Banking Federation, struck a extra emollient tone when he urged financiers to not “simply complain” and to grasp that the advantages of low charges in decreasing dangerous money owed outweigh the margin shrinkage that banks have suffered.However Mr Bäte’s feedback reopen hostilities between financiers, notably these from Germany and different components of northern Europe, and the ECB. He stated monetary teams’ supposedly risk-free investments in authorities bonds — notably these in southern Europe — had been one in all his prime 5 worries about international monetary stability.The Allianz boss warned that most of the people wouldn’t settle for one other monetary crash. “I believe I’m going to get very loud now as a result of within the subsequent monetary disaster the general public will say: ‘What’s it with the monetary sector? We’re actually going to make these folks utilities. They don’t seem to be allowed to do something any extra’.”

Great article here on the on-going EQ issues in Christchurch;

https://www.stuff.co.nz/business/industries/115950286/nine-years-on-and-...

Estimate is that nearly 100,000 homes have foundation issues. Scary really that our government would conspire to this degree to 'save' the insurance industry.

What is more scary, is that many of these new claims are simply settled with money, no actual repairs take place, or if they do, they are band aid style, crack injections. Some of these are written off and become uninsurable, and for some nothing changes except the owners bank balance, insurance carries on , and they assume the owner will get the repairs done.

It is the new owners from August 2019 onwards that are going to have problems. Christchurch is awash with uninsured houses, we have two, the one we have always lived in, which was never insured anyway, it is 100 years old, and council records on it are nil, and a new one we plan to move into one day, while we fix the old one, which I am gradually fixing, which has every consent under the sun, but is still not insurable.

Trump going in to Meltdown: CNN Don Lemon on Trump: This is a presidential meltdown
https://edition.cnn.com/videos/politics/2019/10/03/dons-take-trump-impea...

The theatrics.

since you're selling gold at $505 an oz I'll have 100 oz thanks

To brighten your weekend with a laugh Aussie style

https://www.michaelwest.com.au/the-streisand-effect/