FX reserves of China & India stay high; India cuts policy rate for fifth time; US jobs growth weak; US trade deficit widened; Aussie retail sales flashes warning; UST 10yr yield at 1.53%; oil firm and gold unchanged; NZ$1 = 63.2 USc; TWI-5 = 68.5

FX reserves of China & India stay high; India cuts policy rate for fifth time; US jobs growth weak; US trade deficit widened; Aussie retail sales flashes warning; UST 10yr yield at 1.53%; oil firm and gold unchanged; NZ$1 = 63.2 USc; TWI-5 = 68.5

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Here's our summary of key events over the weekend that affect New Zealand, with news of how slowing growth is affecting key economies.

First up today, China has announced that its foreign currency reserves slipped slightly to just over US$3 tln. And India also said its foreign currency reserves hit a record high for them, US$435 bln.

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. Protester fury has been raised a notch in reaction to that and strategic shutdowns of their public transport system. As we have reported previously retail sales have fallen sharply. Now Hong Kong's richest landlord as offered HKD$1 bln in assistance to 'SMEs' (about NZ$200 mln), but he is doing it in conjunction with the Hong Kong Government's own HKD$2 bln assistance package.

In India, they 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.

The American non-farm payrolls report came in weaker than almost all analysts expected over the weekend at a gain of just +136,000, and the lowest since 2017 that did not involve the aftermath of a hurricane, or a government shutdown. Factory payrolls actually decreased, as did trucking payrolls. 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.

Despite the low growth, their jobless rate fell to 3.5% and their participation rate held steady, even if it is quite 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 was up on the prospect. The S&P500 ended Friday up +1.4%. That follows 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 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 late Friday 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 pockets, 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.

Today is a public holiday in most eastern Australian states, but not Victoria.

The UST 10yr yield is down at 1.53% and -15 bps lower than this time last week. Their 2-10 curve is positive at +12 bps. Their negative 1-5 curve is narrower at -25 bps. Their 3m-10yr curve is unchanged at -24 bps. The Aussie Govt 10yr is down at 0.90%, and a weekly fall of -5 bps. The China Govt 10yr is unchanged at 3.16% but will resume trading later this morning after their week-long holiday. The NZ Govt 10 yr is now at 1.03%, and a -10 bps drop for the week.

Gold will start the week at US$1,504/oz.

US oil prices are firmer today at now just under US$53/bbl. The Brent benchmark is just over US$58.50. But that is a -5% fall for the week.

The Kiwi dollar is little-changed this morning, now at 63.2 USc. 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. It is worth noting that in the past two years, our currency has devalued by -15%. But that hasn't improved our trade performance; exports have grown +$8.3 bln while our imports have grown +$10.6 bln. Our merchandise trade deficit is 75% higher despite the currency assistance. Meanwhile, our bank debt is also +$48 bln higher in that same period, just saying.

Bitcoin is now at US$7,991 and that is down -2.4% from where we left it on Saturday. 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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42 Comments

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Highlight new comments in the last hr(s).

It seems the 35th cunning plan of the very cunning Central Planning Commitariat, is a great success. Spending on imports is up and debt is up too. All is well...

It is worth noting that in the past two years, our currency has devalued by -15%. But that hasn't improved our trade performance; exports have grown +$8.3 bln while our imports have grown +$10.6 bln. Our merchandise trade deficit is 75% higher despite the currency assistance. Meanwhile, our bank debt is also +$48 bln higher in that same period, just saying.

The good news is that exports are up. Hopefully that means that export profits are up. Profits are the lifeblood of productive businesses, it allows them to pay off debts, and invest in sales and productivity improving training and equipment. Crucially it allows them to expand as that darned working capital tied up in everything is a nightmare to manage.

Well put, but it's not just us...

Europe is once again on the brink of economic calamity, and yet its policymakers don’t even know it. Locked in a bubble of complacency, they think of the current slowdown as just a temporary interruption...Yet all over the shop, the economic indicators are flashing red.

https://www.telegraph.co.uk/business/2019/10/06/europe-facing-catastroph...

Them ther fashionable ideas are everywhere. Even on telly. For free.

A weaker currency improves the trade balance
The correlation of currencies and trade performance is also less evident than casual discussion would suggest. The long-term depreciations of USD, GBP and JPY have not done much to improve the trade balance and the Australian and Singapore balances are higher than earlier in the decade. The US improvement is somewhat illusory as much is due to the reduction in income and demand for imports because the US economy has been chronically weak since the crisis began in 2008.

Arguing that competitiveness never matters is foolish. However, the view that competitiveness is all that matters seems to be accepted very uncritically, whereas in fact trade patterns respond with long and variable lags to currency moves, and in the mean-time issues such as productivity gains, savings, investment productivity growth, human capital investment, industrial structure, unionization, taxation, competitiveness and regulation seem to matter a lot more for a lot longer. To be clear, if conventionally measured competitiveness was all that mattered, the link between trade and real effective exchange rates would jump out at you. That we are not all driving Rovers made in the UK means that something other than a weak currency matters a lot.- Steven Englander

From a policy perspective, the question is not which is the best policy under a reasonable baseline, but which policy mistake will be easier to fix if it turns out to go wrong. Despite the focus on the exchange rate, the risk that excess domestic asset price appreciation carries may be the harder to fix – an overvalued exchange can respond within a matter of days to changed circumstances, as we discovered in late 2008. If asset prices and are overvalued and households and businesses have taken out loans that they cannot pay back, it takes a lot longer to get prices and balance sheets back to equilibrium.

That is just such a wonderfully reasonable take on the subject. Much better than my ranting. Thank you.

Monday morning rants are reserved for Roger.

Well, given the planet needs us to give up on growth and learn to live within the limits of it, this is quite good news. I hope it can continue.

Damn right - growth is so overrated.
Ask yourself how much of the recently needed infrastructure, schools, roads, hospitals, POLICE, etc would be needed if we restricted immigration to what was just needed instead of the cons for strawberry picking, waitressing, taxi driving or petrol station attendant?

Growth is impossible to infinite
We are constrained by physical laws
BUT the kicker is the ONLY way for us to do away with growth would be if everyone opted to close all their bank accounts immediately
Being non growth / green (sustainable) means doing away with debt / fiat currency
Hunter / gather /barter and youre there
(unfortunately plastic bag bans just dont quite cut it)

Hell yeah! Growth is so overrated, we don't need economic growth. We don't need the potential for capital investment in things like hospitals and schools that growth brings. We don't need improved technology, innovative medical procedures, new drugs or agricultural innovation.

What NZ needs to do is sit in its stagnation for a few decades like China, then we'll be the socialist paradise that we all desire, with a beautifully clean environment, top quality medical care and high wages.

You have to be fairly ignorant to make such statements. As in ignorant of the facts. All first-world activities are based on unsustainable resource draw-down, and have attempted to grow that draw-down exponentially.

So they are in trouble of the terminal kind. Don't conflate that with labels like ' socialism'. All classes were present on the Titanic, all drowned as per physics, not as per ideology.

No one is going to drown and the ship isn't going down.

You would trample on the poor with your zero-growth ideology for nothing.

You would prevent medical advancement because your cult directs you to worship Gaia as your God.

medical advancement is just part of the cult of progress ...
A massive drain on dwindling resources for what exactly .... prolonging lifespans in a grossly overpopulated world?
Stupid in the extreme

oh dear - go and look at the extraction rates for copper as an example, Atlantic cod fishery another, aquifer depletion another - you can't advance your way out of a dead end.

Scary stuff:
Getting a new mobile number in China will involve a facial-recognition test:
https://qz.com/1720832/china-introduces-facial-recognition-step-to-get-n...

Second whistleblower comes forward against Trump. This is gaining traction.

The "vulgar red-necks" what voted for him will not care. Nor will the decent ordinary people who have watched their society steadily decline for the past few decades. They will see this as the corrupt political establishment getting rid of their reforming outsider. The push for impeachment is incredibly dangerous. It throws petrol and explosives onto the fire. The instability in the US is much like the instability in Hong Kong. There is an ocean of resentment that has been denied a voice.

"dangerous" is an interesting term Roger, but Trump has certainly brought to the surface the degree of self-serving corruption that is endemic through the American political system. While he has raised the possibility that anyone can get to be President, the major parties may well tighten their entry criteria. The future will be interesting!

Trump was and is the wrong answer to the question, much like Brexit. There's huge frustration being vented, the attack on the "elite" by supremely wealthy individuals (inherited wealth predominantly) is troubling, even more so that they've become heroes for the "poor and down-trodden", the "silent majority", who can't see the irony in the position. "Men of the people" my arse.

That is what is so scary. The citizens of the US see Trump as the least bad candidate. What does that say about the others?

Just the Democrats blowing their brains out.

Of course, it's gaining traction! The Swamp doesn't want the scab of corruption, that's been in place for both sides of the House, picked off. Half of Donald's Side of politics is waging a covert war against him, as well as his opposition. Biden and Family are just the public faces of what's well-entrenched behind the scene.
Trump is no saint, but he's the best option that's come along to sort out a mess that should have been sorted out half a century ago.
Will they 'Get him' in the end? And in reality, does he care? The only losers out of shafting Trump will be ...us.

And news in this morning via twitter from Real Vision Finance
From Kyle Bass - “Bank runs all over Hong Kong now. ATM machines running out of cash but there is something more important...failed leader carrie lam(b) can now officially confiscate bank accounts and assets without recourse. The HK legal system is essentially gone. ”

ECB "Whistleblowers" Emerge: Former Central Bankers Cry Out Against Draghi's Monetary Insanity

As former central bankers and as European citizens, we are witnessing the ECB’s ongoing crisis mode with growing concern. The ECB has pursued an extremely accommodative policy for years of economic growth and price stability. The recent slowdown in economic activity, although regarded as temporary by the ECB itself, and risks due to Brexit and the trade war, have prompted the ECB to resume net asset purchases and further reduce the already negative deposit rate. Moreover, the ECB has committed itself to pursuing this extremely accommodative path for quite some time yet.

Big Trouble In QE Paradise

The big problem with QE, other than the fact that it isn’t money printing or even monetary accommodation, is that it has been empirically tested repeatedly all over the world. It doesn’t work in any sense. Ever.

What that says is pretty simple – no matter what the ECB has done, or likely will do, the bond market in Europe believes that there is a much greater risk of Japanification than any other potential scenario. The very idea of inflation is absurd no matter how many bonds are bought, how negative the non-floor floor, or what other popular comics and actors authorities will add to their unending puppet show.

In other words, what little good QE may have accomplished was only to empirically establish how policymakers really are powerless.

Is this a citizen funded carbon credit rort that will transfer wealth to foreigners?

How do they prove value to NZ? We need to asset tax them, so we know that we benefit as a country. I talked to an Avocado grower, Harvard and Ontario teachers fund are spending millions developing orchards to take proceeds off shore to pay future pensions, can NZ afford that?
Avocado development has been destructive in some countries.
The Avocado wars
https://www.netflix.com/watch/80990443?trackId=254015180&tctx=0%2C0%2Cb1...

https://interactives.stuff.co.nz/2018/01/half-a-million-hectares-sold/

banning umbrellas is a clear sign they are desperate,what happens when it rains,women use small ones for parasols so they have to ban them too.they are resourceful though so expect paperbags next.
out of ideas our major retailers were already swinging into action to prevent a downturn by bringing xmas forward to september giving us more reason to shop online.

Radio NZ has been talking about a report on who actually owns land in NZ. will there be an article on this David?

This....is what happens when low interest rates keep 'dead' companies alive a lot longer than they otherwise would survive.

Thomas Cook bosses were warned ahead of its collapse that creditor claims could top £10bn, as a complex network of off-balance-sheet guarantees unwound.

This is why a recession is a necessary part of an evolving economy. Since the GFC central bankers have decided that we don’t need recessions as they hurt the masses.... Unfortunately, I think we are all about to learn a hard lesson in why these must be allowed to happen in the future.

Nope
theres a reason the recession cant arrive
Its because we have been consuming new debt in order to keep commodity prices up ... yet we are still having demand (affordability) issues at close to free money
the next recession will set off the mother of all deflationary spirals
Most producers will be insolvent

“Most producers will be insolvent”

as indeed will many households

Hi David, could you or someone please expand on the 'Meanwhile, our bank debt is also +$48 bln higher in that same period, just saying'. This is an incredible chunk of GDP, any ideas where this debt is attributed to? Also any comments around this increase in debt must also be an increase in someones asset within the economy i.e. the 48 billion created as debt must also be swilling around as money, what happens when this injection disappears? Thanks in advance.

the new Debt IS OUR INCOME!
yes its does sound suspiciously like a Ponzi
Its all been a leveraging bonanza ... but we aint short of money, we are short of resources/opportunity to leverage

Tweet of the week:

@MorganGodfery
When the replica Endeavour arrives search it for arms and test its crew for STIs and other infectious diseases. let’s not make the same mistake twice folks!

I HAVE DECIDED I CANNOT VOTE FOR ANY OF THESE LOSERS .

Its lunch time and I am sitting looking at the Local Council voting paper to be mailed today , and what a bunch of losers .

Not one candidate gives me any hope at all

We have not had anywhere near the sort of delivery we expected in the last election.
We have smiley Phill Goff , a totally and utterly ineffective left -wing mayor who has done nothing to bring down wasteful expenditure , his head is so far up the Labour party's you-know -what , that if he took a breath he would drown .

Tamahire is a bloody nightmare , God help us if thats the best we can do .

Not one candidate is promising to reign in the wasteful and fruitless expenditure and shakedown of the productive denizens of the city

Not one is promising to do anything about the dreadful congestion in Auckland .

Phil Goff has been a total failure , he has done nothing mentionable in his tenure at all , we still have 10,000 employees for what is a tiny city , he has achieved nothing , zero , zilch

We still run a fleet of circa 800 ( eight hundred vehicles) , likely the biggest fleet in the country , and not one bus or refuse truck ,............. those are privately owned by the contractors !!!!!!!!!!!

Frankly, my view is that if we did not have an elected council tomorrow , and the city was run by business-people , we would all be better off.

I started voting for who I disliked least and then gave up.

Hawkes Bay regional council has increased spending by %43 in 3 years and coming %8 this year. Budget underspent by 6 mill, 150 mil in bank. Staff from 180 to 230 in 3 years, Staff spent from 44 to 52 mill in 3 years. borrowing to increase by 7 mill. Ht Craig Foss.

Just to make you feel better

IMHO faith and trust in all our politicians and business leaders has reached zero (and they continue to dig).

In Wellington there's a real person running for Mayor, Conor Hill.
https://www.stuff.co.nz/dominion-post/news/wellington/115728729/local-el...