90 seconds at 9 am: Markets under the pump

Markets gloomy after US trade moves and evaporated Brexit agreement; UN nears default; China service sector weakens; Aussie business confidence weakens; UST 10yr yield at 1.55%; oil down and gold unchanged; NZ$1 = 63 USc; TWI-5 = 68.6

9th Oct 19, 7:25am by David Chaston

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Here's our summary of key events overnight that affect New Zealand, with news equity markets are under the pump this morning.

Overnight, German Chancellor Merkel gave a gloomy view on the chances of any Brexit deal with the UK. And an expanded US blacklist announced in the middle of the US-China trade talks undermines their commitment to finding a way through that impasse. The Chinese are about to retaliate.

And US data for PPI came in significantly weaker than expected. Normally US PPI data isn't important news, but this time it seems to be reinforcing the view that the US Fed will feel a push from it to cut their policy rate at their end-of-October meeting.

The S&P500 is down -0.9% so far today on top of yesterday's decline. That builds to a -2% loss so far in October. European markets fell a bit more than -1% overnight.

In New York, the UN seems about to default on paying its staff and creditors. It is owed US$1.5 bln from some large members including Argentina and the United States. The US owes about $1.3 bln and has been holding back in a plan to get its contributions cut from 25% to 22% of their funding. The US economy represents about 25% of world economic activity.

In Canada, housing starts were up +14% in September compared with the same month a year ago even if the pace slowed somewhat from August. Building permits rose a very strong +20% on the same basis.

In China, the final Caixin services sector PMI survey results for September were weaker than the initial 'flash' result. In fact, they indicate that their services sector is now barely expanding, and isn't getting the improvement that their factory sector recently showed.

For the record, Shanghai closed yesterday after its first day back from a week-long holiday up +0.3%. Hong Kong was similar, Tokyo up +1%.

A closely watched Aussie measure of business confidence slipped lower in September. The NAB survey showed business conditions remained below-par, more evidence the RBA's rate cuts are not lifting corporate investment intentions.

The UST 10yr yield is unchanged at 1.55%. Their 2-10 curve is positive at +8 bps. Their negative 1-5 curve is wider at -27 bps. Their 3m-10yr curve is narrower at -18 bps. The Aussie Govt 10yr is up +1 bp at 0.89%. The China Govt 10yr is down -2 bps at 3.14%. The NZ Govt 10 yr is now at 1.03%, and a +1 bp blip this morning.

Gold is little-changed at US$1,499/oz.

US oil prices are slightly softer today at now just under US$52.50/bbl. The Brent benchmark is just over US$58.

The Kiwi dollar is marginally higher this morning, now at 63 USc. On the cross rates however we are firm at 93.6 AUc. Against the euro we are at 57.5 euro cents. That puts the TWI-5 at just on 68.6.

Bitcoin is now at US$8,182 and that is marginally lower than at this time yesterday. 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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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

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33 Comments

by Avocado | 9th Oct 19, 7:38am 1570559932

Having the Daily Swap Rate graph up by default is awesome

by Yvil | 9th Oct 19, 10:08am 1570568900

Indeed, it was just a polite request away, thanks DC

by powerdownkiwi | 9th Oct 19, 7:50am 1570560619

https://kunstler.com/clusterfuck-nation/a-hard-rain/

"The political disorder spooling out is the political expression of the long emergency that the nation faces as it finally encounters the limits to growth we were warned about decades ago. The techno-industrial phase of history is ending, and we are left only with inadequate fantasies for coming to terms with it and moving forward. The dynamic relationship between affordable energy supplies and the operations of money roils at the core of this predicament. They are undoing each other and the result will be a contraction of human activity. The big question we refuse to face is how to cope with contraction"

by Hardly | 9th Oct 19, 8:36am 1570563370

That is funny because I believe we are on the cusp of a new techno industrial wave.

Something to consider, if production expands at decreasing net cost then economic activity appears to be contracting even if it is expanding.

by ham n eggs | 9th Oct 19, 11:22am 1570573327

this must be why business confidence is so high

by Hardly | 9th Oct 19, 12:47pm 1570578464

I think business confidence at Google, Microsoft, Apple, Amazon is pretty high. Business confidence in New Zealand might be low because most business are boutique 20th century operations, they are hardly representative of what is to come and poorly placed to compete.

by RollingOn | 9th Oct 19, 11:29am 1570573782

Indeed. We are rather at the end of a century-long failed experiment in central banking and fully floating currencies.

Once we remove the central bank's shackles, the next wave of progress will come.

I'll note that we haven't seen real progress (like what we witnessed from 1850-1950) in any area expect computers for decades.

by profile | 9th Oct 19, 9:15am 1570565743

"...we are left only with inadequate fantasies..." - come on Kunstler - inadequate fantasies were all you ever had in the first place.

"Writing this in April of ‘99, I believe that we are in for a serious event. Systems will fail, crash, seize up, cease to function. Not all systems, maybe only a fraction, but enough, and enough interdependent systems to affect many other systems. Y2K is real. Y2K is going to rock our world. People will consequently suffer."

by Pragmatist | 9th Oct 19, 9:39am 1570567146

Y2k was real, but it was addressed with a shiteload of software fixes and other upgrades and workarounds. There was also a load of bollocks being thrown about around it.. "your microwave/car/vcr/ will stop working on 1/1/2000" type rubbish.

by profile | 9th Oct 19, 9:57am 1570568239

Depends which country you were in Praggers."But over in Italy they're sure not buying it. Italy was one of those countries that listened to the Y2K warnings and then turned over and went back to sleep.
This week's headline in the Italian newspaper La Repubblica: "The Bug Was a Dud."
English translation: I told you so.
In Russia, too, where cash-flow problems dictated little if any Y2K compliancy testing and where they nonetheless passed the millennium barrier with hardly a computer glitch, they couldn't resist a little smugness..."
www.deseretnews.com/article/807969/100-billion-to-fix-Y2K-was-wasted.amp

by waymad | 9th Oct 19, 10:56am 1570571791

But a veritable goldmine for consultants.., 'Can't be too careful - have to check everything - several times - yes, we're on an Hourly Rate, nice system you have here, pity if anything were to go 'splody....'

by powerdownkiwi | 9th Oct 19, 7:54am 1570560856

https://www.rnz.co.nz/programmes/otago-university-panel-discussions/sto…

Well worth the listen

by jfree | 9th Oct 19, 8:16am 1570562174

Yep agree, listened to this yesterday, depressing but good.

by profile | 9th Oct 19, 9:18am 1570565902

Normalised Insurance Losses from Australian Natural Disasters: 1966–2017
"When aggregated by season, there is no trend in normalised losses from weather-related perils; in other words, after we normalise for changes we know to have taken place, no residual signal remains to be explained by changes in the occurrence of extreme weather events, regardless of cause. In sum, the rising cost of natural disasters is being driven by where and how we chose to live and with more people living in vulnerable locations with more to lose, natural disasters remain an important problem irrespective of a warming climate."
https://www.tandfonline.com/doi/full/10.1080/17477891.2019.1609406

by redcows1 | 9th Oct 19, 9:27am 1570566422

Read the first few paragraphs. Turned me off immediately by referring to increased storm activity and increase in number off cyclones arriving in NZ. One off the biggest problems Pro Climate changers have is bringing up stuff that is simply not true or proven. All evidence so far is that the climate, storm wise, has become more benign with a increase in temperature, less storms, less total energy released.
All evidence from previous warm periods points to more, and more regular rain falling.
And yet the"experts" continue to push the dramatic.
Edit.
Snap. What profile posted.

by frazz | 9th Oct 19, 1:02pm 1570579365

Bermuda must have been a one off?

by powerdownkiwi | 9th Oct 19, 3:03pm 1570586590

Profile is a paid hack.

The rest of us have the opportunity to think dispassionately. I happen to sail - all over. Sea temps are off the scale in places, in historical terms. Two years ago, one fellow reported 35 degrees, below his hull 300 miles from Papeete. Tha't insane. That energy, raw energy, waiting to be a storm. We are breaking intensity and speed-to-develop records all the time now. Denial is somewhat yesterday.

The bigger question is this: If CC is being cause by the exhaust gases of our fossil fuel burning (for energy) then are we in trouble energy/work-wise? The answer is yes. It's the bigger threat, given the finite nature of FF, and the exponential nature of growth. We are a species in gross overshoot. Or are you in denial about that too?

by profile | 9th Oct 19, 7:46pm 1570603588

Don't worry I've seen what happens to some who spend too much time in the tropics and you have my sympathies. Though the delusions about other peoples mode of income should be looked at by a professional.

by VeryInterested | 9th Oct 19, 8:28am 1570562933

Another weak week!

by Fritz | 9th Oct 19, 8:32am 1570563138

Nothing really changes. Things are going to be weak, at best, for quite a while.
People need to get used to it, and adjust.

by Roger Witherspoon | 9th Oct 19, 9:22am 1570566130

US cpi seems to have broken about above 3%. Is this just a brief blip, or are we entering a 1970s style decade of stagnation and inflation? There seems to be a view that once inflation gets above 3% it gets "unstable", meaning the central banks can't stop it. (Without causing mass unemployment, house price collapses and bank runs, that is).

Are we entering a period of rampant commodity price inflation ?

https://www.bis.org/speeches/sp180802.htm

by Fritz | 9th Oct 19, 8:40am 1570563600

I don't buy the stagflation narrative.
Rather I see Japan- like conditions looming- very low inflation, even some deflation, and anemic GDP growth

by Hardly | 9th Oct 19, 9:05am 1570565134

I agree Japan is more indicative of the future than anything else.

by Roger Witherspoon | 9th Oct 19, 10:54am 1570571688

I guess I was following Benoit Mandelbrot's ideas that periods of low volatility are followed by periods of high volatility. His observation was that volatility seemed to behave cyclically, both in natural systems and financial systems.

The idea does seem to apply to inflation; there are periods of lower and more stable inflation, followed by periods of higher and less stable inflation:
http://archive.stats.govt.nz/tools_and_services/newsletters/price-index…
http://archive.stats.govt.nz/browse_for_stats/economic_indicators/price…

by Cowpat | 9th Oct 19, 8:41am 1570563679

Yesterdays completed M10 data for the June quarter. Highest quarter residential investment ever, 16.4 Billion over the year. Great for GDP. Lowest annual volume of sales of residential /lifestyle since 2011, not good for GDP, 89725 sales compared to 119558 sales in 2015, the last Auckland frenzy, but dwarfed by 150457 sales in 2003. Who was the RBNZ governor/plonker that year. Although total value of housing stock is rising ,in part by the inclusion of land value, its offset by a further net increase 4.5Billion in mortgage debt. In effect we have gone backwards. With the lowest ever mortgage rates, the highest percentage ever of Auckland homeowners who have seen no capital growth, a HPI index which fell for the first quarter since 2010, a Kiwibuild programme that will not add net growth , the RBNZ will continue cutting the OCR .Both Auckland and national housing sales will likely continue to fall as a result of the decline in mortgage rates . First home buyers and home ownership rates will continue to fall for the existing Kiwi as we continue to crush load migrants. Stats NZ monthly rental data will become increasingly important.

by Andrewj | 9th Oct 19, 9:14am 1570565693

Panic at the Repo
https://www.zerohedge.com/markets/panic-repo-one-worlds-top-repo-expert…

by RollingOn | 9th Oct 19, 9:43am 1570567419

"In New York, the UN seems about to default on paying its staff and creditors. It is owed US$1.5 bln from some large members including Argentina and the United States. The US owes about $1.3 bln and has been holding back in a plan to get its contributions cut from 25% to 22% of their funding."

Wonderful news on this Wednesday morning. I hope the US goes further!

by Roger Witherspoon | 9th Oct 19, 10:20am 1570569609

What the UN an extremely expensive exercise in legitimising nasty bastard regimes? Surely, not?

by waymad | 9th Oct 19, 10:58am 1570571916

The UN motto: 'Let's hold committee meetings until They're All Dead - but Send Munny regardless'...

by CJ099 | 9th Oct 19, 11:28am 1570573692

BBC article: White House 'will not co-operate with impeachment probe'
https://www.bbc.com/news/world-us-canada-49981806

Well looks like they're not going to get Trump with out him kicking and screaming all along the way and it's he's not going to be dignified about it.

by RollingOn | 9th Oct 19, 11:35am 1570574115

Sentiment towards China has been rapidly turning negative in the last few weeks.

Blizzard Entertainment (World of Warcraft) and the NBA have both recently released apologies to the Chinese Communist Party over comments made in favour of Hong Kong protestors.

The backlash against both has been immense, as their hypocrisy is clear for all to see.

Keep isolating them Mr President!

by J.C. | 9th Oct 19, 12:13pm 1570576408

The Hosk is cheering on the decision for Waihi gold mining. Doesn't once all talk about gold being an ancient relic and the need to use resources to drag it out of the ground.

I would have thought that the Hosk is pro-status quo in terms of money printing. Or is the decision to pursue gold mining unrelated?

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12274786

by powerdownkiwi | 9th Oct 19, 12:39pm 1570577949

Any mining done by said gentleman is probably open-cast - shallow and near the surface.