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Here's our summary of key events over the weekend that affect New Zealand, with news of a sharp run-up in bond yields.
But first, China and the US seem to have agreed a mini trade deal, one where the US suspends its next tariffs and China buys some rural products from farmers in Trump's heartland electoral states. Some US analysts say "China emerges with wins" from the deal.
As best anyone can tell at this stage, it looks like China will buy about US$50 bln of farm goods and keep on 'opening up' its finance sector, both things China either offered two years ago or is doing anyway. Given that the US merchandise trade deficit with China hit more than US$440 bln in the year to August, the ag purchases represent about an 11% of the US's perceived problem.
Meanwhile, three American financial regulators have issued a warning to firms with digital currency assets, that they have an obligation to follow securities laws on AML/CFT, including 'know-your-customer', and requiring disclosure of suspicious activity.
Markets were higher on Friday. No one big thing appears to have turned on the optimism tap but markets closed before the mini-trade deal became apparent and they may have gotten wind of that.
In the US, a closely watched consumer sentiment index rose strongly in in early October as consumers anticipated larger income gains and lower inflation during the year ahead.
The Federal Reserve said it would begin significant extra buying of Treasury bills to boost its balance sheet and avoid a recurrence of the unexpected strains experienced in money markets last month. It purchased +NZ$130 bln in end-of-week trade. They just don't want you to call it QE resumption or money printing. But the bald fact is, investors don't want the stuff in sufficient quantities and without the Fed demand the banking system wobbles of the past few weeks will get worse. The Fed 'put' in action, and markets are happy.
Canada has reported a strong labour market in September. Their unemployment rate fell unexpectedly to 5.5%. Employment rose by +54,000 in September, driven by strong gains in full-time work. Canada's participation rate is much higher than their southern neighbour.
In China, the pace of capital flight has apparently picked up to record levels. This hidden flight is of unrecorded transactions to evade tight capital controls. Analysing the “net errors & omissions” in China’s balance of payments, you can get a good indication of concealed capital flight and it rose to a record high of NZ$200 bln in the first six months of this year. The last time these pressures were high was in 2015 and 2016 and back then in the first six month of those years, this type of concealed flight was NZ$125 bln in the same half-year.
Car sales in China are still slumping and the September data wasn't positive, being the 15th decline in the past 16 months. Electric cars are the slowest sellers.
In Australia, political pressure is rising to force their banks to pass on the RBA's policy rate cuts in full to mortgage borrowers. Banks have held back about a third of those cuts in recent times to protect their term deposit savers and their margins because wholesale money rates haven't fallen as fully as the official policy rate. If the political pressure wins, bank savers will likely be nearly wiped out (Aussie TDs currently pay less than 1.5%) and bank funding could shift to a wholesale-only model. The short-term political points-scoring seems to be more important to Canberra than the long-term structure of their banking industry.
The UST 10yr yield has slipped back after a strong run up over the weekend. It is now at 1.73% after touching 1.77% earlier. Their 2-10 curve is positive at +14 bps. Their negative 1-5 curve is narrower at -10 bps. Their 3m-10yr curve has almost disappeared at -2 bps. The Aussie Govt 10yr is up at 1.08%, a weekly rise of +20 bps. The China Govt 10yr is unchanged for the week at 3.17%. The NZ Govt 10 yr is now at 1.18%, up +15 bps for the week.
Gold is up +US$5 overnight to US$1,489/oz from where we left it on Saturday but that is a -US$16 drop in a week.
US oil prices are up sharply and by more than +US$1, now just under US$55/bbl. The Brent benchmark is just on US$60.50. Mid-east tanker tensions have driven the jump.
The Kiwi dollar is firm against the greenback today, now at 63.4 USc and actually this is its highest level in more than three weeks. On the cross rates we are still at 93.2 AUc. Against the euro we are still at 57.4 euro cents. Both these are similar to this time last week. That puts the TWI-5 at just on 68.7.
Bitcoin is now at US$8,432 and up almost +2% for the week. 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 ».