US retail sales sag, inventories jump; Canada CPI stuck; China commercial property woes; EU CPI dips; US investors shun equities for bonds; UST 10yr yield at 1.75%; oil unchanged and gold up; NZ$1 = 62.9 USc; TWI-5 = 68.1

US retail sales sag, inventories jump; Canada CPI stuck; China commercial property woes; EU CPI dips; US investors shun equities for bonds; UST 10yr yield at 1.75%; oil unchanged and gold up; NZ$1 = 62.9 USc; TWI-5 = 68.1

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Here's our summary of key events overnight that affect New Zealand, with news investors are pulling out of equity markets as risks pile up. Bond markets are the beneficiary.

First, American retail sales in September have come in weaker than expected. In fact, instead of rising marginally, they fell from August. Year-on-year, they were up +3.8%, and that was sharply lower than the +4.5% annual rise in August. Markets weren't impressed. And not helping was data that shows inventories rising faster, up +6.2% year-on-year.

In Canada, their CPI came in at +1.9% in September, stuck at the same level now for seven straight months. It will probably mean that the Bank of Canada rate will stay at 1.75% at its next review on October 30.

In China, there are reports that office vacancy rates are starting to rise to worrying levels, even in their top cities. In Beijing it is approaching 10%. Surging supply is overwhelming flagging demand. They don't need a commercial property crisis.

The EU also released inflation data overnight and that came in at just +0.8% in the year to September across the whole bloc. This was lower than expected and down from +1.0% in August. Inflation rates ranged from negative in Portugal to over 3.5% in Romania. France was 1.1%, Germany was 0.9%, Italy was 0.2% and the UK was 1.7%.

There is a summit of EU leaders is about to start and of course the main issue is the Brexit. The pre-leaders meeting negotiations are intense and no-one has walked out yet, so these down-to-the-wire talks must be making progress.

On Wall Street today, equity prices are lower; not by a lot but the S&P500 is down -0.2% so far. A resolution of the GM strike is making no difference to the mood. That follows European markets that were mixed with the German DAX up the most and the London FTSE down the most of the majors.

Yesterday, both the ASX and the NZX were the stars, rising +1.3% and +1.2% respectively.

However, American investors generally are showing real concerns about the trade wars and have pulled about US$60 bln out of equity markets in the September quarter of 2019. In the September quarter of 2018 they added $20 bln into equity markets. The bearish turnaround represents the largest pullback since 2009 in the GFC. Meanwhile, in the same period bond funds recorded a net inflow of US$118 bln, double the same period in 2018.

Federal Reserve officials are preparing themselves for another GFC-type meltdown. And they say negative interest rates are a viable tool to provide stimulus to economies that need it. Policy makers see these types of actions as a 'strength' while the business community just sees them confirming weakness.

The UST 10yr yield is down -1 bp at 1.75%. Their 2-10 curve is positive at +16 bps. Their negative 1-5 curve is back down to just -3 bps. Their 3m-10yr curve has disappeared, now at 0 bps. The Aussie Govt 10yr is up +2 bps at 1.06%. The China Govt 10yr is up +1 bp at 3.19%. The NZ Govt 10 yr is now at 1.19%, up just +1 bp since this time yesterday.

Gold is back up today, up +US$10 overnight to US$1,489/oz.

US oil prices are little-changed again today at just under US$53.50/bbl. The Brent benchmark is just on US$59.50.

The Kiwi dollar is little-changed today, now at 62.9 USc. On the cross rates we are just under 93 AUc. Against the euro we are lower at 56.7 euro cents. That puts the TWI-5 at just on 68.1.

Bitcoin is lower at US$7,970 and down another -2.5% overnight. 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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Federal Reserve officials are preparing themselves for another GFC-type meltdown.......Time to sell?

15
up

.....meanwhile, here in God's Own.....property prices are rising! We're immune to whatever happens over there...

go to a bank and tell then you want a loan to buy a farm, see what they say.

Andrewj - I think the current bank response to buying a farm is along the lines of
Catch 22
You have to be insane to want to buy a dairy farm - if you are insane you don't meet our character test.
If you meet our character test - you can't be insane so therefore you don't want to buy a farm.

so what do you call a dairy farmer?

"Bruce". If not Bruce, has to be Fred.

my favorite is call them all trev

Fred, Bruce and the Trevs were all neighbours in Taihape weren't they, until Fred moved to Australia?

Sentiments around housing assets are defying macroeconomic trends elsewhere in Merica too. Housebuilders there now have a renewed sense of confidence in the buoyancy of the residential property market.

https://www.bloomberg.com/news/articles/2019-10-16/housing-retail-data-p...

frazz
Interesting times and I agree with the sentiment. However it is ironic that the GFC meant QE and lower interest rates and take-off in both equities and housing.

14
up

Except this time we've done that BEFORE a GFC.

QE and low interest rates were created as emergency measures to be used in extreme circumstances such as war, famine, etc.
Barring southern EU states, most major economies of the world have had a record run over the last half a decade with low unemployment rates and medium inflation level (1-2%), hardly a case for employing such extreme measures.

Agree..strange times indeed. Picking up some gold today just in case.

frazz
Less oxygen left and consequently less wiggle-room this time?

Deeper for longer this time arround is how a lot of people are reading what is coming.

and there will be no escape if and when GFC2 hits. We will not be immune.

No room to turn arround and go the other way in this rabbit hole.
Swap out the meaning of C in GFC, Collapse this time.

Every recession has been getting gradually deeper and longer, from what I was watching the other day (Clayton Christensen).

GFC - (1) If only they didnt bail out the banks and jailed some of the crooks - just imagine were would be be today?

Yes.....

Correct, but first they would have had to jail a bunch of politicians who were complicit and enabled it all...and that wasn't going to happen.

QE4 Officially Begins: Fed's First T-Bill Purchase Is 4x Oversubscribed Amid Massive Liquidity Demand
https://www.zerohedge.com/markets/qe4-officially-begins-feds-first-t-bil...

Temporary open market operations (TOMO) outstanding net liquidity additions are up to USD 195.90 bn.

Temporary? Still trying to sell that story are they.

So with the UK inflating at almost double Germany and the EU average just shows how much the EU will miss them when Brexit happens.

I hear Venezuela has great inflation going at the moment, perhaps the EU could sub them in to fill the gap?

China vs. the U.S. - Trade War to Cold War? (w/ Kyle Bass and Gen. Robert Spalding)
https://www.youtube.com/watch?v=kl5279dWqGs&feature=youtu.be

Andrewj
Agreed. Trade War was always about more than just trade imbalances.

USA slowly approaching recession in first quarter of next year.
FED convinced it has answer despite BIS saying it does not work.
China over-supply of office space. Interesting as excess supply of apartments in Auckland is attracting no concern (29% fewer selling this last 8 months, compared to 2018, despite MORE being supplied)

International visitor arrivals already on the way down, occupancy inching up slowly and now more hotel rooms coming onto the market as construction projects across upper North Island near completion.

Hopefully an oversupply should bring our hotel rates down closer to sane, internationally competitive levels.

Federal Reserve officials are preparing themselves for another GFC-type meltdown. And they say negative interest rates are a viable tool to provide stimulus to economies that need it. Policy makers see these types of actions as a 'strength' while the business community just sees them confirming weakness.

One would have thought empirical evidence would suspend these illogical notions.

The EU also released inflation data overnight and that came in at just +0.8% in the year to September across the whole bloc. This was lower than expected and down from +1.0% in August.

Furthermore, this utter nonsense has to stop:

Under normal circumstances, nominal interest rates cannot fall below zero. The primary reason for this lower bound on nominal interest rates is that investors can choose to hold physical currency as a store of value rather than earn less than zero interest.

There is not enough cash in the system to execute this arbitrage strategy - witness NZ banks' vault cash versus other assets.

Energy Stocks Fall Faster Than Oil Prices
Fed-up investors dump shares after years of disappointment

https://www.wsj.com/articles/energy-stocks-fall-faster-than-oil-prices-1...

The final capitulation?

Mining of all types is prone to, er, now what do they call it these days, disruption. Weather. War. Strikes. Riots. Explosions and implosions and collapses. Theft. Piracy. Bribery and blackmail. Periods of stability lead to underpricing of risk. Periods of stability are followed by periods of volatility.

Back to the Stone Age, then? Or we might do the India rubbish-dump-mining thing for a while.....

Scrap-heap Challenge - the only TV programme I ever bothered to watch......

Actually, I meant price capitulation. Meaning potential opportunity to buy the good stuff cheap. I see $3 a litre petrol, then $5, then $6 and $$$ to be made by those astute enuff to buy at the right time. The large private sector oil companies are sound, well managed, well financed and they pay a good dividend by current low standards. When to act?

Mining works like this. When times are good and mining products cheap, as now, people look down on it as dirty and old fashioned, and protest about any new development. Production from existing mines declines as they are costly things and profits are thin. Eventually inventories and production decline to a point well below current demand. Prices then shoot up suddenly and miners are insanely profitable for a short time and everyone is desperate for their produce. This allows massive investment in new production using new technology. It is cyclical.

I would rather go through it with a National government rather than this coalition.

10
up

That tells us you have an ideological bent and dated thinking. The joke is that not even the Greens are where we have to be sustainability-wise, and we're essentially out of time.

12
up

neither side will be any good, one will slash and burn and sell everything they can
the other will run up a debt mountain
both will not reduce immigration

Totally disagree. Both will do both, plus whatever else it takes to hold power.

National will definitely do both those first, as they did in their last time in government.

https://www.amazon.com/Failing-States-Collapsing-Systems-SpringerBriefs/...

I just churned my way through it last night. Well worth the expense, if you money/number people want a clear explanation of the physics and geopolitics underneath it all. It lists the nations which have gone from oil exporter to oil importer, even as they inflate their populations. Many are now the hotbeds of trouble (it ain't terrorism, it's desperation and anger - sorry Mr Little).