Core US economic data weakens; Canada sees brighter housing markets; ECB confirms new QE as PMIS stall; China property under stress; AU bond offer fails; UST 10yr yield at 1.75%; oil and gold up; NZ$1 = 63.8 USc; TWI-5 = 68.9

Core US economic data weakens; Canada sees brighter housing markets; ECB confirms new QE as PMIS stall; China property under stress; AU bond offer fails; UST 10yr yield at 1.75%; oil and gold up; NZ$1 = 63.8 USc; TWI-5 = 68.9

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Here's our summary of key events overnight that affect New Zealand, with news the flow of important global economic data isn't that impressive today.

Durable goods orders levels are considered key data indicating where the giant American economy is headed, and today's release isn't bringing good news. A dip was expected but they fell more sharply in October than that, a clear reversal from the September rise. Worse, the October  2019 levels are -4.0% lower than those for October 2018. And it gets even more grim when you look at orders for capital goods - they are down -9.6% in October 2019 from the same month a year ago. The trade wars are taking a real bite out of the American economy.

The story doesn't get much brighter on the residential sales front. Existing home sales fell -2.2% in September from August, although at least they are still marginally higher than the same month a year ago. Historically low mortgage rates aren't inducing buyers back into their market. And the sharpish turn up in the past week or so won't help either.

American data isn't all negative. The early look at their factory PMIs shows they are still expanding even it only just. And their services sector is in a similar position. Both flash PMIs are up in October, but the expansion both are recording is actually still very weak - and both record weaker expansion than for China (by the same data series). The American PMI data suggests that US growth is running at just +1.5% pa at present.

In Canada, they are now seeing their housing market in recovery mode after two years of declines.

The ECB met overnight and have decided to keep their interest rate settings on hold. But they confirmed they are restarting QE at the rate of €20 bln per month. This was the final act of ECB boss Mario Draghi and there were no surprises today. From now on it the ECB will be led by Christine Lagarde.

Europe needs that QE because its PMI surveys show the bloc in stagnation.

In China, their residential property market is coming under increasing stress. More property developers in China are cutting prices on new homes to boost sales and raise cash amid flagging demand and a tougher environment for debt refinancing. In fact, in one case a large firm pleaded with its sales employees to buy unsold properties.

And their central bank is pumping in more liquidity to their financial system, in fact +NZ$125 bln in the past week alone. But this has more to do with their impending corporate tax payment deadline than anything else.

The latest World Bank survey of the ease of doing business, still has New Zealand in the number one position. Australia is #14.

In Australia, an auction of short-term Australian government debt yesterday failed to draw enough bids to sell the AU$1 bln of notes on offer, a rare miss that has not happened since 2012. It didn't miss by much however, receiving offers of AU$936 mln. New Zealand has had an occasional event like this, that last one also in 2012. And we had a linker bond issue in 2015 where the Treasury decided not to accept any bids.

And the latest Aussie PMI survey shows their factory expansion slowing.

The UST 10yr yield is unchanged today at 1.75%. Their 2-10 curve is positive but unchanged at +18 bps. Their negative 1-5 curve has widened to -8 bp. But their 3m-10yr curve has stayed just positive at +1 bp. The Aussie Govt 10yr is lower again at 1.06%, a fall of -3 bps. The China Govt 10yr is unchanged at 3.24%. The NZ Govt 10 yr is now at 1.26%, down -2 bps since this time yesterday.

Gold has jumped, up another +US$9 on top of yesterday's +US$8, now at US$1,501/oz.

US oil prices are firmer again today, now just under US$56.50/bbl. The Brent benchmark is just over US$61.50.

The Kiwi dollar is almost -½c weaker against the greenback today, now at 63.8 USc. On the cross rates we are soft as well at 93.6 AUc. Against the euro we are at 57.5 euro cents. That puts the TWI-5 down at 68.9.

Bitcoin is still lower and is now at US$7,454 and little-changed after yesterday's sharp dip. 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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28 Comments

Canada's housing market lifting could be a sign of things to come for Down Under as well. I see this in the news today also:

Australia's house prices boom, lifting $20,000 in three months

Umm, that's questionable since Ozzy mortgage rates can only fall so low therefore not sustainable. Also not sure if you heard but China has finally relented on Hong Kong, Looks like the HK people have won their bid to scrap the extradition bill that sparked off all the protests. Which also caused a lot of wealthy Hong Kongers to move out to the West and flee the riots/ suppressive government. Things are likely to settle down now over there.
BBC Hong Kong formally scraps extradition bill that sparked protests. https://www.bbc.com/news/world-asia-china-50150853

Seven Sharp had a chap on last night who is also predicting another boom based on historical data. He simply stated that if historic trends are followed then next year or so will see another significant property boom with AK leading the way. Wait and see.

History shows we should already be in a recession.
Whoever the guy os he's jist another one rolled out to try amd gather some investors into buying to create a boom.
The Alk apartment sales this week show how keen people are to invest.

The guy is Ashley Church, a high profile commentator on the property market in NZ, and former CEO of Property Institute of New Zealand.

Here is the video link - https://www.tvnz.co.nz/one-news/new-zealand/has-aucklands-property-bounc...

Sweden's central bank (Riksbank) has expressed its intention to raise interest rates from minus 0.25 to zero after its five year-long experiment of ultra-loose monetary policy.

Also, Swiss Bankers Association are calling on SNB to scrap negative interest rates because such a policy has reportedly "compressed profit margins and made it hard to generate sufficient returns".

I guess Draghi doesn't agree with this "normalisation" and maintains his institutions’ asset purchases and subzero borrowing costs had added 2.7 percentage points to real output growth in the region between 2015 and 2018.

" after ultra loose FAILED policy "

13
up

Australian Property Is Starting to Boom Again. That's a Worry

Australia is seemingly rushing headlong into another debt-fueled property binge.

Three interest rate cuts that have taken mortgage rates to a record low and a loosening of lending curbs have sent buyers flocking back to the housing market. At current boom-time rates of growth, Sydney home prices could recoup two years of losses and be back at record highs as soon as May.

Australia's lenders have the world's highest exposure to residential real estate - 63.3%

How can Australian banks be in a position to rescue their NZ sudsidiaries if the asset bubble bursts on both sides of the Tasman? One trick pony bank economics needs to desist from destabilising our growth prospects while seeking to maximise returns by gravitating to low RWA capital requirement real estate lending, which contributes little to GDP.

The situation is made worse given two thirds of Australian households don't have a mortgage, but are excluded from seeking bank credit to develop GDP qualifying enterprises by those that do.

It's past time to cast these building societies aside in favour of commercial banking businesses dedicated to building an economy capable of supporting the whole country not just a property flipping minority.

Biggest question on everyones mind should be "what happens when interest rates get to zero?" https://www.rba.gov.au/statistics/cash-rate/

In the same news feed we are told Europe is doing QE. So anther question is can Australia stand alone while the rest of the world craters? Maybe the lucky country can, but maybe it is a dead cat bounce.

It's yet another puff into an already over-stretched balloon.

No alternative when growth-expectation meets bounded-system limits; you have to pump the numbers against something already-existing.

So the pennies drop when the penny drops.

I asked that question in the comment stream for THIS ARTICLE. I wonder as to the motivations of the lenders when money lent out produces no return other than have people, or organisations, indebted to the lender. A great one for conspiracy theorists to ponder?

Time to shift savings out of Aussie owned banks, perhaps?

bold of you to assume New Zealanders have savings

Someone or some business has deposits (claims) offsetting the banks' collective balance sheet assets. Unfortunately, turning digital entries into currency is an opportunity limited to the few, given vault cash registered as $653 million is a small fraction of total assets recorded as $588,551 million. Data link

What was the coupon yield being offered on the AU$1,0 Billion Aussie debt notes on auction?

Its quite unusual for this type of risk free paper not being taken up by Banks, Insurers , bond traders and fund managers .

My understanding is that its often over-subscribed

Maybe they would rather hold more of the much higher-yielding "risk-free" asset class, i.e. residential property, on their portfolio.

As I noted yesterday, they are coupon less three month TBills - a discount instrument - the average weighted yield was 0.9263%.

"The rioters in Hong Kong are a bunch of morons who want to destroy the life of other so that they can have their freedom to commit crimes. They're a bunch of moronic cowards " That from a facebook friend that is a US based, staunchly democratic, professor of economics that I am presuming is of Hong Kong descent. He does over estimate his intelligence and reasoning ability mind you, go figure!

I think it is a fascinating and intriguing viewpoint.

Fascinating and intriguing when he makes it from the safety of the US and not when living in Hong Kong.

Tesla has finally registered a profit : they recorded a $US 143 million profit from trading in the last quarter . .. 10 years of continuous losses finally broken ... analysts were excepting another loss to be announced .

... little wonder the founder is looking to invest elsewhere ....

Mens aftershave would be good , " e Loss musk " .... nice ...

Actually they have had a few profitable quarters in other years and will probably still make an annual loss. Cash-flow was twice that of Ford for the quarter. Massive investment has been made into new models, battery factories https://en.wikipedia.org/wiki/Gigafactory_1 and a whole new factory in China. https://en.wikipedia.org/wiki/Gigafactory_3 Probably at the self funding level now with strong growth and profit prospects in the medium term.

Just in ..........The World Bank's annual Doing Business survey issued a few hours ago shows that New Zealand has the envious title of being the easiest country in the world to start and run a business ............ and this is on top of us being ranked among the top 10 wealthiest countries .............and its getting warmer as summer approaches ...........we are the lucky country and this is a great little place on every measure

So much for the cries of "anti-business government".

Easiest to avoid tax in

Despite all that, we feel the need to dole out permanent visas to migrants and all their dependents who earn just 52k a year doing any job. Such extent of short-selling should be deemed criminal!

If we play our cards well (which we don't know anything about), we could gradually up our migrant talent pool by better utilising our positive global image.

The link to justify the claim that "In Canada, they are now seeing their housing market in recovery mode after two years of declines." is a predictive piece claiming that " Positive price growth is expected to resume in 2020 and 2021, driving the average price above its 2017 level by the end of the forecast horizon".

In other words, it is completely nuts to take that article as evidence that Canadian housing is currently rising, as it is not, which the linked article actively acknowledges.

Local RE agents must be scrambling to get their hands on some cash, when their bosses beg them to buy some of the unsold listings

With The ECB restarting QE, maybe its a good time for the UK to cut themselves loose.

Will be a good chance to see who ends up where...

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