Here's our summary of key events over the weekend that affect New Zealand, with news of equity records among sinking economic data.
The American September merchandise trade deficit has come in at -US$72 bln, almost exactly the same level it was in September 2018. Exports were down -3.5% and imports down -2.6%. For all the focus, that isn't much 'progress' on dealing with this perceived issue. This is the raw early data and details of the politically sensitive trade with China are now available yet.
American stocks of unsold goods are rising. Wholesale inventories are up +5.0% from the same month a year ago, and retail inventories are up +3.7% in September.
The National Activity Index collated by the Chicago Fed is pointing to subdued growth ahead. And the October Dallas Fed regional factory survey which has been an outlier of positivity earlier, has also now turned down, just like most other regional factory surveys done by the Fed.
None of this core economic data seems to be worrying equity markets today however. On Wall Street, the S&P500 has started the week positively, up +0.5% in mid-day trade. That modest rise however brought this index to a record high. This follows European markets overnight that posted modest gains, and Asian markets yesterday that were decidedly positive. While we were on holiday, Shanghai was up +0.9%, Hong Kong was up +0.8% and Tokyo up +0.3%. The ASX200 however was flat.
Sentiment that either or both the mini-trade deal will happen, or a -25 bps Fed rate cut at the end of this week, is keeping things positive in these markets.
In China, another large private company has defaulted on bond debt.
A new report about Chinese household debt however will allay many fears. It reveals that less than 14% of Chinese households had any consumer debt, and that total household debt, including home loans, was less than half China's GDP. In New Zealand it is 95%, and in the US it is 77%. This much lower debt load on Chinese households will give them more economic resilience.
China is likely to get more focus from HSBC, who announced more intensive restructuring plans as their European and US businesses drag their results.
The OECD is reporting that Foreign Direct Investment fell by -20% in the first half of 2019 compared to the last half of 2018, to US$572 bln. That is a drop of -US$143 bln and goes a long way to explaining how poor public policy affects investment decisions. The drop is equivalent to wiping out the New Zealand economy from the global stage.
The European Union has agreed to delay Brexit until the end of January 2020, a move that increases the chances of a British election before the end of the year. It also ends any hope of a departure by the end of October, a die-in-the-ditch promise by the English prime minister.
The UST 10yr yield is at 1.85%, and +5 bps higher than this time yesterday. Their 2-10 curve is positive at +20 bps. Their 1-5 curve is positive at +6 bps. Their 3m-10yr curve is a positive +10 bps. The Aussie Govt 10yr is up at 1.15%, and an overnight gain of +6 bps. The China Govt 10yr is now at 3.30% and a +5 bps rise overnight. The NZ Govt 10 yr is now at 1.21%, unchanged overnight.
Gold is down sharply, down -US$12 overnight to US$1,492/oz.
US oil prices are a little softer at just over US$56/bbl. The Brent benchmark is just on US$61.50/bbl.
The Kiwi dollar is soft at 63.4 USc. On the cross rates we are much softer against a rising Aussie dollar, now at 92.7 AUc. Against the euro we are marginally lower at 57.2 euro cents. That puts the TWI-5 at just on 68.5.
Bitcoin has pulled back slightly after its strong rise over the weekend, now at US$9,367, but that is more than a +25% leap since Thursday. 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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12 Comments
All pretty unispiring stuff. But, wait! Albert Edwards thinks he sees the way ( again!)...
"Carnage awaits’ investors.... He warned that surging tech stocks have disconnected from the reality of earnings at a problematic time. “The unfolding profits recession will expose the ‘growth’ impostors and they will collapse, as they are on the wrong ‘growth’ [price-to-earnings] valuations with the wrong [earnings per share] projections,” he said. “Just like in 2001, investors will not wait to distinguish true ‘growth’ stocks from the impostors. Investors will slam the whole sector and work it out later.”"
https://www.marketwatch.com/story/carnage-awaits-investors-if-this-char…
It maybe a fact that the market is pricing abject deflation confirmed by lower sovereign term interest rates. Hence:
Our view is that no form of investment risk is always worth taking without regard to valuations, fundamentals, economic conditions, or market action. The strategy of buying and holding index funds for the long run is essentially a strategy that says that market risk is always worth taking. Yet the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..
The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal. Link
The OECD is reporting that Foreign Direct Investment fell by -20% in the first half of 2019 compared to the last half of 2018, to US$572 bln
IMF last year reported more than 40% of all Foreign Direct Investments positions, amounting $12 trillion, is artificial: it consists of financial investment passing through empty corporate shells with no real activity.
So perhaps falling FDI numbers is a cause for celebration!
The US domestic tax haven is alive and well, hence little cause to call upon foreign others to turn a blind eye.
And while it’s not part of the fixed cost structure per se, Texas Instruments was a keen beneficiary of the Tax Cuts and Jobs Act of 2017, seeing their 2017 tax rate of 16% cut to 7% in 2018, reducing their tax bill by $1.2 billion. Link
yeah it's still water
https://www.epsilontheory.com/yeah-its-still-water/
Its a Pyramid under construction ............ The S&P rally has nothing to do with fundamentals or the intrinsic value of the top 500 shares .
Its about a tidal wave of cash looking for a yield, any yield .
Bonds and Gilts are being issued at no yield , Banks are offering negative interest rates when adjusted for tax and inflation , so the only places left to get a return are equities and Property.
And its a high stakes gamble on the part of Investors, Fund Mangers and pension fund administrators because P:E Ratios out of line with any sense of reality are simply not a good investment .
The whole edifice is dependent on the next sucker coming along and paying even more to get ANY yield better than zero , and eventually the music stops those suckers are left holding a piece of worthless paper for which they have overpaid or , worse , borrowed to purchase and they come unstuck forced to sell taking the rest with them .
We are indeed in dangerous times
Is there too much " free money " sloshing around the world ?
... Kurt Cobain's cigarette stained mohair cardigan from his 1993 MTV "Unplugged " performance has sold for $US 334 000 at auction ...
You join the dots ! ... cos you can't join the buttons , several are missing ...
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