Chinese cast doubts comprehensive trade deal can be reached with the US, Hong Kong in recession, Indian farmers plan RCEP protests, relief eyed for Aussie SMEs

Chinese cast doubts comprehensive trade deal can be reached with the US, Hong Kong in recession, Indian farmers plan RCEP protests, relief eyed for Aussie SMEs

Here's our summary of key international events from overnight that affect New Zealand, with news Chinese officials are reportedly doubtful a comprehensive long-term trade deal can be reached with the US even though the two sides are apparently close to signing a “phase one” agreement.

Bloomberg reports that Chinese officials have warned they won’t budge on the thorniest issues, and worry about President Donald Trump’s impulsive nature and the possibility he could back out of even the limited deal both sides say they want to sign in coming weeks.

US share markets fell the most they have in three weeks due to the renewed trade concerns, weak manufacturing data, and the Federal Reserve’s signal it may not cut interest rates further. Treasuries, gold and the yen rose.

Organisations representing Indian farmers are planning a nationwide protest on November 4 to demand Prime Minister Narendra Modi's government keeps agriculture out of a 16-nation trade agreement currently being negotiated in Thailand. This is the Regional Comprehensive Economic Partnership, or RCEP, which New Zealand is involved in.

In Hong Kong the economy has fallen into a recession for the first times since the global financial crisis following months of anti-government protests and the China-US trade war. Hong Kong’s gross domestic product fell 3.2% in the third quarter from the previous period, after a 0.4% contraction in the second quarter, according to preliminary data released by the local government.

In Australia Treasurer Josh Frydenberg will reportedly instruct the Australian Securities and Investments Commission to tell banks to waive responsible lending standards for individuals who operate a small business, in an attempt to ease a credit squeeze on the sector.

Back in the US Trump has again criticised the Federal Reserve. This was despite the US central bank cutting interest rates on Thursday for the third time this year. “The Fed puts us at a competitive disadvantage. China is not our problem, the Federal Reserve is,” Trump said on Twitter, adding that US interest rates should be lower than those in Germany, Japan “and all others.”

The US Commerce Department says consumer spending, which accounts for more than two-thirds of economic activity in the world's biggest economy, rose 0.2% in September as households bought more automobiles and spent more on healthcare. Additionally August data was revised up to show consumer spending increasing 0.2% instead of gaining 0.1% as previously reported. The September increase was in line with economists’ expectations, Reuters reports.

The NZ dollar weakened slightly overnight against the greenback, and was last at US64.06 cents. Against the Aussie dollar it's a little stronger at A93.02c, and little changed against the euro at 57.46c.

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28 Comments

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Trump may be an idiot, but he's a master in scapegoating.

11
up

Spot on. And, no doubt, this will not appear on our smiley Miley news this evening....

Don't want to upset our owners

This is SO disturbing.

...or apartheid South Africa?? and yet we continue to support them by buying their goods. Crazy right?

??????? Apartheid ended in South Africa 25yrs ago.... Because everyone placed sanctions on them

That is quite horrific

If China wins the next world war, you know what we are in for...

As hard as it is these days we should protest by boycotting Chinese made products

That made me cough into my morning coffee! Thx...
Anyone who still thinks lower interest rates aren't still coming needs to understand the idiocy of this type of policy. "Hello! Marginal borrowers, come on in..."

In Australia Treasurer ... will reportedly.... tell banks to waive responsible lending standards for individuals who operate a small business, in an attempt to ease a credit squeeze on the sector.

10
up

Banks don't really lend to small businesses. Responsible lending has always meant that you have to have a house and then they lend against that as a security, because they fundamentally don't understand small business and don't know how to assess lending for them.

Quite right. So pretty much the only way to take on more debt is....to own more property ("Quick! Go out and get it now, before it's too late!"). It's a self-reinforcing cycle to disaster, as time will show us.

I can see exactly why Banks don't lend to small business, and it is not that they don't understand business, it's that they absolutely understand the risk involved.

Most businesses fail.

50% are gone within three years, around 70% are gone five years. At the time of liquidation, nearly all of these companies will owe more than they have in assets.

You also have to understand that the bank loans the money - they do not take a stake in the company. i.e. If the business is successful, the bank does not get a share in the profits.

From what I see, the Owner generally has a real passion for xyz, rather than any aptitude for running a profitable business. So when applying for a loan the business cases/proposals are amateur at best (Many won't even spend the $$ to get a professional one written up).

They often:
- contain wildly inflated demand forecasts that clearly haven't done any actual market research. No - there are not 500k people in NZ in need of a decorative cover for their budgie cage.
- fail to account for their own (and often their partners) time as a cost i.e. Labour is not Zero just because you have no employees.

and the most common, failing to factor in the repayment of the loan they are requesting. Yes you make $200 a week, but you forgot to pay yourself (see above) and your loan repayment is likely to be $300 a week.

They often fall apart under scrutiny by any impartial third party, let alone a rigorous assessment by a bank.

For those not involved directly with this sort of work. Go watch an episode or two of Dragon's Den or Shark Tank. There is a reason these successful investors only take a handful of proposals, and often at far higher stake in the business than the contestant wanted.

That's a lengthy justification for saying the bank won't lend $5000 to a small business, but will risk billions on a housing bubble. Even though a high number of new businesses fail within 2 years of starting there's less money at risk that the total housing sector. I do not believe that banks can accurately assess risk, they only calculate "risk" based on banking regulations (not real risk).

I don't think we are talking about $5,000 but that's another matter.

I fully agree that Housing is unaffordable for most, and greatly overpriced. But Housing is not a bubble. A bubble implies a "Pop" scenario and I don't see a Pop happening.

But as for risk. For the banks to be negatively impacted by a housing loan:
a) Mortgage holders have to start defaulting, then
b) Mortgagee sales have to be made, then
c) the house has to sell for less than the remaining mortgage.

Now most houses have a mortgage of 40-50% of the total house. FHB mortgages are between 80%-90%.

The only real risk group is interest only, and even then - the amount of interest has to be factored in when calculating the risk.
e.g. Mortgage of $500k. Total interest paid = $100k. Then even if the house sells for $450k, the bank has still made 50k (or 10%).

Housing is minimal risk for the bank. It is the poor homeowner that takes the largest risk, and experiences the biggest loss.

Interest only doesn't appear to be a same problem here that it is in Australia. They have 40% of mortgages as interest only. There is one bank that appears to be unloading these mortgages so they need to go P+I or find another bank (most banks don't want more interest only either).

The real risk is higher than what the banks think it is. Remember how wealthy Iceland was before they went into financial meltdown. Best to let the air out a bit or stabilise lending based on income. I'd rather have this change happen slowly rather than end up like the mid 70's or 1987.

The underlying factors in Iceland's collapse weren't remotely connected to residential housing and to be fair the housing market carried on pretty much as normal within Iceland.

The Icelandic people however got screwed.

So I definitely agree with the sentiment behind your posts. My posting has merely been to highlight why banks do what they do. They are exposed to minimal risk. It is all of us that are exposed.

So yes, I agree wholeheartedly. I think the Govt really need to get their A into G and do something pre-emptively, before we end up FUBAR.

I think what he is saying is they need to get into irresponsible lending, like housing.

Dp

You are at a competitive disadvantage when you inflate assets at a rate greater than productivity growth. The issue that Trump is probably talking about is the value of the currency. They have the world's reserve currency and it's working against the US as the value is too high for an economy that resembles a pile of burning rubbish.

Surprisingly, there is bipartisan consensus on a need to restore the competitiveness of the USD. Hopefully, this bill gets the support its need and saves the US economy from complete annihilation.

https://carnegieendowment.org/chinafinancialmarkets/79641

We don't talk about our 3rd largest export industry much, but our top 200 homegrown tech companies added another $1b to its combined revenue. What's admirable is that revenue from exports grew at 11% YoY, and now stands at 72% of total revenue of TIN200 companies.

Good stuff.

We should totally be talking more about this, if the current growth trajectory is maintained for the Tech sector and Dairy remains relatively stagnant then Tech could be our biggest export earner in a matter of 7-8 years.

There's been a lot of time, effort and money (both public and private) tipped into the Tech sector to help drive it and plenty of naysayers to boot but the industry is gaining some great traction (albeit largely under the radar as far as the general public is concerned).

The USA/China trade dispute is really starting to hit US farmers, the question is how long can they take the pressure? USA has 30k tonnes of just bacon in the freezer.

They could always seek new bacon markets - the Middle East, for example. Lotsa money, and lotsa hungry peeps.

Oh, wait.....

They can put some of it in my freezer :-P

My book of the week

The River of Doubt: Theodore Roosevelt's Darkest Journey

https://www.amazon.com/River-Doubt-Theodore-Roosevelts-2005-10-18/dp/B01...

Yichuan Bank in China is on the VERGE OF COLLAPSE

This is the 4th Chinese bank that has been in MAJOR TROUBLE since May 2019 (John Adams)