Here's our summary of key events overnight that affect New Zealand, with news of a growing sense the US:China trade war might be heading for a resolution.
But first, the overnight dairy auction was a positive one with prices rising +3.7% in US dollar terms although undermined somewhat by the rising exchange rate so that in New Zealand dollar terms prices are up only a bit more than half that, up +2.1% from the prior auction. However, the rises justify the recent hike in the payout indication. Compared with this time last year, prices are up +20% in US dollars, up almost +25% in New Zealand dollars. Leading the way are the core milk powders with WMP up +3.6% today and SMP up +6.7%.
The US trade deficit was little-changed in September, but remains stubbornly high at an annual -US$653 bln, a rise of 4%. In the month, the deficit with China decreased only marginally to -US$28.0 bln. Exports decreased -US1.0 bln to US$9.0 bln and imports decreased -US$1.9 bln to US$37.0 bln. Both are tiny changes. Overall, the annual trade deficit with China remains high at -US$350 bln or more than half the total deficit even after the US imposed substantial tariffs. In the end, China has kept on supplying orders from US importers, and American customers have been paying the tariffs.
The trade talks are ongoing, and it looks like the Americans are ready to compromise. The face-saving seems to be a deal on China controlling the illicit drug trade and in return the Americans will roll back tariffs on US$112 bln of goods trade. If that transpires, the US will have gained little from the skirmish.
The widely watched US report on the services PMI has this sector expanding modestly and slightly faster, suggesting that GDP is growing at a modest +2.1%. The other similar survey didn't notice the uptick however.
But none of this data has set Wall Street alight - today it remains near record highs but is flat-lining. That follows better gains in Europe, and even better gains in Shanghai, Hong Kong, and especially Tokyo which was up an impressive +1.8% yesterday. All three markets are sensing a positive end to the US:China trade war that will benefit them.
In China, their central bank cut the interest rate on its medium-term lending facility for the first time since early 2016, as policymakers work to prop up a slowing economy. The cut was -5 bps to 3.25%. This follows last week's Hong Kong change where authorities also made a surprise cut, reducing their benchmark rate by -25 bps to 2.0%.
The private survey of China's services PMI was broadly stable and positive with a small gain in the expansion level.
In Australia, their October services PMI slipped back sharply, indicating they have no expansion in that sector now. (However, another similar survey suggested there is still some expansion going on. Either way, its modest at best.) The latest Aussie consumer sentiment index shows a modestly positive situation.
Following the 'modest' theme, their central bank held its benchmark rate in yesterday's review in what was a somewhat upbeat assessment of Australian economic prospects. Rate cuts and QE seem to be off the agenda there now.
The UST 10yr yield is rising again, now at 1.86% and its highest level since August. Their 2-10 curve is positive at +23 bps. Their 1-5 curve is now +17 bps. And their 3m-10yr curve is at +30 bps. The Aussie Govt 10yr is up strongly, now at 1.27%, a rise of +6 bps. The China Govt 10yr is down -4 bps at 3.29%. The NZ Govt 10 yr is now at 1.36%, unchanged overnight.
Gold has slumped overnight, down more than -US$25 to US$1,484 which is a chunky -1.7% dive in a day.
US oil prices are firmer again, now just over US$57/bbl. The Brent benchmark is just under US$63.
The Kiwi dollar has slipped back a little to 63.8 USc but that is where it was a week ago. On the cross rates we are -½c lower at 92.5 AUc. Against the euro we are little-changed at 57.6 euro cents. That puts the TWI-5 down at 68.8.
Bitcoin is a little higher at US$9,355. The bitcoin rate is charted in the exchange rate set below.
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24 Comments
Australians are buying everyday goods at the slowest rate since the 1990-91 recession as signs grow that interest rate reductions and tax cuts have failed to encourage shoppers to open their wallets.
Shoppers' wallets are open alright! It's just that what they can afford to buy becomes less and less. Slash interest rates, even more, I say, and loose those Animal Spirits on increasing the household debt mountain. What other choice is there now?
https://www.theage.com.au/politics/federal/worrying-sign-retail-slumps-…
I find my self buying more online at sharply reduced prices. This week I looked at the pool shop for vacuum hose, $230, trademe free delivery $55, looks like same hose. Parts for my farm pump online ,half price. New doopr latch for my ute, $400 in NZ, imported for $70.
Im really over this retail racket.
Exactly. This is the underlying reason we aren't seeing the inflation in NZ - we are simply overpriced compared to the rest of the world in terms of consumers goods. Local retailers are finally having to compete, so we are slowly seeing prices drop.
My example - Latch on the washing machine broke. $375 locally, $88 online + $8 delivery. GST on the online purchase could be 100% and it is still less than half the price. So that old retailers argument has no standing.
Of course, all the necessities - food, power, rates, insurance. We can't source overseas - so are consequently being rorted.
Some places really do seem to be absolutely trying it on. To the point one ceases to feel any sympathy for some retail businesses because, well, they're not charities that people should be supporting out of the goodness of their hearts. A few years ago I was witness to a Kiwi clothing designer crowing "I can make these in China for $8 a piece and sell them for $400!" Well...okay...
I know a very good designer that made their clothes in NZ as a matter of principle, and couldn't make a business out of it as people won't buy it.
To add further to this discussion, I see buying online as a way of not contributing to overpriced real estate that the retailer is very much a part of.
I'm shopping more on line these days including a part for my Audi the washer pump.From Audi its $127.90 on line including air parcel post out of the US $17.99!
We are being taken advantage of because of the lack of competition and our apparent isolation-well that's changing fast because the consumer now has some tools to compete!
I’ve been seeing this ripping off the customer since we moved here in 2006..... kiwi attitude has always been well thats the way it is so accept it! Maybe people have seen the light and are now starting to shop around more.
I find it incredible that Westfield have spent so much money building the new shopping centres in Auckland when the retail sector is clearly struggling.
Did you also know that the guy who started the Westfield empire in Australia has sold the business and that about 2 weeks ago sold his personal shareholding for a few hundred million Au$. What does that tell you about his confidence in the retail sector?
What other choice is there now?
Not a lot based on outdated central bank moneyless monetary policy initiatives, which are running into a brick wall in Germany.
“But the mandate of the ECB is limited, because an independent central bank is only justifiable in democratic terms when it has only a limited mandate,” Schaeuble added in a thinly veiled attempt to remind Lagarde of the frustration among German savers about the ECB’s unprecedented long period of zero rates. Link
Good morning from #Germany, where too few new bonds are being issued. This is one of the reasons why the #ECB is trying to persuade Berlin to increase its spending on credit. That would create more bonds for officials to snap up under their QE program. https://www.bloomberg.com/news/articles/2019-11-05/ecb-s-thirst-for-bon… … Link
Relying on borrow and spend is always problematic. Primarily because people love spending money on junk and then paying it off with interest. A central bank somewhere is going to have to try actual money printing, and I thought Australia would be looking at that again. Give everyone money and tell them to spend it or pay off debt.
I can't imagine Germany embracing money printing. That would lead to public outrage.
Interesting question. It's a tax paid for by US consumers, which goes into the US Treasury. The odd thing is that it isn't reducing their deficits. It turns out to amount to less than the tax-cuts-for-the-rich, so their deficits are rising and now touching -US$1 tln per year. Not only are the tariffs a bad idea for US consumers (and haven't worked to rebalance their trade deficit), their tax cuts are even more corrosive. In good economic times, the idea is to salt away surpluses so you have enough ammunition for the coming bad times. The US is doing the reverse and will be horribly exposred when the economic cycle turns. Really, really bad public policy. "Worst public policy settings, ever."
US companies are bringing more dollars home
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