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China leverage rises; Hong Kong in critical state; Japan machine orders stay low; Aussie confidence flat; Aussie households deleverage; eyes on RBNZ; UST 10yr yield at 1.92%; oil flat and gold down; NZ$1 = 63.3 USc; TWI-5 = 68.5

China leverage rises; Hong Kong in critical state; Japan machine orders stay low; Aussie confidence flat; Aussie households deleverage; eyes on RBNZ; UST 10yr yield at 1.92%; oil flat and gold down; NZ$1 = 63.3 USc; TWI-5 = 68.5

Here's our summary of key events overnight that affect New Zealand, with news all eyes will be on the RBNZ today.

But first on Wall Street, equity markets are up +0.2% today which is about half the rise overnight in Europe. In Shanghai yesterday, their equity market rose a similar +0.2%.

In China, their ratio of outstanding liabilities to gross domestic product, called the macro leverage ratio, rose to over 251% at the end of September 2019 according to a leading government think tank. They may talk about deleveraging but they are going in the opposite direction.

However, the prognosis is not all bad. Orders for construction machinery have reached a new high for Chinese manufacturers, although the key driver of their recent growth is export orders. Manufacturers however are expecting new local stimulus will bolster their domestic sales.

In Hong Kong, the city is in a parlous state with widespread demonstrations against their government which seem to be escalating. The local government's hard-line with Beijing support is losing even more support among Hong Kongers. The local government is now readying tax breaks for the wealthy in an attempt to encourage them to stay and damp down capital flight.

Japanese machine tool orders are still in a seriously depressed state, down -37% in October from the same period last year and that is slightly worse than the September result.

In Germany, the closely watched ZEW survey came in more positive that expected, especially for sentiment and expectations. It is still negative to be sure, but the improvement was marked and unexpected.

In Australia, the widely-watched NAB business sentiment survey has brought a tiny improvement in October with conditions edging up +1 pt and confidence lifting +2 pts, though both remain well below average. These results won't be changing any views, policies or decisions.

And yesterday's big bank result from CBA has an interesting element in that it shows the recent tax cut money are increasingly being parked in bank term deposits. For CBA, they are up more than +10% despite them paying virtually nothing in interest. The Aussie tax cut was designed to increase consumption, and that is just not happening. Perhaps helicopter money just doesn't work as effective stimulus as have been assumed.

All eyes today will be on the RBNZ at 2pm when they present their Monetary Policy Statement and OCR review. In a sudden turn, most analysts are now expecting a -25 bps rate cut after yesterday's downbeat survey of expectations. This will be the last formal rate setting review until February 2020 so there is a sense today's policy settings have to cover an unusually long period when global uncertainty seems to be high.

The UST 10yr yield is lower at 1.92% and a -3 bps slip. Their 2-10 curve is positive at +26 bps. Their 1-5 curve is firmer for the week at +14 bps. Their 3m-10yr curve is a positive +35 bps. The Aussie Govt 10yr is down -1 bp at 1.29%. The China Govt 10yr is now at 3.27% which is unchanged. The NZ Govt 10 yr is now at 1.37% which is a -2 bps drop.

Gold is down another -US$2 to US$1,453/oz.

US oil prices are little-changed at US$57/bbl. The Brent benchmark is just over US$62/bbl.

The Kiwi dollar will start today at 63.3 USc and marginally softer after the rising expectation the OCR will be cut today. On the cross rates we are at 92.5 AUc and giving up almost all of yesterday's rise. Against the euro we are softer too at 57.5 euro cents. That puts the TWI-5 at just on 68.5.

Bitcoin is holding lower at US$8,699. 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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30 Comments

I browsed around the INZ website last evening to get a feel of some ongoing trends in published data.

On 30 October 2019, INZ accepted 612 applications representing 1,447 people. That's 2.37 people per application. Scaling up the average number of applicants per fortnight and we will have 35-41k more permanent residents in NZ next year.

Imagine how much worse our already stretched out public resources are going to be in a year's time with more permanent migrants being able to access free schooling, medical care and our benefit system.

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I get good responses when I engage with NZ First over this (not so with labour) - in a nutshell they say they are hamstrung by labour and need more politicians. At this point immigration will be my key vote decision maker next time around. Jacinda is hopeless on this issue - too focused on World opinion I suspect.

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As my Mum used to say "very true". And Jacinda is terribly wrong - a good case can be made for a well run immigration policy as part of the national population plan that is essential for planning infrastructure and resourcing teacher and nursing colleges, etc. It is also clear from international experience that if immigration is not discussed it can lead to the rise of ugly racism.
Often more sense is spoken about immigration by immigrants themselves: I'm thinking of Kiwi friends who originated in China and India and my own PI family. All our political parties have members from different ethnicities so it should be possible to have this needed public debate done by non-pakeha with zero virtue signalling. Then any public discussion of adjusting the quotas will not lead to racist claptrap.

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That's right. If successive governments continue to marginalise the concerns of our average voter in meaningless pursuit of arbitrary economic numbers, we can expect things to get ugly once the inevitable tipping point is reached.

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Er, haven't things already got quite ugly enough? Those who know best didn't seem to quite get the message. De Nile is a long river and our dear leaders seem blind and asleep.

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While i'd love to see immigration brought down to a more reasonable level, giving a vote to Winston First is something that I just could never do. And i suspect that when Winston finally leaves the party they will disappear from view within two election cycles.

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I tend to agree that they'll collapse without Winston.
On the other hand, maybe there's enough demand for an anti-immigration but otherwise centrist party, who knows?

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The Aussie term deposits - There is a lot of news on the internet and mainstream media on the parlous state of the world economy, trade wars and so on. Add in the fact that deposits for houses are huge, and retirement incomes are increasingly less able to be guaranteed. So is this outcome, irrespective of economic theory, entirely predictable? After all not all the population are either stupid, or hang off every word of their politicians.

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Right. It's almost like the general public is in a state of paralysis. I believe term deposits are govt guaranteed in Australia so it can be argued that people are behaving "rationally." Yes, the key opinion leaders will say that people are losing by not investing in equities or property, but these are extraordinary times in Australia and globally. One of the problems as I see it is that macroeconomic and monetary policy is built on the premise that the general public will behave like Pavlov's rats. And in the context of the bubble economics of the last 30-odd years, that is true (OK booomer), but it's not outrageous to suggest that in terms of debt tolerance, the citizens are at the end of their rope.

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"in terms of debt tolerance, the citizens are at the end of their rope"

And yet debt pays everyones wages and holds commodity prices up
This is the dilemma
Acknowledging a shrinking pie is beyond the scope of capitalism

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If h'hold / private debt-based bubbles can run into perpetuity, there doesn't appear to be a problem.

Don't expect the ruling elite to bring the validity of this into question.

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but Boom/Bust is an inherent part of capitalism but often ignored by the masses.

To believe that it is sustainable for assets, stocks & debt can keep rising at 10% p.a. while GDP and wage growth go at 2% is insane, it must end in a bust.

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I had a look at the tax refund details and everyone should have got a reasonable mid year refund. Term deposits are one side of the issue, which is a completely reasonable response to the refund under the circumstances. The other side is the number of people that badly need the money just to help make ends meets and many will need the money for debt servicing.

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Yesterday was announced my work (large alcohol corporate in East Auckland) will be shutting our site next year. ~120 jobs gone, deemed not worthwhile to invest the capital required to bring infrastructure up to scratch.

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Spend more - drink more people! (But not the millennials please - only those over 50) - you need to buy a house.
Sorry to hear that and hopefully a new position will be open to you quickly.

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Thanks mate, no stress for me as still young with no real responsibilities. Sad for the area (local jobs) and industry though!

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Of course helicopter money doesn't stimulate spending, at least in precarious economic times when levels of household debt are high. Shouldn't take rocket scientists to work that out.
Doesn't mean there isn't potentially a case for tax cuts, though.

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Deleveraging of debt by households is a good thing , and would be very good for NZ

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you mean less spending in the economy? (while we retire debt)
We will head into the recession/depression even faster
No its max out time ... do your bit and spend while the ship is still above water

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"" the recent tax cut money are increasingly being parked in bank term deposits"". That is not proof that helicopter money does not work. It would be if we knew what fraction of the money is in the increasing bank term deposits - my guess an insignificant amount.
The phrase helicopter money implies even distribution; tax cuts reward those paying tax; true helicopter money would need to increase benefits too. That would surely increase consumption.

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Those at the low end, mostly the young, will be spending it, paying off debt buying things they want or need. They will have little choice. Helicopter money does work in some sense that it helps to address some poverty issues, and those who are struggling (but not considered in need). These TDs will most likely be the older set with low debt, and will be a minority.

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They could also move away from short-term solutions and try to build some real industries, for a change, that contribute to overall economic well-being with skilled employment and better pay packages. The extent to which the country's economic future relies on their dirt-digging and money creating sectors is worrying.

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Oh to find politicians ready to do that.

Too many in both major parties seem happy to rely on the twin crutches of property and high-volume immigration to prop up the nominal GDP figure.

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Agree - it all depends where you fly the helicopter. Remuera and Herne Bay or Otara and Mangere

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Here's something that requires some investigative journalism ...........New Zealand has to seriously consider a ban wooden pallets from Asia entering the country , and insist on recycled plastic or ruuber pallets being used .

There is a beetle called polyphagous shot hole borer indigenous to Asia that attacks timber and its a real problem in California .

It entered the US in wooden pallets from what I understand and has killed millions of trees

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A lot of article suggest overseas money is prepping for an asset reset. Dropping rates if just leading to people paying down debt or parking cash. Accordingly forcing the Big banks to hold more capital and having tighter lending standards (oh no... less profit with no risk for them) is some short term pain to avoid NZ tax payers bailing out Aussie banks for depositors in the event of global event.

I reckon that Kiwi Bank should offer a depositor guarantee as I cant see the Govt letting KB fail regardless of what happens, so make it official. Would also put pressure on the Aussie banks to match the same or have their deposits transferred. Matching the Aussie limit currently at $250 AUD would be a good start.

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You mean AUD250,000

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Hard to imagine the government of the day sitting by while Kiwibank fails in the wake of a financial crisis simply because KB's failure could potentially wipe out billions from ACC's reserves and NZSF's fund.

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A sidelight on the O&G debacle, DC: according to Granny Herald (unpaywalled), Tamarind Taranaki is or may become insolvent....

Fill up yer gas bottles, folks....beat the rush.

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