Trade war optimism fades, US household debt falls, Fed happy with policy; CPI inflation low; China boosts infrastructure spending; Aussie wage growth weak; UST 10yr yield at 1.89%; oil and gold up; NZ$1 = 64 USc; TWI-5 = 69.3

Trade war optimism fades, US household debt falls, Fed happy with policy; CPI inflation low; China boosts infrastructure spending; Aussie wage growth weak; UST 10yr yield at 1.89%; oil and gold up; NZ$1 = 64 USc; TWI-5 = 69.3

Here's our summary of key events overnight that affect New Zealand, with news of low inflation and low wage growth in key global economies.

First in the US, the optimism for a US-China trade deal is souring as the Americans threaten "substantially more tariffs" if the Chinese don't agree to their terms. They clearly think the Chinese are in a weaker position than the data shows they really are and those political assumptions are blinding Washington. A new detailed study by Harvard economists shows that it is American consumers that have paid almost all the costs of US tariffs, while the Chinese suppliers seem to have paid little.

US household debt rose in the third quarter of 2019 to US$13.95 tln and that is now 64.8% of GDP and even though it increased by +$440 bln in just one year, it is down from 65.1%. (The equivalent level in New Zealand is 96.1% and rising.)

In testimony before Congress, the Federal Reserve boss said he saw little reason to change their policy settings at their next meeting.

American CPI inflation rose in October to +1.8% as food and medical costs rose, and was restrained by falling fuel prices. But that was more than wage rises, so real wages actually fell in October.

There was CPI data out in Germany too, and they were stable there, up +1.1% again, and in the UK where they fell to +1.5% pa.

Hong Kong equities have fallen sharply again as another day of anti-government protests cast a shadow over future the city as an independent financial center and rattled investors. The Hang Seng index fell -1.8% yesterday. In Shanghai, stocks fell -0.3%. Mainland Chinese students in Hong Kong are leaving en masse, it seems, many "called home".

China said it will lower the equity capital ratio for investment in ports and shipping infrastructure projects from 25% to 20% as part of their stimulus boosting programs.

In Australia, their recent minimum wage increase has not succeeded in turning around weak wage growth there which fell to +2.2% in the year to September, a decline from +2.3% a year ago and the slowest in more than a year. By comparison, the equivalent New Zealand changes show hourly rates of pay up +4.2% in the same period and near a multi-year high.

And a new report says that even with no policy changes, house prices in Sydney and Melbourne are likely to jump more than +10% in the next year based on latent demand. Then they will fizzle again, the report says.

The UST 10yr yield is lower at 1.89% and a -3 bps reduction. Their 2-10 curve is positive at +24 bps. Their 1-5 curve is firmer for the week at +12 bps. Their 3m-10yr curve is a positive +33 bps. The Aussie Govt 10yr is down a sharpish -7 bps at 1.22%. The China Govt 10yr is now at 3.27% which is unchanged again. The NZ Govt 10 yr is now at 1.49% which is a massive +12 bps rise to 1.49% following the RBNZ signals.

Gold is up today, up +US$8 to US$1,461/oz.

US oil prices are a little-firmer at US$57.50/bbl. The Brent benchmark is just over US$62.50/bbl. The IEA is saying that oil demand will start to weaken substantially from 2025 onward.

The Kiwi dollar will start today at 64 USc having changed very little overnight. On the cross rates we are up more than +1c at 93.7 AUc. Against the euro we are firmer too at 58.2 euro cents. That puts the TWI-5 at just on 69.3 and a +80 bps gain in a day.

Bitcoin is holding lower at US$8,746 with very little net change overnight. 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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19 Comments

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Highlight new comments in the last hr(s).

....if Tip Top is such an average no growth brand that Fonterra were happy to sell it . ... how is it then that their Boysenberry Ripple ice cream scooped the top prize in the NZ ice cream industry awards ... and Tip Top was named supreme big ice cream manufacturer in the country .. .

Ice cream makes me happy .

That's because Fonterra did not grow it.
I remember Tip Top products dominanting the local supermarket and dairy's now take a look and they are struggling to get products in shops.

... against 300 or so other ice creams , the TT boysenberry ripple has won supreme ice cream for the 5'th consecutive year .... that's no fluke... it must be good ( it is .. slurp ! ) ..

And yet , those overpaid cheese heads in Fonterrible HQ never thought to aggressively promote it on overseas markets ... tisk tisk .... slorp ... slup .... ahhhhhh .

The IEA expectation that demand for oil dropping off from 2025 shows that many expect alternative energy sources to have become substantially embedded by then. This puts the oil companies into a bit of a crack as the flaws in their long term business plans become evident with their reliance on a single product, rather than a diversification strategy to develop economically and ecologically viable alternatives to fossil fuels. Lets face it, they have made enough profits to actually be leading the research and development into alternative energy sources, even after looking after their own populations. But instead that money has gone into entrenching despotic regimes, graft and bribery and lavish lifestyles. They are in effect the authors of their own demise. But there will yet be efforts to ward off the final failure.

... the mega oil companies are recognising the worldwide shift towards carbon neutrality ... Shell , BP , and Chevron are each budgeting around 1 % if their revenues into alternative energy investments ... BP recently acquired Freewire , an EV recharging business . . Small beginnings ... but they're onboard with the need to diversify and change ...

Wow 1%, game changing?

Likely too little, too late, but I guess better that not at all.

BP's revenue last year was over $US 300 billion ... just 1% of that adds up to $US 3 billion .. . from small beginnings ....

i doubt it. Oil oligarchy can afford to just acquire the renewable energy businesses if need be

Are they really on board? 1% even at $3 billion is just pocket change to them. I suggest this is diversion, they can say they are doing something, but it really is not very substantial, and doesn't amount to much. Besides a charging business? How about funding research into improved viable batteries, or better solar cells or wind turbines? Or take a leaf out of Bill Gates book and take a look at nuclear reactor technology and see what our current technology level to do with it?

1% sounds like a PR budget. nothing like a bit of whitegreenwash to keep the mugs complacent.

Yer gotta larf:
The IEA is saying that oil demand will start to weaken substantially from 2025 onward.

So developing countries will stop growing and stop refridgerating medicines and not install air conditioning; international tourism is about to decline; cruise liners will stay in port and the world will stop manufacturing steel and concrete. Someone must be very confident in rapid progress with nuclear power.

There is a lot of speculation on a number of small scale fusion reactor projects. There is a lot of confidence but no working project. At the earliest one might work by 2025 but that's only a probability with no certainty. Even if a working fusion reactor is created it would take many years to build them all over the world (there are huge materials constraints for the superconducting wires).

I'd pick a glut of oil supply would be more likely than substantial drops in demand.

In May 2014, Gazprom and China National Petroleum Corporation (CNPC) signed the Sales and Purchase Agreement for gas to be supplied via the eastern route (Power of Siberia gas pipeline). The 30-year Agreement provides for Russian gas deliveries to China in the amount of 38 billion cubic meters per year. Gas supplies will start on December 1, 2019. Link

Are Jamie Dimon and team good managers?

I think you’d have to say yes, although it’s also … difficult … to overlook the various felony charges, racarteering, and billions in civil settlements that have been assessed against JP Morgan during Dimon’s long tenure.

China news, how well do we know & understand?

https://amp.businessinsider.com/china-uighur-monitor-home-shared-bed-rep...

Chinese men assigned to monitor the homes of Uighur women whose husbands were sent to prison camps frequently sleep in the same beds as them, Radio Free Asia reported last week.

It appears to be another facet of the Communist Party's hardline campaign against the mostly-Muslim Uighur people in their home region of Xinjiang, in western China, over the past two years.

https://www.rfa.org/english/news/uyghur/cosleeping-10312019160528.html/a...

Male Chinese ‘Relatives’ Assigned to Uyghur Homes Co-sleep With Female ‘Hosts’
Officials call the sleeping arrangements ‘normal’ and a way to ‘promote ethnic unity.’

You simply couldn't make it up. Which is worst the attitude / policies of the communist party of China or the silence from countries that claim to be Muslim theocracies?

To answer your fist question we (NZ citizens) do not want to know; especially if we are businessmen depending on China for imports or exports or politicians needing donations and trying to avoid trouble (ref Anne-Marie Brady).