Global debt jumps; US retail better, factory output worse; Hong Kong in deep recession; surprise rise in Japan's factories; NZ claims damages over Brexit at WTO; UST 10yr 1.83%; oil up and gold down; NZ$1 = 64 USc; TWI-5 = 68.3

Global debt jumps; US retail better, factory output worse; Hong Kong in deep recession; surprise rise in Japan's factories; NZ claims damages over Brexit at WTO; UST 10yr 1.83%; oil up and gold down; NZ$1 = 64 USc; TWI-5 = 68.3

Here's our summary of key events overnight that affect New Zealand, with news it seems we need $2 of extra debt to get $1 of current economic expansion.

First up today, global debt is on course to end 2019 at a record high of more than NZ$400 tln, more than 3½ times global GDP, and up +6.25% in a year, largely driven recently by growth in the US and China. That is nearly NZ$52,000 for each of the 7.7 bln people on earth. (The New Zealand share is NZ$95,000 for each person.)

In the US, October retail sales came in marginally better than expected, and are now +3.1% higher than the same month a year ago. Even though the monthly gain is actually tiny, because it was unexpected, it is being called "a rebound". (For comparison, China recorded a +7.2% gain recently and New Zealand recorded a +3.4% rise on the same basis.)

American industrial production data wasn't so flash however, declining -1.1% over the year to October, and more than doubling the monthly drop from September. Inconsistently, this is not being called "a slump". Another Fed region reported overnight and business activity was expanding only very modestly.

Update: And in a sharp adjustment, the AtlantaFed's realtime tracking of American GDP fell to just 0.3% for Q4-2019 at an annual rate. Their previous estimate for Q4 was an annual rate of just 1.0%. Most other current estimates are closer to 2.0%. But the AtlantaFed has an uncannily good recent track record.

In Canada, their real estate market was flat in October from September, an unexpected result when a gain was forecast. But over the year, their are in a much healthier position with sales volumes up more than +12% and prices edging up almost +2%.

In China, new data out for October shows that house price growth is now falling away in most Chinese cities. Officially, they are "stabilising" but in many more cities we are noticing small declines, and that includes for Beijing.

In Hong Kong, official data shows a sharp turn in their economy, and into recession. For all of 2019 they expect their economy to shrink -1.1%, but for the September quarter it shrank at a rate of more than -3% pa. New street violence has flared again overnight, and the Government is threatening its employees who support the protests, and indication of how widespread the support it for the demonstrators who can still bring tens of thousands on to the streets.

In Japan, industrial production may have bottomed out and the latest data for September shows it rising again and a little faster than expected.

At the WTO, New Zealand and fourteen other countries have taken action against the UK and the EU over Brexit, seeking trade compensation for the disruption. The claim is focused mainly on agricultural products including lamb and beef. Among the others joining the action are Australia, India, Brazil and the US.

In Australia, the RBA is pointing out that it is older home loans taken out with looser repayment assessments that are the ones driving their rising but still-low arrears rate, and that new home loans are performing much better by comparison. Those higher arrears are a particular issue in Western Australia and to some extent Queesland, but little issue elsewhere.

Also coming from the west are extreme termperatures, and that will compound the Sydney fire issues and no doubt extend them. Climate change denial has now become a serious culture-war flashpoint as well, raising the political heat (fueled by the Murdoch press).

On equity markets today, the S&P500 is up +0.6% so far, the bulk of the +1.0% gain they will record for the week. In Europe overnight, equities rose by a bit more and the DAX's weekly +0.5% gain relied solely on the Friday jump. In Shanghai yesterday, they recorded a -0.6% drop and that compounded to a -2% dump for the week. In Hong Kong it was a -3.8% weekly rout dragged lower by democracy protests. In Tokyo, they posted a weekly -0.5% slip. The ASX200 was up +1.1% and the NZX50 was up +1.5% for the week.

The UST 10yr yield is little-changed overnight 1.83% and dipping only -1 bp from where we left it last night. Their 2-10 curve is positive at +22 bps. Their 1-5 curve is weaker for the week at +9 bps. Their 3m-10yr curve is also less positive +23 bps. The Aussie Govt 10yr is unchanged at 1.16%, but that is a fall of -14 bps over the last week. The China Govt 10yr is now at 3.27%, also unchanged overnight and little changed on a week. The NZ Govt 10 yr is now at 1.41%, unchanged overnight too and up +2 bps for the week.

Gold is down another -US$4 from this time yesterday to US$1,468/oz.

The VIX volatility index is just over 12, and a similar level to this time last week. Its average over the past year is 17. The Fear & Greed index we follow is still on the 'extreme greed' side.

US oil prices are up strongly today to just under US$58/bbl. The Brent benchmark is just on US$63.50/bbl. The US rig count recorded another meaningful drop taking it to its lowest level since March 2017.

The Kiwi dollar is marginally firmer from where we left it last night, now at 64 USc and that is a +1.3% gain in a week. On the cross rates we are now at 94 AUc and an even bigger gain at +1.8%. Against the euro we are a little firmer too overnight at 58 euro cents. That puts the TWI-5 at just on 69.3 and a full +1% gain since this time last week.

Bitcoin is lower this morning at US$8,460, a drop of -3.6% 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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33 Comments

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Highlight new comments in the last hr(s).

"we need $2 of extra debt to get $1 of current economic expansion."
Not a problem at all, if the cost of that debt is 0%! In fact, once we get universal negative interest rates, we won't need to 'inflate the debt away' with asset price rises, that will happen all by itself even as prices, wages and productivity all fall. It's like magic, isn't it!

What I do not get is who is going to be leading their money out at 0% or negitive?
Not many they would rather buy their own investments.
So it's printed money that is lent to the masses to further debt and create inflation.
$50 a cup of coffee in no time at all... $5000 for a weeks food. Good times...

If you were offered minus 5% pa 'return' or 0% pa interest which would you take? And if you thought your 'investments' were going to be worth, say, 10% less tomorrow than today ( that's what $2 worth of debt = $1 growth is telling you), would you still buy them or lend your money out at 0%? (PS: Printed money doesn't and won't create inflation! That's what is 'supposed' to happen and it hasn't and won't. The opposite will happen )

At 0% I'm better to stay in something like gold and then wait till the bottom and buy up large when people ate broke.

$400trl in debt. Reminds me of a old kids joke
Hahahahahahahahaha

Thunk.

First up today, global debt is on course to end 2019 at a record high of more than NZ$400 tln, more than 3½ times global GDP, and up +6.25% in a year, largely driven recently by growth in the US and China. That is nearly NZ$50,000 for each of the 7.7 bln people on earth. (The New Zealand share is NZ$95,000 for each person.)

Around two thirds of NZ households have no mortgage debt - the debt to income ratio changes dramatically when those without mortgages are excluded. Moreover, given the iniquity of the risk weighted asset regulatory capital scheme, around sixty percent of bank lending is allocated to residential real estate for one third of households.

The RBNZ governor's earnest entreaty: "There has never been a greater time to make use of accommodative monetary policy for investing in productive assets" has a hollow ring without the robust corroboration of regulatory enforcement.

2/3rds seams like a high number of mortgage free homes. And 1/3 carrying all that debt is a shocker waiting to happen.

The proportion of risky borrowers in the household and dairy sectors appears relatively high. Around two-thirds of households have no mortgage debt, but nearly 40 percent of new mortgage loans are to borrowers with DTI ratios above five. Link page 7 (13 of 48) PDF

we do debt well, Iowa is worried about a measly 18 bill

"Even outside of the Tenth District, in Iowa, farm finances continue to falter. 85% of Iowa land is used for farmland and it's ranked first in U.S. corn and egg production. One-third of the country's hogs are raised in Iowa.

Iowa farm debt hit the highest level in the nation at $18.9 billion in the second quarter. 44% of farmers in Iowa are struggling to cover costs. "It's very, very concerning," said Alejandro Plastina, the Iowa State agricultural economist who conducted the study. "It’s getting harder and harder for farm operations to cash-flow their business."
https://www.zerohedge.com/markets/buying-bigger-tractors-probably-last-t...

Are you still pro Trump or has your views on him changed?

Judging people is such a bad habit, I was never pro Trump just anti war machine and Clinton's

Just asking a question, though I'm not sure what you mean "just anti war machine and Clinton's". It's interesting to hear others perspectives, that all.

I think the USA screwed up in Iraq, Libya,Syria et al. Those complications have lead to a surge of immigrants into Europe and got has to the stage where 17.8% of Germany's population is immigrant. That has destabilised the German electorate and ADF are now surging in the polls, there have been scary outcomes in Germany before.
https://www.independent.co.uk/news/world/europe/afd-germany-state-electi...

In Spain the far right doubled it's votes
https://www.bbc.com/news/world-europe-50367870

Italy, Greece, Portugal all going right wing, USA foreign policy has been a disaster.

https://www.bbc.com/news/world-europe-50367870

Under W Clinton the heartland of the USA was destroyed, millions of jobs gone, Ive seen figures between 7 and 10 million, coinciding with the start of the Meth epidemic. The military industrial complex rose to unforeseen power, the neo cons ruled and destroyed innocent lives all over the globe.
In Libya, H Clinton celebrated the murder of Gaddafi, and he said he was the cork in the bottle, stopping million of migrants flooding in to Europe.

Trump might not be perfect but he has exposed the underbelly of the establishment. Look at the riches amassed by politicians in the USA.

My friends in France openly talk of the coming revolution, these are upper middle class if France has such a thing, Europe has been a savage continent many times before, we need History majors running the place.

Same as it ever was. Sycophants and tyrants, psychopaths and sociopaths, those with the most lust for power and status want to rule the world. Through physical, religious or economic force.

And we the people have been brainwashed into trying to emulate them. Into behaving just like them.

I'm not so sure about Trump exposing anything significant. He appears to be as much a part of it as anyone else.

The World just doesn't need America anymore. When I was young farmers in the US produced %80 of the worlds export grain, today they just don't count.
China/ Russia/ Brazil have snuck up on them and by the time they realised it was too late. This years Russian Grain production 127 Million tonnes, biggest in the world, from the country that used to be the biggest importer. Russia can land wheat in the Med at half the price the US can. Lesson is to keep an eye on your competitiveness, too late for us, that train left the station a while back.
https://www.zerohedge.com/personal-finance/farmageddon-12-charts-show-de...

Debt in this country isn't only mortgages - about 35% of debt is consumer finance and business debt (corporate loans, bonds and farmer borrowings). Large infrastructure projects secure the bulk of their financing through debt (leverage their future cash flows).
Plus, there's tens of billions owed in local council debt.

People in this country can't seem to ever think beyond houses.

Not just interesting, it's super scary.
Absolutely no privacy left in the (near) future.
All we need on top of that is a cash-less society, no financial privacy, and we're really stuffed.

Just a couple of thoughts
Will we all have a "social score" like China?
Are the "boomers" to blame? ;)

We have somewhat of a social score now. It's called "success", "monetary wealth", "middle class", "elite".

Financial privacy? The "successful" want everyone to know how successful they are and the peasants want to know what they're aiming for.

Privacy? No such thing other than a fear of being judged.

Global debt is on course to end 2019 at a record high of more than NZ$400 tln, more than 3½ times global GDP, and up +6.25% in a year, largely driven recently by growth in the US and China (The New Zealand share is NZ$95,000 for each person). Perhaps it's about time we tax the rich!
BBC Who wants to be a billionaire? Should the richest be taxed out of existence.
https://www.bbc.co.uk/programmes/w3csy742

11
up

You're disingenuous in your characterization of "climate change denial". Most people you would label as climate changer deniers are not denying climate change, they are denying that it is driven by ANTHROPOGENIC influences. And furthermore that is not to say that people who "deny climate change" deny that humans have a negative impact on the environment (mining Lithium for electric car batteries for example). Humans do need to change their consumerist tendencies (which by the way is cast as a positive when reading the GDP numbers). But if you think that the answer to the complexities of climate change is taxing the productive sectors of human society and selling off NZ land to plant monoculture invasive pest species of pine that has its own environmental impacts, and importing a city-load of more consumers then that level of ignorance is the flashpoint of the culture-war or whatever catch phrase you want to use. People's gullibility and the shameless duplicity of the ruling class are the real problems here.

Thanks JediNight, well said.
For those interested in lectures on "climate change" by Robert Holmes with a PhD in climatology watch his lectures on YouTube:
https://www.youtube.com/channel/UCAR0Oi4L0Om4F26uwpANgCg

They show in proper (and perhaps a little boring for some) scientific explanations that man-made global warming is just not true.

I'm considered a denier by most.
I just think climate change is a irrelevance.
It's simple, we live on a finite plant and we can't keep treating it's resources as infinite.
My beef with the warmists is they seem to think all they need to do is agree it's happening and then they're free to go in with their life of conspicuous consumption expecting that the real villian's, women in sub-Saharan Africa and meat producing farmers will take the fall. All fixed.

I enjoy reading these pieces from David, but on two subjects he has let emotion cloud his thinking: climate change and the trade war. To fail to understand that normal people oppose climate zealotry is one thing. But to fail to see the greater geo-political shift that is happening between China and the US (and by extension us and the rest of the world, yes we are on the United States' side, although you wouldn't think so from the opinions on this site), is just down to blind emotional hatred of a man who, if you actually zoom out, is doing the world an incredible service, and about time.

The Australian fire issue is rather simple. Fires need three things (the 'fire triangle') - an ignition source, suitable weather, and a large dry fuel load. The first two are essentially irrelevant in any short term: they cannot be changed, avoided, or mitigated. The one remaining side of the fire triangle is fuel load. And in too many current cases, the fuel load - forest floor leaf litter, fallen branches, understorey etc - has been left to accumulate. WA controls fuel load by prescribed burns in State-managed forests, to the tune of 8% a year, or a 12 year rotation. And the firies think even that's too long. But it also depends on forest type, topography, time since last burn, and continual measurement. Eastern Australia has reduced prescribed burning way beyond any reasonable minimum. And then the blame game starts when, and inevitably, a dry spell (winter or summer - Gaia doesn't read the calendar) prepares that fuel load, and an ignition source - humans, lightning, whatever - happens. Some illuminating State videos from WA here, and the WA firies' own take on megafires here.

A long-winded confirmation of what we all know; that debt is out of control (see comments as such in the main article by DC above) and that unless the Central Banks keep on keeping on, it's game over. For those with 40 minutes to kill on a lazy Saturday arvo, it's worth a watch. For those who just want to know 'What's going to happen!?", the last 2 minutes might give us a clue.
https://www.youtube.com/watch?v=vBNSOwUauGc

Our government needs to speak up more forcefully about the situation in Hong Kong;

https://thespinoff.co.nz/society/12-09-2019/voices-of-hong-kong-nz-immig...

The US Congress seems to be the only democracy willing to do so;

https://www.straitstimes.com/world/united-states/divide-between-presiden...

Freedom - you don't know what you've got til it's gone. I'm not prepared to sacrifice mine for the WMP trade.

Thanks for the link. Is it time for NZ to give Hong Kong citizens priority for permanent residency?

The 800 pound gorilla:

In Hong Kong, since 1997, all land has become the property of the People's Republic of China while the government of the Hong Kong Special Administrative Region is responsible for its management, use and development. In other words, every piece of land in Hong Kong (with the sole exception of St. John's Cathedral, the only freehold property in Hong Kong) is leasehold property. Link

Yes, you're either over employed and working 60 hours a week getting paid a fortune (IT, Law etc.)

Or you're under employed and working 60 hours a week getting paid S.F.A (all other jobs).

So it's a dichotomy.