US data mixed; US trade lower; China sees progress in trade talks; large China SOE default imminent; alarm at China's coal plans; Aussie confidence falls; UST 10yr yield at 1.74%; oil and gold up; NZ$1 = 64.2 USc; TWI-5 = 69.6

US data mixed; US trade lower; China sees progress in trade talks; large China SOE default imminent; alarm at China's coal plans; Aussie confidence falls; UST 10yr yield at 1.74%; oil and gold up; NZ$1 = 64.2 USc; TWI-5 = 69.6

Here's our summary of key events overnight that affect New Zealand, with news there are positive signals that the 'phase one' trade may be making real progress.

But first, the US Conference Board is reporting that November consumer confidence slipped, and for the fourth month in a row. It is still at a healthy level, but the fall was unexpected; most analysts thought it would rise in November.

Sales of new houses in October were strong in the US, similar to the September level but more than +30% higher than the October 2018 level. That means new home sales took 11.9% of the total housing market in October 2019, and that is up from 9.6% a year ago.

American inventories are rising. Wholesale inventories are up +3.9% in October from the same month a year ago. Retail inventories are up +3.1% on the same basis.

The US merchandise trade deficit has narrowed in October and more than expected. But that is because less trade is happening. Exports were down -3.7% and imports were down -6.9%. Together, that is US$20 bln in less trade in October compared to the same month a year ago. The big reductions are in industrial supplies and capital goods, both exports and imports. Their monthly merchandise trade deficit fell to -US$66.5 bln, -US$4 bln less than for September. The politically sensitive balance with China wasn't released with this advance data.

Also falling, and in fact slipping into negative territory, is the next Fed regional survey, this one from their mid-Atlantic states. Those lower imports don't seem to be being replaced by domestic factory production.

In fact, in a new research paper by NY Fed economists, they have found that almost all the costs of the tariffs imposed by Washington on China have been paid by Americans. China may be selling slightly less to the American importers (made up by selling more to others), but the US tariffs have been passed on in full in prices paid by the consumers of the goods involved. Higher tariffs are an own-goal by Washington. It seems only one person is in denial.

Meanwhile, China offered its most positive message in recent weeks that trade talks with the Americans are going smoothly after a phone call overnight between the countries’ top negotiators, raising the prospects for a limited deal. This time, equity markets are ignoring the news.

There is widespread alarm however at China's renewed coal expansion. A new report said that China’s proposed coal power expansion through 2035 means that their coal power capacity alone could “far exceed” the total capacity allotted to the entire world under the Paris Agreement, which aims to keep global warming below +2oC above pre-industrial levels and targeting of +1.5oC. The IMF is now saying central banks need to factor in the risks of climate change.

In China, a major commodities trader, publicly owned by a provincial government, is about to default on its bonds and the central government authorities look like they will allow that to happen. It will be the largest SOE default in twenty years.

Meanwhile, China as raised US$6 bln in its largest-ever international bond sale.

In Canada, their rail strike may be near an end. It has cost Canada heaps so far.

In a sign of the times, the company that prints banknotes for about 140 central banks says the steep decline in demand for 'paper' currency means it could soon fail.

In Australia, there has been yet another fall in consumer confidence there, pushing their index down to 106.8. Confidence was down again last week, falling -2.8% on top of the prior week's -1.1%. The growing weakness was predominantly due to the economic conditions component of their index. Current economic conditions fell by 2.6%, while future economic conditions were more downbeat, falling 4.9%. Both these sub-indices are near their multiyear lows. (For comparison, the same RoyMorgan survey in New Zealand last had our consumer confidence index at 118 and it was also falling. The next New Zealand report is due on Friday.)

The UST 10yr yield is now at 1.74% which is another -2 bps lower than this time yesterday. Their 2-10 curve is stable at +15 bps. Their 1-5 curve is narrower, now at just +2 bps. Their 3m-10yr curve is also less positive +13 bps. The Aussie Govt 10yr is at 1.07%, another dip of -1 bp since this time yesterday. The China Govt 10yr is now at 3.22% and a +1 bp blip up. The NZ Govt 10 yr is now at 1.33%, also down -1 bp.

Gold is up +US$2 to US$1,459/oz.

US oil prices are higher by nearly +US$1 at just under US$58.50/bbl. The Brent benchmark is just under US$64/bbl.

The Kiwi dollar is continuing its stable run against the greenback, up slightly at 64.2 USc. On the cross rates we are also firmish at 94.6 AUc. Against the euro we are firm at 58.3 euro cents. That puts the TWI-5 up at just on 69.6.

Bitcoin is still volatile, and now down at US$7,075 which is a fall of -1.9% from this time yesterday. 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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36 Comments

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Highlight new comments in the last hr(s).

"In Australia, there has been yet another fall in consumer confidence..."
It's not on the agenda! It's not going to happen! The economy is in fantastic condition, but...this is what could happen....even if it won't...
Who believes they know what's going on?

(RBA's) Dr Lowe said QE would become an option once official interest rates had fallen to 0.25 per cent but negative rates were "extraordinarily unlikely". The most likely form of quantitative easing would be the purchase of government bonds...But to get to that point, the RBA would have to believe the economy was moving away from its recently downgraded forecasts around inflation and unemployment..."There may come a point where QE could help promote our collective welfare, but we are not at that point "
https://www.smh.com.au/politics/federal/not-on-our-agenda-rba-says-qe-is...

Examining the relationship between 3-month and 10-year benchmark rates and nominal GDP growth over half a century in four of the five largest economies we find that interest rates follow GDP growth and are consistently positively correlated with growth. If policy-makers really aimed at setting rates consistent with a recovery, they would need to raise them. We conclude that conventional monetary policy as operated by central banks for the past half-century is fundamentally flawed. Policy-makers had better focus on the quantity variables that cause growth. Link

There is widespread alarm however at China's renewed coal expansion

Can we really to single out industrial nations for not moving away from use of coal when even post-industrial nations such as Australia can't seem to end their love affair with coal either?

[Coal industry consultant, Dr Don Barnett] says that explains why the mining tax and the carbon tax are not putting off international interest in Australian companies.

"That's just merely an extra tax you have to pay in terms of, to gain entry to the nightclub," he explained with a metaphor.

Great news for Indonesian and Aussie coal miners. China and India need electricity. Not everyone has it, you know. Good wages in coal mining, too. Pity we destroyed our own coal mining industry, West Coasters would be doing alright.

No one is gong to be doing alright with these trends.

On a more positive possibility, Bill Gates' recent interview included some very interesting content on nuclear power (new and better designs for it): https://www.youtube.com/watch?v=vapTJLUSvpQ

Would be a far better option for the likes of Australia, you'd think. Might not get the politicians quite the same wealth as coal lobbyists could, but would be better for the country.

The Guardian is reporting a decline in global coal consumption and that is not in conflict with increased generation capability.
From memory the new Chinese plant has higher efficiency and the older plants will be retired.
Having a viable but unused energy resource alternative to gas may make sense to the Chinese.

Looking grim for fire season already - pity we cannot convert all that bush burning world wide to making electricity. Maybe someone will think of a way?

Brilliant idea

At what point does the world start to seriously reconsider nuclear power plants? These seem to be our only viable alternative on the scale required.

At the point where we start ignoring the anti-nuclear movement in favour of evidence-based pragmatism?

"There is widespread alarm however at China's renewed coal expansion. A new report said that China’s proposed coal power expansion through 2035 means that their coal power capacity alone could “far exceed” the total capacity allotted to the entire world under the Paris Agreement,"

Scale is the big difference

China is pursuing gas as an alternative: How Russia-China Gas Pipeline Changes Energy Calculus

interesting article. Russia in the box seat...

Russia and China are aligned in a lot of ways many would find uncomfortable. Over recent years a lot of joint military exercises are in the mix. Their second aircraft carrier is close to completion. things are getting interesting.....

Last night the RBA Governor Dr Phillip Lowe stated that the main economic problem is too to savings... This comment coming at a time when global debt is at a record high of $250.9 trillion US dollars or 320% of Global GDP. No wonder the Aussies are losing confidence and anyone else for that matter that believes their country is immune from any global shocks.

The World is in great shape!
"Audi will cut almost 10,000 jobs..."
Yes, that's over an extended timeframe, but that still 10,000 fewer jobs for young people to go into as they enter the workforce ( a pipeline effect)
https://www.telegraph.co.uk/business/2019/11/26/audi-slashes-almost-1000...

8000 fewer,

"At the same time as eliminating jobs, Audi said it will create up to 2,000 new positions as it hires people to work on electric vehicles and related digital projects."

Yes, also cutting jobs at once makes headlines, adding 100'000's of jobs over time doesn't

erson is in denial.

Meanwhile, China offered its most positive message in recent weeks that trade talks with the Americans are going smoothly after a phone call overnight between the countries’ top negotiators, raising the prospects for a limited deal. This time, equity markets are ignoring the news.
Are we at the point were the buyers of equities have had enough and they require more than a comment to buy further? I hope so.
Ozzy confidence decline.
If any country thinks it will not be hit hard by international events it is Ozzy with their view of themselves as 'the lucky country'. If they are seeing the down side in greater numbers they must be feeling it in their pockets.

Kezza R - I have to say that New Zealanders are not far behind the Aussies with the lucky country mantra. We got through the GFC therefore we will get through the next gfc.....etc etc......

Most had the impression that because the Global Financial Crisis had the word global in it, it actually was. As it happened, our banks weren't mixed up in it to any great degree and the effect on us was comparatively minimal.

Yes being a small country we can maneuver, innovate at a greater speed in times of trouble. In the past we have lost big trading partners and quick as possible we set out and developed new products, markets to keep the ship afloat.
At a push we are fairly well off to provide food for ourselves and a fairly hardy bunch (at least Gen X and the boomers are... lol ) to suck it up and go without the imported winter luxuries if we have to.
Yeah so we are a lucky country as well but if it all continues it'll still be fairly hard yacka still. I'm all good with some hard yacka, it will strengthen us as a whole.

Cullen's anticipatory surplus deserves a lot of credit, even though some of it was squandered in unnecessary income tax cuts by Key.

"In fact, in a new research paper by NY Fed economists, they have found that almost all the costs of the tariffs imposed by Washington on China have been paid by Americans. China may be selling slightly less to the American importers (made up by selling more to others), but the US tariffs have been passed on in full in prices paid by the consumers of the goods involved. Higher tariffs are an own-goal by Washington. It seems only one person is in denial."

The above is a bit of a simplistic view, whilst being correct at the same time, it ignore the required discounting to stay competitive.

For example, if I sell apples to China and they impose a 10% tarriff on me making my apples 10% more expensive than Australian apples being sold in China, what do I do??? Well if the Chinese consumers decide that they dont want to pay a premium for my product then Im forced into discounting.

What do we know ?

So confidence is declining steadily on many fronts , consumer confidence in Aussie , Business confidence here

What economic orthodoxy tells us is that in times of lower consumer confidence there is a higher propensity to either save or retire debt .

Is this a bad thing ?

Depends if it develops into a nasty feedback loop.

Spend less -> less production required -> layoffs -> insecurity leads to less spending.....

Well , nasty feedback loop or not , there is some good that comes from increased savings and less debt.

The retiring of debt, whenever it can be done, is not a BAD thing , it enables new debt to be taken on , and strengthens the borrower .

Secondly debt should be paid down , anyone who honestly thinks that they can just rack up more and more debt for ever is delusional.

Increased savings has a positive benefit is as much as the savings of today are the Capital of tomorrow .

And lastly , in open market economy and an economic cycle where there is falling consumer confidence , one should always remember that the market has this awfully annoying habit of usually being right .

Not often we agree boatman, but this is one of them.

Basically all countries who have the dollars to fund this are upto the same espically the US.
We see this and say OMG but NZ is doing it as well maybe as not as ruthlessly but that is the game.

Britain GDP Has been declining ever since joining the EU:
https://www.armstrongeconomics.com/international-news/britain/britain-gd...

Second Bank Run In Two Weeks As China's Banks Are Caught In A Self-Destructive "Doom Loop"
https://www.zerohedge.com/markets/second-bank-run-two-weeks-chinas-banks...

China’s Financial Stability: A Squeeze and a Strangle
https://alhambrapartners.com/2019/11/26/chinas-financial-stability-a-squ...