Air cargo shrinks; US payroll growth low; Canada holds rate; more China debt defaults; US balks at BEPS deal; Aussie GDP growth uneven; UST 10yr yield at 1.78%; oil up and gold down; NZ$1 = 65.3 USc; TWI-5 = 70.5

Air cargo shrinks; US payroll growth low; Canada holds rate; more China debt defaults; US balks at BEPS deal; Aussie GDP growth uneven; UST 10yr yield at 1.78%; oil up and gold down; NZ$1 = 65.3 USc; TWI-5 = 70.5

Here's our summary of key events overnight that affect New Zealand, with news of more disparate signals on trade and international cooperation.

First up there has been a weak start in October to the traditional peak season for air cargo and the twelfth consecutive month of year-on-year declines in freight volumes. They were down -3.8% globally and down -6.1% internationally in the Asia Pacific region which recorded the steepest decline.

In the US we get the non-farm payrolls report this weekend. Today the precursor ADP report is out and that isn't indicating strong jobs growth at all. But at least there was some. In today's report the gain was the second lowest since 2010 and the factory sector got job losses. At +67,000 it was less than half analysts expectations. Their expectations of +190,000 for the non-farm payrolls report will no doubt be sharply revised lower now too.

This lower outlook is somewhat supported by the US service sector PMIs. The closely-watched ISM one is lower at 53.9, a fall and below expectations. The internationally-benchmarked Markit one records a more timid expansion, but it did pick up from October.

And even after accounting for the Thanksgiving holiday, the latest report on US mortgage applications fell more than -9%.

In Canada, they had an official rate review, but there has been no change at 1.75%. They have inflation running at their target +2% level even if growth is low and weakening. But they say they see signs of global growth stabilising.

In China, more private companies are defaulting on their bond obligations. The total is now up to six in the past two days.

Good progress is being made at the OECD on the new BEPS framework. But now the Americans are balking suddenly as they realise it is many of their companies that have been not paying their share and they are starting to resist change. They don't want "erosion of longstanding international tax rules".

On top of their very strong current account surplus, the Australian economy has posted annual growth of +1.7%, up from a decade low of +1.4%, confirming the RBA's assessment that their economy has passed a “gentle turning point". But their household sector was "subdued" and kept the result modest. This is a result that shows their election bribe helicopter money was essentially saved by households and did nothing to encourage economic spending and growth. It was strong exports that saved it.

And the Aussie banks are bracing for the RBNZ bank capital announcement later this morning. We will have full coverage.

International equities are a little higher today, reversing some of yesterday's drop. Today talk of background progress in the US-China talks is encouraging these markets. The S&P500 is up +0.6% so far, following a +1.2% rise in most of Europe (but not London). Yesterday, Asian markets were down more than -1% before the trade-talk rumours started.

Bond yields are volatile too. The UST 10yr yield has reversed course again today, now back up at 1.78% and a +8 bps rise since this time yesterday. Their 2-10 curve is a little wider at +20 bps. Their 1-5 curve has turned back positive at +4 bps. Their 3m-10yr curve is also also back positive +18 bps. The Aussie Govt 10yr is at 1.13% and that is back up +6 bps since this time yesterday. The China Govt 10yr is now at 3.21%, and a -2 bps slip. The NZ Govt 10 yr is now at 1.40%, and -3 bps retreat.

Gold is down -US$7 to US$1,480/oz.

US oil prices are up strongly today to just on US$58.50/bbl. The Brent benchmark is just on US$63.50/bbl. These are rises of more than +US$2 and come as American crude oil inventories fell sharply. A surprisingly large decline in output in their domestic oil patch is having an international effect. It also comes as a severe winter bites the US.

The Kiwi dollar is marginally higher again, now at 65.3 USc. On the cross rates we are now staying up at 95.3 AUc. Against the euro we unchanged at 59 euro cents. That puts the TWI-5 up at 70.5.

Bitcoin is firmer today at US$7,453 and up +1.7% 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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DC I noted in yesterday's roundup you said that Interest had had their staff Christmas function. In that light I would like to thank you and your team for the work they do in producing this site, and wish them well in the holiday season. For me it provides some of the more interesting, educational fodder for the brain that I get to consume. I would like to extend those thanks and wishes to the regular readers and commenters who add to that fodder, often providing greater depth to the information presented. I particularly enjoy the often spirited debate, which brings out the wit and occasional facetious sarcasm. Through it all i find that through you and your audience i have learnt a lot and for that I thank you all. Merry Christmas and happy new year, be safe, be well. Kia tau te rangimarie.

Well said Murray86.
Thanks and well done.

Banana Republic - "As Guyon Espiner explains, it has now emerged that Mr Jones only declared a conflict of interest over the NZ Future Forest Products bid on the day RNZ lodged an Official Information Act request asking for details of his involvement."

We should be getting all our pharmaceuticals from India. apparently the major manufacturers there are high quality and India doesn't recognise US patent laws, so they produce generics at very affordable costs. Instead we sign up to some next generation trade deal that allows US Pharma to control us.

A good reminder for all of us!

"(Irving Fisher) “While I will not attempt to make any exact forecast, I do not feel that there will soon, if ever, be a fifty or sixty-point break below present levels such as Mr. Babson has predicted." The “fifty or sixty-point break” that Fisher ruled out – soon, if ever – would have amounted to a market decline of only 13-16%. ... As it happened, the Dow would subsequently lose over 89% of its value... Babson's success as an investor was based on unorthodox views of the operation of markets....Babson attributed the business cycle to Sir Isaac Newton's Law of Action and Reaction... with a pseudoscientific notion that gravity can be used to explain movement in the stock markets."

Ah! So another who looks at the Cycles of The Moon (gravity) for a clue to market movements (NB: Some at John Key's old firm,., Bankers Trust Co, San Fran had a similar view)....

Ah!!! the infamous Andrew Kreiger.and the inordinate $value of CCY options he wrote against the NZD. - some background

He once regaled a large shipping company client of my bank, based in Monaco, with a similar scheme against another asset.

Gosh, those sensible Australians. Who would have thought? In the elections, Queensland and Western Australia tell the fanatics to bugger off. They like the high tech, high paying jobs that mining creates. The government reduces taxes to stimulate the economy. People use the tax cut wisely in a way that helps generate wealth in the long term. The miners provide the materials the rest of the world so desperately needs. The country and its people get richer.

Meanwhile the country burns and droughts get worse (some get richer?)

'It has been heart-wrenching': Australian farmers on living with drought
Robert and I know that the impacts of this drought are worsened by climate change, and with every day that passes without rain or credible climate action, it gets harder to stay positive.
We are trying hard to have enough resilience left to undertake a recovery, so for now, we’re waiting and watching. We’re coping the best we can, and hoping that every day brings us closer to rain.

Vivien Thomson is a farmer based in Muttama in the Riverina, southern NSW

Australia is a hard land. A land of extremes. That's why I am thankful I live in NZ. It is astonishing how sophisticated and successful their miners are. Agricultural is the most cyclical of businesses, with mining close behind, so they have a boom and bust economy. Gotta admire them, though.

Hard buggas alright.
How dose Ozzy look in 50 years down the track with global warming and how that effects NZ. I'm guessing that a hell of a lot of them will be packing up and heading to NZ and that is going to effect the landscape here. X's NZ population by 3 or more... How dose the housing market look then...

Floods and droughts come in clusters, it seems. Mandelbrot talks about it in his (Mis)behaviour of markets. I think most of what goes on weather wise is just cyclical and not outside of normal, if you use the right maths.

Just ignore the science and use the math?
Climate change doubters have a favorite target: climate models. They claim that computer simulations conducted decades ago didn’t accurately predict current warming, so the public should be wary of the predictive power of newer models. Now, the most sweeping evaluation of these older models—some half a century old—shows most of them were indeed accurate.

I don't need to look at graphs etc. I look at the climate has changed in the last 50 years from my experiances and older people's memories. I've traveled a hell of a lot and seen the excesses of humans pumping stuff into the environment. Commonsense says there has to have some effect somewhere down line and it's a better chance than average it's not for the good.

Haven't you been listening to the economists? The world is unendingly resilient and growth can, and must continue infinitum! Scarcity and supply constraints exist only in the Auckland housing market...

Er, did you miss the word "most"?

..and 'weather'.

Life ceases to exist beyond the Bombay hills.

Read the old Aussie stories of the outback 1800s. Henry Lawson etc. No different from today. Misery, heartbreak, desolation, despair, disillusion on every page. The only difference is that a sector of today's community has a new religion from theirs. Old testament, global warming, then climate change, now new testament, climate emergency. Complete with deranged prophets, mystical writings, faithful followers relying on the truth of their messiahs. The more things change, the more they stay the same. Awfully entertaining, and good people to make a buck off.

Gradually, but an an accelerating pace, the world is slipping into recession.
Australia surplus is due to falling imports, NOT primarily rising exports.
Falling imports are a consequence of poor consumer spending and tightening of wallets.
Their currency is weakening.
If you examine the 50,000 person running consumer debt survey done in Australia by Martin North on Digital Finance Analytics you will see that Australian mortgagees are suffering due to the (unavoidable) transfer of a few million mortgages onto interest and capital payments, from interest only, designed to reduce risk. ironically (as usual) this is increasing bank risk, simply because number people at risk of default has now been jacked up. Basically, payments have gone up and wages are stagnant. The Aussie banks are no where near as strong as they look and the "no one saw it coming " sentence is coming back into fashion.

Australian Fund Managers Are Already Betting on Quantitative Easing

Australian asset managers are gearing up for what was once unthinkable: the prospect of quantitative easing in their own backyard.

They’ve pored over the lessons from overseas and arrived at a different conclusion to central bank chief Philip Lowe, who has sought to damp expectations that QE is likely in Australia.
relates to Australian Fund Managers Are Already Betting on Quantitative Easing

Some including QIC Ltd. and Nikko Asset Management Ltd. are already buying assets on bets that interest-rate cuts won’t be enough to combat slowing economic growth. They see the impact of asset purchases rippling broadly through debt markets, even if Lowe manages to limit any QE program to government bonds

Exactly, but not through the economy - there is obviously no bank lending channel from central bank reserves to the wider world of regulatory less bank credit creation for the masses. The imposition of the RWA regulatory capital scheme limits the majority of profitable lending for real estate property to a minority of households and not much for all households.

The RBA and the Treasury have been banking on a a consumption-driven recovery spawned by the wealth effect (rising house prices). All indicators are suggesting that it's failing. highlighted this y'day with the new car sales report, which has been tracking down for the past 20 months.

Trickle down economics - certainly failing in Germany

Over half of all the outstanding bank loans to domestic households and enterprises are loans for house purchase. Furthermore, at 80%, real estate makes up the lion’s share of fixed assets in Germany. Prices in the German housing market continued to grow sharply last year at around 8%.3 The Bundesbank estimates that house prices in German towns and cities were overvalued by between 15% and 30% in 2018. Since prices began to surge in 2010, banks have issued more loans for house purchase. In some cases, this has been accompanied by looser lending standards.

This is what is going on in Australian housing market and why there is big trouble coming.
Usual symptoms of excess: primary one being the growth rate of non-bank lending by shadow banks etc (just like China and YES, in NZ in last year)
Risks taken in finance sector are what caused GFC and attempts now in Australia and NZ to rein in that sort of silliness end up precipitating the manifestation of risk: ie implosion of debt structures and fleeing of counter parties, in rush to exits. See M&G announcement on closing its funds today to redemptions in UK.
Unfortunately, low interest rates of banks that central banks have put on, encourages that risk taking.

Popular cheese-maker Zany Zeus goes into receivership

I suggest the rising cost of the present value of it's future liabilities, due to interest rate cuts, caused the bank to pull the trigger.

I talked to a client that's keen to expand operations in the last week and the bank won't lend them more money. In this case I believe the bank has acted reasonably as they will want to see more cash flow first.

Factory cost overruns are a concern, and I wonder where the overruns occurred, whether building construction, equipment or configuration of the factory.

I suggest the rising cost of the present value of it's future liabilities, due to interest rate cuts, caused the bank to pull the trigger.

Also quite possible that 'nice to have' brands and FMCG products are hurting as shoppers pass them over. Usually during bubbles, these brands and products do well. You can understand much about the state of the economy from the shopping baskets of different socio-economic households.

On that basis the receiver is wasting it's time even trying to trade out of the cash flow crisis.

Quite possibly. I think for many niche food brands and products, the idea is to sell out at the right time. Puhoi Valley cheese is a good example. Also, I think PV is quite clever in terms of how they position their products on price. Yes, they still chase a premium but they also are not immune to discounting their product, particularly close to use-by date.

Looks like we're in to stage two of Trump impeachment process: BBC Trump impeachment: Three law experts tell committee he should be removed. "There is no doubt that President Donald Trump's actions require him to be removed from office, three scholars of US constitutional law have testified".

The BBC are about as anti-Trump as CNN!
If Trump gets turfed out then there is no hope for representative democracy. (and I am no fan of him on a personal basis).
Voters do 'get it wrong!', and the answer is "Vote him out next time".

He, he. I think MSNBC are enjoying Trumps impeachment with gusto. Rachel Maddow is awesome. :)

Trump has been terrible for democracy. He's also pushing the States away from Capitalism to Socialism. Putins gift that keeps on giving.

Both capitalism and socialism draw down resources. They just purport to do it on behalf of a slightly different cohort.

Ecologically, it's still and overshoot/collapse problem, irrespective of ideology

Trump will not be impeached. The whole process is a party political beat up, totally driven by the Democratic party. They know the impeachment process will not get through the Senate, so will stop the impeachment process in the New Year, and censure Trumpie, which will pass the Congress vote, but will not be put to the Senate. They will ostensibly do this to save USA more heartbreak, worry etc., but of course the real reason for the pullback is because the whole sham was never going to reach their favourable conclusion. By the way, do serious observers of absolutely anything still watch CNN?

nah all the serious observers are watching Fox

I see the NZD/AUD is well over 95 cents again, and heading towards........
Time for Adrian to pull another rabbit out of the monetary bag?

Will have to wait and see if RBNZ governor will succumb to lobbyist / pressure, which have been foing on for quite sometime, like :

Wow , the Kiwi$ is relentless, even with the OCR at 1% , the currency is ticking up .......