US household spending intentions drop; Canada housing on back foot; China debt woes spread; EU investor sentiment improves; US kills WTO court; UST 10yr yield at 1.83%; oil and gold unchanged; NZ$1 = 65.5 USc; TWI-5 = 70.7

US household spending intentions drop; Canada housing on back foot; China debt woes spread; EU investor sentiment improves; US kills WTO court; UST 10yr yield at 1.83%; oil and gold unchanged; NZ$1 = 65.5 USc; TWI-5 = 70.7

Here's our summary of key events over the weekend that affect New Zealand, with news the Americans have killed the World Trade Organisation dispute resolution process.

But first in the US, consumer inflation expectations blipped up to +2.5% and that adds to the expectation that the US Fed will hold its policy position next week. But they will be keeping an eye on the decline in household spending growth as this survey had it diving to just over the inflation result. It is at its lowest reading since September 2017, and it is considerably below its 12-month average of 3.3%. The decline was broad based across age, income and education groups.

After a tough September, building permits in Canada were expected to rise. But they didn't. In fact October is the fifth consecutive month where the number of residential building permits declined. But at least they are up from the same month a year ago, even if only marginally. It was a tougher story for Canadian housing starts, with November starts -9.5% lower than the same month a year ago.

In China, another local government infrastructure investment agency has failed to pay bond interest. They will default if it is not paid within the 10 day grace period. They aren't the first. China’s bond market has seen a wave of defaults since last year. Chinese corporate bond defaults hit a record high in 2018, and are expected to break the record this year as businesses struggle with cooling economic growth.

And the latest data on China car sales is tough too. Their car market is struggling in a downward spiral, with passenger car sales falling for a fifth consecutive month in November, down -4.2% from the same month in 2018, amid their economic slowdown.

In Europe, the Sentix investor confidence survey improved for a second straight month to its highest level since May, and business expectations were the strongest in nearly two years. Analysts had expected both measures to worsen.

In Australia, their housing markets are 'on fire' so to speak. There were 2,837 homes taken to auction across the combined capital cities this week, returning a preliminary auction clearance rate of 74.5% and that was the busiest week of the year. The equivalent week last year had only a 41% clearance rate. In Sydney, the clearance rate was over 78%, boosted by a rush of buyers and a shortage of listings.

At the WTO, the Americans have killed the international dispute resolution court. They liked the decisions that went their way, but the American Administration can't stand that some didn't, so accused it of 'overreach' and have effectively ended support of the dispute resolution process.

The UST 10yr yield is at 1.83% and down -1 bp overnight. Their 2-10 curve is little-changed and positive at +20 bps. Their 1-5 curve is also positive at +10 bps. Their 3m-10yr curve is less positive +29 bps. The Aussie Govt 10yr is at 1.14% and a -1 bps dip from this time yesterday. The China Govt 10yr is unchanged at 3.23%. The NZ Govt 10 yr is now at 1.56%, up another +7 bps from this time yesterday.

Gold is now at US$1,460/oz and up +US$1 overnight.

US oil prices are down slightly to just under US$59/bbl. The Brent benchmark is now just over US$64/bbl. This takes them off their 3 month highs.

The Kiwi dollar has stabilised high at 65.5 USc. On the cross rates we are holding at 95.9 AUc. Against the euro we are at 59.2 euro cents. That puts the TWI-5 little-changed at 70.7.

Bitcoin is a little lower, now at US$7,425 and a -1.4% dip. 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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35 Comments

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Former Chairman of the Federal Reserve (1979-1987 ) Paul Volcker has died in the US , aged 92 ... he was tasked with reining in inflation... and pushed the FFR to record highs to achieve that end ... from 11 % in 1979 , to 20 % in 1981 .. after the recession he caused , inflation plunged to just 3 % in 1983 ...

Creative credit creation undertaken by Goldman Sachs

In what appears to be an expensive game of three-card-Monte, Bloomberg reports that Goldman Sachs has agreed to bail-out Softbank's huge money-losing bail-out of its investment in WeWork... saving Goldman's money-losing bet on the office-space-leasing company.

WTO has always been in the USA’s sights. Obviously, as Trump believes the world needs the USA more than the USA needs the world, the trigger has been pulled.

Yes classic bullying behaviour. Either all for them or all against, so much for a democratic process. And Trump only makes it worse - he's gotta go!

RE:US Fed:

"They blew the system back in 2007. They gave up on the domestic economy to save the banking system...

They spent all their resources propping up the banks, and they are still doing the same thing, and it’s still costing us in terms of economic growth.”

Yesterday on the radio I heard an advertisement for half price spa pools. A few of you will know why I have posted this news.

.. cos you're a bit wet ?

I was thinking more of the bubbly side of my personality.

Bubbly is not a suitable euphemism for flatulent. ;)

Lol. Isn't that just bubbles with aroma? Easy when full of s***.

that’s too good to let go! could you not leak out a little more enlightenment, beyond the favoured few?

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up

Alright, I'll put you our of your misery then :-) After 2008 a feature of recessions that was discussed here is that the first businesses to suffer in NZ are recreational boats and spa pools. There is a link back to borrowing against the capital gains on the house to fuel such purchases as an element in this.

Nice.
Spas and boats. Sum up middle class aspirations.

You could also check new registrations of motorhomes/RVs. They are also generally considered a lead indicator.
LTNZ website has the (monthly?) data for all new vehicle registrations..

.. oh .. of course .. sometimes I am dimmer than a glow-worm's arm pit .. lots of times , actually ...

Reckon we can set up a spa park ... and advertise rooms for the night , each with a water feature ...

...solve the housing shortage ... Gummie's Bath Houses !

"dimmer than a glow-worm's arm pit" don't know if it's a saying or if you made it up but it's… brilliant

tks. And that in itself illustrates that signals & analysis need to be neither complicated nor profound. I mean the red indians for instance, seemed to do quite well with smoke and blankets, provided it wasn’t windy of course.

My business is in the wholesale swimming pool equipment industry. I have noted a huge upswing in the amount of spas being imported, a ton of cheap chinese stuff. A major long term player in the industry experienced nigh on 50% growth in the last FY (they have offshore owners so publish this). Our own sales have been going through the roof, it feels completely unsustainable to me.

spa pools are always on sale, the RRP has gigantic margins

Interesting about the WTO. Another useless global government institute, almost, but not quite, completely useless, just like the UN. Why do we fall for these zombie ideas and their shining object rhetoric so easily?

Will London continue to rise because of it? Traditionally, disputes tried in London were held to be more likely to be free of government interference than anywhere else. For example, where else can you get a fair trial of a commercial dispute between a US company and a French company? Or, a Russian company and a US one? Or a Filipino company and a Chinese one? Or a Greek company and a German one?

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That must be why Helen Clark killed the Privy Council - she couldn't bully Judges she didn't have any weight over into toeing any particular line! Shameful really.

WTO is Geneva based isn't it? I think the hope was to embarrass countries into behaving with integrity. Perhaps the World Court in Den Hague could do the job?

The UN useless??

I think this is one of those statements people don't really think about but like to make because they simply can't see what they actually do. I could also say Transpower in NZ is useless because I don't see what they do.

In an increasingly globalised world, you should see the UN and the WTO as core political infrastructure. Political footballs sometimes, not listened to half the time, often disparaged. Toothless? Sure, but decreasingly so in a world where countries are shamed into action. However they provide, in the least, a common meeting point and frame of reference for very different countries with different ideologies, economic, political and social systems to meet and use their rules as a basis for ensuring small disputes do not become full blown wars. The collapse of these large international bodies would see a return to re-arming and more forceful imposition of will from the most powerful countries on the least powerful. For reference, see the collapse of the League of Nations when Japan/Germany/Italy walked out, re-armed and went to war (the US never joined too, which made it near invalid, Russia was kicked out for invading Finland). They are a buttress against such actions, against a tide of populism and war mongering. To not see this is very short sighted. If you are against the rising tide of populism that appears to be sweeping the world and would like to stand for a rules based system for dispute resolution, then you should support the organisations that provide this. They aren't perfect, but they are far better than the alternative.

"In an increasingly globalised world..." - Is it? I reckon it's going the other way. Nationalism is breaking out everywhere. That could be a problem with your enthusiasm for the UN?

Absolutely it is, as a revolt to the march of globalisation which has not been fair and caused large problems with much of the world. It's yet to be determined whether the nationalists will win (and we will inevitably have another world war) or the march will continue and countries will realise they need to come together and strengthen the weakening rules based systems.

If you want war, stick with the nationalists, history shows exactly what happens when nationalists abandon multinational organisations and try to enforce their ideology with expansionist and violent means. If you don't want this, then recognise the UN and other multinational groups are the bulwark against war and strengthening them is the only way to avert it.

The UN is far from perfect - no government is ever perfect, it is the nature of governing. However when faced with the alternative, you must see that it is preferable to anarchy, death and destruction. The UN can be reformed if the member states demand it, which is what should be happening. Instead of seeing the UN as an "outside entity trying to impose their will", they need to be seen as a partner who can be influenced, who will sometimes make you angry with decisions against you, but whose decisions and policy you will respect anyway. Again, the alternative is abandoning of rules based systems and a regression to war and destruction.

The problem is the UNs corruption is rooted in the Veto votes held by five nations only, which undermines the entire balance of the organisation. This Veto needs to be removed to make the organisation truly democratic.

I absolutely agree. Such reform is very much needed given the veto was simply "who won WWII". The UN security council needs to move away from being a "victors of the war" organisation and become a global "partners for peace" organisation. In it's current form it is broken. Again though, this can be reformed, not throwing out the entire organisation. It would be a great day if the 5 permanent members gave up their veto power, it would represent a moving forward of their consciousness to be part of a group that works for the good of humanity, not their own countries ideals. Unfortunately I do NOT see this happening as the leaders of these countries are almost exclusively power hungry corrupt idiots.

Agree the UN is better than nothing, much better in fact, and much better than the doomed League of Nations as you describe, quite accurately. Unfortunately though, as it seems inevitably, the burgeoning bureaucracy blunts and bridles the ability to act decisively and incisively. You could argue however that Korea & the Gulf so called Desert Storm for example contradict that. However the greatest downside has been the disgraceful and cruel conduct of the of some peacekeeping soldiers and the exposure of deep corruption in the bowels of some of the UN organisations. Every body that gets to be too big, seems to eventually loses control of its arms.

Let's not forget the disaster that the UN stood back from in Yugoslavia. That wasn't' failure at the back end of nowhere. It was in the centre of UN idealism - Europe. The UN is no longer relevant; it's tokenism. (Go to any of half a dozen lesser developed countries in Africa; have a look at what the UN is doing, and then tell me that is serves any other purpose than to settle our minds with the comforting thought that "At least we are doing something"
eg: https://www.irishtimes.com/news/child-s-limbs-cut-off-taylor-trial-told-... )

A certain metaphor comes to mind concerning babies and bathwater.

Yes, there are various problems with any large organisation. Yes there is corruption which needs to be rooted out. Of course there are going to be failures and scandals.

Let me ask you this - when the NZ government finds corruption, screws something up or implements policies that back fire and make a problem worse, do you call for all of NZ government to be thrown out and for us all to go back to a state of anarchy without rules? Or do you demand reform to avoid the problem happening again?

This is the same issue with the UN, just on a larger scale.

What I do is, vote for an alternative Party at the next election. That's every 3 years. I may or may not influence change by doing that, but the UN can't be voted out; it's been metastasizing for nearly 75 years. Let me ask you - "How long do you want to leave an organisation that is beyond change ( isn't 75 years long enough?) before you toss it out?". If it was going to change with new 'leadership' ( which is just the result of political negotiation) it would have done so by now.
And speaking of voting, what's with the Veto Powers that stymie any worthwhile initiative, if it doesn't suit any one of the handful of select members? The UN is way past it use-by date. Scrap it.

There is a an important distinction you are not making. You don't throw out all of the NZ government, you vote out the people who were responsible, the leaders, and put in new people. You do not throw out all the agencies etc that form part of the NZ government which you could claim "has been metastasizing for 160 years".

Guess what the same thing happens with the UN. Our leaders (and by extension we the people) elect the representatives of the UN by absolute majority. It's just a higher form of democracy. Those that are found to have acted illegally or immorally are thrown out or forced to resign. Hey - it's just like any government. We should not demand the UN are perfect nor that they are completely destroyed if one person or a group of people screw up. Such knee jerk reactions don't belong in the real world for good reason.

You are also failing to recognise that the UN and other organisations are the only real hope the world has of not descending into chaos and war, as relatively recent history shows us.

"Scrap it" is simply a call to war. That is what will happen as shown previously when rules based systems were thrown out and nationalism allowed to flourish.

Are you so keen to march to war for no reason? Or are you suggesting there is a better way - if so, what is it?

tks AJ. And that is so scarily reminiscent of the “body count” abominable & pointless strategy that evolved in Vietnam isn’t it.

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