US pay and productivity weaken; NAFTA to be ratified; food turbocharges China CPI; China PPI drops; Canada raises bank capital buffers; German gloom rises; UST 10yr yield at 1.85%; oil and gold little-changed; NZ$1 = 65.4 USc; TWI-5 = 70.6

US pay and productivity weaken; NAFTA to be ratified; food turbocharges China CPI; China PPI drops; Canada raises bank capital buffers; German gloom rises; UST 10yr yield at 1.85%; oil and gold little-changed; NZ$1 = 65.4 USc; TWI-5 = 70.6

Here's our summary of key events overnight that affect New Zealand, with news financial markets are still in a holding pattern.

In an under-the-radar adjustment, the growth of American labour costs was not as high as initially reported for the third quarter. The change was significant; it was earlier reported as +3.3% pa whereas the corrected level is +2.3% pa. And US productivity actually dropped unexpectedly in the same period.

And in a rare bipartisan deal, the American Congress voted to back the US Administration's US-Canada-Mexico trade deal after winning changes they say will make it better.

Although 'progress' is being reported in the US-China trade talks, both sides are becoming increasingly mistrustful of each other. The US side is fearful the Chinese are out-negotiating them, and the Chinese side fears the Americans won't adhere to any deal made.

In China, food prices pushed up their November CPI to a higher level than expected, driven by their pork crisis. Pork prices were up +110%, and along for the ride were other proteins, with beef prices up +22% and lamb prices up +14%. Non-food prices however rose just +1.0% pa. And on the producer price side, they actually fell by -1.4% pa, slightly less than for October, but near historical lows.

And China’s bank debt growth picked up sharply in November after October’s slump, with banks lending more than expected. Banks lent almost ¥1.4 tln in new loans in the latest month and far higher than the ¥1.2 tln expected. And that is far more than the weak ¥660 bln in October. The government's stimulus measures have started to support their economy.

A new report from CBRE Group points to an unprecedented rise in the vacancy rates for office buildings in China's leading cities. According to the report as of the end of the third quarter the office building vacancy rate was at least 10% in all four of China's first-tier cities of Shanghai, Guangzhou, Beijing and Shenzhen, while vacancy rates were even higher in second-tier cities.

In Canada, like New Zealand, they are also on a program to get banks to raise the amount of capital support by shareholders, announcing increased capital buffers for 2020.

And back in the US, Boeing has said it will deliver less than half the airplanes than 2019 compared to 2018, and about half the level of its rival Airbus. The fallout from the 737MAX disasters has been major.

The latest German and EU ZEW sentiment survey suggests that the gloom is lifting in that region, with sharp improvements.

The UST 10yr yield is at 1.85% and up +2 bps overnight. Their 2-10 curve is little-changed and positive at +19 bps. Their 1-5 curve is also positive at +13 bps. Their 3m-10yr curve is more positive +31 bps. The Aussie Govt 10yr is unchanged at 1.14%. The China Govt 10yr is also unchanged at 3.23%. However, the NZ Govt 10 yr is now lower at 1.53%, down -3 bps from this time yesterday.

Gold is now at US$1,464/oz and up +US$4 overnight.

US oil prices are unchanged at just over US$59/bbl. The Brent benchmark is still just over US$64/bbl.

The Kiwi dollar is marginally lower today at 65.4 USc. On the cross rates we are holding at 96 AUc. Against the euro we have dipped to 59 euro cents. That puts the TWI-5 little-changed at 70.6.

Bitcoin is a little lower, now at US$7,233 and another -2.6% fall. 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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40 Comments

"American labour costs was not as high as initially reported"
I wonder why!
"44 Percent of U.S. Workers Earn $18,000 Per Year"
https://www.thestranger.com/slog/2019/12/03/42166145/what-60-minutes-mis...

14
up

This is the greatest shame of a country that calls itself the best in the world. What this also means is that that 44% are also denied adequate housing because they cannot afford it, as well as health care for the same reason. This is the 'free market' in action, its realities and impacts. For NZ we must ensure that does not happen here, and we are almost certainly too late. Re-elect national next year and the slide will accelerate in this direction.

11
up

the people capitalism doesn't need anymore.

On the contrary, capitalism needs them, big time.

Take Walmart for example: the company pays ultra-low wages to thousands of its bottom-tranche workers. As a result, the US taxpayer spends billions in providing handouts such as food stamps to these low-income households.
Most of these workers end up using these food stamps at Walmart stores. Forbes estimated in 2014 this revenue stream brought in an average of $4,415 per low-paid worker for Walmart.
Therefore, the US taxpayer incetivises low wages and corporations get double-dip their returns (wage savings and public assistance revenue).

Walmart has robots on shop floor, has for abit

11
up

... before we pronounce last rites on the " free market " ... bear in mind that successive US governments have been lobbied over the years ... and the market is now anything but free ... with a tax code of 10 000 pages , plus another 90 000 pages of supplements .... there's a swathe of exemptions and subsidies ... the medical insurance system is a basket case ...

The hash ups were put in place by the leaders , not by the free market ... it just responded to what was in front of it ...

And I guess we should remember "It's not how much you get paid, but what you can do with it"
$18k used to buy Americans' an average American home not that long ago....
In 1960, the Richest 400 American families had a tax rate as high as 56 percent.... the bottom 50% of American workers paid ~22%. Today the bottom 50% of workers pay about the same rate ( 24%) yet the Top 400 Families now pay....23%.
https://tinyurl.com/y2z4ygyr

I agree GBH. It is the distortion of capitalism that is at fault.

Same. Regulation is supposed to protect the vulnerable, not exploit them

See Ray Dalio...the system is broken:

https://www.cnbc.com/2019/11/08/bridgewaters-ray-dalio-on-economy-worlds...

The world we know could look very different in 10 years. One feels we might be coming to an end of the neoliberal era.

I agree GBH, and this has been identified before. The 'Free Market' is a product of Milton Friedman's but it has never ever been 'free'. The 'free' means free of regulation, but as we have all seen it is not free from manipulation, and today, especially in countries like America, but also here in NZ, any regulation put in place tends to favour the money and big players. Governments seem afraid to actually do their job, housing is a case in point.

Our current Government, as well as it's predecessors, have actively eschewed regulating rents, applying affordable limits. There is a common belief that someone with an investment property is entitled to a return on their investment, with no consideration of the other party - their 'victim'. However the investor made a business decision to invest and rent out the property. They are working in a captive market where their prospective clientele has little to no choice. The investor is heavily subsidised by the taxpayer (the last figures were in excess of $1 billion per year) through accommodation supplements. The investor clique argue that rent controls do not work, and point to international experience, and to some extent they are correct. But what they ignore or avoid discussing is that rent controls on their own do not work, but when accompanied with other regulation which defines the standard of housing, prevents property being held empty, and directs landlord behaviour and standards, can and will work. Not only that will force many investors out of the market, reducing house prices to enable ordinary people the choice to own rather than rent. If you cannot understand this, an analogy would be cars; imagine if there was only one rule to govern traffic. It doesn't matter what that rule is, but it only covers one aspect. Imagine the mess our roads would be. Instead a whole book full of laws cover roads, vehicles and traffic management. The same needs to work for housing too!

And yes the American Health Care market is serious broken, dead and i think fully meets the 'zombie' criteria. Again an example of where a lack of regulation has created a huge mess that fails to serve the people while making a very small number very rich. We need to be very careful that that does not happen here. If memory serves our latest trade agreement gives American drug companies too much sway in NZ already.

Rent controls are ridiculous in a market where there's high demand for rentals. All that happens is that people won't move, for fear of not finding somewhere else to live. If you can't move then you won't consider better employment opportunities outside of your current area.
A better alternative is to ensure sufficient quantity of rental accommodation.

Utterly disagree. The current shambles is the result of partially the lack of controls. It is vested interests who argue against them. But rent controls cannot be applied in isolation. they require other regulation to back them up and support them. Provision of rental accommodation isn't the goal, the provision of affordable accommodation and choice is. Currently landlords are parasites and the rest are their victims.

Or improve home ownership rates?

Get outside of the main cities in the US, its a 3rd world country. Infrastructure falling apart all over the place. The gap between rich and poor is vast. Which is a direction we're heading here as well.

Already here well and truly

Living in America during the GFC was a real opener - firms forcing staff to work 70hr weeks to get a project back on schedule (this went on for months on and off). If you don't like it - there's the door, but nobody else is hiring so sure you want to leave? Staff taking sleeping bags to work and sleeping under their desks so they could work till midnight and start again at 6am. At the same time watching their house price fall to be less than their loan! Destroying family life and health....was glad to know I was only there for a short term assignment and not under the American management so could determine own hours...but the lifestyle of the typical American worker was a nightmare...not at all what I was expecting.

.

US workers total 131 million.
https://www.statista.com/statistics/192361/unadjusted-monthly-number-of-...

US population ~330 million.
http://worldpopulationreview.com/countries/united-states-population/

There are 200 million US residents that don't have full time jobs. I often wonder how bad the demographics are in the US to consistently have so few workers, and how they think their economy can operate with so few jobs with many of them paying so poorly.

Very worthwhile documentary on Netflix called "American Factory". Fascinating study on capitalism China-style. Many prophetic insights from workers and management. Anyone skeptical about the need to think about the future of work ought to watch it.

Try this one on for size. A documentary by DW where they interview full time workers that are essentially living in Hoovervilles except instead of building a shack they get to live in their car. No wonder people tend to keep up on car payments as they are partially rent as well as transport.

https://www.youtube.com/watch?v=JHDkALRz5Rk

I sold some IVV ETF shares and purchased more AIA ETF after watching that!

its about to get really bad
https://latest-today-news.com/2019/12/10/its-about-to-get-very-bad-repo-...

A better explanation can be read here and heard here

Background link

Extraordinary

Very worth reading the second one (and its key link) thoroughly. Thanks.

Gee, I hope Adrian has a plan B.

Your assuming Adrian Orr actually has a Plan A !
Is Plan A is to follow EU and Japan into destroying the bond market and have only the central bank buying ?
Or is Plan A smoke and mirrors and just hope for the best, no plan just academic ideas.

I was thinking about Plan A being the recent capital requirements changes. But of course they don't come into effect for years - so the question is - what's he plan to do in the case of a major international cash/liquidity event? Far as I can work out - there is only the OBR - but I don't see that as a panacea for the kind of event that the link refers to. I'm guessing the immediate effect of such an event on NZ would be payrolls. How secure are our private sector payrolls? Those on the government payroll would likely be fine as the government can simply issue currency and deposit it directly into private citizens bank accounts (provided the banks remain open/operational!). But beyond that....

Yes thats part of PlanA which to me is smoke and mirrors.
7 years for them to comply is simply smacking lipstick on and pretending. Its too little too late in my view.

Yeah well it's a plan for the future (so in that sense better than no start), but definitely smoke and mirrors in terms of the immediate/short term. I get the feeling that every sovereign will be on its own in the next crisis, whereas the US provided liquidity for the world in the last crisis. At least that's my very rudimentary understanding!

"what's he plan to do in the case of a major international cash/liquidity event?"

During 2009, recall that the banks had funding issues for commercial paper.

The government had to step in and provide guarantees for the banks to access capital markets and to guarantee bank deposits so that there was a reduced chance of a depositor run.

The NZ banks are reliant upon funding from non residents, and off shore sources. The loan to deposit ratio is 133% for the banking system in NZ in October 2019.

The banks have extended the their maturity of their funding since 2009 and reduced commercial paper financing. Still, there is a lot of deposit funding from non residents in the banking system - about NZ$35.5bn (out of NZ$360.1bn total deposits) at October 2019. I haven't been able to find the maturity profile of this foreign sourced funding - does anyone know where to find this?

Then there are the gross debt securities issued of NZ$118bn - not sure how much of this is non resident funding, nor details of the maturity profile. There is a potentially offsetting asset of debt securities owned of NZ$47bn.

And a further NZ$27bn described as borrowings - not sure how much of this is non resident funding, nor details of the maturity profile.

As regards the bank deposits, not sure if the NZ$30,000 deposit insurance amount has been finalised yet.

Not sure whether it is what you are looking for but see the spreadsheet in the first link on this page;

http://www.omo.co.nz/

The destruction of civilization – implications of extreme monetary interventions

https://claudiograss.ch/2019/12/the-destruction-of-civilization-implicat...

I find it ironic that China doesn't trust the USA to adhere to a deal if made. I always thought it was the other way round. How things have changed.

Not ironic really, they are both totally untrustworthy.

I don't disagree - only the USA are generally the one that level that accusation of breaking agreements against China. The reality is it seems you can't trust anyone, anymore.

I don’t know where that quote came from but it seems absurd Chaston would print it. China has broken every deal they’ve ever agreed to, yet somehow the US are the untrustworthy ones, and not only that, the Chinese are master negotiators who have the Americans cowering. Somehow hard to believe, although many of these pieces wouldn’t be out of place in Xinhua or The South China Morning Post.

... brave of them to slag off Tall Paul immediately after he dies ! ...

Our lead Dirty Politics actors are over doing their thing in the UK;

Now the much-parodied scene has fallen victim to the Conservative social media machine, run by two New Zealanders and an Australian political strategist, with a spoof video in which Mr Johnson appears on a doorstep promising to "get Brexit done".

https://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=122927...

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