US CPI inflation up; US real wages stagnate; eyes on US tariff decision; airline profits lower; Aussie confidence drops; WTO rejects Aussie tariffs; UST 10yr yield at 1.81%; oil lower and gold up; NZ$1 = 65.7 USc; TWI-5 = 70.8

US CPI inflation up; US real wages stagnate; eyes on US tariff decision; airline profits lower; Aussie confidence drops; WTO rejects Aussie tariffs; UST 10yr yield at 1.81%; oil lower and gold up; NZ$1 = 65.7 USc; TWI-5 = 70.8

Here's our summary of key events overnight that affect New Zealand, with news Australia has had an embarrassing loss at the WTO.

This is the updated version of today's briefing. First, the US budget deficit in the year to November came in at a whopping -$1.022 tln and +16% deeper than at the same period a year ago. In fact this deficit is now more than double the level that the current Administration inherited three years ago (-US$496.6 bln).

And the US Fed delivered no surprises with its 'on hold' review, although it did note that while their economy is growing 'moderately' at present, "business fixed investment and exports remain weak". Neither bonds nor their currency reacted. The Fed seems to have no appetite to make any changes any time soon.

American consumer inflation came in marginally higher in November than expected at +2.1% and at the Fed's target. This is a rise from +1.8% in October. The higher levels are driven by medical costs which rose +5.3% in the year and rent which rise +3.3%.

And 'real' average hourly wages are unchanged in November from October - in fact they haven't shifted in four months. For the full year, real wages rose only +1.1% and that is the lowest rate of increase in more than a year.

Meanwhile, a final decision on new US tariffs on China, which are expected to be delayed, is now with the US president - and basically anything could happen. There is no 'phase one' deal despite ongoing talks. Mistrust is high.

China is in the news also as the world's largest jailer of journalists as they exert tougher controls on news and free thought. They beat out Turkey who had the 'honour' in 2018, and then Saudi Arabia and Egypt.

And in another sign global trade is slowing, airline profits are on course to fall faster than expected in 2019.

In Australia, consumer sentiment in November dropped rather sharply and is now -9% lower than this time a year ago. This result will disappoint their monetary authority as it come after their September rate cut and pre holiday spending (and post their big tax cut), and the expectation was that all these would have bolstered consumer sentiment. It is not the case, however.

And Australia has been exposed as an exponent of double standards when it comes to trade. The WTO has rejected how it protects domestic manufacturers with tariffs saying it applies its own rules unfairly. This case opens up a raft of new claims for access by a range of nations, including those that want to export steel to Australia. They are in for an uncomfortable, shifty time as they are revealed as only supporting free trade when it suits them.

The UST 10yr yield is at 1.81% and down -4 bps overnight. Their 2-10 curve is little-changed and positive at +17 bps. Their 1-5 curve is also positive at +12 bps. Their 3m-10yr curve is less positive +29 bps. The Aussie Govt 10yr is up +3 bps at 1.17%. The China Govt 10yr is -2 bps lower at 3.21%. However, the NZ Govt 10 yr is unchanged at 1.53% since this time yesterday.

Gold is now at US$1,471/oz and up +US$7 overnight.

US oil prices are lower today at now under US$59/bbl. The Brent benchmark is now well under US$64/bbl.

The Kiwi dollar is marginally higher today at 65.7 USc. On the cross rates we are slightly lower at 95.7 AUc. Against the euro we back up to 59.2 euro cents. That puts the TWI-5 firmer at 70.8.

Bitcoin is a little lower, now at US$7,183 and another -0.7% 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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26 Comments

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The Aussies only support free trade when it suits them - just like the yanks! They should change their name to Little America and become the 52nd state, that way they could get to vote for Trump. Of course the US flag is full with 50 stars (not 51) so they wouldn't get their own star!

14
up

The Aussies only support free trade when it suits them - just like the yanks!

You mean "just like everyone".

Exactly, how about our cheap power we are selling Tiwai? I'm sure if you dug deep there would be many more industries in NZ where we are supporting them eg when companies set up in a region: support given by the local councils, support given to farmers in droughts etc etc.
The Editor here seems to have rose tinted glasses about NZ.

10
up

Very rose tinted glasses. Yet that is very common in this country. Lots of great things in Godzone, of course, but our insularity, complacency and to be frank arrogance are notably common.

Nymad and Uni - in this case the way they are specifically doing it is through tariffs. And NZ has a very limited tariff application. Which is one reason why 'free trade' is so important to us, to have at least the semblance of a level playing field. So yes this is like the Yanks - not everyone.

Uninterested, the power to Tiwai is under question at the moment because it has been identified that what they pay also subsidises infrastructure they do not use. Local support to encourage companies to set up in specific areas do not equate to tariffs, but are more about gaining employment in a region and thus allowing some degree of growth. there is a huge difference.

Don't get me wrong - I don't disagree with Tariffs, however their application must be even handed and to meet a specific purpose.

Ahh. NZ does not have very limited tariff application. The rates may (generally) be low, but coverage is extensive.
https://www.customs.govt.nz/business/tariffs/working-tariff-document/wor...

Tiwai and domestic subsidisation is a different argument.
It protects domestic production, but that production isn't really for local consumption.

From the MBIE website; "Most goods imported into New Zealand have no import tariffs. Tariffs of 5 or 10 per cent apply to some imported goods including some textiles, footwear, processed foods, machinery, steel, and plastic products."

The inverse of your very limited and MBIE's Most goods are not synonymous, Murray.

Most pretty much means anything over 50%.

Agreed, plus it's not like the Ozzies are Scandinavian honest types, way of thinking.
Barely have a pirates' code/set of guidelines, they have.

yeah I know that they are focusing on transmission pricing but are conveniently ignoring Energy pricing from meridian.

There are only 50 states according to wikipedia. Which one do you think they are missing from their list?

https://en.wikipedia.org/wiki/List_of_states_and_territories_of_the_Unit...

Your are correct, for some reason I was thinking they had 51!!? Still Aussie wouldn't get their star, the flag is still full!

Australia is being dug up and given away for free.

A ticker price caught my eye last night - the 10 year OAT ( French Bonds) fell.... 200% ! I suppose that's what falling from 0.2% to something below zero does!
https://www.bloomberg.com/quote/GFRN10:IND

Eh? By definition a fall to zero is a -100% move.. did they go to -0.2%?

As per link - closed at minus 0.01%, so I guess so! (It was just 'one of those things' that crosses the screen at 3 in the morning that makes you take notice)

The better explanation repo story just got better.

Understanding the real nature of repo, collateral availability and multiplication factors, you knew all the way back on May 29, 2018 (and even before, but after May 29 there was no doubts) what dealers were up to. Building collateral reserves, stocking up for the increasingly dicey conditions we have found ourselves in this year – predictably, not unexpectedly. Evidence

American consumer inflation came in marginally higher in November than expected at +2.1% and at the Fed's target.

The benchmark index for the the Fed's 2% inflation target is PCE. Moreover, core PCE is considered a better indicator of trend inflation. Latest PCE release

China is in the news also as the world's largest jailer of journalists as they exert tougher controls on news and free thought. They beat out Turkey who had the 'honour' in 2018, and then Saudi Arabia and Egypt.

Hmmmmmm.

Assange’s “crime”, of course, is to reveal the illegal use of force by the state in Iraq and Afghanistan. That the state feels the need to employ such violence against somebody who has never practised violence, is a striking illustration that violence constitutes the very fabric of the state. Link

He is a perfect example of where the whistleblower act should be applied to all people not just federal workers

There needs to be a proper study as to how much of the total tax burden nationwide falls on SMEs and middle-income earners on both sides of the Tasman. Let's see where we fall on a scale from Denmark to the US.

Hilariously Fed chair said no one knows what economy will do in 2021. May be nz treasury might like to reply given its latest offering is full of “on other hand” and is notably oblivious to degree of effect that housing slowdown has on credit creation and national wealth. In 2020 they will be taught economics lesson

Mike.
Try the other way round.
Credit creation driving house prices...

National wealth is a trick if you are blending asset revaluation with accumulated retained earnings (incomes).
You know, what's he worth v what's he good for...

Would be different if we issued all debt in our own currency & credit not to rise faster than gdp. (Plus a touch of productivity improvement too!).
What a xmas that would be.

Re: "China is in the news also as the world's largest jailer of journalists". That's worrying enough.
The good news is that the number of executions recorded worldwide in 2018 fell by 31% on the previous year, according to Amnesty International. Though and here's the but; China is excluded from that figure since it is widely believed to have executed more of its people than all countries in the world combined.
BBC article: Death penalty: Global executions fall 37% since 2015 - Amnesty https://www.bbc.com/news/world-39557064
Amnesty International (For up to date figures 2018): https://www.amnesty.org/en/what-we-do/death-penalty/

Not sure that 'we need less People' and 'we applaud less Judicial Deaths' is an entirely coherent stance.....