Wall Street yawns after phase one trade deal; US retail sales weak. China FDI rises; Japan hopes for growth; UK diminished; IMF warns Australia; UST 10yr 1.83%; oil and gold up; NZ$1 = 65.8 USc; TWI-5 = 70.9

Wall Street yawns after phase one trade deal; US retail sales weak. China FDI rises; Japan hopes for growth; UK diminished; IMF warns Australia; UST 10yr 1.83%; oil and gold up; NZ$1 = 65.8 USc; TWI-5 = 70.9

Here's our summary of key events overnight that affect New Zealand, with news there is a sense of deflation after two big international issues get 'resolved'.

The big overnight news is that the Chinese have confirmed there really is a phase one trade deal, one where the Americans will scrap the December 15 tariffs. Market reactions are mixed. American equity and bond markets don't seem enthusiastic. The S&P500 is unchanged at present after rising +0.5% on the news, then falling -0.8% on the details. But the Shanghai equity market rose an impressive +1.8% yesterday. Tokyo rose even more, up +2.6% and Hong Kong was also up +2.6%.

Maybe there is another reason for the muted Wall Street response; weak November retail sales. They rose at only a very modest pace in November, virtually flat from October and only up +2.9% above the same month a year ago and a slower-than-expected start to the holiday shopping season. And given that American inflation is up +2.1% in the year, the gains look very mediocre. Business inventories were up +3.1% in the year.

In China, foreign direct investment levels are rising. They are up +6% in 2019 so far, a gain of US$124 bln. Almost 30% of that is in high-tech sectors and that portion grew a remarkable +28% in the year.

Data for Japanese industrial production for the year to October looks very discouraging, down -7.7% and that is a faster rate of decline than for the year to September. But that was in the shadow of their GST increase, and when the typhoon hit. Looking forward, they are more optimistic with 2020 growth of +1.4% partly as a result of an infrastructure stimulus boost.

In India, the presumption is that their export prowess is all about services - call centers, IT services and the like. But it turns out these service exports are growing slower than their overall economy and declining. They were up just +5.25% in the year to October.

With the UK election decided decisively, the focus will now turn to trade deals, not only in their back yard, but with many countries eager to re-negotiate access to the UK market. The first issue to be resolved will be the Irish question and now the UK Government doesn't need the Northern Irish vote to resolve the matter, it looks like the customs border will be the coast. Scotland will be trickier. And both issues may end the 'united' claims of their Kingdom. Then there is the trade arrangements with the EU and especially the position of London as a regional financial hub. It will almost certainly be diminished. Trade deals with NZ and Australia are way down the list of importance there, but they may be 'easy' deals to do.

Meanwhile, Australia is getting ready to cook. This forecast is frightening.

And their housing markets may be heating up too much as well. The IMF is warning regulators to be ready to act should rapid housing debt growth continue on current trends, saying "looser financial conditions could re-accelerate asset price inflation, boosting private consumption but also adding to medium-term vulnerabilities given high household debt levels".

The UST 10yr yield is at 1.83% and very little different from this time last week. But it is down -5 bps from this time yesterday and down -8 bps from where we left it last night. Bond markets are sceptical of the trade-war deal. Their 2-10 curve is unchanged at +22 bps. Their 1-5 curve is at +12 bps. Their 3m-10yr curve is less positive +27 bps. The Aussie Govt 10yr is down -8 bps overnight at 1.17%. The China Govt 10yr is virtually unchanged at 3.22%. The NZ Govt 10 yr is now at 1.58% and unchanged overnight although it is up +9 bps in a week.

Gold is up +US$6 from this time yesterday to US$1,474/oz and up +US$14 for the week.

The VIX volatility index is just over 13, and a similar level to this time last week. Its average over the past year is 16. The Fear & Greed index we follow has moved from moderate 'greed' levels to extreme greed levels.

US oil prices are up further to just on US$60/bbl and the Brent benchmark is now just at US$65/bbl. The US rig count fell again to under 800 and its lowest level in nearly three years.

The Kiwi dollar is at 65.8 USc and unchanged over the week but lower by nearly -½c overnight. On the cross rates we are a little firmer at 95.9 AUc. Against the euro we are unchanged at 59.2 euro cents. And now the UK election result in known and decisive, the UK pound is slightly weaker overnight, pulling back from its gains yesterday. But for the week it is +1.2% firmer. That puts our TWI-5 at just on 70.9 and virtually unchanged for the week.

Bitcoin is little-changed from this time yesterday, now at US$7,270. The bitcoin rate is charted in the exchange rate set below.

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43 Comments

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"there is a sense of deflation after two big international issues get 'resolved'"

Without a doubt....but how does the below fit in ....here, there and everywhere? Of course! Less growth, more debt. We'll all be spared Deflation by the Wealth Effect of higher property prices, and we'll be out there spending like there's no tomorrow! Lunacy, writ large.

"Overseas buyers are expected to snap up as much as £50bn of real estate in coming months as they bet that political stability has returned"
https://www.telegraph.co.uk/business/2019/12/13/boris-win-burst-dam-50bn...

I could have sworn I was told this stuff had peaked. "Proved reserves of crude oil in the United States increased 12%, from 39.2 billion barrels to 43.8 billion barrels at year-end 2018, setting another U.S. record for crude oil proved reserves.
...Proved reserves of natural gas increased 9%, from 464.3 trillion cubic feet to 504.5 Tcf at year-end 2018—another U.S. record for total natural gas proved reserves."
https://www.eia.gov/naturalgas/crudeoilreserves/

No, no, oil ran out in 1975, everyone knows that. Well, everyone knew that in 1974, anyway.

Over the last 46 years there's been 19 shocks or interruptions to the worlds oil supply ... causing prices hikes of up to 232 % in the price of crude ( 1973 ... the Arab oil embargo ) ... its been predicted that the next shock will take us to $US 118 to 126 per barrel of Brent ...

.. and always , after every supply glitch , the price tumbles back cos quite frankly there's just so much of the stuff around ... more than we need in known reserves ...

Great, we'll be back to 10% GDP growth before we know it given this good news.

A sigh of relief across England. It seems self righteous kool-aid is out of fashion. A rejection of the simplistic notion that the interests of capital and labour are in opposition. A rejection of the politics of division. The election of the only party that actually tries to represent the whole country and that recognises that a civilised society depends on capital and labour working well together. Both need looking after.

Keep that Kool-Aid chilled Roger - Boris to heal a devided nation - should be great entertainment.

Jeremy Corbyn has come out swinging at the media , blaming them for his loss ... reckons they gave him a hard time ...

.. ignoring the fact that it was a landslide swing to Boris Johnson ... and that many of Corbyns own members couldn't stand him ....

If it is the media that sways voters what happened with Trump - many of the US newspapers were vitriolically against him.

... exactly ! .... British voters weighed up one man vs the other ... and overwhelmingly gave Boris their support ...

Imagine you're with a small coterie of friends , having pints in an English pub ... who would you prefer to join your group ... who would be more fun to hang with ... Boris or Jeremy ? ...

The same thing was said about HW Bush. Great criteria for choosing who to vote for...not.

The election of the only party that actually tries to represent the whole country and that recognises that a civilised society depends on capital and labour working well together. Both need looking after.

Seems the better off city dwellers beg to differ

A major problem for the country is the very success of London. It is a form of Dutch disease, whereby the success of one sector pushes up the exchange rate and stuffs up everything else. The problem is that the finance sector transfers wealth to a relatively small number. In contrast, manufacturing tends to distribute it more widely. If money flows into the bottom layers of society then everyone benefits. It's one reason oil states have such difficulty controlling their populations, again, the money only flows to a few.

Johnson announced his intention to bring the country back together, presumably by walling us in and forcing us to till his sunlit uplands. Speaking of which, Ashfield was won by a Tory named Lee Anderson, who put out a video during the campaign stating that “nuisance” council tenants should be made to live in tents in the middle of a field, where they would be woken at 6am and forced to pick vegetables until the end of the day, when they’d get a cold shower, then “back in the tent”. Labour came third – THIRD – here. Link

She is unhappy, it seems. Mind you, the place is a mess, decades of bad decisions catching up with them. Homeless people everywhere. Epidemic of teenage knife stabbing. Definitely gone backwards, decade by decade. GDP growth rate peaked 50 years ago, just before they joined the EU.
https://tradingeconomics.com/united-kingdom/gdp-growth

Ah, the Great British public are suckers for a public schoolboy with a posh accent.
They used be an Empire ruled by an Empress,
then merely a Kingdom ruled by a King,
now just a country...

. ... a cousin of mine met Boris in London some years ago .. a chance meeting in a hotel elevator ... and said that Johnson is a remarkably energetic , witty , personable man ....

I rest my case your honour.

I was at Oxford with Boris. He's a slippery, lazy, sleazeball.

Roger,

I had to read this twice to make sure I wasn't dreaming. "A rejection of the politics of division". Are you mad? I recently spent 2 months in the Uk, having lived there most of my life. I spoke to a great many people and a sense of divisiveness came through very strongly. I found myself being very careful in what I said, even with old friends. "The only party that actually tries to represent the whole country". A statement of shocking ignorance of the politics of austerity practiced by this government. I know people in the NHS and never has it been in a more parlous state. Of course, what Corbyn offered was laughable. I remember Michael Foot's 'longest political suicide note in history' and this was if anything worse.
Boris is a serial liar in the mold of Trump and in a sane world, would have been laughed out of court. I used to think tht you were worth following, but no longer.

The IMF is warning regulators to be ready to act should rapid housing debt growth continue on current trends, saying "looser financial conditions could re-accelerate asset price inflation, boosting private consumption but also adding to medium-term vulnerabilities given high household debt levels".

LOL - the RBA has already taken precipitate action. It cut official interest rates in half this year.

The housing market is a key source of potential systemic risk that needs to be monitored closely, with housing accounting for 40–50 per cent of household and bank assets.

In Australia, housing debt is generally well collateralised. Furthermore, around three-quarters of the debt is owed by households in the top 40 per cent of the income distribution, who generally have a high capacity to make repayments and are less likely to experience sustained unemployment.

While the potential for direct losses to the banking system from high household debt seems limited, highly indebted households could curtail their consumption if there was a significant increase in job insecurity. With around one-third of households having mortgage debt, in aggregate this could result in a sizeable decline in consumption and so amplify any shock to the economy and so the financial system. Link

Gold / silver prices say it all. No faith that it is all plain sailing.

I am not an economist and neither financially very literate like some economists. The only economist I know that talked sense, have gone missing lately, is Tony Alexander. If I bump into him, I will ask but me thinks interest rates will not stay low for longer but might just stay submerged for a very long time. Commercial prop yields at 2-3% now seem to be around the corner. Go to any comm real estate Xmas party, you will see the mood they are in.

Or possibly 9% - 10%% as Commercial property prices tumble? For a bit of realism; Before going to your local Real Estate office Xmas Party, walk down your local High Street on the way and see how many shops have sun-faded "For Lease" signs on them!
Comment for Aussie that seems to sum up the situation:

A pivotal weekend for Christmas retail shopping, I would reckon. If the masses have not gotten the message to spend, spend, spend on their credit cards due to the recent RBA cuts (which do not affect their credit card interest rates) and the minor blip in house prices (freestanding in ‘desirable’ areas, not the poorly constructed dogbox overlooking the freeway, which they actually own) then something is going to break very, very soon. And we're not talking 18 months either.
Consumer behaviour has decoupled from central bank policy – we’re through the Looking Glass folks. Two weeks from Christmas and the fire sales are on.

Nimby - Tony has left the BNZ and has a new weekly news letter called 'Tony's View' email him on - tonyalexander5@outlook.com to get on his free mailing list.
If you have enjoyed and understood his column's in the past, well done he is the most accurate logical economist in my opinion whom I have followed for 20 years.

'It will probably not come as an enormous surprise to learn that China is the world’s largest exporter of clothing, responsible for roughly one-third of all exports ($158 billion). The distinction is a bit more surprising, however, when one considers that labor costs in China are now much higher than in Vietnam, Mexico, India, and many other large emerging manufacturing economies. Nonetheless, China’s exports are nearly five times higher than the number two exporter, Bangladesh ($33 billion). Veitnam is the third largest exporter ($28 billion) and, somewhat surprisingly, Italy remains the world’s the fourth largest clothing exporter ($25 billion).'
https://thesoundingline.com/map-where-your-clothes-come-from/?utm_source...

Bangladesh makes good quality T shirts ... India makes excellent towels ... I always look at the label ... choosing to avoid Chinese made wherever possible , their quality is poor ...

Andrewj, off topic, but could you please post the link of the diagramatic lecture of Al Gore's carbon scam? Lost the link!

Gosh, thats a while back, let me have a look but Im not optimistic.

. ... is it the article by Tom Harris and Jay Lehr at heartland.org ? ... 19 Oct 2018 " How Al Gore created the great global warming fraud . "

Andrewj,....that's it.Many thanks!!! Robust discussions need to be had !

Yes, every day is Christmas Day if you're my 3 yo grandson. Christmas is losing its shopping appeal as the globe keeps turning & churning & maybe for the better, if you're a traditionalist like me. So many sales, so much stuff to buy, with only so many pennies to go round. Certainly in the west anyway, the great consumer is aging, so probably not too many great retail stories left to tell. Anyhow, we've got enough stuff. We now give it away, mostly to the children, or if they don't want it, to the Sallies. One of the most therapeutic jobs we did this year was clean out the garage. It's quite big again.

... yesterday was Black Friday ... again ... I didn't go to the sales ... why bother , Briscoes is on sale everyday ...

There is an excellent article in the Herald about the idea of government doing a mass leasehold housing program, something I have suggested on this website several times. It's a no brainer, but are the current government even smart enough to realise that?
That's what is most frustrating about this housing crisis - there are solutions, if there is will.

... yes ... there are so many positive possibilities available ... but they chose to ignore them all , and to roll out the idiotic " Kiwibuild " instead ...

Twyford is so arrogant and probably on the spectrum. Once he fixes on an idea, it's that idea or the highway.

'‘One of Calgary’s largest property development and management companies has just put 50 properties — a combined 3.7 million square feet — with mortgages totaling nearly $651 million, under creditor protection.’

The outfit is the ‘Strategic Group’

One in four Calgary office buildings are vacant.
Since the downturn in oil and gas, Calgary office buildings have lost 14 billion in value leaving a 250 million hole in the city’s taxes.'
https://wolfstreet.com/2019/12/13/the-dreadful-state-of-the-canadian-deb...

Silly Canadians, can't build pipelines to the coast or to the States, because of red tape, so they get $10 to $20 a barrel less for their oil. The oil has to be shipped by rail, which is much more dangerous and much more expensive. When will Albertans rebel against the central planning comitariat in Ottawa?
https://en.wikipedia.org/wiki/Lac-M%C3%A9gantic_rail_disaster

Hmm... $14billion "value" lost. I wonder where it went? Someone should hunt it down.

Or maybe it never was.