Equity markets pause; China data resilient; China shuns Aussie coal; Japan data weakens; Sydney water storage lower; UST 10yr yield at 1.88%; oil dips and gold up; NZ$1 = 67 USc; TWI-5 = 71.9

Equity markets pause; China data resilient; China shuns Aussie coal; Japan data weakens; Sydney water storage lower; UST 10yr yield at 1.88%; oil dips and gold up; NZ$1 = 67 USc; TWI-5 = 71.9

Here's our summary of key events over the holiday break that affect New Zealand, with news China's economic data is proving to be resilient in the face of the trade wars.

But first, global equity markets are stable today, mostly at high levels but not pushing up further. That is true on Wall Street, in Europe, and yesterday in Asia.

In China, profits at China's industrial firms grew at the fastest pace in eight months in November, up +5.4% year-on-year and better than expected. That trims the year-to-date decline to -2.1%. Factory profits however are still down -4.1% year-to-date.

China is also weaning itself off Australian coal. These shipments are down a significant -31% in November from the same month a year earlier even though China imported +9% more coal overall in the month with larger purchases from Russia making up the difference. Perhaps China is sending Australia a signal.

China's strategy in Hong Kong hasn't worked and the city is now bracing for large New Years Day demonstrations. So China is trying a new tactic - buying Hong Kong's businesses and exerting control through them.

In Japan, their jobless rate fell to just 2.2% in November, but their retail sales (-2.1% year-on-year) and industrial production also fell (-8.1% year-on-year) , and that may mean Q4 GDP could be negative. More labour cost and less output is a sure sign of fast shrinking productivity. Japan looks like it is heading toward an economic crisis soon.

In India, their onion crisis isn't abating and they have started importing huge quantities. At least 10,000 tonnes are being purchased internationally, about ten times the level they imported in their 2015/16 crisis.

In Australia, their drought is biting harder, especially in South Australia and NSW. Sydney's water storage is now down to just under 44% of capacity, and far lower than the 64% it was this time last year. It is falling at about -½% per week. Adelaide is in a better position with 53% reservoir storage.

The UST 10yr yield is down another -2 bps at just under 1.88%. Their 2-10 curve is little-changed overnight at +28 bps. Their 1-5 curve is narrower at +17 bps. Their 3m-10yr curve is also narrower at +30 bps. The Aussie Govt 10yr is up +1 bp overnight to 1.32%. The China Govt 10yr is up +2 bps at 3.18%. The NZ Govt 10 yr however is now at 1.63% and a small -1 bp dip from where we left it yesterday.

The gold is up again today, up another +US$4, now at US$1,513/oz and that is a new two month high.

The VIX volatility index is now at 13 and marginally higher than the 12 average over the past year. The Fear and Greed index we follow is hard over on the "extreme greed" side.

US oil prices are marginally softer at just under US$61.50/bbl and the Brent benchmark is now just on US$68/bbl. The US rig count is lower again.

The Kiwi dollar is up again today at 67 USc and that's a five month high. In October it was just 62.5 USc, so since then it has risen +7%. On the cross rates we are also firm at 96.1 AUc. Against the euro we are likewise firm at 60 euro cents. That puts our TWI-5 at just on 71.9 and that is a new six-month high.

Bitcoin is down -2% from this time yesterday at US$7,197. The bitcoin rate is charted in the exchange rate set below.

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In China, profits at China's industrial firms grew at the fastest pace in eight months in November, up +5.4% year-on-year and better than expected. That trims the year-to-date decline to -2.1%. Factory profits however are still down -4.1% year-to-date.

That must be why China fails to qualify for the IMF's advanced economies list. Same with Russia.

China is also weaning itself off Australian coal. These shipments are down a significant -31% in November from the same month a year earlier even though China imported +9% more coal overall in the month with larger purchases from Russia making up the difference. Perhaps China is sending Australia a signal.

Certainly sent one to the EU - Chinese Ambassador Threatens EU With "Disastrous" Consequences If It Launches Curbs Against Chinese Companies

China is wise - why be dependant on one supplier. Same issue with our milk sales going to one country - we begin to depend on our customer.

Why do you say wise.
How is this good judgement.
More amoral.

Some people thought china was establishing strategic relationships, building supplier and building supply chain capacity.

Now to be chopped off at the kness. Cut down when mentioning the internment camps & cultural assimilation, organ harvesting, welshing on Hong Kong agreement. Emperor for life.

How is this wise.
More
Lacking a moral sense; unconcerned with the rightness or wrongness of something.

Agree.
The move to Russian coal tells an interesting geo- political story. Cold shoulder the west, build ties with Russia.
Ominous.

Russia, China and Iran launched their first joint naval exercises in the Gulf of Oman on Friday in a direct challenge to US influence in the Middle East. The move reflects growing co-operation between the US’s two main rivals and the Islamic republic, which is under sanctions imposed by Washington. Link

Which is, in reality, a direct collective response to unilaterally imposed US sanctions: Washington's Unmasked Imperialism Towards Europe And Russia

Are you confusing good -v- bad with sensible -v- stupid?

China is sensible in encouraging multiple suppliers: a strike or a natural disaster will not affect their supply; they can bargain prices one against the other; they can threaten a supplying country knowing that stopping supply from either Russia or Australia will be a small cost to China and a mighty blow to either of those countries.

So a sensible China makes gains by having two suppliers. How they use their autonomy and wealth is totally another matter.

Maybe a decade ago they were moving out of the dark ages with its communist party ruling like a medieval absolute ruler controlling every aspect of every citizens life. The people became wealthier; several hundred million became middle class with many new freedoms. However I agree with you the movement is now in the opposite direction: details of the cultural genocide of the Uighurs is mind bogglingly evil; organ harvesting and repression of many religions and Falun Gong is proven. And emperor for life - the last thing any country needs is another Chairman Mao!

Exxon teaches us a lesson yet again: massive, dangerous methane gas leak at Exxon Mobil facility goes unreported until European gov't scientists detect and expose it.

And we trust profit-driven capitalists? Because they tell us we should? Link

The reason inflation expectations matter so much to central bankers is credibility. In a money-based regime you don’t really need credibility because you have all the money. Simple. Neat. But in an expectations-based regime, the one predicated on not being able to define money, which is how central banks have exclusively operated since the eighties, it all comes down to that one characteristic.

Officials really believe that if inflation expectations remain anchored in an area that’s consistent with how they conduct themselves and attend to their mandates, those anchored expectations confirm in economic terms how the public must generally be content with monetary policy because the public believes firmly in the central bank’s ability to conduct it.

Falling inflation expectations, especially should they become unanchored, is the public expressing widespread, serious doubt. Link

This won’t help Japan’s economic prospects. Correct me if I’m wrong, aren’t children and the formation of families key to driving spending.

https://edition.cnn.com/2019/12/25/asia/japan-birthrate-hnk-intl/index.html

‘Japan is a "super-aged" nation, meaning more than 20% of its population is older than 65. The country's total population stood at 124 million in 2018 -- but by 2065 it is expected to have dropped to about 88 million.’

Japan could try the Auckland experiment.
https://www.tvnz.co.nz/one-news/new-zealand/top-baby-surname-reflects-ne...
""Spoonley said ... when you focused on baby surnames in Auckland alone, the city revealed it had its own unique story. The first two names are again Indian as you might expect but then you get a whole bunch of Chinese surnames. What is really interesting about the Auckland names is that of the 10 only one of them is not Indian or not Chinese.""
Will Prof Spoonley get into trouble deducing ethnicity from surnames the way the Labour party did with house purchases?

Japan may have had declining population and NZ a rapidly growing population for a few decades but Japan still has a higher standard of living than New Zealand. Maybe the theory is wrong. Is it just a convenient unproven theory for an elite determined to grow their asset values and especially property and house prices.

Wealth = resources per head.

Less heads, more wealth per head.

Economics measures the wrong thing.

I've read that in North Japan some villages have become deserted and now wild life is returning. I assume you approve. I do. Although it is a bit reminiscent of cycling the Otago rail trail - many indications that people used to live there.

Also, bankrupt golf courses in Japan have been transformed into solar farms. Given that they're relatively advanced in solar technology, this is quite an inspired move.

Pdk

Try your wealth equation using outputs.

One of your blind spots is the intellectual properties, design. Remember the significance on code, apps, cloud.

Economics, GDP looks at out put, production.

More heads more code, more design, more project management.

Nope. It all traces back to energy and resource-stocks. That is what your parasitic activities (and in energy terms that is what you are proposing) expect to buy - more steel Beamers, more kerosene-fuelled travel, more concrete and gypsum, more phosphate, more plastic items.

GDP fails to measure draw-down, of both stocks (remaining copper in the ground, remaining oil etc) and sink-capacities. So it is GDP which has the blind spot, and has it in spades. It chooses to avoid the Limits to Growth, essentially by lying. By failing to tell the truth. All those intellectual-reliers, expect to exchange their chits for processed parts of a finite planet. And they want to do so at exponentially-increasing rates. Doesn't take a rocket scientist to see where that goes.

But you can manage a financial descent, to track resource depletion. Essentially, you have less money, or money is worth less, vis-a-vis physical items. You can fudge it away paying for virtual stuff, as long as the holder of the proxy doesn't want to exchange it for physical items. What you seem to think, is that more money will always mean more stuff to buy. That was obviously a short-term arrangement.

In terms of infrastructure (public transport, public housing, communications, urban planning and development), Japan is far "richer" than NZ

Maybe their planning is easier. In 2005 NZ planners were told there would be 5 million in 2050 but we will achieve it next year - population growth triple what they planned for. Blame the politicians not the planners or statisticians.

Worse is we have no control over immigration, controlled by someone or something else.
https://www.epsilontheory.com/the-long-now-pt-4-snip/

There are areas we have control over and areas we don't. Firstly NZ's strengths
1. Virtually no illegals
2. Minimal racism/inter ethnic conflicts because (a) mix of immigrants (b) Kiwis are well travelled progressive cosmopolitans
3. Permanent residency - quota is controlled by govt via a point count system so easy to adjust
4. High level of mixed marriages - Kiwis finding foreign partners
Then there is what we can't control
5. Kiwis leaving for a better life somewhere else (basically more pay and cheaper houses)
6. Australia free movement for work
7. International agreements for work visas (so many Chinese tour guides written into trade deals, etc)
8. Massive Kiwi diaspora who can return whenever they like
If Japan and Korea and even China can control influx of immigrants why can't New Zealand? Pressure from businesses on the govt - cheaper 3rd world labour, property sales, selling education that without the work visa couldn't persuade middle-class 3rd world world students to study here, virtue signalling multi-cultural myopia that argues for African and middle-eastern refugees over more local refugees and encourages arranged marriages.

‘Minimal racism’. Really?
A lot of people would disagree with that.

I'm sure they would. However I only worry about the ones who actually experience racism such as my wife unable to get a job interview until she adopted my European surname. Her cousin after 40 years living in NT Australia was astonished when she moved to Auckland North Shore and a white woman actually spoke to her in the street for no reason other than to be friendly. NZ is less racist than almost any other country. It is not perfect but minimal is a suitable adjective. Which countries do you find less racist?

My wife is Japanese and she has experienced quite a lot of racism (direct or indirect) here over 20 odd years.
It may be better than many countries, but to say there is ‘minimal’ racism here trivialises the issue.

Only 16 years - may be things are getting better and of course Auckland North Shore is not representative of NZ. It is not trivial being judged by appearance. I have heard that in Japan parents use private eyes to investigate for Korean ancestory in prospective partners for their children - doubt it happens in NZ. If there is a heirarchy of prejudice in NZ there are several ahead of race: for example class/wealth, age, physical handicap, education and religion. I suspect a short fat ugly poor 100% Kiwi would be at a disadvantage to the average Asians, Maori, Africans and PIs in most situations (of course once they can actually get an interview). On the other hand I'm related to a middle-aged, handsome, fit Maori man and he experiences women tighening hold of their handbags when he passes by (in Northcote) - that must be niggling and may explain why he choses to live in Australia.

Immediate family of eight with seven having skin colour from milk to dark chocolate. If there was any direct or indirect racism against any of them I'd be incandescent. After 16 years the total racist events would be less than the fingers on my hand and all debateable. Nothing has happened that has altered their lives in any way. Minimal means negligible and that word applies to racism against my family and most (but not all) immigrant families in NZ. Compared to other countries we are fortunate.
Of course when I'm called a whinging POM I don't categorise that as racism - it is just friendly banter.

Unplanned, mostly unnecessary & totally uncontrolled. Immigration today is turning New Zealand into an Asian country, whether the people that built this great little nation like it or not. Let's get this right Winston Peters & Jacinda Adern & yes, you too Simon Bridges. 0.5% is a good rate. 1.0% is an absolute maximum our systems can cope with. 1.5% is out of control. Bring on Election 2020. The people of interest.co & their readers will make this a major election issue. You've been warned.

Agreed. If immigration was below 0.5% I'd be writing comments complaining about it being too low. No trouble with Asian immigrants while they improve New Zealand and become New Zealanders but not so happy as multi-cultural ghettos become the norm. Between 0.5% and 1% would be ideal (although still higher than in some other OECD countries with serious ethnic conflicts).
PS Emigration is another unacknowledged problem too.

Nomura Holdings cannot escape an ageing society or low interest rates.....as it grapples with the long-term "megatrends"...The comments ... underscore the deepening sense of crisis for Japan's top brokerage and investment bank .... that threatens financial services in the world's third-largest economy.....The headwinds from the "megatrends" will stay for another decade...Nomura posted a 57% year-on-year plunge in retail investment pretax profit in the quarter to September....

https://www.nytimes.com/reuters/2019/12/27/business/27reuters-nomura-hld...