US housing starts rise; China runs down UST holdings; Canada inflation up; markets expect vast new stimulus; equities turn positive; UST 10yr yield at 1.57%; oil and gold up; NZ$1 = 63.8 USc; TWI-5 = 69.9

US housing starts rise; China runs down UST holdings; Canada inflation up; markets expect vast new stimulus; equities turn positive; UST 10yr yield at 1.57%; oil and gold up; NZ$1 = 63.8 USc; TWI-5 = 69.9

Here's our summary of key economic events overnight that affect New Zealand, with news China is about to join the US and Japan in running massive budget deficits.

But first, American housing starts and building permit issuance continued at a high rate in January, even if it was a small pullback from the December levels. Good weather conditions generally helped both, compared to the same month a year ago. Interestingly however, completions are still only at about the level of a year ago.

Final data for 2019 shows the Chinese running down its investment in US Treasuries. They declined -US$54 bln in the year with -US$20 bln of that coming in December alone. Their holding are now at US$1.069 tln and well below the US$1.15 tln that the Japanese now hold. In fact, the Japanese increased their holdings of long term US Treasuries by +US$115 bln in the year, more than making up for the Chinese pullback.

Inflation in Canada is picking up, rising from +2.2% in December to +2.4% in January.

Global COVID-19 deaths have now officially risen to more than 2000, with the official infection level at almost 75,300. A week ago these two metrics were 1115 and 45,200. There may be a slowdown in this data, but it is a minor slowdown. Widespread scepticism about the official data is probably justified.

And despite the virus emergency in Hubei Province, almost 1.5 bln passenger travel journeys were made during their Spring Festival holiday this year. But that level was -50% lower than the level in 2019.

And remember Chinese conglomerate HNA? They won the bidding to buy UDC and then the deal fell over. Well, a Chinese province plans to take over the highly leveraged company and sell off its core airline assets, the latest example of how the government is stepping in to contain the economic fallout from the coronavirus outbreak.

And in the 'believe-it-or-not' file, the latest Chinese central bank Monetary Policy Report claims that there will be limited economic fallout from the COVID-19 emergency. But despite this, rumours of more substantial policy stimulus is coming, swirl in China. In fact, China may raise its budget deficit to -3.5% of GDP, but even at that level it will be well short of the American -5% of GDP. A new issue will be, with the world's three largest economies spending much more than their revenue, how long can the global economy sustain that sort of distortion?

In equity markets, the yo-yo continues, turning up today. It started in Asia with Tokyo up +0.9% and Hong Kong up +0.5% yesterday (although Shanghai was down -0.3%). New Zealand and Australian stock markets were up +0.4%. Then overnight European markets rose almost +1.0% across the board. And today, Wall Street is up +0.6% so far in mid-day trade. It is hard to know why investors' herd mentality swings as it has given the sharp trade risks, but it does. The central bank 'put' seems to underpin investor confidence that their elevated valuations won't be allowed to fall, especially in the US as it approaches an election.

The UST 10yr yield is holding today and is now at 1.57%, a +1 bp increment. Their 2-10 curve is less positive at +14 bps. And their 1-5 curve is less negative at -7 bps. And their 3m-10yr curve also less negative at -4 bps. The Aussie Govt 10yr is up +1 bp at 1.04%. The China Govt 10yr now at 2.92% and unchanged. The NZ Govt 10 yr will start today at 1.34% and also up +1 bp.

Gold is up another +US$4 to US$1,607/oz today. Since the start of the year, gold has risen +6% in USD terms and a remarkable +12% in NZD terms.

US oil prices are up strongly today, up by about +US$1.50 to just under US$53.50/bbl. The Brent benchmark is also higher at just on US$59.50/bbl.

The Kiwi dollar will start today lower at just over 63.8 USc. In USD terms, and that is a -5% devaluation since the start of the year. On the cross rates we are holding at 95.6 AUc. Against the euro we are unchanged at 59.1 euro cents. That means our TWI-5 is now at 69.9.

Bitcoin has risen again and is now back up at US$10,194 and a gain of +2.6% since this time yesterday. 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 ».

Our exchange rate chart is here.

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Running a massive budget deficit. You could vaguely interpret that as being temporary, a state of play so to speak, don’t think so, at least for the States hardly likely if not impossible to ever return to a budget surplus, the $ trillions of printed money have become the proverbial albatross.

Didn't Clinton manage to turn around a similar situation? (It always seems to be the left wing parties - maybe because the right wing voters are due to die soon and don't mind leaving the next generation with the debt).

Yes Clinton did manage to return the budget to surplus. The country was in a reasonable condition to do so as well.

In the current climate in the US they have a low percentage of employed population so the congressmen buy votes by maintaining many wasteful Government contracts in their respective states. It's military social welfare for the most part and probably why Trump increased the military budget. Buying votes with jobs.

When I worked in a bank in the 1960’s recall the bank’s nationally well regarded economist telling us at course, that the printing of money by a government was probably the greatest peril imaginable. That is what banana republics did, except that particular tag hadn’t surfaced then. Anyway wonder what has changed then.

The Democrats, particularly of the 80s and 90s, were anything but left-wing. The Clinton era was a time when capitalism was in full swing after being declared the winner from the collapse of the Soviet Union.
Tell me, what true "left-wing" leader would repeal something as critical to a 'stable' banking industry as the Glass-Steagall Act, which allowed traditional banking institutions to formally team up with speculative agencies.

I guess Republicans have always been right to far-right but Democrats are centre-left while they run for presidency but turn centre-right when in power.


Doom porn vs. realilty. Ehrlich writes: "I don't see how India could possibly feed two hundred million more people by 1980."

"India is expected to produce a record 106.2 million tonnes of wheat, as favorable weather conditions helped to improve crop yields, with output far exceeding demand and further boosting stocks."
...Rice output in the world’s biggest exporter and No. 2 producer is estimated to rise by 0.9% to 117.4 million tonnes."

That's a lot of childhoods not stolen.

Great they can send some to USA to make up the shortfall..
U.S. flour production falls to seven-year low in 2019

Don't confuse what that is symptomatic of.
Given that the real price of processed flour has been dropping over those 7 years, the drop in production is symptomatic of decline in demand. Not, as you imply, the result of a decrease in yield.

A decline in demand?...can you link data to prove that?

I just did - the price series for processed flour.
Use this, your link, and your comprehensive Econ 101 knowledge to work this one out, frazz.

Nothing on demand - I will ignore your little slur for now
The North America wheat flour market is currently being driven by several factors. The increasing demand for wheat flour in the preparation of food items, such as pasta, bread, noodles and wafers, has fueled the market growth in the region. Other than this, the rising health consciousness among the consumers have also catalyzed the demand for wheat floor as a key food ingredient in the region. Apart from this, the increasing utilization of wheat flour-based products in the non-food sector, such as cosmetic and personal care, for producing shampoos, face creams, organic soaps and conditioners have further propelled the market growth.

Wow. Then it's super interesting that demand has increased and supply (production) decreased, yet prices have declined.

Sigh...come down off your high horse Nymad - your not that clever

U.S. imports of Flour increased 16.64 percent through December 2019 to $57.39 million. U.S. imports of Flour increased 16.64 percent from $49.2 million to $57.39 million in 2019 when compared to 2018, according to WorldCity analysis of the latest U.S. Census Bureau data.

Haha. Really?!
Imports represent an absolute miniscule amount of refined goods consumption / demand. Even by back of the envelop calc, that is like ~2.5% of refined flour is imported. A 16% increase in that figure does not offset the production drop.

The effect is so benign, you can pretty much ignore the supply effects of refined goods (of which flour is).

India is in massive trouble, a huge proportion (60-80% of their water supply in many areas) for cities and agriculture relies on Aquifers that are rapidly being emptied.

...or dammed (damned?).

Like Canterbury, but with more people.

Rubbish. There is no shortage of water in Canterbury, there is only a lack of efficient water storage and distribution.

Thought for a moment there would be a mention of the $44 billion that Fed has pumped into the markets So far today.

Here is an updated .xls snip of recent Fed TOMO /POMO operations

'Limited economic fallout'???
Ha ha.
Unless it was framed in terms of longer term impact

"Gold is up another +US$4 to US$1,607/oz today. Since the start of the year, gold has risen +6% in USD terms and a remarkable +12% in NZD terms." - Didn't realise our NZ was that badly hammered

Upto $1613 this morning.
China selling out of the US and gold rising......
Here comes the Chinese digitial currency backed in at least some gold. Some calling gold over $10k if that happens.

Big data goes after your wastewater. No doubt there will be a high consumption of avocado in areas with a high proportion of house renters. "Higher caffeine and citrus consumption were other examples of habits tied to a strong socioeconomic status that revealed themselves through the wastewater samples."

I was chatting with someone the other day and happened to mention that my Doctor had informed me a quarter of the population are on anti depressents. They reply was an admission they were on them, and then came the story about how all their friends were also. I wonder if they wash the pills down with their latte?

Gee - a quarter?

Might also be washing it down with a Double Brown? “What was surprising, however, was that our data was able to show how specific aspects of socioeconomic advantage or disadvantage, such as having no home internet connection, lacking high school education, or having a high skilled occupation, were linked to diet or drug consumption. For example, we did not expect to find that lack of high school education was strongly linked to lower dietary fiber intake and higher consumption of amitriptyline, an antidepressant.”

What was surprising......
Some people would be best off going for a bit of a walk around and looking at the real world instead of playing with infographics.

Bit of a slur on the authors. Though this is one case where I am not interested in doing a field study.

Aww go on Profile, someone needs to tour the countryside taking samples of crap deposits from people living out of cars or under bridges to get the full picture. Might as well be you.

A bit upset at waiting for Jacinda to deliver houses and the majority of whatever else she statrted.

Appropriate to recall the buy the dip and QE theories of 2010. Applicable to NZ real estate as it is to stocks.

News in overnight.... Clinical trials have now confirmed that Chloroquine Phosphate an antimalarial drug, is effective against coronavirus disease (COVID-19).

"One leading researcher at the Chinese Academy Of Sciences office in Shanghai who wished to remain anonymous said that said a more realistic figure of the numbers affected by the coronavirus would be in the range of more than 560,000 confirmed infected nationwide out of a population of 1.4 billion and more than 42,000 deaths as of the 9th of February.(he further said that anyone wishing to confirm this needs to carefully analyze data at the centralized registry of deaths in Beijing and hospital admission figures nationwide not just Hubei.) Thailand Medical News cannot comment whether this figures are real or fake but it seems to tally what 3 other sources in China that had mentioned similar figures a week ago."

Chinese infections have increased 1000-10000x in last 2 months, in another 2 months it will have spread to everyone in China and there will be 10's of millions dead. Likely this is the end of Xi and catastrophic for China's economy.
Number of cases in Japan, Singapore, Korea, Taiwan seem to be starting to grow at consistent 5-10% a day. Maybe pandemic is inevitable now (unless we halt international travel).

Is effective the word to look at here?
Less chance of dieing but 20% of a given population still sick for over 2 weeks. That in itself is bad for global GDP.

It's done wonders for carbon emissions though:

"China’s carbon emissions have dropped by least 100 million metric tons over the past two weeks, according to a study published on Wednesday by the Center for Research on Energy and Clean Air (CREA) in Finland.

That is nearly 6 percent of global emissions during the same period last year"

Can anyone else access/download the .pdf titled, 'Application for In-Court Media Coverage' from either of the links below?

Neither work for me.

Hi Kate - works for me in first link.

Both links no problem Kate

Thanks, must be my connection.

Related and brief: it's time for reform of the law(s) pertinent to political donations. Surely a public petition would support this? Such a reform would be no less valuable to the life of our nation than RNZ Concert. Would the government have the courage to respond?

it's the power given to party by MMP and the list. List Mp's are not accountable enough and the power to appoint is close to god.

Like I said yesterday, National had over 200k members before MMP, now less than 20k, the those numbers are top secret and the govnor's like it as the power is kept close, they don't care as long as there is over 500 members.

I would also add that donations will be overwhelmingly on the side of corporates and other wealthy donors. The grass root membership will not be donating much more than membership fee and $20.

It isn't a matter of whether a government would have the courage to respond, rather they must respond to all petitions presented to Parliament.

Here's an example of two earlier petitions on abortion law reform that have been through the process and reported on by the Select Committee they were referred to;

So, yes, you can start a petition and regardless the number of signatures it gets in support - it will be presented to Parliament and the appropriate Select Committee will consider it;

So the fake stock markets now join the fake housing market. I cannot see how this can all possibly gone on for much longer. All we need now is some sort of pandemic and its all over......Oh wait a minute.

The markets are immune to any pandemics because they know the Fed will just print more money. IMO the rapid price increase in precious metals tells the real story.

Thing is, markets are not immune because of the Fed. At some point the music will stop. As I said in a comment below, Warren Buffett has been trimming some big positions and holding a massive 58% cash (same as before the GFC), ready for the coming buying opportunity, while many others are piling into the market.

"It is hard to know why investors' herd mentality swings as it has given the sharp trade risks, but it does."
I think this has got a lot to do with the rising popularity of quick and easy stock trading apps and sites. Even in the past few months, a growing number of US services are offering no-fee (free) trading. If you see the most popular stocks on these apps daily, they are the stocks like Tesla, Beyond Meat, Amazon, Netflix, with very high PEs. Seems like a lot of novice speculators getting in near the end of the cycle. As in previous times, it won't end well for them.

it could just be massive pension funds looking for return and knowing the Fed has their back, and you need those fees.

Both I'd say. It's very telling that Warren Buffett's / Berkshire Hathaway's latest SEC filing revealed they trimmed some big positions a bit and now has a massive 58% cash, about the same as before the GFC. Actions speak louder than words.

This pension comment is so true... it used to be only the rich would buy stocks... now the stock market in every country gets a monthly bump every month as people submit a percentage of their pay to the stock market

Yes I think you are dead right. Access via these trading apps and the wave of people who have never been through any sort of correction now trading (and for many inability to buy a home). I wonder if they are leveraging up or just playing with the cash they have?
How long can it run?? They all think they will pull out just in time!

Yep, the story has played out many times before.

With automatic pullout stops in place, it can happen very fast but creates a massie decline at an alarming rate.

It seems to be the same mentality as 1987. "You have to be in the market". But you are right, this time around the apps have definitely made it easier.

I mean, you can sum up most of the financial blogs, forums, and investing sites in this country by saying:

"Use Investnow and invest in Vanguard's International fund".

* Please note I am not a registered Financial Adviser, and this post is by no means an attempt to provide financial advice.

I saw on a reddit thread the other day people giving advice to a student to borrow the maximum amount on student loan and use it to buy equities. It received many upvotes.

These kids don't know what a sharemarket crash looks like.

Is China being forced to sell US-Ts as Chinese companies desperately try to repay USD debt before its rising value bankrupts them?

Are the giant Japanese investment banks loading up on US-Ts in order to front run the inevitable Fed interest rate cuts and resulting surge in the value of US-Ts?

Have we seen Peak China?

Have we seen Peak Retail? Was it just a surge of buying based on a flood of cheap stuff from China? The number of garments bought per person per year would suggest as much.

Have we seen Peak USA? Their politics would suggest we have.

Have we seen Peak EU? Has the Euro destroyed their economy and their political consensus?

Interesting times.

Personally I think we are about to enter a period of golden weather for NZ. What? Why, you ask? I think the CPTPP (or whatever it is now called) will expand to include India and Great Britain, creating a worldwide trading block of like minded countries. The regional heavyweights of India and GB and Japan will then balance and stabilise each other. Singapore, Malaysia, Indonesia, the Phillipines, Thailand, Vietnam, Australia, New Zealand and Canada are all moderately powerful countries in their own right and they are all fiercely, or even, ferociously, independent, . What's more, they are all largely democratic (apart from Vietnam) and share a reasonably similar deep cultural understanding of what a civilised country should look like. Sounds like the perfect trading association to me, sort of a global Hanseatic League.

Interesting times indeed. There has been an increased level since 2008 really. Collatoral calls might hit PM's at some point also.

I'd say if peak coal in China was 2013 then peak China will follow.

I am busy working through Voltaires Bastards again and note that Japan didn't play the arms industry games like the US, GB, France, Belgium, Germany, China, etc. They might not be a spent force yet as the arms came with dodgy financing. The other few countries I see with a bit of strength left are India because of demographic profile and private gold holdings, Russia because of energy reserves, the US because it still has a lot of resources left and an imposing military. Perhaps Japan could make that list based on quality manufacturing capacity of things people need. I recently bought good quality jeans that are made in the US, but the mills for the fabric are woven in Japan.

Peak retail, good call and quite probable. A contributing factor being the spend from capital gains being in doubt. Even if imagined, it still causes people to hold off on non-essential consumption. And there you have it, the world has been run on non-essentials for quite a while now.

I am always astounded about much of the Anti-America sentiment among ordinary Kiwis , almost as if they wish America to fail , from predicting the end of Capitalism in 2008 ( the GFC ) to suggestions they are unable to produce enough flour to feed themselves .

I spent 6 weeks in 8 states last year visiting family , attending a family wedding into a huge extended rural family , and came away realizing that even with its problems , the US is still the greatest show on earth .

Its a seriously productive country , it is more diverse than any other country on the planet , its has more freedoms than about 70% of the rest of the worlds populations , and its very, very competitive , it rewards innovation and risk taking , and if you really want to make it big in almost any field , its the place to be .

I'd rather be a colony of the USA than China anyday

Not if you're coloured or indigenous (in reply to boatman's comment)

oikophobia. “the felt need to denigrate the customs, culture and institutions that are identifiably ‘ours.’" (Roger Scruton). Affected disaffection with one owns culture and affected tolerance for worse cultures like the misogynistic theocrats of the middle east or genocidal despots of China. Enabled by that most preposterous article of left wing post-modernistic faith that no person's beliefs or culture or 'truth' is better than anyone else's.

Agree. Thankfully many of all parts of the political spectrum are waking up to the fact that belief is stupid.

It creates prepetual war, killing people arround the world for oil control and to sell arms.

Amen brother.

Chinas shadow banking is one to watch out for.

The fact that chinese businesses are barely audited gives me little confidence in the Chinese economy.

Maybe we need gold backed currencies...