Markets up with guess on US election result; US data positive; China blocks Ant's IPO; China hits Australia again; RBA signals big QE; UST 10y at 0.89%; oil and gold up; NZ$1 = 67.1 USc; TWI-5 = 70.3

Markets up with guess on US election result; US data positive; China blocks Ant's IPO; China hits Australia again; RBA signals big QE; UST 10y at 0.89%; oil and gold up; NZ$1 = 67.1 USc; TWI-5 = 70.3

Here's our summary of key economic events overnight that affect New Zealand, with news of some very aggressive Chinese regulatory action overnight.

But first, the world is waiting on the US election results. Short lines and calm are features of today's turnout. It may be days before it is clear, but markets are already betting on a change in leadership, even a Democratic sweep. Equity markets are up, commodity currencies are back in favour, and UST bond rates are rising on the expectation that the new Congress will need to issue a lot more fiscal recovery debt. But early chicken-counting is a high risk game.

In the US, data for last week's retail sales was positive with good gains reported over the weak prior week. And compared to the same week a year ago, the rise was +3%.

US factory orders for September also came in slightly positive compared to August, but they were -2.6% lower than the same month in 2019. But it was positive to see non-defense capital goods orders rise +6.1% year-on-year.

China called a sudden halt to the world’s biggest initial public offering citing "major issues" in a mammoth US$37 bln event that drew US$3 tln in offers. It has cast real uncertainty over the future of fintech giant Ant Group and delivered an extraordinary rebuke to its controlling shareholder, Jack Ma.

China also announced that its trade in services continues in deficit, with both exports and imports of services falling very sharply in the first nine months of 2020.

And China’s big six state-owned banks reported a sharp decline in profits and a rise in non-performing loans (NPL) ratios. This comes as their total business activity rose a strong +6%, but clearly increasing sections of their activities are unprofitable.

China is ramping up its punishment of Australia for its security and human rights challenges to the Middle Kingdom. The list of goods China is blocking its traders from importing now includes coal, barley, copper, sugar, timber, wine and lobster, with sugar being the big new one added to their list. Iron ore is not being included.

Yesterday's late RBA decison brought the rate cut expected, down to just above zero, but also a much more aggressive overall QE package than expected. As a consequence, Aussie bond rates fell, but the expected fall for the AUD hasn't happened yet - even though that is a key driver for the RBA; they want a lower currency to aid their recovery, a recovery they need to meet their jobs goal. And preventing any more job losses, and reversing the recent deterioration is the final test of whether this new policy will be effective. The Governor mentioned jobs 18 times in his explainer and justification speech.

So far, none of the main Australian banks have passed on any of this official rate cut.

The overnight dairy auction was a weak one. Not only did prices fall -2% in US dollar terms, the rising NZD undermined the results in local currency where they were down -3.8%. Butter prices were up +3.9% but SMP fell -4.4% and WMP fell -2.0%. Analysts will be holding off any more rising estimates of the farm gate milk price and most of them did not see this drop coming.

Equity markets have risen again today on those hopes of a clear election result. The S&P500 is up +2.0% in early afternoon trade and European markets were up even more by an average of +2.5% overnight on top of Monday's strong gains. Yesterday, Shanghai rose +1.4% and Hong Kong was up +2.0% but Tokyo was on holiday. The ASX200 ended up +1.9% but the local NZX50 Capital Index was the laggard and only managed a +0.5% gain.

The latest global compilation of COVID-19 data is here. The global tally is 47,331,000 and a huge +643,000 rise overnight. It is very grim in Russia and Western Europe with serious stress on their hospital systems (and especially in Belgium). Global deaths reported now exceed 1,203,000.

The largest number of reported cases globally are still in the US, which rose +90,000 since yesterday to 9,579,000 as their surge grows and by far the most of any country. The pandemic is now particularly sever in the Midwest states. The number of active cases is higher at 3,167,000 so many more new cases more than recoveries. Their death total now exceeds 237,000 and still rising at +1000 per day.

In Australia, they are not getting any resurgence. There have now been 27,610 COVID-19 cases reported, and that is just +8 more cases than we reported yesterday. Reported deaths are unchanged at 907.

The UST 10yr yield is up +5 bps today at just under 0.89%. Their 2-10 rate curve has steepened to +72 bps, their 1-5 curve is also steeper at +27 bps, while with their 3m-10 year curve is significantly steeper at +80 bps. The Australian Govt 10 year yield will start today up +2 bps at 0.84%. The China Govt 10 year yield is little-changed at 3.20%. And the New Zealand Govt 10 year yield is down -2 bps at 0.54%.

The price of gold has risen again overnight, up +US$15 at US$1907/oz.

Oil prices have firmed again overnight and are now at just over US$37.50/bbl in the US, while the international price is now over US$39.50/bbl. But both up about +US$1.50/bbl.

And the Kiwi dollar is much firmer this morning from this time yesterday at 67.1 USc and that is a rise of nearly +1c as commodity currencies gain on the risk-on market mood. Against the Australian dollar we are weaker however at 93.6 AUc as the Aussie gains more than us. Against the euro we firmer at 57.2 euro cents. That means our TWI-5 is up at 70.3 and it's highest in six weeks.

The bitcoin price starts today at US$13,516 and -1.6% lower than where we left it 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 ».

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43 Comments

11
up

In the light of China’s behaviour should NZ organisations enter into new partnerships or joint deals with Chinese organisations? Should the NZ Govt be examining this more closely: research, education, seed technology, IP, etc

11
up

Weren't we all taught as children to stand up to bullies?

12
up

Winston Peter out, do you think JA has guts to stand up. Wait and Watch as whenever JA govetnment will scuumb to Chinesse, will come out with good justification of the same (Just as National sold NZ to China and was all in the name of prosperity, not realizing that NZ is such a small island that China could buy entire NZ not once but number of time and that is also Chinesse policy. If anyone has doubt, how come after English, one see Chinesse sign board in NZ).

Maybe we can pivot more exports to USA...and then start standing up to China. Australia are getting hammered.
Exports in the year ended August 2020
China: $16.8 billion (up 7.1 percent).
Australia: $8.4 billion (down 5.8 percent).
United States of America: $6.3 billion (up 12.5 percent).

Fair point but we would have to first pivot away from bulk commodities to restart exports to the West. It turns out a lot of our current economic issues can be, in theory, solved with more business investment in R&D, upskilling and productivity.

R&D is also the answer to Chinese trade aggression - China till date buys reluctantly buys more than a-fourth of Taiwan's exports, mostly integrated circuits needed to build tech goods, which are then exported to the rest of the world.
Australia's only saving grace from this trade fallout could be to ramp up its investment to quickly move up the value chain in the lithium and other rare earth supply networks.

Should the NZ government buy Fisher&Paykel Appliances and Facteon back from Haier? Talk is always cheap...

23
up

China gives the impression that it lacks the ability to respond to diplomatic criticism in a diplomatic way.
If China's response to diplomatic criticism is commercial retaliation it serves notice that no company can rely on China as a long term export trading partner. State influence is clearly a huge roadblock.
The whole world should reconsider China's efforts in regards to their BRI and scale any involvement right back.
Sad.

Very sensitive is the CCP. Bunch of wusses.

Experts should be able to predict if the market will go up or down in future, instead what they do is, once the market has gone up or down, find reason for the same that is once the event has happened, experts comes out with reasons, why that happened.

Yes very true. It is easy to find a reason after the event.

stuart
Are you joking or is it just a pretty naive comment?
Markets are influenced by a wide range of factors involving uncertainties meaning predictions with certainty are impossible.
The US elections; RBNZ action on FLP, QE and OCR; future outbreaks of Covid in NZ and development of a vaccine are some of the current uncertainties affecting the markets.
All we can expect is likelihoods on which to make forecasts. There are few certainties in life (death and taxes?).
I cringe when some on this site are outright dismissive of those with expertise and modelling tools - such as bank economists - do make forecasts are simply labelled “morons” or “uneducated incompetent fools” both terms which have been applied.
The reality is that those who can competently forecast tend to do well, as do those who listen to and consider the comments of those with expertise. I suspect the self proclaimed all-knowing anonymous keyboard warriors most likely tend to be in urgent need of self-massaging poor egos.
Just don’t be naive and expect predicted certainties.

Have you read 'Thinking Fast and Slow' by Daniel Kahneman?

Stock markets up ? This does surprise me. I was hoping for a dip in the market so to increase my share allocation. Anything may still happen, especially if the US election results are unclear, but I guess this is a reminder to myself that timing the markets is close to impossible.

This will flip the result surely? https://www.zerohedge.com/political/thousands-witches-are-casting-bindin...

Too good not to share.

If witches want Trump to lose, well, that tells us something. The forces of darkness are opposed to the divine. Let's hope the Americans make the right decision today.

Happy for Trump to loose and suffer a few years of the dems just to be rid of him.

vote for an old fool or an old dottery fool?
Yes I sure hope they pick the right one
either way, you cant vote prosperity into office

Paul Henry to Jesse on RNZ yesterday (about his new book) said that in his view Trump was the most honest president ever, and the most dishonest man to ever get to the office of president. Quite an insightful few comments.

Actually haven't listened to him for quite a while, but his perspective was very interesting.

The evil desire to manipulate others?

Looked into selling some cattle yesterday and there is not a lot of confidence out there. Basically banks have tightened up and everyone is worried about covid impacting markets, schedules are still falling. Stock agent was worried about the the lot, with works not giving an indication yet of this seasons lamb prices..

So I am stuck with my cattle for another month, then I will have to sell at least %30 to make some room. It's odd that they are worth so little there really is not much money in farming at present.

Time to look at cost structures, I don't think councils should be rating us on unearned capital gains. If this plays out to the worst outcome then people will be defaulting on rates and I am back to being worried about getting paid.

Mate sent me this on last night's auction

'Fonterra restricting supply at the short end to elevate price seems over - that is where this auction prices dropped the most.

In terms of volume, Fonterra has a min to max range. This is the first auction I have seen where the volume sold has been less than the minimum set. Again, don't know why but suspect a lack of demand would have have resulted in lower prices with higher volume.'

We still have feedlots operating around here, the regional council consents them, I don't know what the council guy means when he says 15 of 30 days but either way it's not a good look.
E-coli levels are extreme and I know the council is trying to monitor levels. Max e-coli for drinking is zero, swimming 260 per 100ml, our stream at peak 570,000.
https://www.nzherald.co.nz/nz/local-focus-our-paddocks-of-discontent-and...

It's a shame farmers can't 'home kill' and sell direct to the consumer.

We've been on homekill meat for a few years now and I never want to buy from the supermarket again.

regulations everywhere, there's a reason my drench is so expensive, animal remedies act has created privileged importers, my drench I put down the throat of cattle is now close to $2 a head, ivomec is more like $5. In California Ivomec is .50 c for large angus cow.

There are a few around.
https://www.greenmeadowsbeef.co.nz/Our-Story

I'm getting mince from some outfit in Taupo at our local 4 square here in Taranaki. Slightly cheaper than supermarket mince and significantly better quality.

That's interesting the 4SQ can do better quality at a better price, that's an upside of individually owned stores rather than a foreign owned chain like Countdown.

I'm fortunate that a couple of workmates run some cattle that keep my freezer well stocked.

There was some mild panic the other day when we dug out the last packet of mince.

Dont leave it too late Aj. Space could be hard to get soon. A glimpse of summer will put the shits up everyone (after the intense heat of the last 3). I want anything that can be killed, dead by mid december. My stress levels cant take another year of chasing my tail round the farm. I surrender to climate change. I fully acknowledge my property is now winter safe. Not the summer safe it use to be. On a mission to get down to minimum stock units before christmas.
The humungous boner cow kill and service bull kill of summer and autumn was the forerunner of tearing my hair out. Extreme temperatures just the icing on the cake.

Belle I talked to works and they think that the huge drought kill will mean they don't get up to full capacity this year, that and the labour shortage, mind you they are poor payers, low wage industry that was once high paid seasonal.

Most of the farmers around here are %30-50 down on cattle to kill after last season. I am basically stuck as the buyers are not there, i could store them.

Yes I am very nervous about buying back in, in autumn. The competition for stock may be fierce. It may pay to bite the bullet and send your stock to a sale further afield Aj. I have noticed an uptick in price per kilo in the last 10 days. Along with a huge growth in pasture here. More rain due. And very warm. Will farmers do their usual and go gaga when there is a lot of grass about?

It seems the RBA still believes in the money fairy, which I find hard to believe. Reducing interest rates and lots of bond buying may or may not help employment, but it is is very likely to help asset prices. Presumably that is the intention, but they don't want to say it out loud.

Gave the Aussie dollar a big boost

And at what stage does Andrew say, what he's acknowledged here before? That taking all this risk; known and unknown; dealing with all the regulations; actually making 'stuff' that's needed to sustain life etc is pointless, when all he needs to do is buy the neighbours farm and do nothing with it ( Price? Irrelevant at these % rates) and then sit and wait for the RBNZ guaranteed profits to come in.
Farming? Who needs it when the land will do the work for you without having to get up and tend to it and the stock each morning.

Yet cycles do, well, turn. Commodities as an asset class are historically very, very, unbelievably and extraordinarily cheap.

The world is having a money creating party and at some point commodities will respond. Look what happened to oil in the 1970s. It went from a glut to a shortage, prices went up 4 times practically overnight. All it takes is one poor harvest worldwide and food prices can double.

Change happens slowly at first and then faster and faster. Slack water turns to a fast running tidal flow and back to slack water.

Brazil got caught out this year, sold a lot of Soy to China thinking prices would fall, has just started importing Soy from the USA at a higher price.

Absolutely - the incentives that central banks are encouraging are horribly perverse. Why bother being productive when you just buy and hold assets?

Who cares about income anymore when you can make more via capital gains?

In the past high income (for nearly all people) was the road to wealth/prosperity. Thinking that we can all become rich via capital gains is a fools paradise.

Beating each other up over toilet paper or greed over owning the next rental property...don't really see much of a difference. Both as sad as the other in terms of human good will.

BW fine in theory but if you have to use banks to borrow money to buy said neighbours farm you will be hard out paying back principal.
Banks dont do 30 year loans like housing. Farm lending is very different. Mostly sitting around the 15 year table mortgage. You have little security from the banks. Yes counterintuitive. In fact my last loan was based on the 15 year table loan but is revisted every 5 years. I dont really understand it. But it doesnt engender confidence in your borrowing facility. So the banks have a steel trap on ones balls. With massive principal repayments comes a requirement to make a decent profit and therefore a gnarly tax bill. Of course the 'relationship manager' is very reassuring. Oh dont worry about this, dont worry about that.
If you think its a cake walk to buy farmland and reap the rewards of capital gain. Your dreaming.

IMO If Biden wins expect stocks to crater, either way there’ll be chaos and blood on the streets.

Stocks have been rising expecting a Biden win...more whining by the orange and my prediction is a thumping for the man child.

It seems more likely for there to be chaos if Trump wins. Trump supporters are reasonable and peaceful folk and wont riot if Biden wins.

This is the danger of a lack of diversity in your news sources.

Well, they were absolutely fine with Obama winning the Presidency. I would suggest your "news sources" are a little too diverse.

Bet Mr Ma is which he had spent so much time bragging about how this was the biggest listing not priced by the west. When was the last time the UK govt stopped a company IPOing?

Though they have pondered if it's a good idea to have some many corrupt russian listings on the LSE>

He shouldn't have criticized the Chinese state owned banking system

Quite right. Nice China. We like China.