RCEP about to be signed; US sentiment falls; US budget deficit soars; China struggles with a bond default; China launches 6G; China raps Australia again; UST 10y at 0.89%; oil down and gold up; NZ$1 = 68.4 USc; TWI-5 = 71.3

RCEP about to be signed; US sentiment falls; US budget deficit soars; China struggles with a bond default; China launches 6G; China raps Australia again; UST 10y at 0.89%; oil down and gold up; NZ$1 = 68.4 USc; TWI-5 = 71.3
The White Cliffs at the Parininihi Marine Reserve, Taranaki

Here's our summary of key economic events overnight that affect New Zealand, with news China has launched its claim on 6G technology.

But first up we should confirm that China's multilateral trade deal, the RCEP, will be signed tomorrow in a virtual event hosted by Vietnam. It is anchored by China, includes New Zealand and Australia, and will encompass about a third of global GDP. It is much shallower than the TPP and avoids the environmental, labour and IP protections the TPP does. But it is unique in that it is a huge multilateral deal that got over the line in the face of Trumpism.

American consumer sentiment fell rather sharply in early November as consumers judged future economic prospects less favorably, while their assessments of current economic conditions remained largely unchanged. The closeness of the presidential election as well as the resurgence in covid infections and deaths were responsible for the early November decline.

Also going south was the US monthly budget deficit which at -US284 bln for the month, widened the annual result to -US$3.3 tln in the year to October, easily a new high. That is a massive -15.5% of 2020 nominal GDP.

In China, there is drama in their corporate bond market with ripple effects spilling over into other markets. A State-owned coal miner has defaulted on a ¥1 bln bond triggering official investigations and wiping out equity market gains in Shanghai. Regulators have increasing said they will allow companies to fail if their financial situation is untenable. But this is a test of that policy - and many expect the regulators to revert to old habits, cave in and bail out this failure, again. State-owned companies probably can't be allowed to fail by Beijing given the optics of omni-control. All eyes are on Beijing.

China's air passenger traffic has recovered to more than 88% of its year-ago levels in a rebound almost all other airlines would ber jealous of. In fact both Airbus and Boeing are eyeing this market as the engine out of their doldrums.

Going higher, China has started launching satellites in its quest to establish a 6G network, one 100 times faster than 5G. And recall, 5G is 100 times faster than 4G which is probably what you are using now, so 6G will be 10,000 times faster than what you are currently using.

Meanwhile, China's Foreign Ministry has unloaded on Australia in official comments in Beijing yesterday. They are worth reading. China is not backing away from tackling Australia for "repeatedly [having] spoken and acted out of turn on issues concerning China's core interests". And they see it is up to Australia to reverse their positions.

In Australia, ASIC is signaling it will release a report soon on the "harms we continue to see" in the BuyNow, PayLater sector, an unregulated corner exploiting credit regulation.

Iron ore prices are staying high. Coal prices are rising. However, shipping prices are starting to retreat again.

And Wall Street is making back yesterday's slip. The S&P500 is up +1.1% in early afternoon trade. If it stays like that, this will by a +1.8% rise for the week on top of last week's strong +7.3% jump. Overnight, European markets roser a modestr +0.2% but that was after London fell -0.4%. Yesterday's Shanghai fell another -0.9% but was unchanged for the week (see above for the reason). Hong Kong ended flat but that embedded in a +1.7% weekly gain. And the very large Tokyo exchange fell -0.5% yesterday but that capped a strong +4.4% weekly rise. Locally the ASX200 ended down -0.2% on Friday for a weekly rise of +3.5% and the NZX50 Capital Index ended up +0.2% on Friday for a weekly rise of +2.9%.

The latest global compilation of COVID-19 data is here. The global tally is 53,045,000 and a huge surge of +714,000 rise in the past day alone. It is still grim in France, Russia, the UK, Spain and central and southern Italy with very serious stress on their hospital systems. And the death rate is rising. Global deaths reported now exceed 1,298,000 and up +10,000 in just one day.

The largest number of reported cases globally are still in the US, which rose +162,000 since this time yesterday to 10,892,000. The US remains the global epicenter of the virus. The number of active cases is surging at 3,914,000 and now rising at almost +100,000 per day of more new cases more than recoveries. Their death total now exceeds 249,000 and continuing to rise by more than +1000 a day. The US now has a COVID death rate matching Bolivia, Mexico and the UK of 750/mln.

In Australia, they are not getting any resurgence. There have now been 27,703 COVID-19 cases reported, and that is just +4 more cases than we reported yesterday. Reported deaths remain unchanged at 907.

The UST 10yr yield will start today marginally lower than yesterday at 0.89% and a fall of -1 bp. Their 2-10 rate curve is flatter at +71 bps, their 1-5 curve is unchanged at +28 bps, and their 3m-10 year curve is little-changed +80 bps. The Australian Govt 10 year yield is up +1 bp at 0.91%. The China Govt 10 year yield is also up +1 bps at 3.29%. But the New Zealand Govt 10 year yield is down -3 bps, now at 0.83%.

The price of gold has risen today, up +US$10/oz from this time yesterday, and now US$1890/oz.

Oil prices are sharply lower today and by about -$1.50/bbl so it is at US$40.50/bbl in the US, while the international price is now just on US$43/bbl. Oddly, the number of American oil rigs continues to slowly rise, despite the glut of oil in the market, and low demand.

And the Kiwi dollar has slipped from yesterday to 68.4 USc but it is up more than +65 bps from this time last week. Recall it was up +1½c the prior week. Against the Australian dollar we are also soft overnight at 94.2 AUc. Against the euro we are softer as well at 57.8 euro cents. That means our TWI-5 is down -50 bps overnight at 71.3.

The bitcoin price is another up +0.6% this morning at US$16,242. That makes the weekly gain more than +US700 and that was on top of the pror week's almost +US$2000 spectacular jump. The bitcoin rate is charted in the exchange rate set below.

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31 Comments

The National Party does not have the balls to tackle the government on the house price disaster. Even though hammering it all day every day would get breakthrough.
If they went hard enough for long enough the Labs would go down like the Titanic.
This from 2017.
"......If the long-run relativity that existed between 1962 and 2002 had persisted through the following 14 years, house prices today would be half the level they actually are. It could be argued that this is a measure of the degree by which housing is overpriced....."
https://briefingpapers.co.nz/house-prices-relative-to-inflation/

Since this crisis there has been a rachet clause inserted into the price of houses... that stops house prices from ever dropping in price, they can only increase in price. Tongue in cheek obviously but it is a reality because of what labour did... for those who don't know, the labour govt have passed the responsibility for employment to the rbnz dumb dumb. The rbnz only has the one mechanism of monetary policy to influence growth and employment, so expect to see low interest rates and therefore a stimulatory housing market for a long long time to come.

What happened post 2002 to cause that
Something happened to raise house prices to suddenly go double
And then double again

RUB (auckland regional council restriction) so can't build out. 5 auckland councils having strict height limits, so can't build up. The supercity legislation and the Unitary Plan have changed that

What date did the RUB restrictions get imposed and explain how height restrictions and exurban restrictions increase the prices of all residences existing inside the urban area prior to 2002 to quadruple post 2002

DYOR... RUB came through under Gary Taylor from memory in the 90s,,, helps you?

The RUB wouldn't have been so much of an issue if the city councils had followed the ARC's plans for intensification.
They didn't and we had mass immigration from 2001. These two factors set the whole crisis off. Plus changes to home financing.

Precisely. But you had opposing local govt bodies with their own objectives both trying to force the other to act. Meanwhile HC sat on her hands aided and abetted by the greens i suspect. Green ticket Vision was active on local govt to pursue their policies and objectives. It took the blue team to start sorting it out. Subsequently HC became head of development, the irony, at the UN, did any good come from that

A high level of liquidity preference, the low level even lack of economic growth to provide opportunity causes investors to seek refuge in what they consider to be safe liquid assets. The consequential rise in sovereign bond prices reduces term interest rates, which in turn increases the discounted present value of cash flows associated with all assets. This encourages investors to capitalise such an outcome in other asset classes. Speculation follows on quite quickly when bank offers of leveraged, collateralised borrowing allows a larger cohort of capital deficient participants entrance into the casino.

Notably, the RBNZ has cut interest rates in half five times since July 2008.
.

The RUB change doesn’t explain why asset prices exploded in western countries at the same time. You wanna know what happened? China is what happened. They started their Going Out policy in 1999 to encourage massive foreign investment coupled with joining the WTO in 2001 which led to an explosion in GDP and there you have it. Worldwide asset price increased because 1.3bil people got rich very very quickly and because they can’t buy land in their own country they were backed by the state to buy it elsewhere.
I’m always amazed at how insular kiwis think. Our country is deeply affected by external policy, particularly China.

Yip a 50% fall in house prices wouldn’t surprise me. I’m told it’s impossible by nearly everyone which is fine. At some point our chickens will come home to roost and we will have to deal with the detachment between house prices, income levels, debt levels and lack of inflation.

Wow 6G and I do not even own a single 5G device yet. Bit of a problem using Chinese owned satellites when we dont want to use their 5G infrastructure.

she'll be right - houses and farming - what can go wrong?

That pesky battle for unearned income....

BuyNow PayLater Sector. That sort of encapsulates the comment here some time ago that society can no longer afford itself. Along with the column in STUFF this morning that the RBNZ considers the escalation in property values is good because it generates a feel good element in society which encourages people to spend up. In essence that amounts to borrowing money to save money. Wonder what happened to the longstanding traditional criticism, Dr Cullen for instance but not only he, that NZrs have an appalling track record on saving and eventually that would lead to the great undoing?

Along with the column in STUFF this morning that the RBNZ considers the escalation in property values is good because it generates a feel good element in society which encourages people to spend up.
Ridiculous, childish nonsense.

In March 2017, former Treasury and Federal Reserve (Fed) official, Peter R. Fisher, delivered a speech at the Grant’s Interest Rate Observer Spring Conference entitled Undoing Extraordinary Monetary Policy.

Wealth effect or wealth illusion? The other therapeutic effect of lower-for-longer interest rates is the wealth effect. By driving up the value of future cash flows with lower rates of interest, all manner of assets – stock, bonds, and houses – increase in value and, thereby, can stimulate our marginal propensity to consume. More simply put, the imperative was to make rich people richer so as to encourage their consumption. It is not so hard to imagine negative side effects.

There are the obvious distributional effects between those who have assets and those who do not. Returning house prices in California to their 2005 levels may be good for those who own them, but what of those who don’t?

There are also harder-to-observe distributional consequences that flow from the impact of lower-for-longer interest rates on the value of our liabilities. This is most easily observed in pension funds.

Consider two pension funds, one with a positive funding ratio and one with a negative funding ratio. When we create a wealth effect on the asset side of their balance sheets we also drive up the value of their liabilities. Lower long-term interest rates increase the value of all future cash flows – both positive and negative. Other things being equal, each pension fund will end up approximately where they started, only more so.

The same is true for households but is much more ominous, given the inequality of wealth with which we began the experiment. Consider two households: one with savings and one without savings. Consider also not just their legally-defined liabilities, like mortgages and auto-loans, but also their future consumption expenditures, their liability to feed and clothe themselves in the future.

When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures.

But just because we don’t trade our future consumption expenditures on the stock exchange does not mean that the conventions of finance do not apply. The family with savings likely ends up where they started, once we consider the necessity of revaluing their liabilities. They may more readily perceive a wealth effect but, ultimately, there is only a wealth illusion.

But what happened to the family without savings? There were no assets to go up in the value, so there is no wealth effect – real or perceived. But the value of their future consumption expenditures did go up in value. The present value of their current and expected standard of living went up but without a corresponding and offsetting increase in assets, because they don’t have any. There was no wealth effect, not even a wealth illusion, just a cruel hoax.
https://www.grantspub.com/files/presentations/FISHERGRANTSREMARKS15MAR17...

STUFF Article
New Zealand is consumed by an epidemic of self-censorship
There are things you can talk about and things you can't talk about
The very long article in STUFF talks about the Generals and the Millenials
And housing prices and the RBNZ
It never once refers to the unmentionable topic
Take a read through the article by Brian Easton linked to in H.C. comment above
Another long article of self-censorship
Then read down to the bottom of Easton's article
He mentions the unmentionable freely in 2018, 2017, 2016, 2014
Now silent. They've got to him

This poor public health policy. Not fine.

The mask.
It's understood the Government will encourage a light-handed approach to enforcement with a focus on educating rule-breakers before issuing the instant $300 fine.

https://www.odt.co.nz/star-news/star-national/how-government-will-bring-...

But then neither is the housing policy. Makes the poorer poorer.

And there isn't a transparent formally legislated immigration policy either

Bitcoin has been increasing spectacularly. If I had the balls to do it, I would get some. I am not going to do it, but I am pretty sure that I will regret not doing it.

Someone said to me that if people cannot stomach or understand the volatility of BTC, they should stay away. Actually, I disagree. I think everyone should own BTC. Why? People should get used to how digital currencies actually work (how they're traded, stored, transferred and used). They're not going away. Furthermore, you can own the equivalent of NZD30 of rat poison. In a worse case scenario, you lose NZD30. Could be a lot worse.

Are they really currencies yet? Does anyone really use them for anything other than “investment” or hiding money?

Are they really currencies yet? Does anyone really use them for anything other than “investment” or hiding money?

Some people see gold as 'currency', but naturally it's not a means of exchange anymore. And yes, some people use digital currency as a means of exchange. And no doubt this is on Paypal's agenda. Nevertheless, Bitcoin itself is not just a means of exchange.

Secondly, the blockchain is 'public'. The idea that it's anonymous and a method for hiding money is really meaningless.

China has their man nearly in place in the US.

History repeats.
"Democratic campaign workers forged absentee ballots. On many of the ballots, they used the names of people who were living in Puerto Rico or serving time in prison, and in one case, the voter had been dead for some time.

"Substantial evidence was presented establishing massive absentee ballot fraud, deception, intimidation, harassment and forgery," Judge Newcomer wrote in a decision made public today.

...The judge decided to hear the case after state election officials and state courts rejected the Republicans' claims."
https://www.nytimes.com/1994/02/19/us/vote-fraud-ruling-shifts-pennsylva...

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there were only ever going to be 6 or so states that mattered anyway, Biden won most of them, and now they reckon they were all rigged (even though their voting systems are independent). Seems a bit unlikely to me. I could believe maybe one state, not multiple.

I think the article raises the issue of voting manipulation as a global issue - not just the US.
Once the media, big tech, & global alignment decides, then the voting system can be modified accordingly.

Thank goodness to some here in NZ - we've never been so lucky country even compare to OZ now, as piggy back more of our economy to country of large in everything.