90 seconds at 9 am: China transition

90 seconds at 9 am: US data very positive; Australia with productivity problems; China about to be our biggest trade partner; NZ$1 = US$0.818 TWI = 76.9

27th Nov 13, 7:28am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of our tightening trade links with China.

But first, American building permits climbed in October to the highest level in more than five years, signaling their residential real-estate market will strengthen in 2014. The respected Case-Shiller house price index also had an overnight update and that showed prices rising faster at 11.2% per year. There was more sober news on American consumer confidence, but the latest factory data was very positive on almost every count.

In the UK, the government there is calling for their central bank to regulate bank leverage ratios. Everyone, it seems, want banks to hold more capital - except bankers.

Australia has a growing productivity problem, according to their central bank. And unless they get on top of it, living standards will stagnate, they say. One way proposed is to use their surplus mining engineering skills to renew their infrastructure. One thing is for certain, the price of iron ore will fall, and that signals a major change: for us it will shift our key trade relationship to where China is cemented as our primary one replacing Australia. This is a major transition which few in New Zealand realise is actually happening this quarter.

In China, government bond yields have hit their highest levels in nearly nine years amid Beijing's relentless drive to tighten their monetary signals. There are some fears their economy can't handle such a fast adjustment.

As an update to yesterday's note about China's coal consumption, their media came out overnight reinforcing official opinion that the answer to their reliance on coal is an accelerated program of nuclear power generation. They brand nuclear with hydro and solar as 'clean energy'.

And staying in China, their firm Bright Foods is being held up as an example of how their state-backed food companies are internationalising and building and buying international brands. Their investment in Synlait is an important component in that.

In 2014 China is going to be a lot more important to our economy and economic wellbeing. Keep an eye on our October trade balance data out this morning for an update on the transition.

The NZ dollar starts today at 81.8 USc, 89.8 AUc, and the TWI is at 76.9.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »

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10 Comments

by Andrewj | 27th Nov 13, 7:53am 1385491980

AUD & NZD: NZD is our favoured Antipodean currency in 2014 (Sally M Auld, Ben K Jarman) 100Kiwi faces another year of stability versus the US dollar (Q4 0.83) but trade-weighted strength as the RBNZ lifts rates and a late-2014 election stokes demand. Aussie should fall again but less so than in 2013 as the economy recovers in H2, and it should outperform some commodity currencies like BRL. AUD/NZD should test long term ranges (1.08). AUD vol remains the preferred taper hedge over NZD.

https://markets.jpmorgan.com/research/EmailPubServlet?action=open&hashcode=g3tg4tki&doc=GPS-1268040-0.pdf

by Stephen Hulme | 27th Nov 13, 11:17am 1385504228

ostrich, put us out of our misery or we will be obliged to rely on nonsense such as forecasts calling for exploding Aussie pension/health liabilities in 2060 etc, when in fact Fukushima radiation will have seen us all off.

by Stephen Hulme | 27th Nov 13, 3:17pm 1385518665

Thank you ostrich - I should have guessed - I remain an AUD short for reasons other than fundamentals - just don't trust under arm bowlers.

by powerdownkiwi | 27th Nov 13, 8:11am 1385493081

http://www.ft.com/intl/cms/s/0/5e923e3a-51d3-11e3-8c42-00144feabdc0.html#axzz2lmQE85hQ

Good to see the Financial Times saying what some of us have been saying for a while. That's why China is looking at nuclear, although Fukushima may well change their minds. What it tells us is that we can't do without energy, that we favour the short-term over the long-term, and are prepared to indulge in cognitive dissonance to do so.

by Brendon | 27th Nov 13, 10:10am 1385500204

Great article clearly explains our current predictament with oil supply and prices.

The most straightforward interpretation of this data is that the economics of oil have become completely dislocated from historic norms since 2000 (and especially since 2005), with the industry investing at exponentially higher rates for increasingly small incremental yields of energy.

The industry has been able and willing to finance such a dramatic increase in its capital investment since 2000 owing to the similarly dramatic increase in prices.

I think NZ should be transferring to renewable energy sources as fast as possible.

Also of note is a work colleague has just bought an electric bike, he is really stoked with it. It is power assisted pedalling, the faster you pedal the faster you go. He says it is fantastic for going up hills and into head winds. We discussed that he might be leading the wave for a transport revolution...

by iconoclast | 27th Nov 13, 11:26am 1385504794

Listen to the Chatter

It's happening

At the other end of the spectrum, down on the ground, down amongst the scrabble, the energy game is being played out. Here RIO TINTO the past masters at lobbying, threatening governments, extracting massive subsidies out of governments, have been unable to extract free energy out of the NT government so they are going to close the largest australian aluminium smelter

rio-tinto-ends-talks-to-salvage-gove-refinery

by Happy123 | 27th Nov 13, 8:44am 1385495061

Synlait... interesting movement in that share, 'someone' is slowing and steadily buying.

by Alter Ego | 27th Nov 13, 9:29am 1385497799

This is the USA and China data that worries me.

http://www.newsmax.com/GlobalTalk/us-B52s-china-defense/2013/11/26/id/538772

Posturing over CUBA was one thing, it was a little close to home for the USA.

However, they assasinated Kennedy after it, as the bloke was at odds with his own military and CIA. They did not need Krushchev and Castro to do the job for them, it was insider trading of the highest order, homegrown in Homeland.

Still, China is our new best friend, so what harm can we come to.

Indeed China are bringing a bank of their own here to favour us.

I often wonder why American Banks do not favour us with their presents.

Still, we can still get their pimps and drug dealers and other tacky items, like QE and Renmimbi and they can milk us for all we are worth, to death.

And the armamants industry would be worth a punt or two, a bit like the big-boys backing both sides in the last World War, stockpiling and lend leasing us all to death to make a buck or a douche mark.

And may I add piling it into a neutral Swiss bank.

Follow the money, each and every time.

But do not follow my leader, cos they will get us all in the shite, for their own nefarious ends.

Posturing and flying around in gigantic circles to do so.

History may repeat.

Seems we have learnt nothing new.

Except that selling houses to each other and land banking is such fun and currency trading is fraught with danger fractionally, if you do not back it with potential violence and a B52.