American economy stronger; China inflation lower; NZ swap rates fall; oil price drops again; oil demand falling; AU mothballing electricity plants; NZ$1 = 77.1 USc, TWI = 77.5

American economy stronger; China inflation lower; NZ swap rates fall; oil price drops again; oil demand falling; AU mothballing electricity plants; NZ$1 = 77.1 USc, TWI = 77.5

Here's my summary of the key issues that affect New Zealand overnight with news of more turmoil in the oil markets.

Firstly, the American economy likely grew at a much stronger pace in the September quarter than previously reported. Data out overnight showed spending in their giant services sector expanding at a brisk pace, well ahead of what was expected. Many key components were up 5% and 6% over the same period a year ago.

American mortgage applications jumped again by a healthy margin.

All this good news is likely to result in a report of a much lower US Federal budget deficit for November which will be reported early afternoon NZ time.

China’s annual consumer inflation eased to a five-year low of 1.4% in November. And the growth in Chinese new-car sales fell to its lowest level in almost two years, amid a broad slowdown in the world’s largest car market and their economy generally, one that has crimped car sales and left some manufacturers with high numbers of unsold cars on dealer lots.

In New York, UST 10yr bond yields held steady at their lower level after yesterday's fall and are now at 2.21%. New Zealand swap rates for terms above 4 years are now at their lowest levels in more than 15 months.

Energy and climate-related issues have hit the fore overnight. A key official in Australia has said they will not sign up to the next global climate deal in 2015 if it will put the country at a disadvantage to trade competitors. And the Canadians are saying similar things.

The oil price has fallen sharply again and is now under US$61/barrel and the Brent price is at US$64/barrel. These are fresh five-year lows and this time surprisingly high American crude and petrol stocks triggered the falls. The rise in their local production is overwhelming their demand and alternatives are changing the nature of overall energy demand. The average pump price in the US last week was NZ$0.918/litre. The New Zealand equivalent is NZ$1.999. Opec has slashed its forecast of demand for crude next year, to levels well below what they are currently pumping.

In Australia, energy demand is falling to the point where operators are considering mothballing electricity generation facilities.

And Airbus has admitted it may have misjudged demand for its A380 superjumbo. It is considering following Boeing and shutting production of doubledecker aircraft sooner than planned. They did not take any orders for the A380 in 2014.

All these reductions in energy prices may well speed up the US Fed's plans to raise interest rates, contrary to what may believe.

The gold price is basically unchanged today at US$1,228/oz level.

Meanwhile our currency held its overnight levels. We start today at 77.1 USc, 92.9 AUc, and the TWI is at 77.5.

If you want to catch up with all the changes yesterday we have an update here.

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

Daily exchange rates

Select chart tabs »

The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
End of day UTC
Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

22 Comments

Falling commodity prices, lower consumer demand, deflation,  depression, magnification of debt due to lack of inflation, forcing lower interest rates for survival, downward spiral, govt cutting funding to all govt funded organisations, lower, lower, lower. 
Where are the much promised and prophesisied interest rate hikes we have heard so much about for the last 6 years?   
 

With no growth/inflation, the real cost of interest will be crippling and unpayable even at historic low levels.

Here comes El Nino - Japan Met Service declares an El Nino is here:
http://www.theguardian.com/environment/2014/dec/10/first-el-nino-in-five...
Should get good and hot in Australia for Mr Abbott and his chums.

Best to avoid shrill conclusion jumpers (Engish Guardian, Zerohedge and the like.) Here is a long term chart of the SOI to put the coming El Nino into perspectve. Current events are a lot less severe than they were a century ago ...
 
http://www.interest.co.nz/images/soi-long-term-history.gif

Perhaps you should read what the Japanese have said (you wouldn't like to be described as a shrill conclusion jumper would you?). They make no comment as to the intensity of the event, merely that it is here. Here, let me help you:
'The Japanese weather bureau does not classify or predict the size of El Niño, he said'.

various govts agencies have differing definitions (months of -ve southern oscillation index) 6 is usually the mark to say El Nino.
things are boarderline, we have 6, but not all really/convincingly down
the Ozzies do it well
https://www.longpaddock.qld.gov.au/seasonalclimateoutlook/southernoscillationindex/soigraph/index.php
 
and in case you didn't thing folk were watching this is good for the smart phone:
http://www.yr.no/place/New_Zealand/Canterbury/Timaru/long.html
http://www.yr.no/place/New_Zealand/Canterbury/Timaru/
 
and even china news
http://www.nrk.no/ho/10-meter-hoy-elg-pa-vei-fra-kina-til-osterdalen-1.12092565
best use chrome translate

Um which is funny in that you comment so much on meaningless daily changes in some financial data for the day.
The SO is a short run effect on the weather/temperature and we have had a "quiet" period of la nina, so when we flick to El nino which will magnify that underlying warming trend instead of surpress it, it could be interesting.
"century ago" So California has has the dryest time on record for 1200 years,
http://www.bloomberg.com/news/2014-12-05/california-s-drought-ranks-wors...
el nino could make it the wettest?  and that large mass of warm water heading to the USA is a huge energy source for storms?
or a great[er] year for superstorms,
http://climatecrocks.com/2014/12/07/update-super-typhoon-drops-major-rai...
no biggee?
As we have farmers in here but isnt it worth commenting on that such an event could have a noticable and maybe severe effect on their output for the next year?  NZ farmers could see a severe drought?  end up with teh Govn handing out cash to them?
but no lets just gamble all will be OK, someone else ie the tax payer will pick up the tab?
Meanwhile 2014 is probably going to be the hottest on record,
https://www.youtube.com/watch?v=5qV3pYteR0k
With an el nino as the cherry on top for next.
"What we’re getting seems, so far, to be somewhat more of a moderate cycle, but with the potential to make 2015 a record breaking year for global temperatures, whether 2014 sets a new record or not."

American mortgage applications jumped again by a healthy margin.
 
I shouldn't wonder, given proposed US government largesse - the capitalisation rate of stupidly easy access to indebtedness on someone else's check is about to explode.
 
“The new lending guidelines released today by Fannie Mae and Freddie Mac will enable creditworthy borrowers who can afford a mortgage, but lack the resources to pay a substantial down payment plus closing costs, to get a mortgage with 3% down. These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices,” FHFA Director Mel Watt said. Read more

A friend in California just purchased a new Honda Accord and financed at 0.9 %.

According the RBNZ he has just destroyed the US economy with inflation

LOL.
wierd as he should have bought an F50 so that's why.
 

its only just past 9am...

Holy heck!  did you see that jump in the NZD??  Did China just buy the rest of Auckland??
 

suddenly realised how much we need borrow :) / :(
http://www.bloomberg.com/quote/NZDUSD:CUR

the chart is now useless as it has rolled into a new 24hr period 45 mins ago.

Carnage in the US oil patch:
http://www.cnbc.com/id/102256756
''Dec 10 (Reuters) - Goodrich Petroleum Corp and Oasis Petroleum Inc said they expect to spend much less on exploration and production next year, joining a list of U.S. oil and gas companies cutting capital spending as oil prices plunge.
Goodrich shares fell as much as 14.7 percent to $3.57 in early trading. Oasis' shares fell as much as 13.3 percent to a record low of $11.01.''
 
It is going to be really interesting to see how much US economic growth in the past few years has been dependent on the shale oil bubble.
Don't be surprised to see the US government rushing to bail out the industry by sometime around mid-2015 if low oil prices continue. Don't think it could happen? The idea is already being floated:
http://finance.yahoo.com/news/could-us-bailout-own-oil-120440435.html
 

http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11372220 While oil prices bounce up and down nz renewable energy evolution quietly continues reaching 79%. Geothermal overtaking gas for the first time. Industry experts saying there is enough resource consented supply to power the vehicle fleet. The future is bright for little old nz guys.....

Interesting HBR article on them Robots:  the money shot:
 
"Suppose, today, that the robots and smart machines of the Second Economy are only capable of doing the work of a person of average intelligence – that is, an IQ of 100. Imagine that the technology in those machines continues to improve at the current rate. Suppose further that this rate of technological progress raises the IQ of these machines by 1.5 points per year. By 2025 these machines will have an IQ greater than 90% of the U.S. population. "
 
And, bearing on the 'Future of Work' movement, there's this:
"...we will soon be looking at hordes of citizens of zero economic value. Figuring out how to deal with the impacts of this development will be the greatest challenge facing free market economies in this century."

Oil Price $61/bbl
This is about half the peak price.  Petrol prices here would appear to have not reduced anywhere what this represents.

Actually the non tax component has fallen exactly the percentage of the price drop based on the average crude price for the last 12 months and allowing for lag factor and exchange rates. Current spot price fuel doesn't instantly appear in petrol station tanks. Looks like it will keep falling for a while yet. 

Not so sure about that.  Looking at the figures back to 2000,  allowing for GST, taxes excise duty etc and the exchange rate; the current nett price of 91 octane is 21% above the average for the years 2000 to 2014.  Interestingly the prices for 2011 to 2013 are respectively 8%, 17% and 11% above the average.  (bare in mind this average is skewed upward by the higher costs for the last 4 years so the increase is actually higher)

Chris in my post I referred to the last 12 months to show the retail price fall is reflecting the fall in crude prices. The period 2000 - 2006 is hardly relevant. Crude prices were $10-$20 during this time. GST and other levies were also lower.
 
On a really historical note I can remember filling up my 1949 Hillman Minx because the price was going to rise to 37c a gallon at midnight :)