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China retail growth rises, factory and investment growth falls; Singles Day spectacular; Germany wary of ECB negative rates; UST 10yr yield 2.34%; oil and gold fall; NZ$1 = 65.6 US¢, TWI-5 = 71.4

China retail growth rises, factory and investment growth falls; Singles Day spectacular; Germany wary of ECB negative rates; UST 10yr yield 2.34%; oil and gold fall; NZ$1 = 65.6 US¢, TWI-5 = 71.4
12th Nov 15, 7:21am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news that shopping in China is changing the world.

China's retail sales growth edged up while its factory output and investment weakened in October. (Fixed asset investment was near a 15 year low.) This suggests their economic growth has stabilised but without some sort of revival we could well see new stimulus measures.

But the retail data is impressive, and it got another jolt higher yesterday with their amazing 'Singles Day' promotions. Some companies here are getting a piece of the action too. Adding to the optimism is news that car sales in China were up +11.8% in October, faster expansion than we have seen for months.

In Europe, the Germans are grumbling again about the ECB. The German government's panel of economic advisers warned overnight that the European Central Bank's low interest rates were creating substantial risks for financial stability and could ultimately threaten the solvency of banks and insurers. The warning came after it was reported that the ECB plans to lower the interest rate it charges banks to park money deeper into negative territory at its early December meeting.

In New York, the UST 10yr yield benchmark is still holding its recent gains today, today at 2.34%.

However, the US benchmark oil price has slipped lower today, now just on US$43/barrel, and the Brent benchmark is at US$46/barrel.

The gold price slipped as well and is now at US$1,086/oz.

The New Zealand dollar has settled in to a new lower range over the past week and overnight trading has not shifted it. It is at 65.6 US¢, just under 93 AU¢, and at 61.1 euro cents. The TWI-5 is at 71.4.

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

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

Daily exchange rates

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Source: RBNZ
Source: RBNZ
Source: RBNZ
Source: RBNZ
Source: RBNZ
Source: RBNZ
Source: RBNZ
Source: CoinDesk

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21 Comments

by  iconoclast  |  12th Nov 15, 8:36am 1447270599

Update - Short-Selling

Investment chiefs from five of Australia's largest industry "superannuation funds" have defended the practice of loaning out stocks to short sellers, who typically drive down share prices, and denied they are shirking the responsibility to exercise their shareholder voting rights.

http://www.theage.com.au/money/super-and-funds/major-industry-funds-def…

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by  Stephen Hulme  |  12th Nov 15, 9:20am 1447273215

It's fascinating to watch the buy side step up to directly fulful functions previously the purview of the global primary dealer banking community. Unfortunately shadow banking type transformation of securities undertaken by superannuation funds is minus the associated wholesale credit creation authority. Read more

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by  antonymouse  |  12th Nov 15, 8:37am 1447270646

Negative is the new normal.
The Netherlands sold €2.58bn at -0.271%, lowest yield in history

https://twitter.com/Schuldensuehner/status/664014073810563072/photo/1?r…

Is that crazy or what....

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by  Stephen Hulme  |  12th Nov 15, 8:53am 1447271624

In Europe, the Germans are grumbling again about the ECB. The German government's panel of economic advisers warned overnight that the European Central Bank's low interest rates were creating substantial risks for financial stability and could ultimately threaten the solvency of banks and insurers.

One can only assume their financial wizards can count as carefully and correctly as their engineers.

Hence they will have noted:

How can a decrease in the rate of interest have the effect of destroying the capital efficiency of cash flows? Well, the present value of the cash flow is just the price one must pay when buying it. Paying a higher price for the same cash flow is a clear indication of the decrease in the efficiency of the purchase. It shows that the terms of trade of the purchaser has deteriorated. In spite of the utter simplicity of this concept it has been the source of great confusion and theoretical errors. Read more

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by  Roelof  |  12th Nov 15, 9:19am 1447273154

Do you accept most of what Mr Fekete writes as being correct..??

I wonder about some of the stuff he writes.... Just does not sound right , based on what I know,...
( I don't know that much.. but what I do know, I'm sure of..)

...."capital efficiency of cash flows..." ..... really.... ???? I think his views are twisted....

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by  Stephen Hulme  |  12th Nov 15, 9:41am 1447274475

Think what you wish, but the primary underlying NPV discounted compound interest principle he alludes to is the reason many, including Bill Gross, skimmed society for all it's spare wealth since 1982 - and that includes me to a lesser extent. I just retired early when enough was enough.

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by  Roelof  |  12th Nov 15, 10:02am 1447275753

You didn't answer my question...

Re: Bill and Yourself...
Yes...and the more important reason is that it is the quantity of money/credit that bids up those asset prices.... without that it wouldn't/couldn't happen.

Interest rates and quantity of money are joined at the hip in regards to the current Monetary system..
Its' the unfettered money supply growth ( credit growth ) that is doing the damage... that is at the heart of the ongoing wealth transfer..... the growing wealth inequality...
In my view..... in simple english..

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by  Henry_Tull  |  12th Nov 15, 10:30am 1447277439

well you try and get replacement insurance.

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by  Roger Witherspoon  |  12th Nov 15, 4:51pm 1447300261

I love Fekete but usually get lost somewhere in the first paragraph. I see that the net present value of an income stream tends to infinity as interest rates tend to zero. It's why house prices are so high with unlimited bank credit. I don't think I understand what capital efficiency is though.

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by  Stephen Hulme  |  12th Nov 15, 5:37pm 1447303059

Well Roger, it never gets less tricky, especially so, when an institutional investment set need to leverage up to receive fixed in an IR swap arrangement to offset a discount rise caused by a credit spread blow out in a "high-quality" corporate bond portfolio in a falling libor interest rate environment. Read more

As a starting point. If you buy a bond then you normally hedge your interest-rate risk by paying fixed in swaps.

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by  Andrewj  |  12th Nov 15, 9:08am 1447272506
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by  PeterPen  |  12th Nov 15, 9:08am 1447272481

"In Europe, the Germans are grumbling again about the ECB. The German government's panel of economic advisers warned overnight that the European Central Bank's low interest rates were creating substantial risks ..."

Well, nobody cares about that in Europe, obviously. And why should anyone. It is far from headline news.

On the other hand, Germany's irresponsible and illegal open borders policy is a much bigger threat not only to financial stability, but also to political and social stability in Germany and beyond. The cost of the estimated 1.1 million illegal migrants flooding into Germany in 2015 have been estimated at 21 billion Euros for 2015 alone by Germany's Ifo Institute think tank yesterday. Isn't that REAL news? The EU's central economic power is committing financial suicide - but at interest.co.nz you find no word about it.

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by  dtcarter  |  12th Nov 15, 11:22am 1447280538

immigrants typically pay more in taxes than they cost the state, so they are actually a money maker for the country. http://www.economist.com/news/britain/21631076-rather-lot-according-new…

Though at this scale it will take a long time to turn 1.1M refugees into taxpaying workers. Germany needs more people though, its birth rate is one of the lowest in the world, below replacement value, and so not getting more people would also be financial suicide as the state tries to support ever larger number of retirees with ever lower number of taxpayers.

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by  PeterPen  |  12th Nov 15, 11:51am 1447282271

From all we know, about 20% of the illegal migrants flooding into Germany are illiterate. Another 50% have at best a primary school certificate from the 3rd world countries they come from. Swedish experience with that type of undesirable migration points to 30+% unemployment even after a decade in the country and numerous training measures.

"The Economist" is a hotbed of pro-illegal-migration propaganda and the numbers it produces are straight from the ivory tower.

Btw, aren't we all about to be replaced by robots and other digital means soon? So what do we need large populations for? To fill the ranks of the unemployed?

Germany is commiting financial suicide thanks to an insane policy of uncontrolled immigration, yet interest.co.nz prefers to report about some obscure government report on ECB policy. I guess dodging politically sensitive issues is editorial policy.

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by  DFTBA  |  12th Nov 15, 1:29pm 1447288151

Were do you get your numbers from?
I wouldn't have thought there has been time yet, to document to such precise extent what the literacy percentage and literacy type are, of new immigrants to Germany.
.
Wouldn't the REAL news be what's actually causing the flood of immigrants, to begin with, and who's complicit in that conflict?

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by  King of the whiners  |  12th Nov 15, 11:58am 1447282706

That study you quote looked exclusively at the effect of the immigrants into the UK from the 'new' Eastern European nations which had just joined the EU (ie Poland). Many studies show that the best and brightest of the youngest Polish population made a bee line for the UK. In no way can you infer from it that all immigrant groups are 'money makers for the country'. The economic migrants currently fleeing the Middle Eastern/Northern African chaos will be an entirely different kettle of fish (witness tthe German admission that they will have to stump up 16B Euros just to try and deal with the current influx - the German state will be waiting a long time to get that money back. http://uk.reuters.com/article/2015/10/29/uk-europe-migrants-germany-idU…)

Similarly the argument about needing to continually replenish populations is dubious - what will be your solution once this latest cohort of immigrants ages and in turn needs to be supported? Get more and ever more millions of immigrants in? Taken to its logical conclusion you would eventually end up with a German population of several hundred million, all in an attempt to sustain a system which has become unsustainable. There are solutions (most of them unpalatable) but the one you espouse is not one of them.

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by  dtcarter  |  12th Nov 15, 2:11pm 1447290716

population sizing, you want a very gradual reduction. The speed of reduction at present is leaving imbalances all over the developed world and China. You don't need to be increasing the population, but you don't want it to be reducing quickly and primarly in the working age bracket. Germany is working hard on other solutions, parental leave and parental pay are massive compared to nz, but immigration is a quick fix.

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by  KH  |  12th Nov 15, 2:48pm 1447292927

I never understand alarm over population reductions. On the other hand we are so used to ballooning populations that we take the resulting problems and imbalances for granted. We accept infrastructure shortages and expansion costs just part of the landscape.
I see lots of advantages in population reduction, in financial and lifestyle terms. More than just the obvious one of survival of the human race.

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by  Andrewj  |  12th Nov 15, 9:14am 1447272851
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by  Stephen Rogers  |  12th Nov 15, 10:12am 1447276340

Europe, both politically and economically is a basket case, but what about Japan. How can The Bank of Japan think this is a good idea?
http://www.bloomberg.com/news/articles/2015-10-28/owning-half-of-japan-…

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by  PeterPen  |  12th Nov 15, 11:55am 1447282549

Well, when the sh_t hits the fan, everyone will say it was completely unexpected :-)

Why do homo sapiens keep engaging in obvious irrational behaviour, kind of 90% of their lives, both individually and as societies? Have been pondering this one half my life ... no satisfactory answer yet. herd instinct is a big factor though, plus the hybris of people who feel they are leaders.

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