G20 to tackle tax shifting; US retail sales disappoint; US consumer sentiment rises; China raises margin limits, UST 10yr yield 2.27%; oil price slips; NZ$1 = 65.4 US¢, TWI-5 = 71

G20 to tackle tax shifting; US retail sales disappoint; US consumer sentiment rises; China raises margin limits, UST 10yr yield 2.27%; oil price slips; NZ$1 = 65.4 US¢, TWI-5 = 71

Here's my summary of the key events over the weekend that affect New Zealand, with news all eyes will be on market openings this morning following the Paris terror attacks.

And the New Zealand markets will be the first to open, worldwide. There is an air of nervousness about what will unfold. But few strategists expect a prolonged economic impact or change in prevailing market directions.

But first, there is a G20 meeting in Turkey today and tomorrow and there is a push to close international corporate-tax loopholes, something that is expected to spur competition for lower rates. The changes are aimed at blocking companies from shifting profits among jurisdictions to avoid taxation.

In the US over the weekend, retail sales data for October was disappointing, but it was something of an odd result in that the car companies reported record sales but this official survey reports car sales lower than the prior month. A companion survey shows that inventories continue to rise and rise in the US. That trend will need to reverse at some point, although the unadjusted data shows this is a 'retail' sector issue only.

Inflation numbers from the US on Wednesday could be the provide the final trigger in the Fed's plan to raise interest rates on December 17. The recent strong non-farm payrolls report firmed up expectations for a hike especially as it showed wages rising +2.5%, and if general prices are shown to be rising as well, the die will be cast.

US consumer sentiment is rising, according to the latest influential UofM survey. Two trends dominated the early November data: consumers anticipated somewhat larger income increases during the year ahead as well as expected a somewhat lower inflation rate. This meant that consumers held the most favorable inflation-adjusted income expectations since 2007.

China has moved to contain leveraged trading on its stock market, cutting by half the amount of borrowed money investors can use to buy shares. Margin requirements will be raised to 100% from 50% starting on November 23, the Shanghai and Shenzhen authorities said in statements after local exchanges closed on Friday.

In New York, the UST 10yr yield benchmark gave up more of the gains it made earlier in the week, now at 2.27%. And that was before the France attacks. It is likely to fall sharply tomorrow when Wall Street opens in a strong risk-aversion mood. Today's New Zealand swap markets may give a first inkling into what may happen in Frankfurt, London and New York.

The US benchmark oil price has slipped lower again in the end of trading last week, now just over US$41/barrel, while the Brent benchmark is at US$44/barrel. The oil glut is now more than 3 bln barrels. And oddly, drillers put rigs back to work in US oil fields after more than two months of pulling back.

The gold price is also lower at US$1,081/oz but may get a boost when the London gold market opens tonight. Copper hit its lowest price since July 2009.

The New Zealand dollar starts the week at 65.4 US¢, at 91.7 AU¢, and at 60.7 euro cents. The TWI-5 is at 71. But given the shocking events in Paris on Saturday, it is very unclear how markets will react. Will we benefit as a 'safe haven'? or be marked down with the pull-back from commodities? But the betting is our currency will come under general pressure.

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

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

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13 Comments

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And the New Zealand markets will be the first to open, worldwide

The Middle Eastern stock markets tumbled significantly with Saudi Arabia's Tadawul All Share index down 3% (biggest drop in 3 months) to its lowest since December 2012, and Dubai's FMG Index plunged 3.7% to its lowest since 2014. Short-run implication for the equity market is likely to be negative according to Goldman, with a notably higher risk premium regarding uncertainties about the medium-term political implications. Read more and more

In the US over the weekend, retail sales data for October was disappointing, but it was something of an odd result in that the car companies reported record sales but this official survey reports car sales lower than the prior month.
Hmmmm.

People are taking out eight-year car loans. Humbug car financing has caused car prices (like home prices, pre-bursting bubble) to rise generally – for everyone. Read more

world markets will go down when they open, and the air of uncertainty will force the FED to hold

The Financial Stability Board, created by the Group of 20 nations after the 2008 credit crunch, last week put forward a plan on how the world’s biggest banks can collapse without taxpayer bailouts. The proposals, which force bond investors to take losses if banks fail, are due to come into effect in two steps starting in 2019. G-20 leaders signed off on them, according to a draft communique from the summit in Antalya, Turkey. Read more

Notice - not a word about bank depositors taking a haircut, unlike the mean spirited OBR claptrap invoked by the RBNZ. Hopefully, the local bureaucrats, yet to be tamed by citizen appointment, will come to realise the error of their ways. Unlike bond managers, individual bank depositors have neither the knowledge or the collective organisation mechanisms to stop bank shareholders and their appointed managers deviating from the path of lending prudence.

Here is something for the good folk of 155 The Terrace (OIO)
How does this policy shadow work out on their days work

The structural adjustment plan has a nuanced view of corn imports that reflects recent communist party dogma. The Ministry invokes the murky slogan of "two kinds of resources, two markets" which seems to imply that Chinese demand can be partially met by imports when necessary, but Chinese companies should have control over the supply chain and pricing of such imports.
http://dimsums.blogspot.com.au/2015/11/china-plans-to-cut-corn-productio...

in regard
http://www.linz.govt.nz/regulatory/overseas-investment/making-applicatio...

Many would be happy to share their Prof. Ross lecture notes showing what you have left after control over the supply chain and pricing has been lifted.

and
http://www.nzherald.co.nz/trade-deal-with-china/news/article.cfm?c_id=15...
CC. SFF ...

With reference to the shocking Paris attacks; we really need to have a long think about what is going on. It is all very well to react with indignant righteousness, but I do not think that is going to help solve the problem. One has to ask why are these fanatics finding it easy to recruit so many willing fighters. Large numbers of normal people do not usually go into battle for a cause unless they believe that they are under some sort of attack from the perceived enemy. So we need to be asking ourselves what is our society doing to the middle east and within our own nations that creates such fertile conditions to foster such widespread terrorism. There are some pretty obvious problems and it is past high time that we addressed them, because the way we are heading we will be fighting our own countrymen next.

Excellent link

It's because large numbers of younger Muslims, possibly in poorer circumstances, are completely brainwashed, and actually believe in a return to medieval Sharia law and circumstance.And that they will automatically end up in some sort of heaven if they kill the unbrainwashed.

That's quite a sweeping statement, without any facts backing it up?
.
Also - everybody is brainwashed, the question is just to what extent.....

Education combined with a degree of cynicism and realism can unbrainwash you a bit, as can reading Andrew's excellent link.Read about ISIS from a diversity of sources, and look at the body language of the jihadists in their propaganda videos.See what they do, and wonder why...Try reading Lawrence of Arabia (7 Pillars of Wisdom)
The inane White house rhetoric is not the best place to start looking....

DC, I understand that by US reporting rules the Auto sector is allowed to book "sales" as units leave the production line - a perversion of Say's Law?
If it were not for shopping (as with UK) the EU would be in recession: http://www.bbc.com/news/business-34806410