Miners scramble to respond to changing China demand; China exports and imports tumble; Aussie business confidence rises; oil lower again; UST 10yr yield 2.22%; NZ$1 = 66.4 US¢, TWI-5 = 71.8

Miners scramble to respond to changing China demand; China exports and imports tumble; Aussie business confidence rises; oil lower again; UST 10yr yield 2.22%; NZ$1 = 66.4 US¢, TWI-5 = 71.8

Here's my summary of the key events overnight that affect New Zealand, with news the world's miners are scrambling to adjust to a China that is changing tack.

The emphasis is going off heavy industry, driven recently by the pollution trap they are in. China is now at the forefront of trying to set global pollution limits.

This comes as China's exports continue to fall, and the slump in imports has now extended to a record 13 months. Exports were down -6.8% and far more than the -5% fall expected, while imports were down -8.7% although less than the -12% fall expected. Analysts were expecting a trade surplus of US$64 bln but after these varying falls it came in at 'only' a US$54 bln surplus. That is still a gigantic monthly trade surplus.

The data, especially the fall in imports, has roiled the mining industry. Brazil took another blow, and Anglo-American, a major miner, has announced it will cut its workforce by 60%; that's shedding 85,000 jobs. That will hit South Africa hard. Glencore, Rio Tinto and BHP are also making big restructuring moves. And there will be big downstream implications too.

But the fall in Chinese imports is not affecting Australia as much as you might think. Australian business confidence is on the improve, outside the mining sector of course. Above average business conditions are an encouraging sign that their recovery continues to gain traction. Although better business conditions are not being felt uniformly across the economy, according to the latest NAB business confidence survey, underperforming industries have gradually been gaining ground in recent months.

The dairy industry is not being buffeted either. The derivatives prices are holding, and this morning's review of Fonterra's payout level is expected to be a tame affair.

In New York, the UST 10yr yield benchmark fell -4 bps and is now at 2.22%.

The US benchmark oil price is down yet again, now just over US$37/barrel, while the Brent benchmark is just over US$40/barrel. There is real fear in this market of an intensifying global glut.

The gold price slipped as well, now at US$1,074/oz.

The New Zealand dollar has held similar levels since the start of yesterday and is still at 66.4 US¢, at 92 AU¢ and at 61 euro cents. The TWI-5 is still at 71.8.

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

The easiest place to stay up with event risk today is by following our Economic Calendar here ». And don't forget to vote in the Flag Referendum.

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16 Comments

So if RBNZ holds then .94 AUD?
If RBNZ cuts then .90 AUD?
Forex may be busy tonight!

RBNZ could hold rates and throw in a strong currency jawbone.

The Fallacy that Weakening Your Currency Generates Prosperity

http://charleshughsmith.blogspot.co.nz/2015/12/the-fallacy-that-weakenin...

Of the many economic policies that are accepted as true yet are absolute nonsense, perhaps none is more achingly nonsensical than the notion that weakening a nation's currency will magically make that nation prosperous.

Policy of China has been to keep the exchange rate at a worthwhile discount to its real worth for long periods and has helped them to absorb more employment growth. Maybe a sudden and substantial devaluation does nothing worthwhile but I am certain that policies ( or lack of..) in NZ have not done well for us in recent years

"This comes as China's exports continue to fall, and the slump in imports has now extended to a record 13 months. Exports were down -6.8% and far more than the -5% fall expected, while imports were down -8.7% although less than the -12% fall expected. Analysts were expecting a trade surplus of US$64 bln but after these varying falls it came in at 'only' a US$54 bln surplus. That is still a gigantic monthly trade surplus."

The concern is that falling imports indicates consumption is not replacing investment. There are major issues with over capacity and China's foreign reserves are shrinking:

http://money.cnn.com/2015/12/07/news/economy/china-foreign-exchange-rese...

The potential for China to make some unexpected move is growing by the day.

China was built, quite literally, with eurodollar finance funding industrial expansion to service eurodollar finance funding more and more consumption in end markets, especially the United States. In the early part of the housing mania, from January 2002 through January 2005, Chinese exports grew 134% (a surge reflected by proportional increase in the PBOC’s monetary functioning). Even after the housing bubble burst here (and for Europe) and the trend began to slow, China’s exports surged by 94% from September 2005 through September 2008. By comparison, in the past three years China’s exports have grown 10%; not per year, total. When 20-40% year-over-year growth is your economic baseline, -3% (so far in 2015 YTD) is near catastrophic. Read more

What happens when the GDP report showing 7% growth comes out on the same day as the reports showing a recession in exports, imports, electricity consumption or whatever other physical data point that points exactly in the opposite direction of growth? Can you say it all with a straight face but die a little inside, or is it all just part of the fun of being a reporter.
It's hard to cut through all bulls#it, because it is ubiquitous, and the media has zero integrity and definitely no financial incentive to have a bias toward the truth.

When I have my next life there are two jobs I want. One is the summer weather forecaster for Perth, WA and the other is the GDP presenter for China. "Yep, 7% again folks - amazing isn't it. I might as well give you next years GDP as well while I am here so I can take some time off."

4.9% contraction in Nominal global GDP, reported? Nah forget it.
http://www.voxeu.org/article/shrinking-planetary-gdp

On an historically averaged margin basis allowing for exchange and tax changes, the price on petrol should be $1.42 per litre. The government continues to stand by and do nothing in the face of this rip off.
This is all bad enough, but I wonder if we are getting anything like the taxes that should flow from the excessive profits that must be accruing somewhere as a result of this huge increase in profit margins. I suspect not and the profits are being syphoned overseas.
Whose interests are politicians serving and why?

Exactly correct Chris M. This Government will be marked by it's failure to move on the various cartels that have New Zealanders by the throat. And it will be notable when a following government does act, probably in about 10 years when the public have finally thrown down the gauntlet to them.
The history books will typify the Key decade as one where New Zealand's wealth was thrown away through negligence.

It is not as if the government do not know what is going on, Bill English announced results of an analysis by a government department similar to what I am saying some months ago. So they have no excuse.
I almost get the impression that there are factions within the National government who want to do the right things and others, Key included who hold the power and are working to a totally dubious agenda.

"Government assists cartels with serfing techniques"

Chris-M
"Whose interests are the politicians serving, and why" "The price of petrol should be $1.42"
Chris suspects we are not getting anywhere near the tax profits that flow from Kiwis being 'ripped off' by the cartels supported by John Key and senior members ( and sycophantic younger members) of this National Government. Bill English alluded to the discrepancies months ago, but his integrity has been in tatters for lack of courage to speak out.
So when asking whose interests are this Government supporting, it's been VERY clear since Key became Prime Minister.
Not sure how to phrase the difference between "rose-tinted glasses" ( becoming more opaque by the day) and our own wilful blindness.
Based on the character of Kiwis of yesteryear which relied on honour and integrity, and a handshake was ones "word of honour" it is really difficult to accept that we have elected political leaders who are narcissistic, duplicitous, without loyalty to either country or citizen, and whose main aim appears to be to pander to the corruption of Big Business Cartels, and suck up to international leaders. The rewards obviously flow into the pockets of the people we have elected,
Our Government governs through "doing deals" like second hand car salesmen without any qualms about ethics integrity and honour.
The social norms we used to take for granted have been relegated to the dustbins of Parliament.
Sorry to say the agendas of the Noveau Rich are about Big Egos ( which paradoxically show a complete lack of sense of real self) and an addiction to acquiring more wealth and perceived power than any successful decent person requires..
Ironically, the Spin and Propaganda and general BS that supports these "leaders" is payed for by us the taxpayers.
I continually read commentators asking many of the same questions, but failing to grasp what has been before our own eyes since this Government took power.
That's not saying that other Parties would have the courage to govern with honesty and integrity either!

IOU - "Every nation gets the government they deserve" apparently - so what does that tell you about Kiwis? - Are we all Arthur Daley types then?

Are we all Arthur Daley types? Well definitely.