Climate deal requires $20 tln; US data good; China data mixed; worries over derivative risk; China signals Yuan depreciation; UST 10yr yield 2.13%; NZ$1 = 67.2 US¢, TWI-5 = 72.3

Climate deal requires $20 tln; US data good; China data mixed; worries over derivative risk; China signals Yuan depreciation; UST 10yr yield 2.13%; NZ$1 = 67.2 US¢, TWI-5 = 72.3

Here's my summary of the key events over the weekend that affect New Zealand, with news there has been a climate deal in Paris.

But all it needs now is something in the order of NZ$20 trillion in investment to make it work. (See page 4.)

In other news, US data out on Saturday won't be changing any minds at the Fed. Retail sales were higher by almost +1.5% year-on-year despite low energy prices, and especially strong for car sales and 'general merchandise'.

The latest update on consumer confidence came in just marginally better than for November, and probably setting up quite a good holiday sales season.

Data for November out of China was stronger than expected, signaling that a flurry of stimulus measures from Beijing may have put a floor under concerns about their economy. Retail sales rose by their fastest pace in a year, up +11%, and factory output picked up notably in November as well.

Equally impressive, but in a negative way, is the fall and fall of their housing markets. Investment is falling away relentlessly.

And even more worrying is the slump in steel demand. Data out for November* has prices falling precipitously. A review for December said it isn't going to get any better. In the desperate rush to sell, they are facing anti-dumping pushback in a number or markets.

It is this China data that continues to buffet markets for hard commodities. Oil prices have now fallen to eight year lows, and iron ore prices continue to tank.

All eyes this week will be on soft commodity prices, especially on dairy prices in the Fonterra auction early Wednesday morning. Fonterra has a lot at stake having announced it is holding its payout estimate because it believes prices will rise in the New Year.

Back in New York, American regulators are considering restrictions on the use of derivatives by mutual, exchange-traded and other funds. They are concerned that investors are exposed to too much risk. Interestingly, ANZ's New Zealand's balance sheet is just loaded with derivatives, on a gross basis more than NZ$1.4 trillion (see page 20, Note 10), mainly in swap agreements. You wonder in NZ regulators are worried too.

In New York, the UST 10yr yield benchmark fell sharply on Friday and is now at 2.13%.

The US benchmark oil price is down yet again, now just at US$35/barrel, while the Brent benchmark is now under US$38/barrel.

The gold price rose on Friday, now at US$1,076/oz.

The New Zealand dollar is now at 67.2 US¢, at 93.5 AU¢ and at 61.1 euro cents. The TWI-5 is now at 72.3.

And over the weekend China signaled that it is about to loosen the peg of the Yuan to the US dollar. Things could get interesting because that probably indicates a depreciation in the Chinese currency.

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 ».

* Yes, I know. It says "January" in Google Translate. But it is actually November data.

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18 Comments

Climate deal, well the thing is its set for a decade+ in the future, at that point this current round of Pollies will be long gone. NB The same set who have done nothing for a decade or more so far, done nothing for the syrian refugees whos plight is substantially caused by fossil fuels. So do you really think they'll do the real hard yakka now? na its can kicking time.

Just so you understand, Nzers and indeed everyone in the developed world has to cut their energy/oil consumption by 50%+, who is going to do that to their "life style" really?

Only 50%, really? ...some of us already have.

Tim Grosser was pressed on NR this am as to what this means in a practical sense for NZ.....i.e what are we gonna actually do. All he could do was refer to Paulal Bennet....wasn't pushed particularly hard on it, but was evasive for sure. With the Nats desire to double primary production by 2025(?), god nows how we are gonna make any committment. The can kicking continues.....

The Nats might be wanting to double primary production by 2025 but do the industries really want to. IMO govt and industry are on a collision course on this. Industry would rather do value add rather than double production - especially dairy. Will be interesting to see if the govt/commission has the cojoines to change DIRA so that Fonterra doesn't have to accept any and every drop of milk milk anywhere that someone wants to set up a dairy farm.

Steven im watching that with interest too. Not much mention of it in the mainstream yet; Expecting volitility with the week ahead og decision on 16th.

How successful will NZ be with the climate change requirements when they will not hold big business to account for their behaviours (see Bernard's article on the Govt being soft on BB)? With the oil price so low, what will happen to the research on alternative energy sources? Opportunity for energy companies to use their profits to develop new forms, or more squandering?

Fonterra's rose coloured glasses are impressive as farmers begin to realise they have been betrayed by their own company.

The big players...ie China, US should whack on a green tax big time to put it back to a reasonable price...at the same time, any other beggar that won't follow suit looses trade rights with the big boys - so the will fall in behind real quick. Use the tax to get on and encourage green R&D. Oil will go back up at some time, a tax will just bring this time forward and give a window to develop..we aint got the time to p## around like we are at present.

The problem with taxes (and carbon trading) is that it allows people to either avoid or push their responsibilities off on to others. Also with taxes, they will just provide an additional slush fund for the pollies own personal agendas. Somehow (and I am not sure how this could be done) countries must be forced to carry out research into alternate technologies to replace fossil based energies. Nuclear will obviously be a part of the picture, but will be a hard pill for many to swallow.

Small fission or fusion reactors are definitely a need. A big concern is the maintenance of a privatisation basis rather than Government controlled, to ensure that energy costs are maintained at an affordable level, unlike here in NZ where the private companies are ripping all and sundry off big time!

Murray86 - so right. The farmer beginning to realise the horse has bolted!

The chair of Fonterra Corporate Group (sorry, meant Co-operative Group) continues to refer to 'unsustainably low prices'. Low for whom? The NZ supplier, Fonterra executives salary structure, Chinese supply chain operatives or the Chinese consumer? Didn't hear the term 'unsustainably high prices' used when things were peachy.

Increased US production and removal of EU quotas didn't happen overnight and were well signalled yet Fronterror appeared to continue to operate in a vacuum. Some of their decisions have to based on the long run but the vessel appears too big and cumbersome to respond to short term requirements. Corporate malaise anyone or just behaving like a (near) monopoly?

LOL, "Didn't hear the term 'unsustainably high prices' used when things were peachy." no that is "market forces" and "user pays".

The Corporate might not have used the term 'unsustainable high prices' but many grass roots farmers did at the time. ;-0

Interested to see not only the prices achieved during the auction this week but if the volumes will continue to be low. How long can they really store all this product without having to eventually dump it on to the market thereby flooding it and likely causing a price drop.

Interesting to see what impact another Yuan change and the Fed decision will have on the NZD. Quite a few influencing factors for a rather 'quiet' time of year in the markets.

Anthropogenic climate change is a mass hysterical delusion; like a New Age version of the cult building of Easter Island statues.

So you deny science, so you dont use a GP, (a man of science) but the local guy down the pub? local witch doctor?

Easter island is a classic example of not looking ahead and becoming extinct because of that.

Steven - Ergophobia's denialist views are shared by a significant number of his age group - those in the last decade(s) of their lives tend to be over represented in the denialist camp because a) their horizons are so much foreshortened then someone in their 20's for example and b) they dislike the idea that something that they gamble probably won't effect them significantly would necessitate state resources being 'diverted' to fix. Some people might call it the ultimate in selfish short-termism, but I couldn't possibly comment.
One does hope however that Ergohphobia and his ilk take the time now to make plain to their offspring and the children of their offspring that they hold such trenchant views. That way when they are gone they can be remembered appropriately by their nearest and dearest as the next generation struggle manfully against the ever increasing consequence of the inaction of the present.....

Yeah, completely agree KotW.

It's so disappointing to read comments that go "blah blah global warming is all made up alarmism..", not just because of the selfishness that seems to lurk behind, but because of what it says about the sheer ignorance there too - next we will be debating whether we landed on the moon.

Heck, we can observe how the melting ice caps have changed the earth's rotational speed, and if that doesn't give you a clue about the body of evidence supporting AGW and the scale of the problem then you're beyond help.

Easter Island Statues - mass delusion - unintended ironies dripping brain fluid.

hysteria = emissions trading system