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China pollution worse, flights canceled; US jobless claims low; Chinese house prices 'unaffordable'; Chinese outbound tourism booms; oil holds low; gold up; NZ$1 = 68.4 USc, TWI = 73.6

China pollution worse, flights canceled; US jobless claims low; Chinese house prices 'unaffordable'; Chinese outbound tourism booms; oil holds low; gold up; NZ$1 = 68.4 USc, TWI = 73.6

Here's my summary of the key news overnight to keep you up-to-date over these holidays.

Dense smog continued to shroud China’s largest cities over the weekend though an approaching cold front began to clear the skies, a day after a Beijing air-pollution alert forced the cancellation of more than 200 flights.

Use of the Chinese Yuan in international transactions is growing and currency markets are adjusting to the change. But whether goods are actually priced in Yuan is debatable still; the core reference price still seems to be the US dollar.

Japan is the one country with the longest problem with deflation. The latest data there shows core consumer-price index, which excludes fresh food, was barely higher, up just +0.1% from a year earlier in November. The weaker yen pushed up the prices of imported food and appliances. It was the first rise in five months but still far from the Bank of Japan’s 2% inflation target. Household spending fell -2.9% in November, the third consecutive month of decline. Household incomes fell -1.8%, so real savings actually rose.

Across the Pacific, the number of Americans filing for jobless benefits fell more than expected last week, nearing a 42-year low as US labour market conditions continued to tighten in a boost to their economy. But of course today's conditions are not as good as they were in 1973.

A key driver of the American - indeed the world - economy is the American consumer. How well holiday sales have been there is still up for debate. Holiday sales at physical stores started out strong but seem to have weakened post Christmas, failing to achieve even modest growth targets. But we will need to await the totals including the on-line components before jumping to any conclusions.

Certainly, physical stores in New Zealand rang up record revenues this holiday season. And online transactions will also undoubtedly set new records.

Back in China, an official survey there of 25,000 savers who want to buy a home say that prices there are 'high and affordable'.

And still in China, 120 million Chinese traveled overseas in 2015, up +10% from 109 million the previous year. This now makes them the biggest outbound tourist market in the world. 345,000 of them visited New Zealand, so we attracted just 0.3% of that market. Still, this is growth by one third. It is clear these numbers could easily explode if we had capacity. However, given our domestic construction pipeline (especially in Auckland) there is little chance we could build the hotel infrastructure necessary to take too many more. The airlines (including Air New Zealand) are already fretting about the complete lack of available hotel space to service their inbound traffic.

American crude oil prices are holding their premium. US prices are now just over US$38/bbl while Brent is now just under US$38. And there's this.

Gold will start its post-Christmas trading in New York higher at US$1,077/oz.

UST benchmark 10yr bond yields will start their post holiday trading at 2.24%, and local swap rates are higher, at levels we haven't seen since August.

So cheap money may be coming to an end. At least, that is what ANZ is hoping. A healthy pipeline of big deals in New Zealand and Australia will add to the pricing pressure.

The NZ dollar will start tomorrow at 68.4 USc following a strong gain at the end of the final session before the holiday break, at 94.3 AUc, 62.4 euro cents, and the TWI is up at 73.6 and a 28 week high.

The easiest place to stay up with event risk over the holiday period is by following our Economic Calendar here »

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4 Comments

So cheap money may be coming to an end. At least, that is what ANZ is hoping. A healthy pipeline of big deals in New Zealand and Australia will add to the pricing pressure.

Let's hope these banks adopt the US trend of demanding loan collateralisation. Depositors certainly need to be empowered to seek basic protection of their savings.

..an unprecedented surge in loan collateralization demands - as the chart below shows, the percent of total loans secured by collateral has soared by nearly 50% in the past quarter to a record 55.9% from 37.9%, the highest ever, surpassing even the loan collateralization demands hit after the financial crisis, which peaked at 52.3%. Read more

One can only ask how the nation of spenders gained the funding to allow this to occur....physical stores in New Zealand rang up record revenues this holiday season. And online transactions will also undoubtedly set new records.

Import details for November:

Consumption goods rose $213 million (19 percent), led by non-durable goods (such as cigarettes, medicinal and pharmaceutical products), up $70 million. Semi-durable goods (such as clothing and footwear) rose $48 million. Durable goods (such as major household appliances and furniture) rose $39 million. Read more

Nominal GDPE growth for the year ending 30th September 2015 rose a paltry 2.78%.

"a paltry 2.78%" may be true for GDPE on a full year basis, but that is only one approximation for economic growth (nominal). In fact, Sep-15 grew +3.87% over Sep-14 in GDPE terms, and that is not too shabby (given the deflator is less than 1%).

The Expenditure measure for GDP is only one way to assess it.

There are others (on a Q-on-Q basis), such as:

GDP-Production = +2.32% (nominal)
Private final consumption = +3.09%
Gross national expenditure = +3.58%
Exports of goods and sevices = +10.18%
Imports of goods and sevices = +7.78%

Take your pick.

Quarter to quarter comparisons are difficult to equate to annual interest rate quotes accruing daily, for the majority - too much data left out and unaccounted for in between. Most readers are not in possession of a formal tertiary maths education, so I tend to simplify matters.

Days to the General Election: 22
See Party Policies here. Party Lists here.