US jobless claims rise; China shifts tack; China services healthy but factories not growing; UST 10yr yield 2.27%; gold and oil down; NZ$1 = 68.3 USc, TWI = 73.6

US jobless claims rise; China shifts tack; China services healthy but factories not growing; UST 10yr yield 2.27%; gold and oil down; NZ$1 = 68.3 USc, TWI = 73.6

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

Today may be a holiday in New Zealand, but it is not in China or Japan. Nor is it in the US or most of Europe (although it is Sunday there of course). And it is not a holiday in Australia either. So welcome to the first 'business day' of 2016.

In the US, the number of Americans filing new claims for jobless benefits rose sharply last week, a potential sign their job market was losing steam although some of the increase can be attributed to temporary holiday factors.

On the business front, Amazon was the standout winner for holiday shopping.

A key Federal Reserve official has said overnight that a small set of new financial tools helped them pull off its interest rate hike last month, easing some internal concerns.

In China, the leadership there has signaled it is shifting from 'Keynesian' approaches to their economic challenges, to 'supply-side' solutions.

And China may be preparing for another cut in its reserve ratio.

At about 2pm today we will get the Chinese Caixin PMI reading. it is expected to be little changed at a contracting level of 49, but a different result could well move markets. The official PMI for large Chinese manufacturing companies came in slightly better than expected but still as a marginal contraction. The official services PMI was much better. This sector is seen expanding in a healthy manner.

The oil price rose a little in final 2015 trading to finish trading at US$37/bbl. But that is a fall over the year of more than a third, after a race to pump by Middle East crude producers and American shale oil drillers created an unprecedented global glut that may take all of 2016 to clear. Or longer; Iran says their big new supplies "won't hurt the market".

The next move for the iron ore price may not be up either.

Gold ended the year at US$1,060/oz.

The UST benchmark 10yr bond yield slipped a little on New Year's eve and is now at 2.27%. Some see this rising to 2.55% by mid-year.

The NZ dollar starts at 68.3 USc, at 93.5 AUc, and 62.9 euro cent. The TWI is at 73.6.

And don't forget, we have a dairy auction overnight. There is wide variability in the derivatives market between bid and offer prices, so this one could go either way. A disappointing result could start the year off badly. Actually, no observers are prepared to suggest which way it will go.

The rain we have had over the New Year has brought some reprieve to parched farmland in the north. The top of the South Island and the east of the North Island are getting a good soaking today, the MetService says. This weather will clear for a few days then we get more, up from the South, at the end of this week. Those worried about El Nino conditions will be in for a noticeable break putting us back on a more 'normal' track for this time of year.

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

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21 Comments

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RE; China and supply side... article says..
China's near-term tasks in supply-side reform include cutting housing inventories and business costs, reducing government debt, eliminating superfluous industrial capacity, and streamlining administrative procedures, according to a statement produced at the Work Conference.
In forging ahead with reforms, China will try to keep a balance with the demand side-for example, by moderately expanding its credit supply-said Wang Jun, a researcher at the China Center for International Economic Exchanges, a high-level think tank.

Good luck too China with that... I'm a skeptic..

A key Federal Reserve official has said overnight that a small set of new financial tools helped them pull off its interest rate hike last month, easing some internal concerns.

Central bank apparatchiks need to get their definition of what constitutes savings aligned with the beliefs of their cohorts in other jurisdictions.

Vice Chairman Stanley Fischer's claim What determines r*? Fundamentally, the balance of saving and investment demands does so. and invoking ..the global savings glut hypothesis advanced by Ben Bernanke and others at the Fed about a decade ago. places hims at odds with the blunt BOE claim "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits"

Nonetheless, Fed Funds traded well below the recently dictated 25-50 bps corridor on New Years eve, in spite of heroic levels of repo intervention.

..the fed funds rate has dropped to 0.12% this morning, down from 0.47% yesterday. The fed funds rate has dropped at month-end for all of 2015, with some of the larger of these moves occurring at quarter end, like today. Read more

No doubt inspired by central bank irrelevance when it comes defending state determined lower boundary interest rate levels Boeing extended it's stockholder benevolence fund undertakings, surely funded with cheap credit issuance.

US aerospace giant Boeing has announced a $14 billion share buyback and 20 percent increase in its regular quarterly dividend starting 2016 to $1.09 per share. Read more

my best definition: savings = deferred consumption ( income not spent ).

Is domestic evidence in short supply?

Christmas shoppers, bargain hunters and holidaymakers swiped their cards more than 100 million times last month, spending almost $5.5 billion.

Paymark, the company which processes 75 per cent of New Zealand's electronic transactions, said credit and debit card spending rose almost 8 per cent compared to last December. Read more

yes... domestic evidence is in short supply ...

One mans debt becomes another mans income.... happy campers..
Until... someone defaults on a debt... and then someone else... ( not so many happy campers then ).

Maybe there is too much "income" that is reliant on someone elses debt..??
Makes for a more and more fragile economy...

How about you provide evidence it is not?

I thought the link did - are some of your mental capacities challenged?

This seems quite possible.

Supply side, more you'd say they have given the 'Keynesian' thing a red hot go, and having smoked the credit productionater, its in with tools.

Still not seeing that big purchase order for wmp, given we've run up the supply side capacity and are now looking for that demand that supply creates.. Yay verily.

Excellent article on China and how a repeat of 1998 is very likely:
http://www.ecstrat.com/wp-content/uploads/2015/12/Ecstrat-China-in-2016.pdf

Basically, the reform talk is just talk, the anti "corruption" drive is a purge and there is likely to be ongoing cuts to the reserve requirement leading to a currency collapse, as they cannot both reform and strengthen central control, so central control wins.

As ever, acknowledgement of possible global dollar funding woes have to be taken into account. Official PBOC USD supply derived from sold foreign reserves necessitates purchase (draining) of domestic CNY reserves, hence the need to unwind unintended domestic credit tightening by acceptable solutions. Read more

Yes, all those apparent foreign reserves can't actually be used when you need them. Also, the question arises as to whether NZ is actually growing faster than China, now there's a thought.

One can make comparisons with the NZ data made available here - HT to Chaston. I guess veracity of comparable info is a debatable factor.

Should be very interesting year in China. There will be a serious backlash about dumping steel. Was the China miracle largely made possible because of Western largesse giving WTO membership to a murderous backward dictatorship? Lots of scary disappearances going on, not to mention annoying the neighbours.

It's tough running a military dictatorship these days, no one understands the problems you have.

Was the China miracle largely made possible because of Western largesse giving WTO membership to a murderous backward dictatorship?

Some blame lies with officially unscrutinised, unending (until it did) wholesale eurodollar funding.

Fault certainly lies with the PBOC's failure to sterilise domestic CNY (printed) injections on the upside leg when USD export receipts were exchanged into official foreign reserves (USTs?). US Fed money printing actions were integral to funding the import side of the cycle.

It was certainly rather convenient for the US that China took over their manual jobs thereby allowing a surplus of unemployed young males in the US when they were needed for pointless foreign warfare.

"Basically, the reform talk is just talk, the anti "corruption" drive is a purge and there is likely to be ongoing cuts to the reserve requirement leading to a currency collapse, as they cannot both reform and strengthen central control, so central control wins."

I've held that contention for a long time. There's a consensus that the CCP will continue with a command over society and yet simultaneously promote a free-market economy. History suggests that in order to achieve the latter, elimination must occur of the former.

http://finance.yahoo.com/news/china-challenge-getting-poor-migrant-01231...

Sub Prime anyone...2016.. .or do you want to set up a Fund to invest?. ...to bail them out/in...whatever, it is this week?..

We could call it. Kachina, until the penny drops.

Or even sell em for them, and make an easy 4% on the Commission. We have Real Estate Agents to burn, so we could sting them, oops, aid them in their time of need and put them up for Auction and then rent em back...for a song... ALA NZ.

We tried milking them, now we really, really could.

Or is China Flat Broke. Apartment rich, like Awkland...would luv to be / thinks it is..

Why do they not just leave em empty??..Have they not set an example here.?

I know you cannot lose with real estate if they must sell, all they would need is a Big Daddy, Child proof Gates free of course...or a free TV made in...well China. with the zero down mortgage... Eh.??!!.

A Yen for an Island or on land Japan/Chinese getaway, would surely fund it, if they all dig deep enough, World wide global expansion, notwithstanding.

It does seem a no-brainer.

Further to my concerns re China. Is anyone awake out there.

http://www.marketwatch.com/story/asian-markets-slide-on-fears-of-stallin...

Yes, I am. I live in Vietnam, and unlike Kiwis, I am closer to "the sentiment." Global media company WPP have also announced a hiring freeze. FMCG employees are probably more aware than anyone of what's going on in China, Vietnam, and SEA.