US payrolls and service sectors expand; US trade deficit falls; Texas cow deaths; China trapped, yuan falls; US abandons 'fair value' rule; UST 10yr yield 2.20%; gold up; oil at 11 yr low; NZ$1 = 66.3 USc, TWI = 72.1

US payrolls and service sectors expand; US trade deficit falls; Texas cow deaths; China trapped, yuan falls; US abandons 'fair value' rule; UST 10yr yield 2.20%; gold up; oil at 11 yr low; NZ$1 = 66.3 USc, TWI = 72.1

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

At the end of this week (Saturday our time) we get the next look at the US non-farm payrolls report. Today, the precursor report from ADP indicated that it may be very strong. The ADP report showed that private payrolls grew by +257,000, well above expectations of a +198,000 rise. The drivers seem to be manufacturers, and companies with payrolls of 50 or less. This is fundamental underlying strength in the American economy despite other indicators that growth may have slowed in the fourth quarter.

The US trade deficit fell more than expected in November with imports of goods and services falling more than exports of goods and services.

But the indications of strength went further today. The latest report on their service sector beat forecasts too, still expanding at a healthy clip even though that expansion is slowing. However, these 'slowing' trends in both the service and factory sectors that worry markets. Today, equity and bond markets on Wall Street are decidedly lower.

It's a similar note globally. The data still points to expansions with a slowing trend. And the expansions are not large. Still, a key item to note is that employment is still expanding and at a slightly faster rate.

Staying in the US, an overnight blizzard has killed some 35,000 dairy cows in Texas. This is an area that produces about 10% of all US milk production.

In China, they have extended their stock-selling ban imposed by the regulator on major shareholders to stem the market rout in August that was set to expire on Friday. But the whole policy is an unmitigated disaster. Policy makers have trapped themselves and it may be ugly when they finally unwind the mess. And the signals it sends to investors now will take years if not decades to overcome.

The Chinese currency is taking a thrashing too. It is down -7% since the no-sell policy was put in place. It is now at a five year low. Some think the trend is manipulation by Chinese authorities.

But despite all this, there are signs that business sentiment is improving in China.

The main news out of Europe is their improving PMIs, also driven by the service sector.

Back in the US, their Financial Accounting Standards Board has essentially scrapped the mark-to-market, "fair value" rule that has made financial statements nearly impossible to read except for a few pointy-heads. This will affect many companies (again) and will simplify bank financials in a positive way. It will be interesting to see what the international accounting bodies do from here. No comment yet. Major variations in approach will make a new messy scene.

The oil price has slumped even further today. Now, both the US and Brent prices are just above US$34/bbl. This time it is weakening demand that has ignited the latest drop.

Gold is up again, now at US$1,088/oz.

The UST benchmark 10yr bond yield is resuming its slide, now down to 2.20%.

The NZ dollar starts today at 66.3 USc, at 94 AUc, and 61.7 euro cent. The TWI is at 72.1. Since the beginning of the year, the Kiwi dollar has depreciated -2% of a TWI basis; against the surging USD the drop has been -3%. That is a lot for five trading days.

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

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Highlight new comments in the last hr(s).

Back in the US, their Financial Accounting Standards Board has essentially scrapped the mark-to-market, "fair value" rule that has made financial statements nearly impossible to read except for a few pointy-heads. This will affect many companies (again) and will simplify bank financials in a positive way. It will be interesting to see what the international accounting bodies do from here. No comment yet. Major variations in approach will make a new messy scene.

In plain English.

"The issue at hand is the "Fair Value Option", which under US GAAP essentially allows the booking of a pre-tax profit when a bank's debt trades lower in the open market. This benefits banks that opt-in for FVO instead of other accounting approaches such as amortized cost, or historic cost.

The debt valuation adjustment, or DVA, will no longer be included in net income, according to revisions to the fair-value measurement standard published by the Financial Accounting Standards Board Tuesday. Firms can now report changes in the value of their debt as part of “other comprehensive income,” which isn’t part of the bottom line that analysts and investors watch most closely.

The DVA rule increased net income when a bank’s bonds tanked, on the theory that the firm could buy back its bonds at a lower price and benefit from the decline in value. In practice, a financial institution in trouble, such as Lehman Brothers Holdings Inc. in 2008, is typically unable to buy back bonds because it can’t get fresh financing Read more

I just saw ..." the Big Short"... ( movie).
Great movie to help a dumb arse like me to make sense of the "hocus pocus" ...dazzle us with brilliance / baffle us with bullshit financial speak...

I was laughing in hysterics when the movie explained synthetic swaps, using a blackjack table in a casino to explain this synthetic swap.. crap.

Just shows.... ( I think Galbraith said it yrs ago ).... you can cut and slice and package any way you like BUT... debt is debt.. and risk is risk...

Great movie... highly recommend it....
I felt for those ballsy guys who bet against the whole mortgage backed securities cesspool.....
They had to sweat it out ...even as they were proved right by the underlying real estate reality.... because of the corruption, greed and criminality of Wall Street.... Rating agencies, Banks, etc...
( Wall street ( metaphor)... was trying to keep the "music playing".. as they tried to front run everyone else trying to bail out of all the crap they owned... unloading it on anyone..and then some of them even placing bets on the collapse of it all ... ekkkk )

That was 7 yrs ago.... Looks like nothing has changed..!!!!!
I would not trust ANYTHING that comes out of Wall Steet...

Just can't believe they all got off scott free... Crime Pays big time....... on Wall street..

Where did you see it

online? or in a cinema?

Some of our most reputable brokers - a bit of an oxymoron - were advertising collaterised US sub prime mortgages in the NZ Herald Business pages that homeowners were paying less than 5% for that when sliced and diced miraculously returned over 9% expected.

I was never sure how this worked and remain ignorant today.

My shaky maths !!

The US trade deficit fell more than expected in November with imports of goods and services falling more than exports of goods and services.

But the indications of strength went further today. The latest report on their service sector beat forecasts too, still expanding at a healthy clip even though that expansion is slowing. However, these 'slowing' trends in both the service and factory sectors that worry markets. Today, equity and bond markets on Wall Street are decidedly lower.

Little wonder, the service sector is dominated by vicious circle accounting tricks.

The largest single component of services GDP (or total GDP, for that matter) is imputed in the form of phantom rental income since the BEA treats owner-occupations as if they were all an economic enterprise. From the BEA:

The rental value of tenant-occupied housing and the imputed rental value of owner-occupied housing are both part of PCE housing services, reflecting the amount of money tenants spend for the service of shelter and the amount of money owner occupants would have spent had they been renting. Owner-occupied housing is included in PCE because the NIPAs treat the owner-occupant as if it were a rental business, or in other words, a landlord renting to him or herself. [emphasis added]

The highlighted portion is relevant as it is not particularly obvious that it is true, nor why we should suspect that it might ever be (unless the Picketty’s of the world gain enough political hold to outlaw private ownership of shelter). It’s an odd basis for economic interpretations where we are forced to think about the economy where private individual housing doesn’t exist for the sake of personal shelter. For 2014, that amount was$1.37 trillion! That is up from $1.228 trillion in 2010, or a compounded growth rate of 2.7% per year. The growth rate has been accelerating in the past few, with imputed owner’s rent jumping 3.6% 2013 to 2014. Since these estimates are included in PCE, the fact that the “services” component is rising doesn’t, unlike goods, immediately suggest actual growth.

Further, a rise in shelter costs, both imputed and real, might instead be a serious economic drag given necessary trade-offs – made more so without a steady increase in wages. This point is also transferred upon the “service economy” that might appear to be growing based on any number of regulatory burdens that count in practice as a tax rather than actual growth (Obamacare being the biggest). Read more and more

If only it was a Christmas fable

http://m.smh.com.au/business/dick-smith-accused-of-pumping-up-gift-vouch...
Forager Funds Management chief investment officer Steve Johnson told ABC Radio on Wednesday that putting the company into receivership just after Christmas could have been a strategic move by the banks.

"It's almost impossible for a retailer to not have any money after Christmas," he said.

"My guess is that the banks have seen that cash in the bank and gone, 'Well if we put it into receivership now, then that cash and that gift card money, before people go and spend it, is going to be ours to grab, rather than the suppliers getting paid first'."

Oil selling for below the cost of extraction for high-cost extractors was the biggest story of 2015, and now there has been a further drop in prices. WTI is currently below $34 a barrel.

Low fuel prices have provided a gigantic 'subsidy' to most sectors of most economies at the expense of fundamentals.

That which is unsustainable will not be sustained. Continued low oil prices will result in multiple bankruptcies in the oil sector (and rupturing of budgets of several entire nations). And a return to 'normal' ($100-120 a barrel) pricing would result in strong 'headwinds' for most other sectors and cause collapse of many.

.

I wonder what the NZ economy would look like if oil went back $100+ and the OCR was at 6%+ with an upward sloping fixed rate curve?

That poppong sound you hear would be the Lanz Bulldog running on butterfat

China route continues. 7% circuit breakers tripped again. 1 hour into trading ... china forces markets closed.... Crazy

Sorry...i lie it was 29minutes into trading...

Gold starting to move, back over $1100 US/ oz, fear is kicking in.

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