90 seconds at 9 am: A big China clampdown

Oil slumps further, stocks follow; US housing, CPI both flat, real wages rise; China strangles outbound money flows; UST 10yr 1.97%; gold up; NZ$1 = 63.9 US¢, TWI-5 = 69.6

21st Jan 16, 7:25am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of more market carnage.

This morning oil prices have slumped further, now below US$27/barrel for the first time since 2003. Markets are now thinking the crude supply glut could last longer.

Some average data released overnight failed to inspire markets, and Wall Street was down more than -3% earlier this morning although in the past few minutes it has clawed some of that back.

Bond prices have surged, especially US Treasuries. The yield on the 10yr is now just 1.97%.

We are in full risk-aversion mode, although the Kiwi dollar is higher this morning from where we left it last night.

In the US, housing starts and building permits fell in December after some hefty gains the prior month. Year-on-year however this data shows some impressive gains, well over +10%. But no-one is looking at that today.

American CPI inflation came in at +0.7% for the year to December, +2.1% excluding food and energy. But the monthly rate showed no increase.

That means that worker's real wages rose +1.6% in the year to December, a measure that accounts for inflation plus changes in the work hours available in the work-week.

In China, banks are delaying and even blocking some foreign exchange transactions, a move that could hurt demand for foreign assets including those for real estate purchases. The move comes as authorities are increasingly concerned about capital flight. The ability of authorities to control this is doubted by many.

Sort of related, IATA is reporting growing softness in air travel out of Asia.

Back in New York, the benchmark UST 10yr yield is sharply lower at 1.97%. Locally, swap rates dived across the board here yesterday. Wholesale money funding just got -10 bps cheaper, a very big one-day move.

The US oil price is now at just US$26.50/barrel while the Brent benchmark is at US$27.40. US inventory data is due soon and fears about what it will reveal are likely behind today's fall.

The gold price up, and is now at US$1,104/oz. But that is a very modest rise given the market turmoil.

The Kiwi dollar fell sharply yesterday on the local CPI data, but it has tried to get some of that back this morning. Still, we are 100 bps lower today than this time yesterday. We start today at 63.9 US¢, at 93.2 AU¢, and at 58.6 euro cents. The TWI-5 is now at 69.6.

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

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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24 Comments

by steven | 21st Jan 16, 7:47am 1453315655

" +2.1% excluding food and energy. " which would be core inflation for the year, however,

" The index for all items less food and energy rose 0.1 percent in December, its
smallest increase since August."

Which reads like a downward trend?

Interesting what is going up, in effect items like medical and education that are un-avoidable so mor elike "non-tradeables"

"Within the medical care group, the index for prescription drugs rose 2.4 percent, while the hospital services index increased 4.2 percent. The index for motor vehicle insurance rose 5.7 percent in 2015 after
increasing 4.7 percent in 2014. The education index increased 3.7 percent"

by sharetrader | 21st Jan 16, 7:56am 1453316174

In China, banks are delaying and even blocking some foreign exchange
been hearing for the last couple of weeks anything over 1000 for a person is reported to central authorities whom have to give ok to release.
it will be interesting here as some Chinese children are being helped with mortgage and living expenses from parents back home

by bigblue | 21st Jan 16, 1:41pm 1453336874

Luxury car dealers have noted a severe drop off in Chinese buyer activity of late

by King of the whiners | 21st Jan 16, 8:00am 1453316424

As 2015 smashes temperature records:
http://www.theguardian.com/environment/2016/jan/20/2015-smashes-record-…

2014 was the hottest, but then 2015 trumped it. Makes you think eh?

by Didge | 21st Jan 16, 8:14am 1453317262

It is hypothesized that temperatures may rise in progressive steps. Thus we may be entering another hiatus in temperatures but at a new higher norm until the next upward step, which will probably be the next big El Nino whenever that occurs.

by skudiv | 21st Jan 16, 8:44am 1453319062

It was also hypothesised many years ago, that once temperatures in the Arctic rose beyond a certain point all the frozen methane would melt and join the atmosphere, increasing the rate of temperature rise. It was like one of those doomsday scenarios, where if we don't act, thats what's gonna happen. Well, nobody acted and those methane plumes in the arctic have been getting bigger for the last few years. Nobody talks about it so much these days, or if they do, it's only to say that it's not actually a big deal.
Well, we crossed that threshold, and now the pace of change has increased. Lucky for us, our air is still pretty clean, and free from a lot of the Northern Hemisphere pollution.
So in December, temperatures were 1.4C above baseline, not much room there to stop temperature rise at 1.5C like they 'aspired' in Paris just the other day. Even 2C has been shown to be just hopium, relying on massive geoengineering buildout of technologies that we don't even have.
So we blew it.

by Afewknowthetruth | 21st Jan 16, 9:49am 1453322997

Correct.

Arctic sea ice continues to track record low levels. In 8-10 weeks the 2016 melt will commence.

We will know in August just how bad the 2016 situation is and whether 2016 marks the first ice-free year.

Meanwhile, all government and commercial activity is geared to accelerating the meltdown.

Interestingly, the global financial-economic meltdown is also accelerating..

by JB | 21st Jan 16, 10:11am 1453324302

Yes certainly does - makes me think what caused the medieval warm period to be some 2 ~ 3º hotter
world wide than present temperatures - First IPPC report so must be correct.

What caused the little ice age that only ended in the mid 1800's ?

Simple answer is - we just don't know - so until we can answer these very complex questions - we don't know the extent of natural variability and therefore can not attribute cause 100% to any recent changes in temperature.

There is no doubt at all that the increased CO2 levels will cause some heating - but whether the feedback multiplier is positive ~ 3 x as the 15 IPPC models all agree or - x 0.5 as the ERBE satellite has measured is the critical variable.

I tend to go with the scientifically measured data.

by MortgageBelt | 21st Jan 16, 8:14am 1453317241

Which countries will be moving into Recession in 2016?

by skudiv | 21st Jan 16, 8:21am 1453317713

None, the recession will not be televised.

by antonymouse | 21st Jan 16, 9:57am 1453323461

The 21st Century: An Era Of Fraud — Paul Craig Roberts

http://www.paulcraigroberts.org/2016/01/18/the-21st-century-an-era-of-f…

by skudiv | 21st Jan 16, 8:31am 1453318312

Anxiety back? I mean sure, it's pretty tough to find a job in certain sectors, and those jobs may not pay as well as they used too, but you know there is a bright side. Manufacturing in China has crashed so hard that services are now a significant part of the economy. It's hard enough to sell something, let alone at a profit, when everyone is reluctant to spend what little money they have remaining.

Real wages have consistently been rising in the US, it's just the rises have all gone to the elites, the poor stay poor and the rich get richer, everybody knows, thats how it goes.

by MikeM | 21st Jan 16, 8:50am 1453319434

I think a similar thing is happening here. NZ is showing wage increases of 2% but it's possible most of that is going to the highly skilled/skill shortage groups. TradeMe reported that in the low/semi skilled areas there are instances of 200+ applicants for one vacancy. It's this sector that is seeing virtually no wage increases at all.

by sharetrader | 21st Jan 16, 8:32am 1453318362

our dollar is headed for below 60, we must have a lot of internal deflation if it imported inflation is not feeding through. tends to say our economy is not that rosey

by Andrewj | 21st Jan 16, 8:47am 1453319243

Isn't it collapsing commodities that are our problem? The US is going higher but the damage is being done to hedge funds and equities. Alberta is suffering at a sub $30 oil price their high sulphur oil must have a negative value.
Consumers are running out of credit, without the newly created debt what will our world look like?
Looks like the inflation genie has gone and we will be dreaming of the days we could buy a house and have it double in value in 10 years or less.
Without that housing wealth creation model how do we get money into the economy, from the dairy industry?

by Stephen Hulme | 21st Jan 16, 8:50am 1453319422

Bond prices have surged, especially US Treasuries. The yield on the 10yr is now just 1.97%.

Great for the 1%.

Not so good for the rest.

That means that worker's real wages rose +1.6% in the year to December, a measure that accounts for inflation plus changes in the work hours available in the work-week.

Redistribution benefited a very narrow proportion of Americans (and wherever else QE and QE-like methods were implemented) and it was expected by economists that increased spending tied the fortunate cohort would eventually bring up those in the unfortunate decay of the benighted recessionary rest. Like a pyramid scheme, those on top would eventually trickle down enough spending activity that it would slowly bring up the whole. Read more

It's notable our NZDMO has a $1 million minimum tender bid at government debt auctions.

by Roger Witherspoon | 21st Jan 16, 9:49am 1453322980

Their thinking is flawed, interest payments and capital gains are usually compounded not spent. That is because they accrue to those who are wealthy and don't need more spending money. Wages get spent, wealth compounds. What were they smoking?

by waymad | 21st Jan 16, 10:10am 1453324214

AEP, always decidedly ursine, is having a Field Day (not the agricultural kind...)

http://www.telegraph.co.uk/finance/economics/12110415/Fears-of-global-l…

The bond markets - supposedly safe - have become the epicentre of risk

And, to continue the 'Good News, Not' theme/meme, there's This re Italy's four largest banks....https://geopoliticalfutures.com/italys-banking-crisis-progresses/

by Stephen Hulme | 21st Jan 16, 11:48am 1453330104

He is a Barclay Brothers' sock puppet - witness Peter Oborne's experience - Read more

A factual description of what Mr Zhu Min observed is useful at this juncture - Zhu Min said the worry is that policy-makers still do not understand the complex interactions in the global financial system... Read more

by doublehelix | 21st Jan 16, 1:01pm 1453334501

Just wondering if anyone can explain why the NZX, which has increased 2.5 times since 2009, hasn't given up much of its gains. Just looking at the charts the NZX looks pretty "bubbly". Whereas a number of other international markets which have doubled over the past 5 years are now in bear territory, our rock star sharemarket is looking pretty good comparatively

by bigblue | 21st Jan 16, 1:39pm 1453336743

Perhaps because there are very few ma and pa style investors in there these days. They would otherwise be bailing en masse! The big fund managers still have the blinkers on - probably time to change your active growth portfolio to conservative to limit the damage. Wonder how the NZ Super Fund portfolio is looking this week?

by Stephen Hulme | 21st Jan 16, 2:29pm 1453339791

I guess you are looking at the gross index (dividends included). The NZX50 Capital equivalent has not been pumped up nearly so much.

by sharetrader | 21st Jan 16, 3:06pm 1453341990

you need to look at PE , yield and D-A the NZX is way below what is overseas, it will correct and some companies have lost quite a bit over the last year FBU comes to mind but a lot are very conservative on thier balance sheets and divident yield so will chug along pretty flat or may lose 10% before they start to climb again.
i saying that if we have another 2008 overseas all bets are off

by sharetrader | 21st Jan 16, 4:07pm 1453345661

you need to look at PE , yield and D-A the NZX is way below what is overseas, it will correct and some companies have lost quite a bit over the last year FBU comes to mind but a lot are very conservative on thier balance sheets and dividend yield so will chug along pretty flat or may lose 10% before they start to climb again.
in saying that if we have another 2008 overseas all bets are off
http://www.cnbc.com/2016/01/20/msci-global-stock-market-index-hits-bear…