US consumers more confident; eyes on Fed; China accuses statistics boss of corruption; Shanghai stocks dive -6.4%; PBoC adds huge liquidity; UST 10yr 2.0%; oil and gold up; NZ$1 = 64.9 US¢, TWI-5 = 70.6

US consumers more confident; eyes on Fed; China accuses statistics boss of corruption; Shanghai stocks dive -6.4%; PBoC adds huge liquidity; UST 10yr 2.0%; oil and gold up; NZ$1 = 64.9 US¢, TWI-5 = 70.6

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

But first, in the US, consumer confidence which rose in December, has risen again in January. And it seems the big snow storms in the north east won't have any impact on national economic activity.

All eyes are on the US Fed who will have some important guidance this time tomorrow morning, completely overshadowing tomorrows' RBNZ OCR review.

One Fed item that will be closely watched will be how the Chinese stumbles are affecting their return-to-normal plans. Markets see much less room for them to raise rates.

In China, there is always scepticism about their official data. And now a new investigation into the boss of their statistics agency is unlikely to inspire confidence. The Communist Party’s anticorruption commission announced overnight that it was looking into the head of the agency over what it called “serious violations.”

Chinese stocks plunged a startling -6.4% yesterday to a 13-month low. This came before the announcement of the corruption investigation but following disappointing energy demand data that heightened fears among investors already fretting over the mainland’s economic slowdown. In a report released yesterday, it was revealed that oil demand rose +4.4% in 2015 and now more than 60% is imported, a new high. You would think low oil prices would have helped the Shanghai investor's mood.

And the stock market decline came despite the People’s Bank of China pumping ¥440 bln (NZ$100 bln) of liquidity into money markets yesterday via reverse repurchase agreements, the biggest daily cash injection in three years.

But big changes are still sweeping over China. They are now reported to have 1.3 bln mobile phone users - that's nearly one for everyone - and almost 400 mln are on 4G, triple growth in a year.

In New York, the benchmark UST 10yr yield is slipping again and is now at 2.00%.

The oil price is slightly higher today and is just on US$32/barrel on both benchmarks.

The gold price is also up marginally, now at US$1,115/oz.

The Kiwi dollar starts today at 64.9 US¢, at 92.6 AU¢, and at 59.9 euro cents. The TWI-5 starts today at 70.6.

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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11 Comments

The total volume of freight moved by all types of transport—road, rail, pipeline, inland waterways, and as air cargo—dropped by 1.1% in the month of November (most recent statistics available), compared to the same year-ago period.

Union Pacific reported earnings of $1.31 per share—11 cents below expectations—on $5.21 billion of revenue.

The problem? Freight volumes fell 9% as shipments declined in five of the six major freight categories. The one positive category, automotive, was up by a measly 1%… nothing to write home about. This, by the way, is Union Pacific’s fourth quarter in a row of declining freight volume.

In the month of November (most recent period available), a total of 16,600 Class 8 trucks were sold, well below the 22,000–25,000 expectation, a 59% year-over-year decline and a 36% drop from October.

“Global air passenger traffic growth and airplane demand remain strong, but the air cargo market recovery that began in late 2013 has stalled in recent months and slowed demand for the 747-8 Freighter,” said Ray Conner of Boeing.

The Baltic Dry Index dropped to 373 points last week, the first time it has ever been below 400 and a staggering 22% drop in just the first 15 days of 2016.

The Dow Jones Transportation Average closed below its August 24 close of 7,595 on December 11 and is already down more than 11% so far in 2016. Worse yet, it is down by almost 30% from its all-time high of 9,310 set on November 28, 2014.

If those old-time sailors are right, all the transportation "red" you see when the stock market opens in the morning is a clear warning of very dangerous investing conditions.

Tony Sagami

Someone obviously forgot to drink the kool-aid.

Watch gold.

Even more China worries?
1.3 billion mobile phone users, yes that is one for every single person above the age of 5. Sounds true to me, what else you got? Some links to an article written in Chinese? Cool 'cause it makes it seem authentic if I can't read it.
Back to the smart phones for a sec, getting 400mln on 4G is an incredible marketing feat, and proves that technology can solve all our problems.

If all those Chinese didn't waste their money on a new iPhones they'd be able to afford houses.

DuPont's cost-cutting measures, including a planned 10 percent reduction in its workforce of about 54,000 employees, will add about 64 cents per share to the company's 2016 profit.
Shares of DuPont, a Dow Jones industrial average component, have lost a quarter of their value over the last 12 months, closing at $52.99 on the New York Stock Exchange Monday.
http://finance.yahoo.com/news/dupont-sales-drop-strong-dollar-113411533....

And we expect interest rates to Fall.

One of the world's biggest credit rating organisations has lowered its outlook on New Zealand's ability to pay off loans.
Fitch also gave New Zealand a "negative" rating to its banking sector outlook.

"The revision reflects a potential deterioration in asset quality caused by the softening economic environment, particularly in the dairy sector," the organisation found.

It predicted a prolonged period of low dairy prices could lead to a rise in farmers not being able to pay off loans
http://www.stuff.co.nz/business/industries/76287970/new-zealands-credit-...

"The sector's rating outlook remains stable, reflecting the sector's strong capitalisation, stable funding and high net interest margins, which provide buffer for the banking system against dairy-sector vulnerabilities."

Hmmm - high net interest rate margins - what systemic risk does this factor mitigate in New Zealand, when in all likelihood this money will be syphoned off to meet regulatory demands for the parent banks in Australia?

New Zealander depositors are doomed to socialise the losses at every turn. Savers certainly do need to seek out the governance they deserve.

Apple has reported "signs of economic softness" in China http://www.reuters.com/article/apple-results-idUSKCN0V42PB

Sobering article Andrew,it appears that no one in the Government or media seem to be worried.