US jobless rise, productivity falls; EU and UK cut growth forecasts; junk debt costs ratchet higher; China struggles to attract investment; UST 10yr yield 1.86%, oil and gold up; NZ$1 = 7.3 US¢, TWI-5 = 71.9

US jobless rise, productivity falls; EU and UK cut growth forecasts; junk debt costs ratchet higher; China struggles to attract investment; UST 10yr yield 1.86%, oil and gold up; NZ$1 = 7.3 US¢, TWI-5 = 71.9

Here's my summary of the key events overnight that affect New Zealand, with news of sagging results in a number of areas

All market eyes are on tomorrow's non-farm payrolls report out of the US, and markets are slipping in anticipation. A jobs gain of +190,000 is now expected and any undershoot is likely to be fiercely punished. The reason: it will be seen as interrupting the Fed's plans to normalise interest rate levels and throw in doubt their decision to start a hiking trend.

Overnight, the latest American weekly jobless claims report ticked higher, but not to any level that causes economic concerns.

But there were some disappointing productivity data released in the US overnight. Incomes are rising faster than output. And that could mean cutbacks are imminent.

Overnight the EU cut its growth forecasts, and the Bank of England followed. In Europe, banks are struggling to maintain profitability. Rather than being seen as a 'good thing' it is seen as a sign of weakness in the economies they are active in, and there are fears of what might happen if these banks pull back on lending.

But far away from the low interest-rate environment talked about, the cost of sub-investment grade debt is rising fast. This may have a local impact for the debt of Reynolds Group Holdings, the Auckland-based company controlled by Kiwi billionaire Graeme Hart. They have NZ$22.5 bln borrowed with coupon obligations at over 8% at face-value, which will now have been seriously discounted. Here is a huge risk on our back doorstep.

And investors are starting to shy away from opportunities in China. For the first time in a decade, large investment funds are not lining up for China's investment quota scheme, just as China wants more of them to apply.

In other global news, IATA is reporting that 2015 demand for air travel was its strongest in five years and the growth was widespread.

In New York, the benchmark UST 10yr yield is unchanged from this time yesterday and still at 1.86%.

The US WTI oil price is a little higher today, although the Brent benchmark is essentially unchanged. The US price is now just over US$32 while Brent is just under US$35/barrel. Talk of a meeting among major crude producers helped buoy the price today.

The gold price however has jumped even further today from yesterday, and is now up to US$1,156/oz.

The US dollar is still in a sharp correction mode lower, pushing up our currency which is now at 67.3 US¢ a five-week high, at 93.3 AU¢, and at 60.1 euro cents. The TWI-5 starts today at 71.9.

If you want to catch up with all the local changes on Friday, 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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5 Comments

European banking disaster gets legs.

Credit Suisse Group AG shares slumped to a two-decade low as bigger-than-expected restructuring charges and trading losses prompted investors to question Chief Executive Officer Tidjane Thiam’s plan to turn around the company.

The shares dropped as much as 13 percent on Thursday in Zurich after the bank posted a fourth-quarter loss of 5.8 billion Swiss francs ($5.8 billion), worse than analysts’ estimates. Global markets, which houses most of the Zurich-based firm’s trading business, had the biggest quarterly loss among the company’s divisions as Thiam cited “legacy positions” hurt by jittery markets. Read more

European banks and insurers’ credit risk rose to the highest in more than two years, following a $5.8 billion loss at Credit Suisse Group AG and signs of a slowdown in the global economy.

The cost of insuring the companies’ debt climbed for a sixth day, based on indexes tracking credit-default swaps. A gauge of swaps on subordinated financial debt rose as much as 20.5 basis points to 255 basis points, the highest since July 2013, according to data compiled by Bloomberg. Read more

In Crash Course, Chris Martenson explains why and how US statistics are manipulated, and how they can generate an entirely false impression of the state of the US economy.

http://www.peakprosperity.com/video/85854/playlist/92161/crash-course-ch...

Great video.

All market eyes are on tomorrow's non-farm payrolls report out of the US, and markets are slipping in anticipation.

Forward guidance is poor.

With the Services economy now catching down to Manufacturing's demise (in its lagged - not decoupled - manner), this morning's news that US Factory Orders tumbled 2.9% in December (worse than expected and the biggest MoM drop since Dec 2014) offers little hope for any bounce anytime soon. This is the 14th monthly drop in YoY factory orders - something has not happened outside of a broad US economic recession. Even more concerning is the surge in inventories-to-shipments to cycle highs seen in 2000 and 2008 Read more

You know , the GFC is not actually over, we will soon learn if QE was papering over the cracks or plastering over the cracks . What we do know is that it was not a proper renovation

Before the GFC started we had warning signs with the big banks trading ( recklessly) for their own account , securitisation of bad loans , Greenspan setting rates too low and then commenting on Wall Streets " irrational exuberance " when the markets responded accordingly , and all this causing share price and housing bubbles with P/E ratios on share prices have reached senseless levels by any measure .

With the benefit of hindsight , the GFC or something similar was the inevitable outcome

The GFC issues were relatively straightforward, originally contained within the US, and it was the contagion that caused the crisis to spread to Europe and Asia .

Now we have the warning signs of numerous massive unsustainable potential crises everywhere we look , Banks with shonky balance sheets and risky debts that have been hidden by creative accounting , commodity prices collapsing spectacularly making countries sovereign debt risky , unsustainable debt everywhere , the Chinese slowdown , A Bond market which makes no sense whatsoever due to QE, Industrial capacity with massive idle surplus , which suggests oversupply capacity , raw material inventory stockpiles that could take 10 years to use up ( in China ) and the real risk of DEFLATION .

If just one of these crises explodes , it could set off a chain reaction which will make the GFC look like the village Anglican church fete by comparison