US wage growth rises, inflation expectations fall; markets tumble; India shines; Aussie traders investigated; UST 10yr yield 1.78%, CDS spreads leap; oil down, gold jumps; NZ$1 = 66.4 US¢, TWI-5 = 71.1

US wage growth rises, inflation expectations fall; markets tumble; India shines; Aussie traders investigated; UST 10yr yield 1.78%, CDS spreads leap; oil down, gold jumps; NZ$1 = 66.4 US¢, TWI-5 = 71.1

Here's my summary of the key events over the weekend that affect New Zealand, with news of a sharp pull-back in risk this morning.

But first, US jobs growth is proving fairly resilient despite global headwinds. The non-farm payrolls report out on Saturday showed +151,000 new jobs were added in January and their unemployment rate slipped to 4.9%. Their participation rate was unchanged. But more impressive is that wage growth has emerged, with this up +2.5% year-on-year. And given CPI inflation was just +0.7% in the past year (not seasonally adjusted), real wages are growing handily.

However, surveyed consumers see inflation dipping. An increasingly important gauge of American inflation expectations slipped last month to its lowest level since the Federal Reserve Bank of New York began the survey in mid-2013. Some see this as a warning bell for the Fed in Washington, especially as those surveyed see inflation at +2.4% in the coming year.

Markets are worried this morning however with Wall Street down about -2% in all three indexes. They are following similar - even larger - declines in Europe. A slower Asia is perhaps catching up on sentiment.

But it is not slowing everywhere. India said GDP expanded +7.3% in last year’s fourth quarter, as consumer and government spending lifted their economy. Such a rapid clip has put India ahead of China as the world’s fastest-growing major economy - at least according to official data, and there is some questions about that for India, as there are for China. (But different questions, to be fair.)

Trader behaviour at the Aussie banks, an ASIC investigation being carried on ANZ is widening into a systemic probe. This is an investigation that probably won't end well for any of the four pillar banks. Market chat screen conversations may be at the heart of the document trail and it is reported these look ugly.

In New York, the benchmark UST 10yr yield has dropped sharply today to 1.78%. More ominous, CDS spreads have jumped sharply on Wall Street this morning and are now at their highest level since August 2012.

The US WTI oil price is lower today. The US price is now just over US$30 while Brent is just under US$33.50/barrel.

The gold price however has had an eye-catching jump, up US$36 this morning to US$1,194/oz and that is back to prices we last saw in April last year. (In NZD it is back to prices we last saw in September 2015.). Maybe part of the jump can be ascribed to the low level of Chinese production of gold.

And China's foreign exchange reserves have dropped by US$100 bln - again - to US$3.2 tln at the end of January, their central bank said Sunday. These outflows are starting to become seriously regular, and stopping them may be as difficult as stopping a run on a bank. This is the cost of defending the yuan.

The NZ dollar is still pretty much unchanged from where we left it on Friday, now at 66.4 US¢, at 93.4 AU¢, and at 59.4 euro cents. The TWI-5 starts today at 71.1.

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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7 Comments

watching this morning banks overseas are tightening credit readying themselves for a worldwide recession, it will be interesting to see if ours follow and start to cull the weak ones from their loan books

Depressing reading all round at the moment. Nobody quite knows who is sitting on the massive amount of oil debt that is out there and is starting to default.
A lead article in today's Financial Times reports hedge funds are shorting the luxury London property market as all the overseas buyers have disappeared.

" Spreads on high yield US energy corporates have soared to unprecedented highs. “They make Lehman look like a walk in the park” says Thygesen.

More than a third of the entire US high yield bond index is now vulnerable to crude prices remaining low or falling even further, according to calculations from Oxford Economics. "

watching the owner of Nordic American tankers he says there are not tankers parked up as storage, all his ships are delivering oil. he also commented on those competitors that have taken on too much debt that they will fold as like 2008 risk has been mispriced by cheap credit

In New York, the benchmark UST 10yr yield has dropped sharply today to 1.78%.

Thus, then, while Keynes was hell-bent on impounding the “unearned” interest income of the “parasitic” rentiers with his left hand, he would inadvertently grant unprecedented capital gains to them in the form of exorbitant bond price with his right. Read more

Will the state finally acknowledge the indefensible action of redefining inflation to affect a wealth transfer to the already wealthy, solely funded and underwritten by the not so wealthy taxpayer?

Investor intent is to malinvest capital in bonds much needed for productive purposes in main street.

This it not necessarily the case for primary dealers - market liquidity factors play a more important role. Read more

"Investor intent is to malinvest capital in bonds much needed for productive purposes in main street." presumably as they see no decent return from main street and indeed risks of staggering losses out there in investment land. All brought about by decades of private mal-investment and reaming of companies for short term gains to the point many are hollowed out and ready to implode.

and I am a doomster? not alone it seems with spades,

http://www.telegraph.co.uk/finance/economics/12138466/when-is-the-next-f...