Here's my summary of the key events overnight that affect New Zealand, with news of deja vu; markets are turning their attention to debt risk again.
But first, new American single-family home sales tumbled in January from a 10-month high as sales in the West of the country fell sharply, and following yesterday's softish existing-home sales, some analysts think the whole sector may be on a 'softish footing'.
Adding to that sentiment, there has been a similar tumble in confidence in the vast American services sector. A survey out overnight showed a big drop in the rate of expansion to a 28 month low.
Equity and bond markets are unsettled by the data. Wall Street is down about -1%, bond yields have fallen sharply, and CDS spreads have risen.
Asian credit risk is also in the spotlight today.
Standard & Poor's is saying that companies in the region are on the hook to repay almost US$1 tln of debt over the next four years with more than half of it priced in US dollars. The greenback's strength and slowing economic growth globally will make it tougher and more expensive for these borrowers to roll over US dollar debt as it comes due.
And China's shadow banking sector is morphing to avoid tighter regulation. Brokers and funds are taking on the role previously played by more heavily regulated trusts in their expanding informal financing sector. Banks are increasingly turning to so-called directional asset-management plans issued by brokerages and the subsidiaries of mutual-fund providers to channel lending. The amount of money placed in such products jumped +70% last year to US$2.9 tln, outpacing the +17% growth for trust assets.
The level of world debt is at record highs, propelled primarily by this Chinese debt growth, but there are other pockets of explosion as well. Since the GFC, US$60 tln has been added to the world's debt load and it is now approaching US$200 tln. That is more than two and a half times world GDP.
Overnight, Brazil’s sovereign rating was cut to junk by Moody’s Investors Service, the last of the major ratings companies to strip the country of its investment grade. And South Africa's finance minister has said his country's economy is in crisis.
In New York the benchmark UST 10yr yield is sharply lower today by -14 bps to 1.66%. Yesterday, local swap rates fell -4 bps across the curve and are almost certainly going to fall further today. In fact, the last time our two year swap rate was this low was in May 2012 and it is now possible that record low will be challenged in the next few days.
The oil price is unchanged from this time yesterday although in the meantime it has risen and then fallen back. it is now at US$32/barrel in the US while Brent is just a little higher at US$34/barrel.
The gold price is +US$16 higher today at US$1,241/oz.
The NZ dollar is still range-trading. It is now at 66.3 US¢, at 92.4 AU¢, and at 60.2 euro cents. The TWI-5 will start today at 71.
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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32 Comments
You can't solve a debt crises, with more debt, but if all you have is a hammer.........
The worlds economic elites are doing everything they can, to encourage people/business/government to borrow. That has been the case for some time now, and you'd think that if you were in a hole, maybe you should stop digging.
One of the many problems in the world is that the Chinese are yet to write down their bad property debts. That is when things will get particularly ugly.
http://www.ft.com/cms/s/0/65a584e2-da53-11e5-98fd-06d75973fe09.html#axz…
Yes they do. The size and growth of all the sectors in the Chinese credit markets is well tracked, even in the 'shadow banking' sectors. This data which includes official and private sector analysis is widely available and reported. It is unlikely the unreported amounts are material. But the reported data is a big worry.
So to what extent is the Auckland, Sydney, Melbourne, Vancouver... property markets being pumped up by the 'smart' Chinese money being tucked away as a hedge against the Chinese housing, share and/or bond markets being in bubble territory?
And futher to that smart money when the Chinese bubbles burst? My guess is that at least some of it exits Auckland, Sydney, Melbourne, Vancouver etc to pick over the bones back in China.
It is only a matter of time before the Aussie property market goes pop. When it does correct it will be severe due to the excessive debt levels.
http://www.smh.com.au/business/the-economy/the-charts-that-suggest-the-…
Some more on the idiotic house prices in Oz.
Of course in NZ it's totally different....(NOT)
Australia’s Housing Bubble: In the Grip of Insanity
http://www.acting-man.com/?p=43441
Do watch that video clip.
From what I am reading the problem is lack of demand, hence the Agriculture/ mining export goliath that Brazil was becoming has been put on hold. Although their low currency will enable agriculture exports to China to be very competitive. Prices are heading back to long term averages after the Bernake spike
http://finviz.com/futures_charts.ashx?t=ZW&p=m1
Back in NZ;
I said the current state of dairy farming in New Zealand is in crisis. Advisers are telling us to revert our farming right back to a low-stocked system and manage the pasture better.
Now, this is not bad advice – the problem here is a pathetic milk price and the even more pathetic advance rate of $3.15 a kilogram of milksolids, which barely covers fixed costs, let alone bills. The problem is not necessarily the system you have chosen to farm on.
http://www.stuff.co.nz/business/farming/77216157/dairy-experts-not-need…?
I guess thats fine if you haven't invested a lot of capital into high stocked systems, building a bigger shed, new irrigation, intensive feeding system, more staff accomodation and all that. Suddenly all that investment is costing big time, and you need the higher production to justify it.
Aj you are right about our advance-stuck on $3.15 untillend of season,an o/d that can only go on term debt-I am fortunate we are totally self supportive & no grazing bills through the winter.The number every one is looking for is the 2016/17 payout estimate-our advance is normally 65-70% of that.
I gave a little to the crowd funding of what is now ' our beach ' . I am more interested in the future of our democracy now we can get these sorts of numbers behind a campaign and actually get commitments to pay.
If people will get behind this scheme what else will they get behind, is this the end of the executive style democracy we have had since the Clarke/ Cullen years and which Key/ Joyce National government have proved very adept at?
"If people will get behind this scheme what else will they get behind, is this the end of the executive style democracy we have had since the Clarke/ Cullen years and which Key/ Joyce National government have proved very adept at?" interesting question Aj. Right now there is no way to remove a Government from office until the next election. Under this model it is highly unlikely any government will consider any form of legislation that will abrogate their own powers and privileges. After all why would they? How would or could we change it and to what?
The level of world debt is at record highs, propelled primarily by this Chinese debt growth, but there are other pockets of explosion as well. Since the GFC, US$60 tln has been added to the world's debt load and it is now approaching US$200 tln. That is more than two and a half times world GDP.
Seems U.S. Treasury Secretary Jacob J. Lew is calling for more of the same.
“Don’t expect a crisis response in a non-crisis environment,” Lew said in an interview broadcast Wednesday with David Westin of Bloomberg Television. “This is a moment where you’ve got real economies doing better than markets think in some cases.”
Nevertheless, Lew said the U.S. wants a more serious commitment from other G-20 countries to use monetary policy, fiscal measures and structural reforms to stoke demand. Read more
So even though Mr. Lew claims we are not now, in early 2016, in crisis, the G-20 or the US government will respond anyway through more “stimulus” to restore “confidence.” This is exactly what I suggested in November 2014 would take place once monetary policy was thoroughly debunked. We would be stuck in an infinite loop of central planning, alternating between “monetary stimulus” and “fiscal stimulus” spaced out enough so that failure in one would not so easily stain the other; and all of it counting upon apathy or ignorance that so much “stimulus” in any form fails to do any actual stimulating. Read more
Mr Lew's comments are all well and good, but does he say how? Releasing money at lower cost doesn't do any good if it is only used to buy property. The individual buying might benefit, but the economy won't, and as we see in NZ, at least some governments are very reluctant to the point of putting their head in the sand to intervene in areas that are creating huge imbalances and issues in their economies. Additionally I suspect the current model of globalisation, including the TPPA puts too much control on fiscal activity into the hands of multinationals and banks.
More caution out of London at the moment. The top end is really struggling whilst the bottom end is selling very strongly due to some tax changes that happen in April for the buy to let sector. I expect sales will drop sharply from April onwards.
In Hong Kong some luxury property sold for 25% less than hoped earlier this week. Taiwan is also seeing a correction.
In AKL I think we are seeing some seasonal volume which will then drop as we go into the winter months.
http://www.theguardian.com/business/2016/feb/24/london-luxury-homebuild…
All of the systems that were established from the Industrial Revolution (1760) until the age of the Internet are unsustainable because they are all predicated on the consumption of fossil fuels and the emission of carbon dioxide.
In addition, the globalised financial system is predicated on creating money out of thin air and charging interest on that money, which can only work if there is continuous expansion of the industrial sector, new lands to be 'developed' and population growth.
For the past 300 years humans have been chopping down forests, stripping seas and oceans of fish, digging up coal and oil, and covering an increasing portion of the productive planet with areas of consumption.
The aforementioned mean that the entire system is predicated on mathematical impossibilities because we live on a finite planet: we have now reached the point of those mathematical impossibilities impacting the system, just as forecasted in the 1950s and 1970s.
Desperation attempts to prop up the system via dropping interest rates towards zero (and then negative in some locations), cramming ever more people into overpopulated cities, ripping up the landscape to get to tar sands, fracking and deep-water drilling etc. simply exacerbate the long-term predicament.
So many people now have such a huge stake in maintaining current dysfunctional arrangements there is no way out of the 'progress' trap. Indeed there is official recognition of the fact that we are in a 'progress' trap.
It naturally follows that the governments around the world (including NZ) will continue to make everything worse until the system collapses. Just when that point will be reached is difficult to forecast because it involves energetic, environmental, financial, economic and social aspects.
The unprecedented damage caused in Fiji recently by the biggest storm in history (a consequence of planetary overheating due to burning fossil fuels) should have been an omen to be heeded. But it won't be, and the same game of increasing fossil fuel dependency, polluting the air and land ad water, and 'development' will be promoted until it can't be.
2016 will undoubtedly be a year of huge financial losses, further environmental collapse (perhaps an ice-free Arctic -it's still too early to say) and social upheaval.
It is worth noting that all official 'planning' is predicated on totally ignoring every aspect -energetic, environmental, financial, economic and social- that WILL determine the future.
As for equities
When the DOW was collapsing in January, and everyone was saying it would crash.
I said NO. I said that it was being propped up by the global super funds continuing to pour into Hedge Funds week after week reguardles of the economy and the share market.
My call was that it would average at 16k and that is exactly as is is doing.
All that happenned was the 1% were creaming the icing off your super cake.
Your being ripped off by this ponzie scheme but it will be too late when you all wake up.
Mike B. The global super funds(i.e. Sovereign wealth funds) are mainly selling and will remain to do so whilst the oil price is low. They sold $46bn of assets last year and will sell lots more in 2016. They all have large budget deficits. The reason why property stocks and financials have been so hard hit is that those are the assets the SWF's have their biggest holdings in.
Norway is probably the only one that won't be selling assets as it can just about cover the deficit from its dividend/interest income. Singapore as well has no need to drawdown.
http://www.valuewalk.com/2016/02/sovereign-wealth-funds-dump-equities/
Penguin - If you were managing one of these wealth funds what would you do with the money you recieved from the sale of assets?
And, if it is a good time to sell what do you do with the billions of dollars (globally) that are still comming in week after week after week when it is "A good time to sell"? You cant put it under the mattress. The 1% know this and sit back milking them.
This March 10 will be a defining day for RBNZ Governnor Wheeler.
He has painted himself into a corner; since October his double-speak has resulted in a rise in the NZD.
Global economic developments now dictate that he can't simply cut the OCR by .25 basis points, otherwise the currency speculators will just say 'here we go again'' and the NZD will take off again; he will now have to OVER-DELIVER and make a .50 basis point CUT to re-establish his crediblity'
Afterall he does have 10 x .25 basis points up his sleeve.
We simply can't decimate our dairy industry.
As for the so called housing boom he simply has to order the banks to retain a greater percentage of
funds in the residential lending sector. This is nothing new; it has always been an option.
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