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US housing transactions lower; China to lay off 1.8 mln workers; PBoC cuts reserve ratio; Argentina makes debt deal; UST 10yr yield 1.75%; oil and gold rise; NZ$1 = 66 US¢, TWI-5 = 71.1

US housing transactions lower; China to lay off 1.8 mln workers; PBoC cuts reserve ratio; Argentina makes debt deal; UST 10yr yield 1.75%; oil and gold rise; NZ$1 = 66 US¢, TWI-5 = 71.1

Here's my summary of the key events overnight that affect New Zealand, with some big news out of China.

But first in the US, real estate sales contract volumes to buy previously owned homes fell to their lowest level in a year in January amid a persistent shortage of properties for sale, which could slow their housing market ahead of the spring selling season. Prices, however, were up +8.3%, their fastest gain in nearly a year.

We have been reporting the worrying trend in China of the President there tightening his personal grip on the instruments of power. One possible reason may have become clearer overnight. China said it expects to lay off 1.8 million workers in the coal and steel industries, or about 15% of the workforce, as part of efforts to reduce industrial overcapacity. The potential for social unrest from such a large move is high. Although no time-frame was given, it seems a bold move to tackle major overcapacity in those industries and address the pollution they cause.

Also in China, their central bank has cut their reserve ratio requirement, that portion of capital banks must hold to back up its lending. The cut was from 17.5% to 17% and still one of the highest levels in the world. For comparison, the New Zealand uses a more layered system of ratios but the minimum capital adequacy ratio here is set at 8%, which every bank easily exceeds. This Chinese action is expected to add about US$100 bln of stimulus. This move sends all sorts of interesting signals, not the least of which it seems to renege on promises made at the G20 in Beijing just a few days ago.

Argentina looks like it may be able to put its decade-plus legal issues behind it that were sparked by its 2001 default. Although the final details are not all agreed with everyone, it appears the New York fund managers have essentially won their case for repayment. Argentina had asserted its rights to heavily discount its obligation even to creditors who would not take their earlier 'offer'. It looks like an international bond contract is enforceable, even against sovereign nations, and even by Wall Street 'vulture funds'. Argentina will need to change its domestic laws to settle the dispute.

We probably should also note that the Eurozone has tumbled back into deflation in February, solely on the back of lower energy prices.

In New York the benchmark UST 10yr yield is essentially unchanged in mid-day trading at 1.75%.

The oil price is a little higher again today at US$34/barrel in the US while Brent is at US$36/barrel.

The gold price is also up, US$12/oz higher at US$1,232/oz.

The NZ dollar will start today at 66 US¢ and lower than this time yesterday mainly because of the weaker local business confidence data, at 92.3 AU¢, and at 60.7 euro cents. The TWI-5 will start at 71.1.

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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6 Comments

Will be interesting to see what the OCR and mortgage rates will be by Dec 1st this year.
Interesting to see over the last 12 months that all bank economists have now finally given up predicting rate rises ahead.

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Genuine question... Just wondering why no one snapped up the 1.6m (approx - i believe the reserve slightly higher than this) house in Hobsonville that was in the herald this morning? Plenty of people predicting 15-20% returns in Auckland this year, just seems strange that there were no Auckland bulls out there to lever up and get those 25k per month untaxed capital gains. Is this because the original buyer massively overpaid? Nice to see interest.co.nz get a shout out in that herald article

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Information you need to know - but won't be told - in NZ

AU: Real estate profits overtake mining profits

AU Real Estate produced $8.6 billion of taxable profit in a quarter (that's 1 quarter, not a year), ahead of the old mainstay of mining, which produced just $3.6 billion.
http://www.smh.com.au/federal-politics/political-news/pm-pivots-to-posi…

How big is the Real Estate Industry in New Zealand?
It's a bigger game in NZ - in relative terms

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Would appear they grossly overpaid. You could buy similar within 7kms of the city centre for that and avoid the 90 minute drive to work.

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That's what i thought also, although compared to what 900k gets you in that general area it looks like an absolute bargain (assuming you could get it for 1.6m).

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WOW , China to lay off 1,800,000 workers in just 2 sectors , that every single person in Auckland........ plus Huntly.

That implies about 600,000 families losing income ....... 2 adults and 1 child .

What are the implications for the entire economy with much less money in circulation ?

The follow -through fall in domestic spending will take a while , but it will surely increase the risks of a slowdown

I wonder what the worst case scenario is ? Have the modelled likely out comes ?

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