90 seconds at 9 am: China warns on bank risks

US new home sales falter; Wall Street dips before debate; China regulator warns banks, raises o/n Shibor; Australia housing market cools; UST 10yr yield at 1.58%; oil up and gold unchanged; NZ$1 = 72.8 US¢, TWI-5 = 75.8

27th Sep 16, 7:30am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news a Chinese regulator is calling out the risks of their shadow banking industry.

But first, new American single-family home sales posted their biggest decline in nearly a year in August after soaring to nine-year highs the month before. But the fall was less than expected and remember this come in the heart of their summer holidays.

American attention is today focused on their first major presidential election debate with considerable concern over a stumbling Hillary Clinton. Stocks are sharply lower ahead of the debate. And yet this comes after new data shows that real progress has been made in lifting millions out of poverty. That data is for 2015, but things have only improved from there. Bluster and bullying however seem to be the tone of this year's Presidential race; just like in Britain, Finland, Holland , France, Australia, the Philippines, bullying and crass political conversations seems to be persuading millions. It is pretty disappointing.

In China, their central bank regulator is warning banks to stop growing their business through fancy financial engineering and start re-building traditional banking business. Failure to pull back from risky shadow bank financing risks a major meltdown of GFC proportions, he said.

And in an attempt to curb excessive leverage in their financial system, the central bank today has pushed up the cost of overnight funds to their highest level since February.

In Australia, the talk there is of a cooling housing market, with both loan approvals and credit growth retreating.

In New York the UST 10yr yield has fallen again today to 1.58%.

The oil price is higher today by almost +4% on renewed talk of supplier restraint. The US benchmark price now just over US$46 a barrel, while the Brent benchmark is now just under US$47.5 a barrel.

The gold price is little changed however at it new higher level at just under US$1,340/oz.

The New Zealand dollar is just a touch higher today, at 72.8 US¢, and on the cross rates it is at 95.3 AU¢, and 64.7 euro cents. The TWI index is now at 75.8.

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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24 Comments

by sharetrader | 27th Sep 16, 7:59am 1474916392

their central bank regulator is warning banks to stop growing their business through fancy financial engineering and start re-building traditional banking
waiting to hear the hews of arrests, then we know its about to blow

by ham n eggs | 27th Sep 16, 10:41am 1474926106

meanwhile deutsche banks share price goes ever lower...

http://www.zerohedge.com/news/2016-09-26/it-all-has-very-2008-feel-it-d…

by ham n eggs | 27th Sep 16, 8:47am 1474919225

"..new data shows real progress has been made in lifting millions out of poverty..."

Right. Just like reported US median wages have suddenly conveniently gone up.. a closer look reveals "redesigned" questionnaires ..
http://www.declineoftheempire.com/2016/09/deconstructing-median-income-…

by Justice | 27th Sep 16, 10:16am 1474924590

Yes, an orchestrated litany of trying to encourage otimistic debt consumption as per usual.

by ngakonui gold | 27th Sep 16, 10:57am 1474927060

More like a technical deviation of the truth.

by two otherguys | 27th Sep 16, 9:23am 1474921429

Predictions - Interesting read

Just had a browse through interest.co.nz predictions for 2016

Quite a few have been right on the button, some have already been fulfilled, then turned over
http://www.interest.co.nz/news/79309/we-want-your-opinions-about-what-l…

by scarfie | 27th Sep 16, 9:58am 1474923485

David, if millions have been elevated out of poverty why would they be persuaded by crass political conversations?

by Roger Witherspoon | 27th Sep 16, 10:56am 1474926983

It's part of the elite ideology; the masses don't know anything, they are vulgar and stupid, they need leading by experts. So it's Democracy when your lot win (ie the bureaucrats) and Populism when the man and woman in the street win. Left wing activist and right wing extremist. So the masses are misled by leaders, not the masses are pissed at the incompetence of those in charge and have found someone who voices their concerns.

The fallacy is that the elite know best, and they should lead. They all fundamentally believe in an autocratic state with themselves at the helm. After all, they know best. When they get out of touch a mass movement arises and people jostle to lead it. It's called democracy, and it's a daft system but better than the alternatives.

by Stephen Hulme | 27th Sep 16, 11:47am 1474930069

Yes indeed.

Rather than hear what markets are saying, economists have become petulant. The same day that Dudley made his most recent, and certainly not the last, "complacency" remark, N. Gregory Mankiw, eminent Harvard economist, wrote in the New York Times how little he thinks of the public. He is confident that in the long run his view on what he calls free trade will prevail, as globalism will be accepted more and more in the future because public attitudes "should move toward the experts." Read more

by Roger Witherspoon | 27th Sep 16, 1:00pm 1474934423

The German Army had a long held tradition that the ideal staff officer should be dilgent and bright whereas the best commanders tended to be bright but lazy. The best commanders strove to identify the opportunities that could be achieved with least cost and the best staff officers then sorted out the details. Bill Gates has said similar things about the best programmers.

There seems to be a parallel between staff officers and bureaucrats here; clever, dilgent people who keep doing more of what doesn't work ,unless there is someone in charge with a better sense of direction to guide their diligent efforts.

by profile | 27th Sep 16, 2:11pm 1474938689

On the irrelevance of experts and politicians: "And the same goes for the two major technological determinants of our economic prospects and how we will live in the future – namely the advance of robotics and medical developments that both improve our wellbeing and increase longevity. There will be umpteen political and economic issues to emerge from these factors that will demand political attention. Such actions could be either good or bad. But the underlying forces – and the ubiquity of their effects – will have next to nothing whatever to do with politicians or their servants, civil or otherwise."

http://www.telegraph.co.uk/business/2016/09/25/world-leaders-cannot-mat…

by Ergophobia | 27th Sep 16, 12:56pm 1474934194

Too true RW. - Emmanuel Goldstein (Orwell), The Theory and Practice of Oligarchical Collectivism.

by Roger Witherspoon | 27th Sep 16, 3:43pm 1474944183

I think they read Orwell and thought "What good ideas, we can use those."

by Stephen Hulme | 27th Sep 16, 10:04am 1474923842

The New Zealand dollar is just a touch higher today, at 72.8 US¢, and on the cross rates it is at 95.3 AU¢, and 64.7 euro cents. The TWI index is now at 75.8.

A weaker currency, once the cure-all for ailing economies around the world, isn’t the panacea it once was.

Just look at Japan, where the yen plunged 28 percent in the two years through 2014, yet net exports to America still fell by 10 percent. Or at the U.K., where the pound’s 19 percent tumble in the two years through 2009 couldn’t stave off a 26 percent decline in shipments to the U.S. In fact, since the turn of the century, the ability of exchange-rate movements to affect trade and growth in major economies has fallen by more than half, according to Goldman Sachs Group Inc. Read more

Could someone inform Wheeler next time he stands up to say the NZD is too strong and the OCR will have to be cut again, sometime in the near future?

by Cowpat | 27th Sep 16, 10:42am 1474926124

Now I have been arguing this point for the past three years. That a 'weaker' currency is not a panacea, that the relationship between the strength of a currency and trade is grossly overstated and misunderstood by policy makers, that a weaker currency will not suddenly cure all ills particularly those that are so prevalent in New Zealand . Having a weaker currency will not provide a crutch for economic mismanagement when things go backwards. One need only look at South America or any country where the NZD has appreciated against in the past few years Iceland is one of few examples of a nation whose trade improved with a weaker currency. The fact that there banking system had imploded, that it had to crush the krona and put a number of unscrupulous bankers behind bars should be sufficient evidence. Although ,given the opportunity to put a few of those offshore bankers behind bars , possibly we should crush the NZD.

by CJ099 | 27th Sep 16, 9:54pm 1474966481

Well the UK companies are starting to pull out of NZ as it's dollar and therefore salaries are just too darn expensive and not economically viable any more.

by Camel's back | 27th Sep 16, 10:56am 1474926975

The big banks ready themselves for the brave new world so they can collapse currency... http://www.reuters.com/article/us-blockchain-bonds-intel-idUSKCN11W26B

by Joe Public | 27th Sep 16, 11:16am 1474928199

Good to see austalia cooling

Crazy thing is John Key grew up in a state home. He didnt grow up in Herne bay. So we the taxpayers paid for his upbringing in terms of housing costs.

Yet this same man who was given so much in is as little as 8 years has taken so much away from everyday kiwis trying to get on the ladder.

He has put the rights of foreigner buyers ahead of the affordability concerns of everyday kiwis.

1m average in auckland should mean the end of National. 500k in 8 years. Prices have risen by more under john key than ALL OTHER PMs COMBINED.

by The Oracle | 27th Sep 16, 11:24am 1474928687

Agreed.

by The Oracle | 27th Sep 16, 11:24am 1474928691

Agreed.

by Stephen Hulme | 27th Sep 16, 11:29am 1474928950

RE: China: And in an attempt to curb excessive leverage in their financial system, the central bank today has pushed up the cost of overnight funds to their highest level since February.

Matters are equally unsettled in other currency jurisdictions.

The 3-month bill rate peaked at 37 bps on the 12th and 36 bps on the 13th. Since then, bill rates have declined which should have been a welcome sign of relief here and across the Pacific. But buying in bills hasn’t been steady and normal; instead it has been akin to an almost buying panic. This is anything but normal, as Friday the 3-month equivalent yield fell to 18 bps, the lowest of 2016. Read more

by delboy | 27th Sep 16, 12:28pm 1474932490

All this talk of shadow banking makes me wonder if China facing a potential sub-prime mortgage disaster like the US had in 2008?

Fortunately if this happens NZ won't be affected as only 3% of house sales are to foreign buyers.

by waymad | 27th Sep 16, 12:35pm 1474932945

DC, this article by David Goldman over at AT: DeutscheBank is in his opinion unlikely to spark a rush for the exits....and has a few amusing asides to boot. http://atimes.com/2016/09/deutsche-banks-problem-doesnt-mean-a-broader-…

by DFTBA | 27th Sep 16, 12:37pm 1474933027

David, the census site does not want to load for me....anybody else have the same issue?