90 seconds at 9 am: Beijing ups minimum FHB deposits

US consumer sentiment improves, China services sector improves; China corporates deadbeat payers; Beijing ups FHB deposits; Deutsche Bank angst overdone?; UST 10yr yield at 1.60%; oil up, gold down; NZ$1 = 72.9 US¢, TWI-5 = 75.9

3rd Oct 16, 6:41am by David Chaston

Here's my summary of the key events over the weekend that affect New Zealand, with news Beijing has raised minimum deposit requirements for first-home buyers.

But first, American consumers became a bit more optimistic about prospects for the economy as well as their own personal finances in September, according to the respected University of Michigan Surveys of Consumers. Consumer sentiment has remained at high levels throughout the past year, with only small month-to-month variations. Rising incomes and declines in food and fuel prices were responsible for the recent confidence gains.

But, American consumer spending fell in August for the first time in seven months while inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates.

In China, activity in their services industry expanded in September at a slightly faster pace than the previous month, and at a very respectable index level of 53.7. The factory sector is only marginally back in expansion territory, but from an annual perspective, that is a good result. (Also see this data.)

But not such a good result is that corporate China is now seriously delaying trade payments, a sign of increasing stress. Bloomberg is reporting that average payment times ballooned out to 92 days in 2016, up from a cyclical low in 2008 of 52 days. This sort of management is a sure sign of corporate immaturity. The equivalent delay for New Zealand is just 35 days, a decline from 52 days, also in 2008.

Beijing is in the middle of a housing bubble. Their response is to try an quell demand by raising the loan deposit requirement to 35% from 30% for first-home buyers, and to 50% for investment purchases.

Worldwide, there is plenty of focus on the financial state of Deutsche Bank, but some analysts are suggesting this is a bit misplaced. It has €43.5 bln of tier one equity in place now, a 10.8% capital ratio. (For reference, ANZ NZ has a 10.4% tier 1 capital ratio.) But it will only be in serious trouble if it can't maintain a 7% capital ratio and that would need a new €15 bln loss. All its current litigation liabilities have been provided for (to about €5.5 bln). And of course its Co-Cos would then be triggered if it did. However, while we are looking at downside risks, we should also remember, it has a 2019 obligation to get its regulatory capital up to 12.25%. Whatever happens, it is just another big bank that will need more capital.

In New York, the UST 10yr yield bounced back up at the end of trading last week and is now at 1.60%.

The US benchmark oil price was little changed at the end of last week now at US$48 a barrel, while the Brent benchmark is now just on US$49 a barrel. Rig counts in North American continue their rise. In fact, the better than expected Canadian GDP result was largely attributed to higher oil and mining output.

The gold price was down again however, now at US$1,316/oz.

The New Zealand dollar is a little higher today than at this time on Friday, now at 72.9 US¢, and on the cross rates it is at 95.2 AU¢, and 64.8 euro cents. The TWI-5 index is now at 75.9. And on a currency matter, we should note that the Chinese yuan officially entered the IMF’s official basket of reserve currencies over the weekend. It comes in at 11%. The latest data shows it is now used in about 4% of international trade, far behind the US dollar that is used in over 85% of transactions, and that share is rising. (The UK pound and the euro are the losers.)

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

by Stephen Hulme | 3rd Oct 16, 9:01am 1475438485

Worldwide, there is plenty of focus on the financial state of Deutsche Bank, but some analysts are suggesting this is a bit misplaced. It has €43.5 bln of tier one equity in place now, a 10.8% capital ratio.

Even with Friday’s gains, it was another rough week for global financial stocks. Notably, Japan’s TOPIX Bank index sank 7.5%, increasing 2016 losses to 30%. Hong Kong’s Hang Seng Financials dropped 2.7%. Italian bank stocks declined another 1.7% this week, taking its y-t-d decline to 50%. Europe’s STOXX 600 Bank index declined 1.0%, increasing 2016 losses to 23%. The wild volatility in financial shares is reminiscent of pre-crisis 2008. Read more

What do you do if you can no longer access primary hedging tools and vehicles? In the search for alternate sources of counter-trend assets, financial firms, even banks themselves, started shorting bank stocks. It’s not as outlandish as it might sound nor even so much ad hoc – there were solid mathematical correlations (inverse, obviously) between bank stock prices and certain financial spreads. Read more

by Stephen Hulme | 3rd Oct 16, 9:24am 1475439840

Beijing is in the middle of a housing bubble. Their response is to try an quell demand by raising the loan deposit requirement to 35% from 30% for first-home buyers, and to 50% for investment purchases.

Equally, access to swapped foreign wholesale funding has risen in basis cost terms beyond local RMB returns, thus prohibiting it's attraction.

The extra interest payments to lenders of offshore yuan in three-year cross currency swaps averaged 3.5 percent this year, up from a five-year average of 2.5 percent. That compares with the 2.38 percent yield on similar-maturity sovereign bonds onshore, which fell 17 basis points this year. In 2013 and 2014, the yield was higher than the swap cost. The onshore yuan, which fell 2.6 percent this year to 6.6690 per dollar despite intervention to slow the losses, will decline to 6.8 in a year’s time, according to the median forecast in a Bloomberg survey. Read more

by scarfie | 3rd Oct 16, 10:54am 1475445260

Gee Chinese Bonds yields locked into a descending trend, who would have thought? Not good because they were really the last man standing.

by Peri | 3rd Oct 16, 10:00am 1475442017

China, Singapore, and Korea all now have LVR limits on "investors" of less than 50%.
The LVR limit on "investors" needs to be below 50% in order that the growth of debt in the "investor" sector is less than the growth in house prices. Further, the LVR limit on investors needs to be lower than 50% if the elasticity of supply is less than 1. Good to see more central banks putting in place essential controls for macro stability, but it seems China has left it far too late. Time is running out for the RBNZ also, LVR limits here need to be less than 40% for "investors" given NZ's low elasticity of housing supply.
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by Joe Public | 3rd Oct 16, 10:10am 1475442609

The below could be said about Auckland also
Government ignoring the issue ... tick
Banks voicing concerns ... tick

http://www.theglobeandmail.com/report-on-business/foreign-buyers-tax-to…

Per the article
The B.C. government waited too long to crack down on soaring home prices in Vancouver, and middle-class families can now no longer afford a detached house in the city, Vancouver Mayor Gregor Robertson says.

The federal and provincial governments ignored the problem, which also affects the Toronto market, until Canada’s banks began to voice concern this year, he said in an interview with The Globe and Mail’s editorial board on Thursday.
Middle-class Canadians being able to buy a house in Vancouver and Toronto, those days have probably passed because the interventions didn’t come,” he said.

Mr. Robertson was among those who had been telling federal and provincial policy-makers for years to do something to curb skyrocketing prices in Vancouver, now considered to be among the world’s most overvalued housing markets.

The issue finally reached a “breaking point” this year after the country’s banks also began to warn of the risks from soaring home prices, he said. “The dire warnings of the banks and financial institutions about the precipice that Vancouver or Toronto stand on with real estate and foreign investment have triggered waves of concern through the political ranks.”
“We’ve got to have other ways for Canadians to participate in the real estate market,” he said. “Young Canadians are being left behind right now. That’s a much bigger problem that we’re only beginning to grapple with