US services grow strongly; eyes on non-farm payrolls; IMF warns on medium term dangers; air cargo trade up; ANZ CEO grilled; UST 10yr yield climbs to 1.72%; oil up, gold down again; NZ$1 = 71.8 US¢, TWI-5 = 75.2

Here's my summary of the key events overnight that affect New Zealand, with news air cargo volumes show global trade is still growing nicely.

But first, the American services sector activity rebounded to almost a one year high in September, (and this) adding to positive views about the prospects for good economic growth, and bolstering the view that the Fed will raise interest rates this year.

The latest American factory data was better than expected as well, (and here).

And we get the US non-farm payroll report this Saturday and markets are expecting +170,000 new jobs in September. Today, the ADP report suggested the gain will be a bit lower at +156,000.

Today, the IMF issued its bi-annual financial stability review and noted that risks are lower than six months ago. But it warns about what it calls "medium-term" dangers in both emerging and developed economies and is particularly concerned about Europe, Japan and China. These are areas where high levels of debt and low bank strength are raising financial instability, it says. It singled out the special risks around Deutsche Bank in its side briefings, worried about its out-dated business model.

The latest data on air cargo demand is encouraging. That shows August shipments up +3.9% year-on-year, with stronger gains in both Europe and North America.

The second day of grilling an Aussie bank CEO in Canberra was more interesting. The ANZ boss was subject to a sharper examination than the CBA head, and Shayne Elliott was forced to admit that credit card interest rates are too high, and defend his decision to reinstate traders accused of rate rigging.

In New York, the UST 10yr yield has risen yet again today and is now at 1.72%. That is almost +20 bps in six days.

The US benchmark oil price is a little higher too, now just under US$50 a barrel, while the Brent benchmark is now just under US$52 a barrel. American crude oil inventory data came in lower than expected.

The gold price is down a little further today, and now at US$1,262/oz.

The New Zealand dollar is settling in to its slightly lower range with little change overnight. It is now at 71.8 US¢, and on the cross rates it is at 94.2 AU¢, and 64 euro cents. The NZ TWI-5 index is now at 75.2.

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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"air cargo volumes show global trade is still growing nicely."

Only if shipping volumes aren't showing a larger decrease...

A decade or so ago, we would follow seafreight as a relevant marker for 'world trade'. But, products have gotten smaller, lighter, and more valuable and there has been a significant shift to airfreight, especially as there are major supply chain advantages involved. 

The Baltic Dry Index has lost its importance. Seafreight is now a commodity cargo trade. And we don't need as many base commodity volumes to produce products with high consumer utility. And of course, there is another shift occuring at the same time; trade is now much higher in services and these don't need any freight at all (and don't get measured or even mentioned in the old language of world trade).

It is no surprise 'shipping volumes' are falling. But that is no longer an indicator or the vaue of world trade.

One consequence of all this is a marked improvement in 'energy efficiency' and 'energy intensity'. The latest NZ data on energy intensity is actually very encouraging. Even the Kotahi initiative (a seafreight story) shows this very rapid reduction in volumes, cost and energy involved, even though values are higher.

Actually i think your take is the completely wrong interpretation. Why are ships and ports in a frantic hurry to get bigger? Increasing air freight reflects a foot to the floor approach to JIT inventory mngmt but at the cost of economies to scale. You are effectively interpreting the trend as the world has got richer when in reality the world is significantly more indebted and producers have to get scale up to drive costs ever lower.

airfreight is a premium product not used unless product is needed urgently or perishable it is used a lot for JIT manufactures who don't plan very well or high margin importers. Volume always rise this time of year as we are coming into the Xmas sale period and people have not ordered early enough for stock to make it in time
some operations now offer sea to air services which the product is flown by freighter to Singapore then loaded in containers, about 1/2 the cost and 1/3 the speed of sea freight.
you can even now send by train from Germany to and from china, another new option that is faster that sea but saves a lot of money against airfreight
also in sea freight you have two types of product fast sailings and slow sailings where if you used the slow you can save 1/3 of the cost pretty rare in this day and age to use the slow service

Not sure I agree. I once imported a 2 tonne production machine from Europe. The seafreight cost would have been far lower than non-prioity airfreight (which I used), but this unit got here in days, rather than two+ months. The production output (and margin) on the machine was far, far more valuable than the freight differential. Total benefits were much higher by using airfreight even for something as heavy as this.

It is a mistake to only consider freight differentials. Time is now a key component.

Yes i agree - airfreight suits high margin premium perishable products which will be in full swing now.
Either way, lower cost is going to become increasingly important ...

Helen Clark's bid for the top sinecure at the United Nations appears to have failed utterly ... in favour of a former PM of Portugal ....

... so , both Andrew Little and John Key will be praying that someone can find her an equally useless ( but very well paid ) job , for when her current term runs out at the UN ....

Andrew knows full well that if Helen came back they'd boot him to the kerb , and hand her the reins to the NZ Labour Party , no questions asked ...

.... and the Jolly Kid knows that if little Andy remains at the NZLP helm , a fourth term for the Gnats is a better than odds on possibility ....

GBH, I thought about "it" this morning too - here's a plan: Queen dies, sadly, JoKey organizes The Socialist Republic of Aotearoa, Clark back as President, Jokey off back to New York and Goldman Sachs ? Oh, and Little, being a family man and all, he gets thrown under a bus. As they say in America these days.

U.K. Prime Minister Theresa May said central banks and their ultra-loose monetary policies helped to widen inequality and vowed her government will act to reverse that course.

In her closing address to the Conservative Party conference Wednesday, May acknowledged that policy action had been needed to deal with the economic fallout of the financial crisis in 2008, but said it hadn’t benefited everyone to the same degree.

“There have been some bad side effects,” she told Tory delegates in Birmingham, central England. “People with assets got richer, people without them have suffered, people with mortgages have found their debt cheaper, people with savings have found themselves poorer. A change has got to come and we are going to deliver it.” Read more

Theresa May is hard to read but there does seem to be a sense of purpose and determination in the UK that I don't think I've seen for a very long time. In fact the very idea of purpose and determination at a UK government level would normally have me rolling on the floor in mirth.

Far too many delightful ex Eton eccentric twits and dull and boring stuffed shirt ex Eton conformist twits; and a suspicious lack of people who like to actually get things done. Clearly people who know how things work are not at all welcome in the corridors of power. No engineering degrees here, thank you very much. (The first and only Prime Minister with a science degree was ... Mrs. T.)

Having the Conservative Party conference in Birmingham seems enormously significant to me. England starts north of Watford Gap; London is functionally more of a city state, think Auckland if the NZ goverment was based there. The voting in the Brexit pole showed the interests of London are different than the interests of the rest of England. Finance and Production seem to be opposing poles. Is it just harder to see that a lot of activity in Finance is the equilavent of digging holes and then filling them back up again whilst clipping the ticket? is now much higher in services and these don't need any freight at all (and don't get measured or even mentioned in the old language of world trade).

Whoa - take it easy.

The U.S. trade deficit unexpectedly widened in August, as higher imports of capital goods and record purchases of services from abroad overshadowed a gain in exports.

The gap grew by 3 percent from the prior month to $40.7 billion, Commerce Department figures showed Wednesday in Washington. The median forecast in a Bloomberg survey of economists called for a deficit of $39.2 billion. Imports posted a 1.2 percent rise, while exports increased 0.8 percent.

Services imports jumped by $1.5 billion to $43 billion, with most of the rise coming from charges for use of intellectual property that probably reflect a temporary boost from rights fees to broadcast the Olympic Games. Improvement in global markets and the dissipating effect of the strong dollar are likely to aid exports and help the expansion in the world’s largest economy. Read more

Farming at scale. Ever wondeed what 4,986 calf hutches look like?

I do now, horrible and sad, and not just the calf hutches.

Fortunately there was someone doing 750,000 tonnes of salad for the squeamish.

You clearly didn't get what I said, I have a funny feeling that you wouldn't be able to.