90 seconds at 9 am: Sentiment turns against more rate cuts

US consumer credit jumps; US adds 156K jobs, participation rises; Canada jobs jump; policy tide turns against more rate cuts; AU housing lacks supply; UST 10yr yield slips to 1.72%; oil and gold lower; NZ$1 = 71.6 US¢, TWI-5 = 75.2

10th Oct 16, 7:28am by David Chaston

Here's my summary of the key events over the weekend that affect New Zealand, with news rate cuts are now seen as exacerbating inequality.

But first, in the US it is not only a month till the US Presidential election, it is also earnings season month on Wall Street. Both will underline market sentiment over the period.

American consumers are clearly feeling good about life, and more care-free than recently. Consumer credit took a remarkable jump in August, boosting spending levels in a way we haven't seen in quite some time.

The American unemployment rate edged up to 5.0% in September after a net 156,000 new jobs were created and the equivalent number for the previous two months was revised higher. More than 500,000 people entered the job market in the month, raising their participation rate, and they are no doubt chasing wages that are now growing +2.7% per year, which incidentally is the fastest annual wage growth since December 2007. None of this takes a Fed hike off the table.

Canada posted good jobs data too.

In Australia, their Treasurer has gone on record opposing more rate cuts by the RBA, arguing monetary policy has "exhausted its effectiveness". "Its ability to impact and influence is diminishing," he told an interviewer over the weekend. He said instead, fiscal policy needed to do the heavy lifting to "boost incomes and lift living standards". He is not alone in this change of heart; it is a view increasingly shared by other governments. Rate cuts just make asset holders rich and are counterproductive in dealing with inequality. Even Bill English is happy with the change of focus.

And staying in Australia, the lack of houses for sale in their real estate markets seems to have re-ignited their house price frenzy. Lack of supply is making buyers desperate.

China is back from its Golden Week break today, and many analysts will be watching how their consumers and businesses view the futue. Beijing's inability to show consistent transition signals is causing other countries to balk at some of their policy decisions, but they flit between policy choices trying to keep the locals 'happy'. Eyes will be on both housing and equity prices this week.

In New York, the UST 10yr yield ended Friday marginally lower at 1.72%.

The US benchmark oil price is a little lower too, now just under US$50 a barrel, while the Brent benchmark is now just under US$52 a barrel.

The gold price is lower as well, and now at US$1,253/oz.

The New Zealand dollar is unchanged against the US dollar from this time on Friday. It is at 71.6 US¢, and on the cross rates it is holding at 94.4 AU¢, and 63.9 euro cents. The NZ TWI-5 index is still at 75.2.

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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15 Comments

by childofthesun | 10th Oct 16, 9:19am 1476044371

'rate cuts are now seen as exacerbating inequality'- my 8 year old could've figured that one out in less than 8 years.

Bloomberg - 'New Zealand’s economy is growing at the fastest annual pace in two years amid a construction boom as record-low borrowing costs and surging immigration fuel demand. Gross domestic product increased 3.6 percent in the second quarter from a year earlier compared with 3.3 percent in Australia, 2.2 percent in the U.K and 1.3 percent in the U.S.
'The economy is among the fastest growing in the developed world but the activity hasn’t stoked inflation, which has been below the central bank’s 1-3 percent target for seven straight quarters. Reserve Bank Governor Graeme Wheeler said Sept. 22 that a further reduction in the official cash rate will be needed, and economists forecast a quarter-point cut to a record-low 1.75 percent in November.'

Assuming the above is accurate, can anyone explain why we need a rate cut in Godzone?

by scarfie | 10th Oct 16, 9:24am 1476044657

A sign that the New Zealand economy is doing well.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11725625

by Halfway To Paradise | 10th Oct 16, 9:37am 1476045450

Very interesting, I also live in Rotorua and spend 8hrs a day meeting new people. He may want to try my alternative - its called work.

by childofthesun | 10th Oct 16, 9:40am 1476045653

2nd in the world - NZ punching above our weight again!

by Stephen Hulme | 10th Oct 16, 10:15am 1476047734

None of this takes a Fed hike off the table.

Hmmmm..

There is very little value to begin with in trying to parse monthly variation, reflected in a wide confidence interval at just 90% confidence. For all we know the jobs market in April 2016 was exactly the same growth as March 2016 when everyone was far more pleased. What we really don’t know is whether both March and April should have everyone elated or seriously worried (obviously, the rest of the economic data points uniformly point to the latter).

At just +156k for September, the published confidence interval of +/- 115k means that there could have been as few jobs in September as was thought of the May report that so unsettled everyone, or nearer the June report headline which accomplished if only briefly the opposite. And since the published confidence interval itself hasn’t been updated though the data and calculations of errors certainly have, there isn’t any confidence (pun intended) in what we don’t know about the statistics. In other words, we really don’t know how many new jobs were added in September and further that we don’t really know by what range that uncertainty may actually apply. Read more

Moreover, markets predict, at best, it's one and done right out to September 2017 - yes, just 25 measly bps. How will the new credit get serviced and liquidated.? Certainly not with new found wealth derived from booming economic growth.

by JB | 10th Oct 16, 10:54am 1476050070

Stephen, you are being a little harsh with the US payroll stats.

As stated previously - they have the ADP payroll system that is so large it gives very accurate and timely data of what's actually happening in their labour market and far more accurate than many others.

US payroll stats accuracy is the very least of our worries !

by Andrewj | 10th Oct 16, 9:31am 1476045088

The biggest issue is that there is only so much one can squeeze out of a debt cycle and most countries are approaching those limits. In other words, they are simultaneously approaching both their debt limits and central banks’ “pushing on a string” limits. Central banks are approaching their “pushing on a string” limits both because interest rates are approaching their maximum lows, and because the effectiveness of QE is approaching its limits as the risk premiums and spreads are compressing. Also, the wealth gap and numerous other factors make lending to spenders more challenging. This is a global problem. Japan is closest to its limits, Europe is a step behind it, the US is a step or two behind Europe, and China is a few steps behind the United States.
https://www.linkedin.com/pulse/remarks-40th-annual-central-banking-semi…

by ham n eggs | 10th Oct 16, 1:28pm 1476059317

absolutely right - this spells trouble for commodity prices, which require more new debt just to maintain a level.

by ham n eggs | 10th Oct 16, 9:37am 1476045451

"..instead, fiscal policy needed to do the heavy lifting to "boost incomes and lift living standards".

Helicopter money here we come. In the absence of actual growth, govts are now reverting to spending on (unneeded) infrastructure to create fake growth ... as predicted. Perhaps they should look at holding the Olympics once a month to boost job creation ... the possibilities are infinite. Unfortunately, cheap energy is not.

by JB | 10th Oct 16, 10:59am 1476050374

When governments can borrow at ~ 3 % for 30 years it is perfectly logical to fund new infrastructure investment such as - in our case - new harbour crossing, train to North Shore, State highway 1 extensions, electrification to Pukekohe etc

They should be identified separately on the crown balance sheet.

by ham n eggs | 10th Oct 16, 12:03pm 1476054208

the key word here is "investment" ... for what exactly? The answer is to keep a Ponzi from crashing.
Its incredible we are have reached a point where growth is so imperative in our economic system that we will willingly ignore everything (carrying capacities, biosphere, overshoot, water, mass extinctions peak minerals, mining, debt, Oil, energy...) in order not to face reality that we are totally unsustainable now, let alone with more ... Since we cant easily unwind, we will put the foot down.

by jfree | 10th Oct 16, 10:52am 1476049966

http://www.radionz.co.nz/news/national/315274/living-wage-call-in-play-…

Key flip flopping all over the place again, now back from "it would crash the housing market" to "it would have next to no effect"

Honestly, he makes Trump look consistent at times...

by rastus1 | 10th Oct 16, 11:27am 1476052068

..yeah but don't these interviewers continually let him slip off the hook.

by Gummy Bear Hero | 10th Oct 16, 2:31pm 1476063074

I wish to apologize to the women I have offended ... I really meant no harm for this , and take full personal responsibility ...

... but , in the locker room I had a $ 20 bet with my squash buddy Gary that it'd take 12 minutes for the Trump vs Clinton debate to descend into ad hominem attacks , into the gutter politics ...

And I was wrong ... so very very wrong .... Sorry ! ... as it turns out , it only took 7 minutes ...

by moa man | 10th Oct 16, 2:43pm 1476063791

Get a new bookie.
You are being ripped off.