Markets watching US results closely; China's exports fall again; India withdraws large banknotes; OPEC can't see higher crude prices; China debt market stress; UST 10yr yield at 1.87%; oil stable, gold down; NZ$1 = 73.5 US¢, TWI-5 = 77.5

Markets watching US results closely; China's exports fall again; India withdraws large banknotes; OPEC can't see higher crude prices; China debt market stress; UST 10yr yield at 1.87%; oil stable, gold down; NZ$1 = 73.5 US¢, TWI-5 = 77.5

Here's my summary of the key events overnight that affect New Zealand, with news of a surprise move in India today.

But first, all markets will be eyeing the US presidential election results which will start coming through at about noon, NZ time. In advance of these, US markets are firm, with stocks higher, bonds lower, and gold lower as well. We are updating a live blog on this event, which will try to keep you updated on the implications for New Zealand. You can add your nickel's worth too in the Comment section.

But there are other things going on that you should know about.

China’s exports fell -7.3% in US dollar terms in October from a year earlier, as demand for goods from the world’s second-largest economy remained sluggish. But in yuan terms, exports were up +3.2% while imports were down -3.2%. Their recent devaluation moderated the changes. In either currency, the result was not as weak as economists were expecting.

China reports its consumer price inflation today and most analysts see it rising to +2.1%.

In India, the government made a surprise announcement today, saying their two largest denomination banknotes would be withdrawn as part of a way to fight corruption and counterfeiting. These two notes have ceased to be legal tender about an hour ago (midnight India time). Markets approved the move.

OPEC said today that crude oil prices will rise much less than expected in the next four years, because supply and demand haven’t reacted to the oil slump as strongly as expected. They are just another party that misunderstands the way world trade and local industry are changing in a digitised world.

Bloomberg is reporting that China’s US$3.2 tln corporate bond market is already starting to reel from rising interbank borrowing costs - and the traditional year-end funding crunch hasn’t even started yet. It is an ominous sign, and one we should watch over the next six weeks or so.

In New York, the UST 10yr yield will start today much higher again, now at 1.87%. Expect a similar rise in local markets, especially at the long end. Our 1-5 rate curve is now +44 bps, its highest for 2016, while the more important 2-10 curve is now at +72 bps, a six month high.

The US benchmark oil price is marginally firmer, and is now just over US$45 a barrel, while the Brent benchmark is above US$46 a barrel.

The gold price is down again and now just under US$1,274/oz.

The New Zealand dollar will start today somewhat higher than this time yesterday, at 73.5 US¢. On the cross rates it is now up at 95.1 AU¢, and against the euro at 66.7 euro cents which is actually a 17 month high. We are also at a record post-float high against the British pound at 59.5 English pence. The NZ TWI-5 index is at 77.5.

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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"They are just another party that misunderstands the way world trade and local industry are changing in a digitised world.."

Sorry - this is a completely brainless comment. Oil supplies EVERYTHING to the economy - to think low Oil prices are a result of the internet is completely clueless.

Oil provides energy. There are viable alternative energy sources now. Most alternative energy is controlled digitally now (low power electronic components, low heat generating components, smart balancing etc- ie smart energy).

So the world is digitizing on all levels. In all fields.

Oil is becoming less important.

Yeah, I hear all those precious metals used to make tech gadgets are pulled from the ground using biodegradable earth work machinery and get to NZ via solar powered aircrafts and boats, plus the people that deliver it to your door use rechargeable courier vans...

Don't forget the farmers with their battery powered harvesters and tractors. Oh, and the electric trucks which ship the food around refrigerated.

You should watch the Auckland motorways and count the number of EVs as a percentage of vehicles, 0.1% would probably be generous at this stage.

Unfortunately your comments are wrong - they are the nice transition story version of energy ...Oil is the only thing holding the world economy together. Without Oil there is no supply chain and no food.
Oil is absolutely energy ... but not all energy is equal. Oil has the highest energy punch, is cheapest, most portable, has all the existing infrastructure etc. It can exist without other energy sources.
Alternative energy (less the 2.5% of world energy use) is a small add on at best, is more expensive, less adaptable, in many cases also non renewable and completely reliant on Oil. It is also more high tech, which is actually a problem.

As for the world digitising, I have yet to eat a digital sandwich or even work on a digital only computer. You need cheap energy & minerals - both increasingly difficult to get our hands on. Its a fallacy that humans can exist in some digital low-energy future.

China’s exports fell -7.3% in US dollar terms in October from a year earlier, as demand for goods from the world’s second-largest economy remained sluggish.

Yes, indeed. Interesting developments:

Since the last week in October, RMB liquidity both onshore and offshore has been more and more plentiful but only in the shortest overnight terms. Interest rate swaps tied to the overnight SHIBOR rate had surged from October 21 to October 26. Spot SHIBOR at first traded with it, as the former anticipates (and is hedging against) the latter. But then the overnight spot rate stopped rising, and the offshore spread between overnight and 1-week CNH remained conspicuously wide.

While those are pretty good signals of PBOC operations (either direct or conducted via Chinese banks with or without cover but certainly non-discretionary directives) it is perhaps copper’s recent ascent that truly focuses our attention in that direction. Neither China’s trade figures nor its published statistics on usage and inventory would seem to justify such a sharp, condensed move. If it has broken what was a steady, even narrowing range that had lasted a remarkable almost nine months, then that would suggest as RMB money markets the heavy presence of an RMB source. Read more

Concluding remarks

Global “dollar” issuance looks like genuine demand based on prior production but it is not. Export powerhouses fall into the trap and think the domestic boom they are living through is because they are exceptional. Old socialist are celebrating the fact that alternative growth “models” can outpace freer societies in the west, but these are often nothing more than pragmatic command economies with little ability to change in times of hardship. Just as Japan thought they could go back to pre-Plaza Accord growth rates by holding on to the old ways in the 1990s, the Chinese will expect the growth miracle to return in 2016 with the “right” policies. It will not. China is heading straight into a zero growth environment, and will be mired there for years to come.
http://bawerk.net/2015/07/27/chinas-unfortunate-dependence-on-the-eurodo...

Worse, had the global economy actually gone back just part way to acting as it had prior to the Great “Recession” (meaning that it actually was a recession) China should have exported nearly $5 trillion in goods over the last 12 months (through October) at a 20% baseline rather than the near 30% of the Chinese “miracle” years. Instead, they only created and shipped $2.2 trillion. That difference is incomprehensible, and thus doesn’t so easily compute in a straightforward way. So it is simply ignored or reduced into an inappropriately narrowed focus that lives only in the month to month changes as if the second derivatives of those were actually meaningful at this point. Read more

History teaches us where this will end.

http://bawerk.net/2016/09/18/the-road-to-fascism-in-just-two-charts/

http://bawerk.net/2016/10/19/subtle-forward-guidance-the-marriage-betwee...

Political risk in Europe are on the rise as the once prosperous middle class are forgotten, both financially (cannot compete with low cost Chinese workers) and culturally (if you do not like what is happening to your neighborhood you are a deplorable and irredeemable racist bigot and we do not need to listen to you). Losing life savings as deposits are bailed in left and right will be the straw that bring down any pretense of political correctness.
http://bawerk.net/2016/10/15/usd-ready-for-a-second-leg-higher-then-what/

"In New York, the UST 10yr yield will start today much higher again, now at 1.87%.

At a turning point, will resistance hold?

30-year yields would bottom out around 2.10. For the last 4 months, they have been on the ascent and, as noted last Wednesday, are currently testing resistance up near the 2.65% level. The impetus for this post is to note that, after the 4-month rise in rates, Commercial Hedgers had covered the entirety of their massive net short position. Read more

Yes, the recent run up in yields revolves around the year end Fed increase and little beyond. However the media is grabbing hold of it as if it's a long term trend. It is wise indeed to hedge recent activity. The business cycle is long in the tooth, next year could bring different outcomes.

Evidence is in your favour.

Forward eurodollar futs contracts are effectively price locked

This is a market where trillions upon trillions reside in open interest, meaning that in some ways it is deeper and more active than anything else out there. Yet, it refuses to stake a position one way or the other, all dating back to, as noted many times before, Japan's "helicopter" rumors. Source

This Hoohaa about the US Presidential elections is nonsense . The markets will react the same whether Clinton or Trump wins .

Firstly , the Fed will , in due course , increase the Fed Rate in an effort to start unwinding the QE policy that it conducted . The effect will be severe .

Secondly , the US, while it is still very powerful is in slow but steady decline , and has been in industrial decline since the 1970's .

Like the UK , wages were too high , productivity too low , Unions too powerful , workers had a culture of entitlement that was unrealistic to say the least .

Lastly , Trump may actually be good for America in the long run , by looking after American interests rather than trying to be friends with everyone while being policeman to the world .

Your first and last sentences could be contradictory.
I thought about it a bit more. You are right and Trump is the obvious choice.

"Like the UK , wages were too high , productivity too low , Unions too powerful , workers had a culture of entitlement that was unrealistic to say the least ."

What are you advocating here - that wages should be lowered while expecting greater output per hour? That any lobbying in the interests of workers should be banned? That workers shouldn't be entitled to a decent standard of living for working?

Which workers are you referring to? The "lower class", "middle class" or the ones with all the power at the top?

Feudalism, slavery - what's the difference? And we wonder why the world is in the state it is.

Just look at Ford and GM .......... and compare it to Nissan and Toyota .

2 were bankrupt and got bailouts
2 have cradle to grave pensions and medicare forced onto them by Trade Unions
2 have wildcat strikes and low productivity
2 have the highest wage rate of all the auto companies on the planet
2 produce crap unreliable gas guzzling products
2 have major productivity issues
2 have serious quality control issues
2 were unable to bring electric or hybrid new products to the market in a reasonable time ( it took the 2 5 years longer )

GUESS WHICH 2 I AM REFERRING TO ?

NZD thru 74 USD . At twenty year highs against the CAD. The question of course is whether a strengthening currency is truly such a bad thing.

it isn't if you believe in an endless utopia of consumption, debt led recoveries ....

Weak economies require and eventually get a 'weak' currency , do we require a weaker currency?How will a NZD at 50 USD or a TWI at 60 be more beneficial?

Treasury beating the health service privatisation drums?

A leaked Treasury report warns the financial performance of district health boards has deteriorated severely over the past two years, and flags eight regions where there are serious concerns over services.

The results leave the Ministry of Health with two options, according to Labour's Annette King: increase funding, or expect cuts in services.

The report measured financial and non-financial performance of the country's 20 DHBs, and was presented to Health Minister Jonathan Coleman in June. Read more

Are Treasury's forward funding costs estimates consistent with the same term CPI rates? Hardly. Discounting by real cost factors can materially raise today's costs for ventures overpriced in forward nominal terms. View factors