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US CPI rises; housing starts rise, jobless claims fall; Yellen signals hike 'soon'; China spends up big; Singapore struggles; Aussies nail tax evaders; UST 10yr yield at 2.27%; oil and gold unchanged; NZ$1 = 70.6 US¢, TWI-5 = 76

US CPI rises; housing starts rise, jobless claims fall; Yellen signals hike 'soon'; China spends up big; Singapore struggles; Aussies nail tax evaders; UST 10yr yield at 2.27%; oil and gold unchanged; NZ$1 = 70.6 US¢, TWI-5 = 76

Here's my summary of the key events overnight that affect New Zealand, with news China is rolling out more big infrastrucure projects.

But first, American inflation had its largest rise in six months in October. Rising petrol prices and rents were notable from September. Their CPI was up +1.6% year-on-year, but +2.1% when you exclude food and energy costs. Janet Yellen said earlier today that a rate hike could come 'relatively soon'. The evidence is overwhelming now for a rate hike on December 15.

The number of American jobless claims fell sharply last week to the lowest level since 1973, while the number of housing starts rose sharply, up +4.6% on the same month a year ago. 'Real' after-inflation wages rose +1.2% in the year to October and average wage earnings in the US are now at NZ$1,264/week. The new American administration is being gifted a very healthy economy.

This data has arrested yesterday's question markets about the prospects of higher interest rates fairly soon.

In China, they have just approved the building of five new major rail projects, to the tune of NZ$40 bln of investment stimulus.

Chinese data out overnight also shows the flood of funds leaving the country is accelerating. Outward Direct Investment from China was more than NZ$200 bln, a +50% risen the ten months to October. Most is buying up American assets (up an eye-watering +175%). It is also noticeable that Chinese firms are not supporting their government's "belt and road" projects to any where near the same extent - these are up a much more modest +30%.

Singapore is doing it tough on trade these days. Their non-oil domestic exports posted the largest decline in seven months in October. They were down -12% and that follows a -5% drop in September. The falls have been driven by a slump in pharmaceutical exports.

In Australia, an accounting firm with a client base of wealthy Sydney-siders, has lost a high profile tax evasion case that will see many of them having to cough up millions to settle offshore tax arrangements. Samoa is a link in some of them.

In New York, the UST 10yr yield is now up to 2.27% on the very good US data out today.

The US benchmark oil price is marginally higher today, and is now just under US$46 a barrel, while the Brent benchmark is now just under US$47 a barrel.

The gold price is unchanged at US$1,225/oz.

The New Zealand dollar will start today just a little lower, at 70.6 US¢. On the cross rates it is now at 94.6 AU¢, and against the euro at 66.2 euro cents. The NZ TWI-5 index is still at 76.

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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40 Comments

I Am Serious as a Heart Attack

If this is the beginning of a bond bear market—and I think it is—there will be consequences.

Retail investors in bond funds will get annihilated. Actually, one of the main reasons for holding a diversified portfolio of bonds and stocks is that there are benefits to diversification. But when both asset classes become correlated with each other—as they have been—the diversification benefits disappear.

As the Fed raises interest rates, the certainty equivalent looks better and better. You can earn more than 1% in some enhanced cash funds right now.

As inflation rises, which it inevitably will, real returns of fixed income securities will be eroded.

This is probably the top of the housing market for a while.
Auto sales, which are declining, will decline more.

Non-dividend-paying stocks with the longest duration, like tech and biotech, will suffer.
i
I’m going to stop there, but the implications go on and on.

Literally the whole world has exposure to higher rates. Sometimes it is easy to see where it lives (retail investors, today) and sometimes not (like Procter & Gamble in 1994). We are just scratching the surface here.
Jared Dillian

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Norway Bans Petrol/Derv cars by 2025.
http://www.renewablesinternational.net/will-norway-ban-gas-diesel-cars-…

Holland commits on it promises and shuts down all it coalfields.
https://www.theguardian.com/environment/2016/sep/23/dutch-parliament-vo…

We have John Key...
promoting coal and allowing more exploration!

NZ is fast becoming the Joke of the planet...

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More greenwash subsidy for Musk... electric cars are a rich mans feel nice - not a green solution to anything.
@tony - the choice is quite simple - move off fossil fuels now and collapse the financial system, supply chains, food and population quickly (the reality of what is really required for the planet) ... or continue BAU and wait for economic system to collapse it all anyway.
Coal and Oil are the best bang for buck energy available - there is a (physics) reason we cant ween off it - not to mention infrastructure.
And for clarity - Are solar panels "renewable"? Are wind turbines "renewable"? No. They are manufactured and need continual maintenance.

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Everything needs maintenance [ insult removed. not necessary, or permitted here. Ed ]

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If you have the mental capacity, feel free to point out where Im wrong.

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Whats your definition of renewable?

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thats the point - People use the word renewable as if electric cars / solar panels/ wind panels / an electric grid/ resources magically appear. Its delusional.
The whole thing is an ENERGY system. If you need buckets loads of dirty fossil fuel energy to manufacture a clean solar panel to capture some solar energy, who is kidding who?

The real problem is carrying capacity - fossil fuel has allowed population growth explode so that there are just way too many people on the planet ripping through finite resources (which dont have a chance in hell of "renewing" themselves at the rate we require them). Somethings got to give. So anyone thinking the problem is solved by switching to electric cars, hasnt asked the right question.

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Try using sustainable, it has more meaning. Renewable doesn't mean sustainable.

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the original article above talked about renewables...associated with a move to electric.
Sustainable has effectively lost its meaning as well (ie as in the widely used oxymoron sustainable growth ...)

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I have an electric car, a Nissan Leaf, and I am certainly not rich. My electricity bill has increased by around $3 percent, there is no maintenance and overall it costs much much less to run than a petrol car. It is wonderful to drive and the torque will beat any petrol car

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Good on you!

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No tax on electric cars in Norway makes them as cheap as petrol cars.

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We are missing a trick here .

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No tax (if alternatives are taxed) = effectively a subsidy (ie the govt needs to pick up this lost revenue elsewhere)

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...great point.

'Fossil fuel subsidies reached $90 billion in the OECD and over $500 billion globally in 2011.[3] Global renewable energy subsidies reached $88 billion in 2011'

https://en.wikipedia.org/wiki/Energy_subsidies

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The vast majority of fossil fuel subsidies are by poor countries to bribe their populous. Removing them won't make any difference to renewable energy uptake in the rich western economies. These poor countires often lack the base load and grid to back up intermittent solar and wind.

http://blogs-images.forbes.com/timworstall/files/2012/06/fossilfuelsubs…

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Yeh there is never a free lunch, someone has to pick up the tab

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The Fed will not raise rates. Way way way too risky. They risk collapsing the whole house of cards.

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They have too, no choice now inflation is kicking off and they are way behind the curve.

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So finally Yellen has come out clearly stating that interest rates are going to increase "soon".

Its been a long -time coming , we have heard , for at least the past 24 months signals that this is coming , from the Fed themselves , leading economists , Bond traders and Hedge fund managers

This could wreak havoc on Bond markets , highly geared Corporate businesses , mortgagors and emerging market currencies .

Of course the delusional , inward- looking US Media who believe their own self made narrative , and the hysterical lunatic fringe on left will be looking for a scapegoat when the markets hit a big bump .

I wonder who that scapegoat will be ?

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The new American administration is being gifted a very healthy economy.

Debt fueled growth? I guess that's about to be throttled by rising service costs.

According to data released by the Treasury Department yesterday, the US national debt has soared by a whopping $294 billion since the start of the 2017 fiscal year, just 45 days ago. Read more

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But first, American inflation had its largest rise in six months in October.

Yes, indeed.

In fact, energy prices mainly determine the marginal changes in the total CPI. Though price differences are far more extreme in energy, their scaled effects on the whole index are very clear.

All that means is that consumer prices, according to the CPI, are back to where they were in 2012, 2013, and 2014. In other words, without the big drag from oil and other commodities, the CPI is still shallow. The 2-year change is just 1.81%, bringing into focus the highly unusual nature of this current period. In all prior periods, a sharp downturn was followed by an equally sharp upturn, prices as well as output. These are simple base effects and little more (and that “more” is where prices are doing more harm rather than reflect recovery). Read more

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as farmers we would would be better off if we could grow less. All those black soils in the old USSR are playing havoc with the grain markets. http://www.isric.org/about-soils/world-soil-distribution/chernozems
http://finviz.com/futures_charts.ashx?t=ZW&p=m1

meanwhile in much of NZ soil fertility is falling

then there is Quorn

http://www.quorn.com/about/

http://www.stuff.co.nz/business/farming/agribusiness/63265010/acid-soil…

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There should also be an increased focus on more sustainable farming (less wastage of water, less use of pesticides and herbicides), a focus on less food going to waste (supermarkets and consumers dumping tonnes of perfectly edible food each year), and a rethink of how to get food to where it's needed.
.
I think currently the earth is producing enough food to feed everybody, it's the feeding bit that's the problem, not the growing bit.
.
Less wars and conflict would be a good start, and in order to achieve that we need a more even distribution of wealth, and a fairer sharing of resources.

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A lot of us are at least eating %30 more than we need

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Us in the developed world, yes. But that's calories, not necessarily actual food.
.
In order to prolong the life of food it is drenched in salt. And then to make the food palatable, an amazing amount of sugar is added. Sugar is in pretty much everything that's processed in some form or other.
And it is this which gives us the majority of our surplus calories.
.
But I agree: even simply our portion size of most things is too large.

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To make more money from food, salt and sugar is added. I hear a winery around here used 160 tonnes of sugar last year, drink up.

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I love a good IPA or APA, but that's pretty much the only alcohol I drink (and that only during the weekend)
.
I stay away from wine, liquor, cocktails, or shots.
.
Although once or twice a year I can find occasion to dip into my Ardbeg

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The New Zealand dollar will start today just a little lower, at 70.6 US¢

Currently at 70.25.

Tom next rollover/swap pips imply a NZD O/N interest rate above 2.00% since Monday, when OCR is pegged at 1.75%. Are New Zealand banks struggling to source USD funding and bidding in the forex market is pushing NZD/USD down?

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Charges have been laid by Hawkes Bay Regional Council against Hastings District Council after the Havelock North gastro outbreak.

The regional council said that ​during its investigations it found evidence of a breach of the maintenance conditions of the district council's resource consent.
If a breach was proved, the resource consent no longer permitted the taking of water. The regional council commenced the prosecution, alleging the unlawful taking of water from the aquifer arising from the alleged failure to meet well head maintenance conditions.

Mayor Yule said "It is disappointing with the Government Inquiry about to start that the regional council has pre-empted that process by taking this prosecution action. Hastings District Council believes it is for the Inquiry to determine the causes of the contamination event,"

Seems like the mayor may believe that a prosecution for an alleged breach of a resource consent, whether or not it caused the contamination, is not worthy. An alleged breach of consent usually ends up as a prosecution if a regional council believes it has a case - why should the council be exempt?

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Be more excited. Get your popcorn, a couple of beers and watch the fight.

Remember that 99.99% of the time a regional council just tells off a water consent holder if the RC miraculously stumbles on a breach of consent conditions.

This is pure theatre with HBRC trying to win this one in the court of public opinion. I think its the first time I have ever had anything kind to say about Yule but he is right that this is an appalling opening salvo before the inquiry has even got under way.

Will HDC take the gloves off and return fire? Watch this space.

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What no apology to farmers? That's surprising. There's no way regional council should be suing local councils, rate payers foot the bill on both sides ( if i had my time again i would have studied law), just sort it out so it doesn't happen again.

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So councils are sacrosanct tim? Regional council is not suing HBDC it is prosecuting it. Due process of the law will decide HBDCs guilt or not.

I don't agree that we need an inquiry in to what happened and caused the disease outbreak. The regional council should be able to sort that out without a seperate inquiry in to it. As to were the contingency plans adequate (one of the main considerations of the inquiry) - there should be a district Major Incident and Emergency Planning group - Rotorua had one as far back as 2000. This is where contingency plans should be reviewed.

As Donald says above - it's going to be interesting to watch this play out.

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what would be the likely outcome of a prosecution CO?

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Not much. From the Stuff report the prosecution is nothing to do with the gastro outbreak; it's more like being pinged for doing 55 in a 50 km/hr zone. Its an infraction of the rules but not necessarily a harmful action. We won't know any of the juicy details till it gets to court.

I have bunged a couple of extra comments here : http://roadsratsrates.blogspot.co.nz/2016/11/glorious-s-fight-in-hawkes…

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CO, HBRC have no regulatory role in potable water supply. Thats the Ministry of Health. The inquiry has been set up to look at the wider aspects of the cause of and response to the outbreak especially the bits that lie outside current law. Its even possible that HRBC will carry some of the blame (although I can't see why).

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"We are way over-playing the size and the role of tsunamis. And this is happening in a lot of other places too, because unfortunately we are in a period of science where, to get funding, you have to scare the hell out of the public."

http://www.radionz.co.nz/news/national/318338/there-was-never-a-risk-of…

I jumped onto the Pacific Tsunami Warning Centre website and there was no tsunami alert....yet was being told at the same time by Nat radio there was one. The boy who cried wolf?

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Suggest you read up on the well documented evidence of previous Tsunami impacts around the NZ coast over long time frames before making comments such as you have.

They have totally devastated large portions of the NZ coastline to heights you find hard to believe until
you find the tell tale coastal shell and sand deposits.

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..I'm not sure what comment you are referring to? The post contains a reference and a caution?

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