Here's my summary of the key events over the weekend that affect New Zealand, with news the rise in wholesale interest rates took another spurt higher over the weekend.
But first, in the US consumer confidence surged in early December to just one-tenth of an Index point below the 2015 peak - which was the highest level since the start of 2004. The surge was largely due to consumers’ initial reactions to Trump’s surprise victory. When asked what news they had heard of recent economic developments, more consumers spontaneously mentioned the expected positive impact of new economic policies than ever before recorded in the long history of the surveys. To be sure, an equal number volunteered negative judgments about prospective economic policies, but the frequency of those negative references was less than half its prior peak levels whereas positive references were about twice its prior peak.
Also in the US, sales at the wholesale level came in much better than expected for October. And more importantly, wholesale stocks declined which means the build-back will be very positive for Q4 growth numbers.
Moving to China, last week we reported the surprisingly strong language a regulator there used to chastise the Chinese funds management industry. Well, it seems that another official has taken to task the Chinese insurance industry in similarly strong language. For generations, Chinese business people have regarded official regulations as being there to be gamed. But no more, it seems. The insurance official said skirting regulations was tantamount to committing a crime. It will take Chinese officials a long time, and with many business people in jail, to change the culture disrespecting legal regulations. In the meantime, those vulnerable to exposure will be urgently trying to get their dubious gains out of the country. The flood of money out could become a torrent before officials get on top of this corruption.
And on to Australia, as we reported over the weekend, the Australian Tax Office released details of about 2000 large taxpayers and that showed that just eight of them - and that includes the four pillar banks - paid most of the tax for this group, and about a third paid zero. We don't have this level of transparency here, and many of the companies involved in Australia are lobbying to end the disclosure.
In New York on Friday, the UST 10yr yield rose strongly and is back up to 2.47%. That is a 15 month high and will have a cascading effect on our markets today.
Oil prices are higher too, now just over US$51.50 for the US benchmark, while the Brent benchmark is now just over US$54.50 a barrel. Russia is trying to get OPEC to hold to its oil output cutbacks. It might work, but Russia has form at being disingenuous at this. The last time it promised to cut back, it back-doored OPEC. And OPEC remembers. But low prices are a galvanising theme for producers these days, and with the head of ExxonMobil in Trump's cabinet, they sense a rare opportunity. And US frackers are responding quickly; the US rig count jumped to 624, its fastest weekly rise in more than 280 weeks.
The gold price was down another -US$10 in New York and will open the week at US$1,160/oz.
The New Zealand dollar is a little lower at 71.3 US¢. On the cross rates it is at 95.8 AU¢, and against the euro up at 67.6 euro cents, an 18 month high. The NZ TWI-5 index is up to 77.4.
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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8 Comments
Oil prices are higher too, now just over US$51.50 for the US benchmark, while the Brent benchmark is now just over US$54.50 a barrel.
Yes, indeed.
Perhaps it is just beginning to break out, but there are suggestions that this might be as good as it gets, relatively speaking. For one, the WTI futures curve is now, to put it mildly, odd. The natural state of that curve is full backwardation short to long; that is the negative time spread that keeps oil flowing in current markets rather than being directed to sit idle in storage awaiting future release. Unlike gold or some other commodities, there is very little benefit to unused oil (unless, of course, you are China and wish to convert “dollar” lending into tangible financial collateral). Read more
Its winter in the Northern hemisphere , which means more oil consumption too
And we need to bear in mind that over $50 per barrel in good for North American producers , their break-even is around this number , which means they will be profitable and will maintain production levels .
Its also likely to put a dampener o any huge spikes ahead
In New York on Friday, the UST 10yr yield rose strongly and is back up to 2.47%. That is a 15 month high and will have a cascading effect on our markets today.
Hmmm....
The benchmark 10-year U.S. Treasury yield has jumped 100 basis points since July's multi-decade low, with a growing number of investors saying the 35-year bull run in bonds is now over. Worse, it has led to nearly $2 trillion in global fixed income losses, which surprisingly, has not led to a major shake up across markets. Why is this? The BIS provides one explanation - the bulk of the losses are concentrated in the hands of central banks who - luckily - do not have to mark to market:
The limited market impact of higher yields may in part have reflected the capacity of major holders of government bonds to bear mark-to-market losses (Graph 5, right-hand panel) as well as limited evidence of negative feedback loops through hedging activities.
For instance, around 40% of US Treasuries are owned by the Federal Reserve and the foreign official sector. Pension funds (the third largest holders of Treasuries) and insurance companies may even benefit from rising rates in the medium term, as a normalised yield environment would allow them to more easily meet promised returns. However, valuation losses in the short run may affect profits and capital depending on accounting standards. In addition, the hedging activities of the US government-sponsored enterprises (GSEs), which contributed to the bond market turbulence of 1994, are much lower now. This is because, as part of quantitative easing policies, GSEs sold a large share of their portfolios to the Federal Reserve, which does not hedge its securities. Read more
Re China clamping down; Like your article link David: Nearly half of B.C.’s most expensive homes secretly owned, raising fears of money laundering
http://vancouversun.com/business/real-estate/hidden-ownership-of-homes-…
Wondering how much of that is going in to Auckland high cost housing market?
I am told than Chinese business people game the foreign exchange restrictions almost as a matter of course .
The biggest leakage takes place with transfer pricing between Chinese businesses in China and their offshore operations/ branches / subsidiaries and associates , but it also takes place between mates , where they export to a mate and under-invoice the sale in China
The "profit" is then made by the mate ( an importer ) who keeps the gain in the country of destination , to be divvied later .
The other reason for the under-invoicing is where duty is payable in the importing country , the under- invoicing means that we lose out on customs duties as well .
The whole thing is problematic and difficult to manage and police , and even more difficult, I would imagine, to prosecute
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