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Lagarde on trial; Fed about to pull trigger; China's two-speed retail; P2P used to send funds out; BIS warns on protectionism; UST 10yr yield at 2.47%; oil up, gold unchanged; NZ$1 = 71.9 US¢, TWI-5 = 77.8

Lagarde on trial; Fed about to pull trigger; China's two-speed retail; P2P used to send funds out; BIS warns on protectionism; UST 10yr yield at 2.47%; oil up, gold unchanged; NZ$1 = 71.9 US¢, TWI-5 = 77.8
13th Dec 16, 7:29am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of higher crude oil prices as producers agree to restrain output.

But first, Christine Lagarde, the IMF boss, went on trial in Paris earlier today facing criminal charges that when she was France’s finance minister, her negligence resulted in the misuse of hundreds of millions of euros in public money.

In the US, all eyes are on the Fed who are widely expected to raise the overnight Fed funds rate on Thursday (NZ time) by +25 bps to 0.75%. The UST two-year note - especially sensitive to changes in the Fed funds rate - rose to almost 1.15% and that is near its highest level since April 2010.

In China, the online retail sales boom which is seeing overall retail sales grow at a fast clip is not being played out in traditional bricks-and-mortar stores, and that poses a concern for their heavy investment in commercial real estate.

The online bug in China is having other impacts too. It is fast becoming the favoured way of smaller investors to send money out of the country. There is a growing trend to use offshore P2P platforms to invest overseas.

In Basel, Switzerland, the Bank of International Settlements is worried about the sweeping protectionist impulse in many countries. It warned that "prospects have darkened considerably with the most recent political events. There would be no winners, only losers. Lower global growth, and possibly higher inflation, would benefit no one."

In New York today, the UST 10yr yield is holding its weekend level of 2.48%. The rise and steepening of local rate curves might have some economists re-thinking their forecasts of the next RBNZ rate moves, bring forward into 2017 the prospect of rate hikes. This may gain momentum if oil price rises are sustained and stoke stock inflation prospects.

Oil prices are higher again, now just over US$53 for the US benchmark, while the Brent benchmark is now just over US$56 a barrel. That is a +6% rise on the day, and is an 18-month high after OPEC and some of its rivals reached their first deal since 2001 to jointly reduce output to try to tackle global oversupply.

The gold price is up marginally, now at US$1,163/oz.

The New Zealand dollar is higher today too, now at 71.9 US¢. On the cross rates it is at 96 AU¢, and against the euro up at 67.8 euro cents, an 18 month high. The NZ TWI-5 index is up to 77.8.

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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28 Comments

by  Halfway To Paradise  |  13th Dec 16, 8:07am 1481569662

It amazes me that we continue to allow a price fixing cartel in the oil production industry. It would not be allowed in other buisiness.

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by  James007  |  13th Dec 16, 12:12pm 1481584350

Agreed.

ODEC - Organisation of Dairy Exporting Companies - today announced plans to cut production to stem the oversupply problem.....yeah, Nah

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by  Boatman  |  13th Dec 16, 3:33pm 1481596428

@Robert Meek , don't kid yourself mate , we have a price fixing cartel right here in the New Zealand .

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by  Alter Ego  |  13th Dec 16, 8:22am 1481570527

All we have to do is have a voluntary car less day, every other day, car pooling and we will never pay more than we do now. World wide we have the power of the Internet to arrange this...it is called "People Power'

It is consumption that decrees price, drop that and prices will drop. There is a glut of oil at the moment. Why the price hike....The Cartel wants more money, so they collude on price. Simple thing is do not bow down to their wishes. Avoid their desires, any way you can...Even one World Wide car less day will fix this Cartel. Show them we mean.....Business as usual.

Not a free bloody ride.?. Profiteers pushed the price up to $140 plus a barrel.

Wipe em out.! Settle a 'fair price'

Any other industry would be destroyed for colluding this way....it is and should be illegal.

What the consumer does not realise, it is silly to concede. They will just push for more.

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by  Yvil  |  13th Dec 16, 11:29am 1481581773

Great idea Alter Ego, when are you setting the wheels in motion ?

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by  Alter Ego  |  13th Dec 16, 1:04pm 1481587475

It seems only sensible. to set the wheels in motion, from this point on wards in our lives.

So here goes.

The Power of the Written Word.............on OIL.

All we have to do is have a voluntary car less day, every other day, car pooling and we will never pay more than we do now.

World wide we have the power of the Internet to arrange this...it is called "People Power'

It is consumption that decrees price, drop that and prices will drop. Tell everyone you do not approve of the Oil Cartels and Price Fixing.

There is a glut of oil at the moment. Why the price hike....The Cartel wants more money, so they collude on price.

Simple thing is do not bow down to their wishes. Avoid their desires, any way you can...Even one World Wide car less day will fix this Cartel.

Show them we mean.....Business as usual.

Not a free bloody ride.?. Profiteers pushed the price up to $140 plus a barrel last time.

This is not acceptable.

Wipe em out.! Settle a 'fair price'

Any other industry would be destroyed for colluding this way....it is and should be illegal.

What the consumer does not realise, it is silly to concede. They will just push for more.

So join the kickback, tell the World....NO THANKS. Oil Cartels can be broken, by the will of the People.

Please send this on to everyone in your communications list.

Emails, Facebook, Whatsapp.....etc etc.

If everybody who reads this, sends the above to everyone on all their communication devices and they all forward to theirs and so on and soon it will hit millions, then exponentially all overseas links. Billions will benefit.

It is the power of compounding, that will make this work.

Also if every blog site and business site like this one encourages and promotes it, we are home and hosed.

We could also fix just about any problem, you care to name in this fashion.

Mass communication, for the good of mankind.

I can only ask for David to join the mass message...it is his site as I recall.

Yours, A very Altered Ego.

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by  ham n eggs  |  13th Dec 16, 12:45pm 1481586326

Alter Ego - the glut is because of weak demand (not cheap supply) with a world economy on its knees. Oil companies are pumping faster for cashflow, doing little capex/exploration and setting us up for major energy problems. You are right that if we further weaken consumption prices will drop further, but you may want to consider the consequences.
Basically; our short term "choice" is
- that Oil prices go up so Oil producers don't go broke so energy is available
- or prices continue to go lower, Oil producers go bust and life as you know it stops. Our whole financial system relies on Oil - without it we are immediately back to the dark ages

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by  Alter Ego  |  13th Dec 16, 1:06pm 1481587610

A "Fair Price" is all I ask for.

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by  Boatman  |  13th Dec 16, 4:49pm 1481600946

Dont panic alter ego .

The OPEC deal will not hold , there are simply to many players all with self -interest , jockeying for position to get maximum price for their oil .

As soon as one is found cheating , then its becomes a free-for-all

We know the Arabs dont trust each other , and they fully expect everyone to cheat .

There are a few issues at play here driving the price ..........firstly its winter in the Northern hemisphere, so production is down and consumption high , secondly there are disruptions in Iraq and Syria as well as Libya and Yemen . Nigerian supply is also subject to erratic conditions.

Then you have had a price reflecting years of over-stockpiling which has fallen , as the price dropped and reached a "clearing price "

It was never going to stay at thirty- something a barrel

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by  steven  |  13th Dec 16, 1:04pm 1481587451

Profiteers could only push the price up as they did in 2004~2008 when there is a scarcity to exploit. In the run up to peak oil ie the maximum output per day in conventional peaked and the price was rising, specualtors could indeed step in and did making it worse.

The oil price will rise in the near future, the 1/2 that is left will cost $120+USD to extract so either our economy can stand paying that price (and we have seen it cant so far) or the global economy will collapse into a 2nd Great Depression, my money is on the latter.

"Wipe em out.! Settle a 'fair price" you are myopic frankly, there is a bigger picture you fail to see / look for. Sure some countries can extract at $25~60 a barrel but a) newer oil needs $100+ and b) the countries now need to feed a population that exploded in numbers and demands with nothing but oil income to support taht. So the fair price is higher than we are currently paying if that isnt achieved we'll see some OPEC members fold, and boy would that be interesting for us all.

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by  MikeM  |  13th Dec 16, 8:35am 1481571317

So why can the oil industry legally engage in collusion and yet any other industry would end up in court?

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by  Andrewj  |  13th Dec 16, 8:37am 1481571429

Because money corrupts.

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by  David Chaston  |  13th Dec 16, 9:15am 1481573755

It is not "the oil industry" within a country that has competition laws, it is oil countries (OPEC, Russia, and other key oil producing countries) outside of any jurisdiction. It is what would happen within countries if competition laws were defanged.

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by  Andrewj  |  13th Dec 16, 9:26am 1481574393
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by  Cowpat  |  13th Dec 16, 10:01am 1481576469

Having lived in Khamis Mushayt for many years , what is happening in Yemen is nothing short of a tragedy. Most Kiwis , would not know where Yemen is on a map, more would not know about the current conflict and destruction. Nothing changes in the world we live

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by  ham n eggs  |  13th Dec 16, 12:47pm 1481586440

this isnt a surprise though - the West effectively provides Saudi with military muscle for US$ denominated petrodollar in return. Thats how we live like kings

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by  Andrewj  |  13th Dec 16, 8:44am 1481571889

If we deconstruct the idea of certainty we soon realise it amounts to the understanding that everything in life and the economy is deterministic and predictable. Quid pro quo all our actions, whatever they may be, will never be able to influence the bigger picture. All our claims and liabilities will forever be guaranteed. Our fate is sealed. We’re just cogs in the machine.

For the average person — especially if they populate the lower echelons of the wealth pyramid — that sort of thinking is not just soul-destroying, but incentive slashing. A certain future quashes the impulse for betterment, and that’s the case even in a scenario where the established norms suggest following distinct behavioural patterns A, B or C can improve your lot regardless. You’re not involved in your own betterment. Someone else is. The whole life-improvement process is transformed into a follow-the-rules system
https://ftalphaville.ft.com/2016/12/09/2181155/why-its-time-to-embrace-…

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by  Yvil  |  13th Dec 16, 11:34am 1481582083

Alter Ego: In your earlier comment above you state
"World wide we have the power of the Internet to arrange this...it is called "People Power'
and here you say:
"we will never be able to influence the bigger picture. All our claims and liabilities will forever be guaranteed. Our fate is sealed. We’re just cogs in the machine"
That's a massive contradiction, which one is it ?

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by  Alter Ego  |  13th Dec 16, 7:49pm 1481611763

AndrewJ said that, not I ...But a cog is just that, until you put them all together and work in unison.

Then a cog becomes a Machine.

We can adapt, we have to.

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by  Stephen Hulme  |  13th Dec 16, 9:03am 1481572993

In the US, all eyes are on the Fed who are widely expected to raise the overnight Fed funds rate on Thursday (NZ time) by +25 bps to 0.75%

I think not, rather the FF target rate/range will move up to 50-75bps, hence the EFFR will move up within that band from ~41bps to possibly ~66bps. View Fed data

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by  Stephen Hulme  |  13th Dec 16, 9:10am 1481573440

In China.

Chinese stocks opened sharply lower today, though with comments by Donald Trump on China’s one-China policy adding to the nervousness, with the Shanghai SSE index falling 2.5% for its largest single-day decline since June. Read more

Hong Kong’s Squeezed Money Market Sends a Sell Signal on Stocks

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by  Stephen Hulme  |  13th Dec 16, 11:32am 1481581960

From ANZ in my mail box.

Manufacturing activity rose solidly in Q3, with core sales volumes lifting 2.3% q/q – the strongest quarterly growth since June 2002. This was well above our expectations so certainly points to some reasonable upside risk to our bottom-up estimate for Q3 GDP growth (currently +0.6% q/q). We will look to finalise our views on Q3 GDP after Thursday’s construction figures.

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by  rastus1  |  13th Dec 16, 3:21pm 1481595667

Morgans latest..inequality explained.
https://youtu.be/mmfVhs2cDuQ

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by  Boatman  |  13th Dec 16, 3:49pm 1481597362

Re oil price and the alternatives to using oil , I would use public transport to get around if :-

1) It did not take well over an hour and three buses to get from Greenhithe to Milford a trip of 7 kms
2)The fares were priced at a level that is at least as economical as my diesel car

For the return trip above it is $16 by bus and under $5 using my car ( thats diesel , RUC, insurance and adjusting for depreciation after a tax allowance of 20% depreciation per annum)

Quite simply our public transport system on the North Shore is a disgrace.

Auckland Transport will not allow mid-sized owner- driven buses because they are being held to ransom by the 3 powerful bus companies , so its NEVER going to get sorted out .

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by  Boatman  |  13th Dec 16, 3:58pm 1481597913

Someone at Interest .co.nz should find us a breakdown of what makes up the fuel price PER LITRE and put it in a pie chart to see who gets the biggest slice of the pie , using the following price components :-

Raw oil landed at Marsden
Refining costs
Fuel company margin
Transport to FFS
Government road levy
ACC Levy
Dealer margin per litre
GST

I dont think we are doing to badly , given we have ACC which the Australians dont have , so their prices are lower (even though their transport costs will be higher due to distances )

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by  Gareth Vaughan  |  13th Dec 16, 4:15pm 1481598931
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by  Boatman  |  13th Dec 16, 5:10pm 1481602202

Thank you Gareth

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by  tim12  |  13th Dec 16, 4:52pm 1481601122

What is protectionism? In China you can pay your workers one dollar per hour, in NZ you can not. In China no worksafe. building standards?, environmental laws? child labour laws? civil rights? Here we are over regulated.Who is being protected? I would argue it is Chinese businesses, and then we are dumb enough to let them come here and buy our properties and companies. Trump is right about China.

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