US inflation expectations rise; Fed official: tackle budget deficit; Paraguay booming; AU mortgage stress hits wealthy suburbs; VW exec arrested over emissions cheating; UST 10yr yield at 2.38%; oil lower, gold up; NZ$1 = 70.2 US¢, TWI-5 = 76.6

US inflation expectations rise; Fed official: tackle budget deficit; Paraguay booming; AU mortgage stress hits wealthy suburbs; VW exec arrested over emissions cheating; UST 10yr yield at 2.38%; oil lower, gold up; NZ$1 = 70.2 US¢, TWI-5 = 76.6

Here's my summary of the key events overnight that affect New Zealand, with news there is finally an arrest in the VW diesel cheating scandal.

But first, in the US a NY Fed December survey of consumers showed that short-term inflation expectations rose significantly from November. Labor market expectations generally improved, with an increase in earnings growth and job finding expectations. Household finance expectations also improved, showing increases in household income and spending growth and slight improvements in perceptions of credit availability. Expectations about increases in interest rates on savings accounts and in American stock prices rose significantly.

And in San Francisco, the senior Fed official there said more fiscal stimulus is not needed from the Trump Administration. He noted that both the US labour and inflation data shows that the US economy is on track and fully recovered, and what the Congress should do now is tackle the Federal budget deficit.

Here's something you don't hear about often. In South America, Paraguay is booming, by modeling itself on China's early development strategy. It is picking itself up out of poverty and underdevelopment by becoming a focus for regional manufacturers. Its larger neighbours are growing increasingly uncomfortable however, especially as they are mired in a bureaucratic recession themselves.

In Australia, new data out there shows that the wealthiest suburbs are among the most vulnerable in terms of mortgage stress. For example, the data shows that households in Melbourne's Toorak, where the median house price is AU$3.5 mln, are five times more likely to default on mortgage payments than the national average. Residents in the Sydney beachside suburb of Bondi are facing the same financial stress. It's a bit like fancy cars; if you see one, you are probably seeing a highly leveraged asset of a finance company.

Back in the US, the FBI has arrested VW executive Oliver Schmidt and charged him in connection with the company’s emissions-cheating scandal.

In New York, the UST 10yr yield is lower today and now at 2.38%.

Oil prices are about US$1.50 lower today too, now just under US$52.50 for the US benchmark, while the Brent benchmark is now just on US$55..50 a barrel.

The gold price will start a little firmer today at US$1,178/oz.

The New Zealand dollar is firmer also and now at 70.2 US¢. On the cross rates it is holding at 95.4 AU¢, and against the euro up at 66.4 euro cents. And we are at a two month high against the British pound which comes as the UK says it will seek a 'hard Brexit'. The NZ TWI-5 index is up to 76.6.

If you want to catch up with all the 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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Highlight new comments in the last hr(s).

Shares in WBC, NAB, ANZ and CBA all hit new one-year highs on Monday, capping a bank share price surge in recent months that has led the ASX into a bull market. The Big 4 Banks have a combined market cap of $440 billion, which is 26 per cent of the entire ASX 200. Australian bank shares have risen to their highest level in more than a year, amid predictions that looming global regulations will be delayed and watered down

The Australian data on mortgage stress, is consistent with the outcomes in Dublin and subsequent price falls that occurred in the leafy suburbs. Auckland is different , thankfully all those that own multiple properties live in suburbs without trees.

Yep, we're different. And all those 7 seater Mercedes are fully paid for.

Those leaves make all the difference.

I had to smile at the 'fancy car" comment , it so true , all these cars costing north of $50,000 on our roads are sure to be in hock up to the drivers eyeballs in large numbers .

And what for ? Is it a pissing competition or to create the impression of wealth ? success ? or just keeping up with the Joneses or your fellow tradie ?

It would be interesting to see the levels of debt on the number of cars first registered in the past 3 years in NZ in relation to the number of vehicle finance agreements entered into in the same period .

I would take a wild guess at over 75% financed , but I could be way off .

With Nissan offering 1% PA over 3 years for new cars, with no deposit, why wouldn't you take advantage of it if your income can sustain it..

Perhaps the amount financed to be displayed on your number plate?
And the mortgage amount posted on each letterbox?
A sort of crowdsourcing / feedback stress test?

My take is it is because we get a sort of positive feedback from our stuff. When I owned a nice house, people thought I was successful. It made me feel successful. Actually I was just getting by, and relying on the house value going up so I could borrow a bit more money from the bank every couple of years. Same as when I had a nice car.

People do treat you differently when you have nice stuff, and it has an effect. Competent people like to associate with similar people and you are judged as a member of the club on the basis of your stuff.

If I wander into town dressed as a scruff, rent a house instead of owning one, drive a perfectly serviceable but outwardly ratty car, anyone who doesn't know me treats me accordingly. Those who do can't help but wonder if I've fallen on hard times. Actually, I have more free time and a stronger cash flow. It's a strange world.

The irony Roger is that the 'scruff' you described is in fact wealthier than said persons who succumb to materialism.

Marketing and consumer mentality are responsible for this perception. I no longer wear a shirt and tie but my net worth is a lot higher than when I did. I dressed really well when my net worth was negative with my substantial student loan.

Just go for tax transperency as discussed by Bernard in 2011 -

http://www.interest.co.nz/opinion/52171/opinion-why-norwegian-style-tran...

and

We find that higher income transparency increased the happiness gap between rich and poor by 29% and the life satisfaction gap by 21%. Additionally, higher income transparency corrected misperceptions about the income distribution and changed preferences for redistribution.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2657808

While getting involved in helping unravel financial problems online I found numerous stories of people financing a luxury car with payments eating up their disposable income. In part it's keeping up with the Jones, and having a feeling that they have succeeded (even though it's just consumerism).

There is a difference between those who believe they are successful financing a luxury car up to the hilt (with a loan term 5-7 years). It's different for those financing a car at 1-1.99% over a 3 year term with the car being a business write off.

The Mercosur region in Sth Americas has been popular for a number of years due to the Guarani aquifer, it's a huge resource and covers a massive area which includes parts of Argentina, Brazil, Paraguay, and Uruguay. It is a region of 1.2 million Sq kilometers.

I see it as a a direct threat to our stable long term agriculture industry. Investment by corporations in the region has been huge recently with one of G Soros funds now harvesting over a million tonnes of Soy just in Argentina.
I think in the next few years Argentina is very likely to burst back onto the world stage with frightening consequences.

http://dealbook.nytimes.com/2011/01/13/soros-bets-the-farm/?_r=0

http://www.corpwatch.org/article.php?id=15807

http://www.gazettelive.co.uk/business/business-news/watch-giant-ship-unl...

add in the Chernozem soils in Eastern Europe and we need to stop and have a little think, but thats never going to happen in little old la,la land.
These countries will be fighting with us for the same markets and it looks likely the many developed countries can now buy in feed from Sth America to grow their own protein while Russia is maxed out with it's own impressive expansion plans, so the future looks like more of this

http://finviz.com/futures_charts.ashx?t=ZW&p=m1

Too right AJ there has never been a shortage of land and with precision ag will become even less important.

Bit of water about too, may have to add a new cog to the water cycle. Need a decent bore though... "Earth’s mantle may contain many oceans’ worth of water – with the deepest 1000 kilometres down.

“If it wasn’t down there, we would all be submerged,” says Steve Jacobsen at Northwestern University in Evanston, Illinois, whose team made the discovery. “This implies a bigger reservoir of water on the planet than previously thought.

“This is the deepest evidence for water recycling on the planet,” he says. “The big take-home message is that the water cycle on Earth is bigger than we ever thought, extending into the deep mantle.”

https://www.newscientist.com/article/mg23231014-700-deepest-water-found-...

While mainstream media clung to The White House spin of record monthly streak of jobs gains after Friday's payrolls, The Fed's own Labor Market Conditions Index (LMCI) paints a very different picture of the health of the American job market. With a 0.3% drop in December, the LMCI is now down 5.8% year-over-year, the biggest plunge since Jan 2010. Read more

Yeah, make sense of this
US unemployment beneficiaries only remain on the unemployed-list for 6 months then get turfed off which means they lose their benefits and no longer appear in the unemployment numbers

Last week there were 235k NJC filed (new jobless claims) followed by 156k New Farm Payrolls

Doesn't look too strong to me

Hmmmm.........

..The Household Survey has gained only 189k total, not per month, over the last three months, where the number of full-time jobs estimated within it has been flat since July.

That possible shift coincides with what is perhaps the most important internal aspect of the payroll report, a serious and still developing slowdown in work. The average of weekly hours worked was only 34.3 in December, matching the lowest since 2011 (August 2016). Read more

Some figures that I pulled from a discussion thread elsewhere with respect to US households. Statistically things look good in some areas but what is really happening is kind of terrible.

- 39% of American households spend more than their after-tax income. (If you exclude all retirement contributions and distributions, it looks ever so slightly better at 37%)
- Less than 8% of American Households save more than 20% of their after-tax income.
- The median amount saved per year (this figure DOES NOT include the 39% of households with negative saving rates) is $912.
- The average annual contribution rate to retirement accounts is 4.5% (this does not include any households that don't contribute at all)
- The average value of a individual aged 55-64's retirement portfolio (this only includes portfolios with at least 10k in them) in 2016 was $104k.
- 31% of people say that the value of their retirement accounts decreased between 2006 and 2016.

Posted this last night on a different thread, but worth a read, and to browse the comments

http://www.chinalawblog.com/2016/03/getting-money-out-of-china-the-reali...

Interesting

That means the princelings and princesses (in Vancouver) might find their lavish lifestyles curtailed if their parents can no longer get their walking-around-money and sitting-down-money out to them

Dang - they might even have to get jobs

Australians are more property crazy than we are here. There are many people with 50%+ of their net household income going into mortgage payments. Those households are very vulnerable to interest rate increases.

Should banks have been lending under those conditions? No, but they did it anyway. Then add in other debt servicing costs for cars, and so on then you end up with a significant problem that's brewing. I'll be interested to see how much bank capital gets wiped out during the next downturn.

not good news, if it drops to around 50% watch out us home owners as political parties will be lining us up to look after the bigger voting block
NZ Home ownership rates

Lowest 61.2 per cent in 1951
Highest 73.8 per cent in 1991
Today 63.2 per cent

It's going to happen. It will be some years away but I'm expecting pressure will go on for capital gains and the voting public will lean towards that. I'm diversifying so I get capital gains and revenue. Perhaps not ideal for now but it will lessen any shocks in the future.

Aucklands home ownership rates?