90 seconds at 9 am: NZD hits 20 month high

Court rules no Brexit without Parliament; "TPP minus One" push; China wants regional trade agreements too; US home sales fall, factories busy; UST 10yr yield at 2.47%; oil and gold stable; NZ$1 = 72.6 US¢, TWI-5 = 78.1

25th Jan 17, 7:25am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news the NZD has touched its highest level since May 2015, a twenty month high on the TWI.

There are a set of reasons. Firstly, the British pound has fallen sharply. This happened because their Supreme Court has decided that Brexit cannot be triggered without a vote in Parliament - and most parliamentarians campaigned to stay in the EU. A mid-March parliamentary vote is likely.

Secondly, Australia is leading an effort to ratify the TPP - without the US. And China is keen to get its RCEP and a proposed FTAAP re-energised. So when the US comes seeking its Trump-style bilateral deals, the regional deals which will set the negotiating framework, will be in place and very difficult for the Trump team to work around. New Zealand is in a good position.

In China, the same state-owned company that recently agreed to buy UDC has announced it is buying SkyBridge Capital, Trump adviser Scaramucci's company. That will put them at the heart of "alternate investing' in New York.

In Washington, the Congressional Budget Office is projecting that US Federal debt will grow by another US$9 tln over the next ten years to reach about 90% of US GDP. And that is before any of the new Administration's aggressive ambitions around tax cuts and major infrastructure spending. All this will happen with the US Federal deficit being the smallest in 2017 since 2008.

And staying in the US, sales of existing homes fell in December, with low inventory levels catching the blame. The industry is calling for more home building to ease the shortages.

And a sharp increase in new orders is seeing US factories expanding at their fastest pace in January 2017, since September 2014. Interestingly however, this same survey does not show a pickup in factory employment.

In New York, the UST 10yr yield has gained back almost all of yesterday's fall. It is now at 2.47%.

Oil prices are a touch higher today, up to just over US$53.50 for the US benchmark, while the Brent benchmark is now just on US$55.50 a barrel.

The gold price is also a touch higher at US$1,212/oz

The New Zealand dollar has moved higher overnight and will open at 72.6 US¢. On the cross rates we are at 95.8 AU¢, and against the euro at 67.6 euro cents. The NZ TWI-5 index is at 78.1.

If you want to catch up with all the changes on 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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17 Comments

by Stephen Hulme | 25th Jan 17, 7:57am 1485284270

Here's my summary of the key events overnight that affect New Zealand, with news the NZD has touched its highest level since May 2015, a twenty month high.

There are a set of reasons.

Can we ignore this element of interest?

"Saying you're 'buying a house in New Zealand' is kind of a wink, wink, say no more. Once you've done the Masonic handshake, they'll be, like, 'Oh, you know, I have a broker who sells old ICBM silos, and they're nuclear-hardened, and they kind of look like they would be interesting to live in." Read more

My only neighbour and I found ourselves surrounded by empty foreign owned homes in Clarges Mews, London during the eighties.

by Roger Witherspoon | 25th Jan 17, 8:10am 1485285045

There was a wave of them leading up to the 2000 computer apocalypse that never came, buying up land in the Motueka valley and thereabouts. They are probably still there. There was a bit of cultural friction as I recall, you know how it is when people with pots of money move here, they do like to tell the locals how things should be done. That and Putting Up Gates, which was resented as it sent the message that the locals were not to be trusted. Not simple pipe gates to keep stock in you understand, but big gates to keep people out, complete with cameras (which were a novelty back then). To top it of, they would put in a microphone and speaker so you could ask permission to enter the property, and the gates would open remotely. Weird.

by ngakonui gold | 25th Jan 17, 8:34am 1485286467

One American said that when he came to NZ,it was the first time in weeks/months he hadn't thought of Trump.
I wonder if he has heard of Montana.Idaho,Wyoming or Arizona.Plenty of places up there to get away from it.

by ham n eggs | 25th Jan 17, 9:30am 1485289856

There is logic in that NZ is further away from nuclear waste (and war) issues ... temporarily. If there are financial/energy issues then you will get electrical grid issues ... which will mean nuclear waste & cooling pond issues

by dictator | 25th Jan 17, 9:01am 1485288106

We need to keep doomsday preppers out. They are crazy and dangerous. That and consider having lots of empty houses and people needing homes because some rich lunatics have gone on a buying spree.

With respect to Trump; I don't think about him it's just everyone else keeps bringing him up in conversation. There's nothing anyone can do you just have to deal with his actions that impact you.

by Andrewj | 25th Jan 17, 9:13am 1485288785

There is one around here in HB, apparently one of the biggest single story builds in the Sth Hemisphere. He brought lots of land too. On a hill with special windows so you don't see in. Some Kiwi Lawyer from Hong kong, for all I know he could be a good guy.
I don't get it, safety is community and friends/family, being super rich often in history ends up with you in the cross hairs and rural people really notice whats going on around them, unusual dust, gun shot etc.
No matter what you do some youth with a .22, (a coke bottle suppressor and subsonic ammo, so you won't hear a thing) , can deal to you , it's a myth that you can build a fortress and be safe, when you stick out like a sore thumb and don't mix with locals.

PORTIA
A pound of this merchant’s flesh is yours. The court awards it and the law authorizes it.

SHYLOCK
Most rightful judge!

PORTIA
And you have to cut this flesh from his chest. The law allows it, and the court awards it.

SHYLOCK
What a wise judge! Come on, get ready.

PORTIA
Tarry a little. There is something else.
This bond doth give thee here no jot of blood.
The words expressly are “a pound of flesh.”
Take then thy bond, take thou thy pound of flesh,
But in the cutting it if thou dost shed
One drop of Christian blood, thy lands and goods
Are by the laws of Venice confiscate
Unto the state of Venice.

by Stephen Hulme | 25th Jan 17, 8:26am 1485285980

And staying in the US, sales of existing homes fell in December, with low inventory levels catching the blame. The industry is calling for more home building to ease the shortages.

And a sharp increase in new orders is seeing US factories expanding at their fastest pace in January 2017, since September 2014. Interestingly however, this same survey does not show a pickup in factory employment.

Hmmmmm....

Meanwhile, back in reality, household income for the bottom 95% has declined while the owners of capital and their privileged, protected servants in the Establishment have gorged themselves on private wealth.

What will it take to shift the balance of power decisively in favor of labor? My guess is the downward mobility of another 10 or 20 million people who currently reckon themselves "middle class" into the unprotected, disenfranchised ranks of the Working Class will do it. Read more

Meanwhile, the global central bank favoured CPI measure of inflation languishes no matter how hard incumbent bank apparatchiks of merit huff and puff to inflate it.

by Roger Witherspoon | 25th Jan 17, 8:57am 1485287824

I love it:

To mask the collapse of the Left's economic defense of labor, the Left has substituted social justice movements for economic opportunities and security. This has succeeded brilliantly, as tens of millions of self-described "progressives" now parrot the Great Con that "social justice" campaigns on behalf of marginalized social groups are now the defining feature of Progressive Social Democratic movements.

This diversionary sleight-of-hand embrace of economically neutered "social justice" campaigns masked the fact that social democratic parties everywhere have thrown labor into the churning propellers of globalization, open immigration and neoliberal financial policies--all of which benefit mobile capital, which has engorged itself on the abandonment of labor by the Left.

Meanwhile, the fat-cats of the Left have engorged themselves on capital's largesse in exchange for their treachery. Bill and Hillary Clinton's $200 million in "earnings" come to mind, as do countless other examples of personal aggrandizement by self-proclaimed "defenders" of labor.

But it isn't just the Left's fat-cats who have feathered their own nests while denigrating the Working Class with arrogantly contemptuous scorn: the entire protected, privileged "liberal" elitist Establishment has responded with a very illiberal outrage that their protected, privileged skims and scams might be endangered by an uprising of the loathed and ridiculed Working Class that they reckoned would remain safely cowed and conned.

by Stephen Hulme | 25th Jan 17, 10:06am 1485291983

I love it - Try this out.

The problems with Obamacare, and so-called health care generally, are burdened with so many layers of arrant racketeering that the system may only be fixable if it is destroyed in its current form — the overgrown centralized hospitals, the overpaid insurance and hospital executives, the sore-beset physicians carrying six-figure college-and-med-school loans, the incomprehensible and extortionate pricing system for care, the cruel and insulting bureaucratic barriers to obtain care, the disgraceful behavior of the pharmaceutical companies, all add up to something no less than a colossal hostage racket, robbing and swindling people at their most vulnerable. So far, nobody has advanced a coherent plan for changing it. Loosing the Department of Justice to prosecute the medical racketeers directly would be a good start. Overcharging and defrauding sick people ought to be a criminal act. But don’t expect that to happen in a culture where anything goes and nothing matters. A financial crisis could be the trigger for ending the massive medical grift machine. Then what? Back to locally organized clinic-scale medicine… if we should be so lucky. Read more

by Didge | 25th Jan 17, 12:01pm 1485298909

I do wonder if the USA with its parsimonious attitude to its population's health care may be THE country where the next great pandemic starts.

by MikeM | 25th Jan 17, 9:12am 1485288746

Who has it right, the bond bears or the dollar bears? Everything is Trumpified at the moment.

by Cowpat | 25th Jan 17, 9:32am 1485289934

So is Graham going to start selling NZD or lower interest rates. Currency pair to watch is NZD/CAD

by Stephen Hulme | 25th Jan 17, 9:54am 1485291288

LTCM was given trades all over NYC often repo and often at zero initial margin, so good was their illusion. The FOMC meetings that considered the bailout of LTCM were often marked by comments expressing disbelief as to how a firm nobody (in official circles) had heard of one day was a threat to the global financial system the next. As Alan Greenspan asked of the Fed staff making a presentation on the matter, “Is it just that the lenders were dazzled by the people at LTCM and did not take a close look?” Read more

by Andrewj | 25th Jan 17, 10:37am 1485293842

As we are never tired of pointing out, the Soviet Union only had one recession, the one in 1989. The system was stable, until it was not. A system that does not correct internal imbalances grows just like a parasitic cancer, eventually killing its host. If unsustainable capital allocations are allowed to continue unchecked, the pool of real savings will at some point be depleted. At that point recession hits because the structure of production is too capital intensive relative to the level of real saving available.
http://bawerk.net/2016/06/18/you-are-currently-living-through-the-dumbe…

by Andrewj | 25th Jan 17, 10:42am 1485294151

Trying to answer the question of “how long,” we find it constructive to divide debt into three categories based on the criteria of capital consumption.

We’ll start with liabilities taken on with the intent of making a subsequent sale at a profit: in other words, debt that increases the capital base, such as business loans. We call this “good” debt.

In the second category, we have mortgages, financial sector loans and foreign debt, all of which are classified as “bad” debt. It may make sense to take on a mortgage to buy a house closer to work, but the process does not create additional capital. On the contrary, it is consumptive in nature. Such debt can be detrimental to prosperity if capital allocation into “bad” debt becomes systematic, as witnessed during the housing bubble.

In the third and last category, we have debt that allows pure capital consumption, such as consumer credit and government debt. This kind of debt decouples the process of production from consumption, and is parasitic on the productive structure. We label it “destructive.”

It should be obvious that consumptive debt cannot exceed productive debt for an indefinite period of time. At some point, production must be allowed to outstrip consumption for society to grow. At a minimum, production and consumption must equal each other to avoid collapse.
http://bawerk.net/2013/08/19/debt-excess-and-the-liquidation-process-in…

by scarfie | 25th Jan 17, 1:06pm 1485302795

As I learnt in Architecture School, civilisation happens through a surplus.....of production. A surplus of production allows people to do nothing to contribute to production.

The best pre industrial revolution civilisations probably afforded 10% of the population to do nothing. Today we have about 90% doing nothing.

Of course people involved in doing nothing would object and say their job does serve a useful function to society, but they are just deluded. I call it the difference between a job and work. Work is where you actually produce something.

by Stephen Hulme | 25th Jan 17, 10:59am 1485295149

BT loses almost £8bn in value as Italy accounting scandal deepens

.Shares plunge 21% after bill for mismanagement at Italian division almost quadruples to £530m Read more

No oversight committee, such as independent non-executive directors?