Dairy prices in marginal gain; US trade deficit improves; Greece still stuck; China FX reserves slip under US$3 tln; RBA holds; UST 10yr yield at 2.38%; oil down, gold up; NZ$1 = 73.2 US¢, TWI-5 = 78.5

Dairy prices in marginal gain; US trade deficit improves; Greece still stuck; China FX reserves slip under US$3 tln; RBA holds; UST 10yr yield at 2.38%; oil down, gold up; NZ$1 = 73.2 US¢, TWI-5 = 78.5

Here's my summary of the key events overnight that affect New Zealand, with news Chinese currency reserves have fallen below US$3 tln for the first time in five years.

But first, the overnight dairy auction has seen prices in USD rise by +1.3% from the last auction. This was somewhat better than expected if you were reading the NZX dairy derivatives signals. And it represents the second consecutive rise and the seventh rise in the past ten auctions. However, in New Zealand dollars, overall prices actually fell -0.5%.

In the US, their trade deficit fell more than expected in December as exports rose to their highest level in more than 1½ years, outpacing a rise in imports. The US as the engine of global trade is holding its position. On an annual basis, the US trade deficit in goods and services is -2.7% of GDP, slightly lower in 2016 than for 2015. (For comparison, New Zealand's current account deficit runs at -3.1%.)

In Europe, Greece is failing to meet its growth targets, will fail to get its debt down to sustainable levels, and will need more bailout support, said the IMF in its latest review. All this is despite 'progress' in some areas and it is not clear the IMF will actually deliver more bailout money. Greece is still in vigorous dispute with its EU creditors as well.

In China, their foreign exchange reserves fell below the $3 tln level in January for the first time in five years after peaking at just a tad shy of US$4 tln in June 2014. But this latest decline was the lowest since June 2016. Tighter capital controls and a stronger yuan seems to have stemmed the outflows. Official reserves fell by just over -US$12 bln which is well below the average -US$52 bln monthly drop in the third quarter of last year.

In Australia, the RBA left its benchmark rate unchanged at 1.5% late yesterday. But the commentary was mostly about rising growth, inflation prospects, and housing pressures. Market observers no longer see rate cuts in Australia; the balance has now swung to guessing when the next hikes are due.

In New York, the UST 10yr yield is marginally lower today than at this time yesterday, now at 2.38%. At the same time, Australasian credit spreads for investment grade debt have now fallen to their lowest level since November 2007. And while we are talking about credit spreads, we should remind ourselves that NZ sovereign spreads are lower than for Australia, the USA, the UK, and France, level pegging with Germany, and way, way lower than for China.

Oil prices are lower again today, now just under US$52 for the US benchmark, while the Brent benchmark is just under US$55 a barrel.

The gold price however is up another US$4 and now at US$1,234/oz.

And after a sharp jump following yesterday's inflation expectations survey, the Kiwi dollar has settled back although still retaining some gain. It is now still at 73.2 US¢. On the cross rates we are at 95.8 AU¢, and against the euro at 68.4 euro cents. The NZ TWI-5 index is up slightly to 78.5 and its highest in 20 months.

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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Cool article on how the neo-colonial banking model works:
http://www.zerohedge.com/news/2017-02-07/expropriation-and-impoverishmen...
Scary similarity with NZ and the Aussie banks;
In Neocolonialism, the forces of financialization are used to indenture the populace to the financial core: the peripheral "colonials" borrow money to buy the finished goods manufactured in the core economies, enriching the regional Elites with A) the profits made selling goods to the debtors B) interest on credit extended to the peripheral colonies to buy the core economies' goods and "live large", and C) the transactional skim of financializing peripheral assets such as real estate and State debt.

On the ground expression of this is the change from in years gone by being able to get a discount for offering cash for a product. Now days that will likely bring a look of disgust, why only make money on a sale when you can double the profit or more with finance.

Yes happened to me when i bought my Ranger two years ago, best price was finance at 9% interest. Paid cash instead as the interest would have eclipsed the price difference very quickly. There was no get out early ability as they would reclaim lost interest.

From Bloomberg:

"Homeowners, consumers and property investors around Australia are making more calls to financial helplines as three warning signs back up the spike in demand: mortgage arrears are creeping up, lenders’ bad debt provisions have increased and personal insolvencies are near an all-time high."

But it won't happen here, we're different.

Link please

Investigative story in US exposes similar issues.

Home affordability fell to the lowest level in seven years at the end of 2016, and the ingredients for a reversal are not there anytime soon.

It now takes 22.2 percent of median income to make the monthly principal and interest payment on the median priced home, according to a new report from Black Knight Financial Services, which based the measure on borrowers using a 30-year fixed mortgage. That monthly payment on the median-priced home increased 10 percent in the fourth quarter alone, thanks to a sharp jump in mortgage rates following the presidential election. Read more

Tapped out US debtors fail to import much from, China and elsewhere. Read more

"In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift 30-year mortgage rates past 6 percent within three years, according to Moody’s Analytics Inc."
https://www.bloomberg.com/news/articles/2017-02-06/the-mortgage-bond-wha...

The US 10 yr yield down to 2.38% no doubt NZ Banks will now lower their interest rates... "yeah right"

Calexit - California State Senate majority leader admits half his relatives are illegals who obtained falsified documentation in order to live/stay in the US;

http://losangeles.cbslocal.com/2017/02/06/senate-leader-half-of-my-famil...

Messy - very messy. He is talking to a proposition to make California a Sanctuary State.