American sentiment wavers, US budget deficit narrows, Fed to stick to policy targets; Swiss say no; Panama makes arrests; iron ore prices jump; UST 10yr yield at 2.41%; oil and gold up; NZ$1 = 72 US¢, TWI-5 = 77.4

American sentiment wavers, US budget deficit narrows, Fed to stick to policy targets; Swiss say no; Panama makes arrests; iron ore prices jump; UST 10yr yield at 2.41%; oil and gold up; NZ$1 = 72 US¢, TWI-5 = 77.4

Here's my summary of the key events over the weekend that affect New Zealand, with news the iron ore price in China has now broken up through US$100/tonne.

But first, the latest reading of American consumer sentiment has brought a surprising fall, one on strong partisan lines. But as the survey notes, those with negative outlooks tend to act on them as opposed to those with positive outlooks. The survey's authors say this is a concerning signal, even those the absolute level remains high.

The January 2017 US Federal budget surplus was bigger than expected at +US$51 bln, due mainly to the almost +10% rise in tax receipts in the month from the same month a year ago. Fiscal year-to-date however, their budget deficit is only marginally -2% smaller than the same period last year.

And over the weekend, Federal Reserve Vice Chair Stanley Fischer noted there is rising and significant uncertainty about American fiscal policy under the Trump administration, but the Fed would be strict in meeting targets of creating full employment and getting inflation to 2%.

In Switzerland, voters clearly rejected plans to overhaul their corporate tax system, sending the government back to the drawing board as it tries to abolish ultra-low tax rates for thousands of multinational companies without triggering a mass exodus.

In Panama, both name partners of the now-famous firm of Mossack Fonseca have been arrested on money laundering charges. The arrests are linked to corruption and bribery allegations involving Brazil's construction giant, Odebrecht.

In China, iron ore prices have hit US$100/tonne in their futures market. Far from collapsing as many observers expected, iron ore is hitting new highs almost every week, up +8% in the latest period.

In New York, the UST 10yr yield is higher by another +2 bps, now at 2.41%. And the risk premium our banks are paying for wholesale credit, as measured by credit default swap spreads is now its lowest in 111 months; that is, since November 2007 and before when the GFC started to bite.

Oil prices are higher again today, now just under US$54 for the US benchmark, while the Brent benchmark is just under US$57 a barrel. And there has been another strong rise in the number of new drilling rigs brought online in North America last week. They have risen a massive +80% since June last year.

The gold price is marginally higher, +US$2 and now at US$1,234/oz.

And the New Zealand dollar is pretty much unchanged since this time on Friday. It is now at 72 USc. On the cross rates we are down a bit at 93.9 AU¢, and against the euro at 67.7 euro cents. The NZ TWI-5 index is still at 77.4.

If you want to catch up with all the 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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The clever Swiss deserve their success. The people told the Swiss government what to do with their instructions from Brussels EUSSR headquarters. They really do punch above their weight, they have a much more democratic society (I really don't like saying that) than we do and they value high paying jobs.
http://www.zerohedge.com/news/2017-02-12/setback-government-swiss-voters...
We have managed to muddle our way to a low productivity minimum wage economy, where jobs in tourism are seen as highly desirable, ie, bar tenders, waitresses, chamber maids, kitchen hands. The illiberal left have led us down a deluded path and the liberal right have been too busy buying houses.

If we want well paid jobs we should try attracting customers by offering a low company tax rate. We would poach jobs from Aussie and allow our own businesses to expand more rapidly. Businesses are our customers. Our inconvenient location and 28% tax rate on profits really cannot compete with the Swiss 7.6% rate or the Irish 14% tax rate. It says, please go away and take your well paid jobs with you.

Or they are among the best thieves around ... This doco might change your view of their democratic outlook ..

https://youtu.be/WNYemuiAOfU
Stealing Africa

Eight years' worth of a "Jesus take the wheel" approach to the housing crisis is really coming home to roost, to the detriment of Kiwis not born at the right time or place.

or are they just people capitalism doesn't need any more?
They bring in huge numbers of seasonal workers and they are getting more experienced and better all the time. However we have more than enough people to do the work, they just lack motivation, a work ethic, or rob you blind, so the orchards are able to be fussy now they have the Islanders.

The workers get flown in stay in cheap accomodation usually bunked, they get paid after flight costs busses food, accomodation etc is deducted, they get a small allowance weekly and a lump sum before they go home. Last year I talked to a Samoan and he just got a 9k payment for the season that started in November, but he was so happy after a job at home hardly payed enough to feed him. I don't think many kiwi families would be willing to live like that but horticulture is dependent on cheap labour or at least they like it that way.

I think horticulture does need cheap labour. Also, I'm told the wages to the islanders do far more good than aid that passes through the multiple bureaucracies' wasteful (ours) and thieving (theirs) hands. Horticulture is hard physical work. The only thing I would seek to change is to have a slightly lower exchange rate so the workers and the owners have a bit more money to share betwen them.

The whole concept of capitalism has been changed in our double-speak enabled world. Once upon a time the idea was that the productive use of capital led to improvements in living standards for all. Now building a casino is called "investment" whereas in reality it is an exercise in capital and societal destruction, the very opposite of productive investment.

Roger. I think you would find that 'New Zealanders' would be quite happy to line up for a guaranteed 9 month contract like the pacific islanders. Or a 3 month contract summer only. But what happens it suits the orchardists to have them on an extreme casual employment basis, and many apply that rigorously.
I know many students have come into the area with good picking skills and work intent to find themselves going home without much cash at all after being told not to turn up on half the days for the time they are here.

or starting to make money on a contract rate only to turn up the next day to find they are back on an hourly rate as the orchardist is trying to minimise wage costs. It was like that when I worked on an orchard years ago, I found it tedious and poorly paid.

Aj with minimum wage being what it is now I doubt that that is practised by good employers these days. I know of a situation recently when the reverse was true down this way. The pickers were put on an hourly rate as due to weather there was a lot of rain damaged fruit on the trees and picking a bucket took a lot longer. Under the piecemeal system they wouldn't have earned minimum wage so the orchard paid an above minimum hourly rate to ensure they had a fair reward for their efforts. There are good and bad employers in every industry/sector. ;-)

KH to be fair that's not exclusive to the orchard industry. It could be said for any hourly/piecemeal paid seasonal industry. Ski workers are the same - lifties etc generally don't get paid when the mountain is shut or lack of snow delays the season opening. Agricultural contractors who employ seasonal drivers also have occasion to stand staff down. Parts of the tourism industry is also no different.

Yes. Casual Observer you are correct. But I was posting about something I am directly familiar with. I also acknowledge that businesses have to juggle a lot of competing factors. But the point remains that under the bleating about staff shortage there are some things positives they can do. One of which would be to offer firm contracts for a season.

KH genuine question - would these be as fixed term contracts with guaranteed minimum hours/guaranteed minimum income? Interested as have an interest in an orchard.

thanks Casual Observer. Yes. What I was suggesting was that New Zealanders could be offered the same contracts as the Pacific Islanders which are commonly "fixed term contracts with guaranteed minimum hours/guaranteed minimum income". Seven months is quite common. You might have the same position for all that time, but it's for different employers of course to meet the different seasonal tasks.
You could also imagine this would work for real peak times. Say two months contracts to suit both students and the picking season. Cherries is a six weeks season mostly.
I think it hardly innovative and I have heard it's being done in places already but don't know it from personal contact.
I've seen lots of workers screwed about by the casualness of the current system.

You're absolutely right Roger, the Swiss are highly educated and generally hard working people. They also said "NO" twice to joining the EU to its government when the Eurozone was formed 30 odd years ago and look how much better off they are now !

They are also liable for their central bank's gambling addiction.

Being able to print your own money and buy stocks at any price sure can be fun. Just as the SNB which unlike many other (if ever fewer) central banks admits to doing just that.

In its latest 13F filing, the Swiss National Bank reported that the value of its portfolio of US stocks rose again in the fourth quarter, increasing by 1.6% from $62.4 billion as of Sept. 30 to a record high $63.4 billion at the end of the year.

Over the past two years, the total Assets under management of this massive hedge fund, which occasionally engages in massive currency manipulation with disastrous results, have increased from $26.7 billion to $63.4 billion, a 138% increase, mostly as a result of relentless currency manipulation and monetization of various assets, including both bonds and stocks. Read more

The Swiss people do not print money and gamble with stocks, Swiss people are smart, hard working and honest by nature. International traders gamble with stocks with the Banks who have their headquarters in Switzerland and yes Switzerland printed money, so did half the western world

Swiss people are smart, hard working and honest by nature.

How does this account for the Vietnamese servant inhabited shanty towns dotted around the outskirts of Zurich, shown to me by one of my correspondent Swiss bankers?

Horticulture like a lot of agriculture today is getting very corporate. The small family orchards are going. Will we end up like the States where corporates are huge and controlling or are we almost there already?
https://psmag.com/consolidation-and-mergers-are-eating-our-farm-and-food...

Very true. You can easily argue that food producers have been unviable for years ... they are kept afloat by capital gains - ie the most profitable way to farm has been to leverage to the max to get bigger ... the system has rewarded that approach.
As a rule, the only way capitalism can fight off diminishing returns (on energy, labour, mineral extraction, production...) is through economies to scale and more debt leverage. Innovation hasn't been able to outpace the diminishing return decline on its own.
Now we are reaching a point where economies to scale is not working either, and debt growth is a problem because demand (or aggregate affordability) is stalling ... ie a great mass of workers can no longer afford the output of an increasingly "expensive" economy.

That is largely because the capital value of farms have grown well beyond their long term income producing capacity. Capital gains in farms should play no part in the equation and should be heavily taxed. To a long term farming family these ridiculous values are a big pain in the neck. How do you manage farm succession sensibly, when the successor has to pay out their siblings on the basis of a value that is uneconomic? The only ones who are winning are the banks and short term Queen St farmers.

Really?
What's the basis for this assumption?

Being a key export of NZ, the RBNZ keep good track of this - recent analysis would tend to disagree with your notion that capital values are detracting from the associated yields. As would logic...

I'll just pick one example, but if you go through the rest, you will find many similar examples.

farm values throughout NZ
http://www.interest.co.nz/rural/resources/farm-sales

You will note that the average grazing farm value for Canterbury is $13,700 per Ha

Beef and lamb farm incomes for Canterbury /Marlborough Range from $11/ha/yr to $135/Ha/yr
http://www.beeflambnz.com/Documents/Information/Sheep%20and%20beef%20far...
This is not any where an economic return. Would you give me your cash for that sort of return plus all the risks that go with farming?

Values are a pretty useless series on their lonesome..

http://www.rbnz.govt.nz/financial-stability/financial-stability-report/f...

Summarizing that analysis. In the 29 year period to 2009 dairy farm values were significantly over valued for all but the 1998 to 2001 period when they reflected fair value by their criteria of a P/E ratio of 14. Again a P/E is arguably on the high side for a business that is vulnerable to so many risks and variables.

You misinterpret...

There are two distinct series represented on the first graph, on two different scales. A difference in magnitude between them does not support your thesis.
It's the correlation/covariance of the series that is important. Given that this is likely very close to 1 (by sight), the value of land per hectare is very representative of the expected future yield(s).

If you look further down, this is reiterated by the relatively stationary Price/Revenue ratio over time. The P/E ratio is volatile, naturally, likely due to differing cost and financing structures.
And FYI - a P/E ratio of 14 is not at all high. Just look at the NZX50.

Read table B1

Those are summary statistics..
They aren't a basis for your assertion.

That is a very confused comment.
I suggest you read some modern economic theory and history.

"There is quite significant uncertainty about what's actually going to happen, I don’t think anyone quite knows what’s going to come out of the process which involves both the administration and Congress in the deciding of fiscal policy and a variety of other things." Fischer said in response to audience questions about the Fed's next steps. “At the moment we are going strictly according to what we see as our responsibility according to law.” Read more

Clueless, as is Bullard.

Bullard noted that there has been a problem in recent years with the policy projections of the Federal Open Market Committee (FOMC), which continued to project a significantly rising policy rate (i.e., federal funds rate target) over the forecast horizon that did not materialize in the subsequent years. The St. Louis Fed concluded that the model behind this type of projection was questionable, Bullard noted, explaining how the St. Louis Fed came to its decision in 2016 to move to a regime-based approach to near-term projections.

A core issue today is that the policy rate, at just 63 basis points, appears to be too low when casually compared to past historical experience, he said. He noted that, in the past, when unemployment was relatively low and inflation was close to target, the policy rate was much higher.

“We at the St. Louis Fed concluded that what is different today is that the safe real interest rate is better thought of as being in a ‘low regime,’” he said, adding that it is unlikely to change in the near term. Read more

Time for to change. Dismiss the whole central banking cabal in favour of those who at a minimum know what masquerades as money and the best place for it to function. Certainly not languishing on central bank ledgers.

To me.... Macro economics has a lot to answer for..... AND YET..... Central Banks...and Govts ...and economists worship at its alter...

In my own life experience... it is what percolates from the bottom upwards that is the creative force... from the micro to the macro.... from the level of the individual ....thru community...thru National level...etc
(The foundation, micro level, is everything )

Trying to manage things from the Macro, from the Top down is kinda like a sledgehammer approach ...which in my own view,...is inherently destructive...
That why Govts..that try to manage from and too a macro level, are inherently destructive..

Not always ...but most of the time....

The Macro level has become so corrupted that Macro level indicators have , in themselves, become some kind of reality.... eg...GDP...CPI.... etc..

oh-so-correct

It is how they keep the plebs under control .. the government don't / won't bother with providing meaningful information ... instead producing macro rubbish that is meaningless

Macro information

The best example is global warming temperatures

If the high and low temperature for a day is 20 degrees the average is 20 degrees

If the low=19 and high=21 the average is 20 degrees
If the low=18 and high=22 the average is 20 degrees

If the low=10 and high=30 the average is 20 degrees
If the low=00 and high=40 the average is 20 degrees

And that's how the macro averagers claim global warming IS NOT happening

What measures in macroeconomics are purely averages?

Not sure where you get the 80% increase in drilling rigs from (765 -> 1093) Mostly driven by horizontal rigs piling into the Permian Basin, the tougher northern shales are quiet.

For w/e June 3, 2016 "Total US rig count" was 406 (in spreadsheet) which as almost the 2016 low point.

For w/e February 10, 2017 it is 741.

It has risen for 33 of the last 38 weeks. And that is a +80% rise over that time.

In addition to the Permian basin, the Cana Woodford, Eagleford, Haynesville, and Utica regions have also had sizeable rises.

Thanks David, my mistake I tohught you were stating annual not from the min in June 2016 also note your text refers to North American rig count not US - would be interesting to see the correlation between rig count and production so we can see how much is maintenance of current output