US payrolls grow strongly; US productivity up modestly; China reports surprise trade deficit; China fx controls working; UST 10yr yield at 2.55%; oil and gold lower; NZ$1 = 69.1 US¢, TWI-5 = 75

US payrolls grow strongly; US productivity up modestly; China reports surprise trade deficit; China fx controls working; UST 10yr yield at 2.55%; oil and gold lower; NZ$1 = 69.1 US¢, TWI-5 = 75

Here's my summary of the key events overnight that affect New Zealand, with news a US Fed rate hike next week is now much more likely.

This weekend we get the February US non-farm payroll report and markets expect payrolls to grow a little less than in January +227,000 with expectations of a +190,000 increase. But that may need to be revised now because the pre-cursor ADP report has come in suggesting an almost +300,000 rise. That is a surprise and is moving markets today; Wall Street is higher, the UST 10yr is up strongly, and the US dollar has risen sharply.

And because unemployment is relatively low, the output of those extra workers is constraining US productivity. It increased at a modest +1.0% in 2016, as output increased 2.2% and hours worked increased 1.2%.

American wholesale trade was up +8.4% in January from the same month a year ago. And that came as inventories rose just +2.2% over the same period.

In China, they have reported their first trade deficit in February since 2014. Imports surged and a slowdown during the Lunar New Year holidays hit output. Higher commodity prices and domestic demand were behind pushing February's imports up +38% on a year earlier. But exports unexpectedly fell -1.3%, giving a trade deficit of NZ$13 bln for the month. This has surprised markets as a NZ$38 bln surplus was expected.

Still, China is managing to hold back capital flight. Foreign exchange reserves inched up to just on US$3 tln in February after it has slipped just below that level in January. However some Chinese companies are not happy with the heavy handed way they are being blocked from making overseas deals.

In New York, the UST 10yr yield is rising sharply and is up to 2.55%.

Oil prices are down sharply today, at just over US$51 for the US benchmark, while the Brent benchmark is just over US$54 a barrel.

The gold price is also lower, by -US$10, to US$1,208/oz.

And the New Zealand dollar is falling against a stronger US dollar and is now at 69.1 USc. On the cross rates the Kiwi dollar is down at 91.7 AU¢, and against the euro is at 65.6 euro cents. The NZ TWI-5 index is down to just on 75 and that is a new five month low.

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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9 Comments

Still, China is managing to hold back capital flight. Foreign exchange reserves inched up to just on US$3 tln in February after it has slipped just below that level in January.

Hmmmmm.. What if?

The People’s Bank of China and local lenders increased their holdings in onshore forwards to $67.9 billion in August, positions that would boost China’s currency against the dollar. The amount is five times more than the average in the first seven months, PBOC data show. The positions are part of a three-stage process to support the currency without immediately draining reserves, according to China Merchants Bank Co. and Goldman Sachs Group Inc.

Standard central-bank intervention to support a currency generally involves selling dollars and buying the home tender. In this case, China’s large state banks borrowed dollars in the swap market, sold the U.S. currency in the cash spot market and used forward contracts with the central bank to hedge those positions.

"If you can intervene without actually diminishing your reserves, it’s somehow viewed as better," said Steven Englander, global head of Group-of-10 foreign exchange-strategy in New York at Citigroup Inc. Such central-bank activity "may not look quite as dramatic as the sale of reserves, and they may prefer that optically," he said. Read more and more

Stephen... What is wrong with using foreign exchange reserves to defend ones currency...
Reserves are like rainy day money... Is there any point in having too much..??
AND...$3 trillion seems like too much.
Surely China is better served by exchanging $US reserves for hard assets around the world.
I don't understand.???

Surely China is better served by exchanging $US reserves for hard assets around the world.
I don't understand.???

Only if the current dependence on scare USD funding can be replaced by another to satisfy critical import demands.

BUT... Reserves are not really a funding source .??? They are passively held as currency or financial assets..??
A sign that they are used would be that reserves are declining.??

foreign direct investment into China is still strong..... China still runs a massive trade surplus...
I'm wondering if there are other reasons..??

Just asking questions...

Just asking questions...

Why not seek some answers closer to home to better understand what might be going on in foreign jurisdictions?

The RBNZ continually maintains an FX swap and basis swap exposure above NZD 15.0 billion. View data section 10 These actions place the RBNZ in receipt of equivalent foreign exchange reserves to direct a reduction in nearby forward FX swap (NZD/USD) implied NZD interest rates above domestic benchmark levels.

Find out why this disparity requires constant attention and action and you will be better placed to reflect upon matters that impact banks and their trading endeavours, both at home and abroad.

I understand liquidity issues....AND.... A $3 trillion dollar piggy bank seems excessive.
By contrast NZ looks really vulnerable..

Thks for the links...
cheers

American wholesale trade was up +8.4% in January from the same month a year ago. And that came as inventories rose just +2.2% over the same period.

Another day, another downgrade to US GDP: after yesterday the Atlanta Fed slashed its Q1 GDPNow estimate from 1.8% to 1.3% - with the forecast as high as 3% at the start of the year, and 2.5% as recently as the end of February - moments ago the Atlanta Fed has once again cut its US growth forecast, and now sees Q1 GDP of just 1.2%, on par with the disappointing 0.9% and 0.8% prints in Q4 2015 and Q1 2016.

The reason, according to the model's author, "the GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 1.2 percent on March 8, down from 1.3 percent on March 7. The forecast of the contribution of inventory investment to first-quarter growth fell from -0.72 percentage points to -0.79 percentage points after this morning's wholesale trade report from the U.S. Census Bureau." Read more

http://www.democracyatwork.info/eu_unfinished_revolution_women_paid_labor

Interesting podcast update from the US on all sorts related to economics (don't be fooled by the link name).

Sounds like America is desperately in need of more immigration