90 seconds at 9 am: US turmoil spooks markets

Risk aversion grips markets; US personal debt now above 2008 level; world record property price; Aust keeps AAA; Aust bank chiefs gagged; UST 10yr yield down to 2.22%; oil firms, gold jumps; NZ$1 = 69.4 US¢, TWI-5 = 73.7

18th May 17, 7:32am by David Chaston

Here's my summary of the key events from overnight that affect New Zealand, with news of a new and worrying twist in the Aussie bank tax affair.

But first, US equities and bonds are falling in price today as risk aversion takes hold in a period where the new US president's legal situation is under scrutiny. The S&P500 is down -1.3% and the NASDAQ is down almost -2%. Bond yields are also tumbling. The gold price has jumped.

New data out on American personal debt shows it reached a record high in the March quarter, exceeding its 2008 peak after years of retrenchment in the face of financial crisis, recession and recovering economic growth. American now owe US12.7 tln, of which mortgages are US$8.6 tln. But much has changed over the past eight plus years. The economy is larger now, lending standards are tighter and much less debt is delinquent. The real growth is away from mortgage debt which is still almost US$1 tln below its 2008 peak.

Overall American household debt level are now at about 68% of GDP, and that is far below the 85%+ level in 2008.

You think our real estate is unaffordable? It is nothing like Hong Kong. The world's most expensive real estate deal just happened there where one plot of land in downtown Hong Kong has just sold for US$3 bln. Development is extra.

In Australia, all three credit ratings agencies have now affirmed their AAA sovereign rating following the country's Federal budget. But the last of them, S&P, has retained its 'negative watch' status, sceptical that the target to surplus is actually realistic.

And there has been a new twist in the Aussie bank tax affair. Before they can learn details of the new tax on them, bank bosses must sign a gag order, removing their ability to comment publicly about the new arrangements. No matter what you think about the tax, it is an oppressive move by their Government.

Giant cloud enterprise software company Workday has decided to base its Asian regional headquarters in Auckland, a surprise pick over Sydney. It is just one of three worldwide, and is a major coup for New Zealand. It will start with 80 new tech jobs and double quickly. The impact on the local IT sector is likely to be significant and far more than just direct employment. And it is likely to be a trend-setter.

In New York, the UST 10yr yield is sharply lower today at 2.22% and that is now lower than at any time since mid-November last year.

The price of oil is marginally firmer today. The US crude benchmark is now just over US$49 a barrel, while the Brent benchmark is just over US$52.

Gold is up sharply on that risk aversion, up over US$20 to US$1,258/oz.

The US dollar has been hit hard today. It is down nearly a full 1c against the New Zealand dollar which is now at 69.4 USc. On the cross rates the Kiwi is at 93.4 AU¢, and 62.2 euro cents. The TWI-5 index is at 73.7.

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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51 Comments

by sharetrader | 18th May 17, 7:45am 1495050303

would love to have been a fly on the boardroom wall when workday was going through the pro's and con's Sydney verse auckland

by kemistry | 18th May 17, 8:25am 1495052728

They have a "follow the sun" kind of support model where when one region shuts down, another region in the world opens up. I believe two of those regions are Ireland and the West coast of America so maybe Auckland fills the gap and lines up with a 8am to 5pm model locally. Certainly one factor at least

by Uninterested | 18th May 17, 9:14am 1495055679

Their next office is on the moon?

by sharetrader | 18th May 17, 10:46am 1495061180

other major factors would be cost based, cheaper IT staff ?, easy to bring staff in to fill gaps? leasing facilities?
minimise tax laws?
be interesting to see the numbers of auckland against sydney

by KH | 18th May 17, 12:38pm 1495067895

They should have gone to Dunedin. Same time zone, giga speed and Vogel Street there is a techies dream.

by Foxglove. | 18th May 17, 7:50am 1495050630

Debt piled on debt everywhere you look. Looks a bit like a pyramid doesn't it.

by jfree | 18th May 17, 7:58am 1495051124

A kind of weird shaped pyramid where the top just keeps stretching upwards... it will all well I'm sure.

by Noncents | 18th May 17, 8:26am 1495052799

More like a balloon. Roughly the same principle as a bubble, just a bit different. In that the core materials were pretty solid at one time, but now everyone has filled it with so much hot air that eventually it will stretch too far. Then pop - there goes the financial system.

by Foxglove. | 18th May 17, 9:44am 1495057460

You mean like the South Sea Bubble? God defend New Zealand then cause nobody else will.

by David George | 18th May 17, 12:43pm 1495068219

"Overall American household debt level are now at about 68% of GDP, and that is far below the 85%+ level in 2008"
Well good on them! Kiwi household on the other hand are almost at 100% of GDP!
The RBNZ shows housing mortgage debt growing at an average of over 8.8% for the past year - that's through the banks etc so excludes loans from mum and dad. Total including consumer debt posted a new record total of almost $250,000,000,000 or roughly equal to current total annual GDP (turnover). Combined with business and agriculture another new record of $412 billion and growing much faster than nominal GDP growth. Total debt (excluding central and local government) went from 384 billion in March 2016 to 412 billion this year.
In other words we bunged 28 thousand million of freshly minted new "money" into our economy last financial year. That's not even remotely sustainable and what happens when we stop or slow down even. It looks like we (or the government) will have to keep on doing it or we fall into a deep consumer driven recession or worse.

http://www.rbnz.govt.nz/statistics see C5 historical

by Foxglove. | 18th May 17, 9:29am 1495056547

Thanks for that comment &very scary. To revert to my earlier comment looks like our particular debt pyramid has been built upside down!

by workingman | 18th May 17, 10:32am 1495060378

Good facts to bring forward, David George. Part of the problem is that 'debt' as a global fact is now so unreasonable (impossible to rationalise or justify in any economic model) that it has become an almost irrelevant measure of things. Having been shown that they're too big to fail, the banks themselves can almost (almost) disregard it. Politicians committed to to 'sustaining growth' are dependent on increasing debt. And much 'wealth' now is a function merely of asset value inflation.

The larger part of the problem, economically and socially, is the interest payable on the debt. This interest - the money - needs to be earned. If asset inflation is producing wealth, continuing asset inflation is an essential requirement in order to produce earnings for interest payments. (In New Zealand, flipping houses or farming for capital gain.) So no government will do anything to dent asset inflation. Meanwhile real earnings stagnate or fall.

This situation - the hoovering up of money in interest from highly indebted, 'asset rich', low-productivity economies - has significant social consequences. It is hollowing out the middle class and impoverishing those less fortunate. And doing so, moreover, at record low interest rates. When rates rise?

by ham n eggs | 18th May 17, 12:29pm 1495067365

All very true. Which means that basically rates can't rise .. thats the point. The debt load cant be serviced at higher rates and there is a constant need to increase the debt load...

Which slowly drives pension & insurance funds (ie promises) broke... ie the returns on what was invested in the past to meet the obligations now (or in the near future) are too low ... So you must increase contributions NOW or lower payment expectations ...

by Stephen Hulme | 18th May 17, 1:45pm 1495071904

In his latest budget proposal, California Governor Jerry Brown, who continues to vehemently pursue various multi-billion dollar pet projects like the high-speed rail and the so-called "Delta Water Fix" despite his state teetering on the brink of insolvency, has finally admitted that CalPERS, California's public pension system, is a total disaster.

Apparently Brown finally came to the realization that a 65% funding ratio is slightly less than ideal, especially since we're on the precipice of a massive wave of Baby Boomer retirements, and warned that the "state’s contributions to CalPERS are on track to nearly double by fiscal year 2023?24." Read more and more

by ham n eggs | 18th May 17, 8:29am 1495052963

Yip - if you rephrase it to "claims on energy output everywhere you look" you get an idea of how it will come to an ugly end ... unless we can miraculously increase energy output in the system. Which means more pressure on resources and pollution... more coal, more Oil, more arable land required, higher fish catches etc

by MikeM | 18th May 17, 8:13am 1495052000

How long before Trump is gone? My pick is he will defiantly resign before any official proceedings get underway.

by bw | 18th May 17, 8:24am 1495052640

Possible. And if he does, then what?

"The mainstream media's implicit view is that everything would be peachy if only Trump wasn't president. Memo to MSM: the nation is fragmenting for reasons that have nothing to do with who's president, or indeed, which party is the majority in Congress, who sits on the Supreme Court, or any other facet of governance.
The nation is fracturing and fragmenting because the our system is failing the majority of the citizenry. The protected few are reaping all the benefits of that system, at the expense of the unprotected many." (CH Smith)

by Noncents | 18th May 17, 8:39am 1495053576

It is looking more and more likely he wont survive the full term.

But the next cab off the rank is Pence. That thought hardly fills me with hope.

by kiwichas | 18th May 17, 9:00am 1495054830

You'd be absolutely struggling to find any Republican who has got the foggiest about how to run a country, Pence would be bottom of the list.Trump probably top of a very sorry assortment.

by nymad | 18th May 17, 9:05am 1495055126

That's a pretty silly statement.
It's even more true for the democrats.

by kiwichas | 18th May 17, 9:28am 1495056536

You do recall that Pence wants women to have funerals for miscarriages and to watch foetuses being aborted in real-time.
The Democrats are no great shakes either, headless chickens.
Don't get caught up in a stifling right vs left paradigm.
But recall the George W Bush administration; as things got more ridiculous at home, they invaded Iraq to shore up support at home, and got re-elected, despite the lies and mass murder (with a little help from the Florida voting machines V 1.0 and 2.0), and Trump has already threatened N Korea, bombed Syria and tried to appear to be the tough guy when it comes to Putin; all a smokescreen.

by nymad | 18th May 17, 11:15am 1495062931

I do recall that Pence doesn't believe in abortion - what's your point?
Does that make him a bad leader among his constituents?

The democrats, like all liberals, are rooted in identity politics - i.e they perpetuate discrimination more than any other political party. Because without it, what would their message be?
Everyone is so quick to bash the republicans, but their seemingly righteous support of the democrats is evidently more destructive.

by kiwichas | 18th May 17, 12:11pm 1495066286

From the Herald today
http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=118581…

by frazz | 18th May 17, 9:30am 1495056640

Not really Nymad - - Elizabeth Warren would run a very tight ship - Democrats blew it by backing the Clinton. Trumps a fool - will be gone by Sep, same as National

by nymad | 18th May 17, 11:09am 1495062563

Okay, so one example.
I would trust any of the conservative/republican options over the democrats.

Kasich, Cruz, Bush.
You may not agree with their ideologies, but they most certainly would run a fiscally and organisationally tighter ship than the Clintons and Sanders of this world.

by kiwichas | 18th May 17, 11:38am 1495064334

The Republicans have effectively held the purse strings for 16 years, with a 20 trilion dollar deficit to prove it

by nymad | 18th May 17, 11:41am 1495064482

And imagine how much worse it would be with democrats holding the purse strings.

by kiwichas | 18th May 17, 11:43am 1495064619

Liz Warren is my pick.

by ngakonui gold | 18th May 17, 12:10pm 1495066254

She is a good choice with only her claim of being a NATIVE AMERICAN on job applications holding her back.'
As Trump would say''''this is going to be huge''.The press will have a field day with this.She hasn't yet given a satisfactory answer to her claim.

by MikeM | 18th May 17, 11:15am 1495062934

Would Pence be able to step into the job? One would assume there will be many going down with Trump since his administration has so far condoned his actions - Pence would have to be one of them. Credibility is rapidly being lost.

by nymad | 18th May 17, 9:07am 1495055239

Trump will last.
I actually highly doubt he has done anything wrong.

The leftist rubbish that gets disseminated isn't to be believed.
More fool you, if you put on your tinfoil hat and blindly follow their rhetoric.

by Noncents | 18th May 17, 9:26am 1495056390

While I think he is being unfairly targeted by the MSM (Who clearly want him gone) he does appear to be making some rookie mistakes that you just can't get away with as president.

I don't think he will get impeached, but I do see a resignation on the cards

by nymad | 18th May 17, 9:27am 1495056461

True, I'll agree on that.

This is Trump, though - there will be no resignation..

by Foxglove. | 18th May 17, 9:40am 1495057219

The President has to do something really wicked, illegal or corrupt to be impeached. Andrew Johnson survived when he should not have & ditto for Clinton who had a convenient democratic majority behind him. So then there was Nixon & they got him only after he had put up a hell of a fight, and then resigned at the eleventh hour. So with the majority the Republicans have in both houses, at present, Trump is relatively flameproof unless he does indisputably break the law. On the other hand he is intemperate enough to say one day that he has had enough and bail out.

by Noncents | 18th May 17, 10:04am 1495058691

Depends on how bad it gets. I think he would resign to protect Ivanka's chance of becoming a future president, which is what I think there ultimate goal is.

by kiwichas | 18th May 17, 10:13am 1495059220

He did appoint his entire family/ extended family to run the White house as soon as he got power, so there is definitely a dynastic tendency in the megalomania; so you could be right.

by BadRobot | 18th May 17, 12:13pm 1495066427

Then perhaps he should stop giving them ammunition. If you're in a hole stop digging.

by rastus1 | 18th May 17, 11:38am 1495064328

Pence - hard to beleive that the no 2 in the USA is even dumber than No 1.

1. “I’m a Christian, a conservative and a Republican, in that order. “
2. “Time for a quick reality check. Despite the hysteria from the political class and the media, smoking doesn’t kill.”
3. “By enacting this legislation, we take an important step in protecting the unborn, while still providing an exception for the life of the mother. I sign this legislation with a prayer that God would continue to bless these precious children, mothers and families.”
4. “Global warming is a myth.”
5. “Um … I, do I believe in evolution? Ah, I, I, ah … I embrace the, uh — the, uh — the view, ah, that God created the heavens and the earth, the seas and all that’s in them.”’

by kiwichas | 18th May 17, 11:53am 1495065186

Pence is there as a wimpish sop to the religious maniacs; to get their support even if they won't "believe" in Trump.

by kiwichas | 18th May 17, 9:33am 1495056810

He won't resign; and I think that the law states that he can't be impeached unless a large majority of Republican turkeys vote for an early Xmas.
However sharemarkets fell overnight due to the uncertainty.Replacing him with the current VP would be fraught.

by Andrewj | 18th May 17, 8:24am 1495052658

The key question for the regulators and the market is no longer whether China has a credit problem. Rather, it is how China can fix the problem and what price is it prepared to pay?https://ftalphaville.ft.com/2017/05/15/2188843/when-stimulus-fades-a-re…

by Stephen Hulme | 18th May 17, 8:28am 1495052930

The real growth is away from mortgage debt which is still almost US$1 tln below its 2008 peak.

Fed research team adds colour: Household Borrowing in Historical Perspective

by Stephen Hulme | 18th May 17, 8:44am 1495053869

In New York, the UST 10yr yield is sharply lower today at 2.22% and that is now lower than at any time since mid-November last year.

I don't know what you actually get up to at interest.co nz, but you certainly don't trade bonds.

UST 10s 18/04/2017 yield low, recorded by Bloomberg (1 year tab) 2.1682%, MarketWatch (6 mths tab) 2.175%.

by Stephen Hulme | 18th May 17, 9:11am 1495055498

Hmmmm...

Progressive New York Magazine columnist Jonathan Chait writing for the leftist New Republic in 2010 prophesied that if the Republicans took Congress that year and Obama won a second term two years after, “the House will vote to impeach him before he leaves office.” He was confident enough to make such a prediction because that is post-Nixon politics; they got our guy, we’ll get your guy. After Clinton’s unsuccessful turn of being the next “your guy”, we spent the eight Bush II years listening to all the same Hitler comparisons while the D’s dreamed up ways to impeach W, hoping to at least pin some “war crimes” to his record.

What Chait wrote in 2010 about Obama wasn’t truly about Obama; it was the rather obvious statement of the state of American politics.

"Wait, you say. What will they impeach him over? You can always find something."

I really don’t mean to make politics intrusive in this way, not the least of which because in my view there isn’t nearly enough difference R to D, or D to R. They fight each other for turf and nothing changes as a result.

The flurry of hysterics today forces at least some political equation to be front and center for our analysis. It may seem like markets are increasingly uneasy about a Trump impeachment, but I think that is the wrong political framing. Putting growing market pessimism into the context of “reflation”, what is more likely driving anti-reflation today in particular is not that Trump may be gone by vote of Congress but rather that he will be seriously wounded politically such that all the various things “reflation” was counting on are less likely to ever happen. Read more

Gareth Vaughan's post election views were never hopeful in respect of future economic outcomes rewarding those who voted for Trump.

by notaneconomist | 18th May 17, 10:07am 1495058845

A gag order is offensive and oppressive! Politicians and Bureaucrats undertaking this action need to be held to account!

by spinach1 | 18th May 17, 10:33am 1495060391

What?, like the gag order a bank would have you sign to get a settlement when you were screwed over by them?

by Henry_Tull | 18th May 17, 10:59am 1495061976

Seems the Ozzie Govt. not wishes a repeat of the mining tax. In an industry orgainises an uprising sort of way.
The ex premier of QLD sticking up/working for the banker group just highlights the swamp scope over there!

Australian Bankers’ Association Chief Executive Anna Bligh
and
Anna Maria Bligh AC is an Australian politician and the 37th Premier of Queensland from 2007 to 2012. Bligh was an Australian Labor Party member of the Legislative Assembly of Queensland seat of South Brisbane from 1995 to 2012..

http://www.brisbanetimes.com.au/queensland/what-former-premier-anna-bli…

Here is a though experiment:
Credit and Debt expansion in NZ. How Big:
If the four main banks were owned not by Australians but owned by English, or French or Singapore banking groups, would fogging a mirror be the same criteria for obtaining a home loan?

by notaneconomist | 18th May 17, 12:38pm 1495067905

No one should be coerced into signing a gag order.....the fact the gag order is government mandated is heinous.....you cannot have political or bureaucratic secrecy in a proper functioning society.......privacy is the right of private people.....an agreement between to parties like a bank an private person should be private between the parties unless there is some illegal conduct in which case this is what the courts were meant to be for......we have just celebrated ANZAC day yet man are choosing to forget how the world got into WW2......what a total waste of human life from a self-centred populace who fail daily to stand up and be righteous.....think about people like Sophie Scholl and her most famous statement "How can we expect righteousness to prevail when there is hardly anyone willing to give himself up individually to a righteous cause? Such a fine, sunny day, and I have to go, but what does my death matter, if through us, thousands of people are awakened and stirred to action?"...........So what would you rather have an open, transparent government that maintains the values enshrined in the ancient rights and constitutions of the people or some Hitler style horrendously oppressive, destructive, indecent, murderous regime?

There are no remifications at all if one gets screwed over by the public system....they are too big and the burdon is always on the other tax payers if in any event you win......but if you get screwed over by a private entity there are many available options.......

by KH | 18th May 17, 12:35pm 1495067752

USA instability. It's not all Trump. The ridiculous politics have crippled DC for a long time now. They are all as bad as each other. Any of them will argue black is white if they can. I don't know why our media even report it daily. (Although I would be happy with some long range reporting on where the years of dysfunction will lead them, and us.)

by ham n eggs | 18th May 17, 12:33pm 1495067612

Agree - Trump is only the current front man for a whole legacy of problems. America can not be great again... it can however go down in a blaze of glory, which is the concern

by dictator | 18th May 17, 12:28pm 1495067326

There is a rising level of desperation in property listings on trademe. The market speak now says "their loss is your gain". A number of forced sales, and properties with resource/building consent approved. It looks like the riskier financing has dried up. Especially when they need to selling the house and the potential development, which means they never had the money to invest in the first place.

It's going to be interesting to see what things are like by the end of the year.