90 seconds at 9 am: China grapples with liquidity

US household net worth surges; Canada housing stumbles, China faces liquidity crunch; China trade grows; ECB still QEing; Aussies fear China interference; UST 10yr yield 2.19%; oil and gold lower; NZ$1 = 72.1 US¢, TWI-5 = 76.3

9th Jun 17, 7:41am by David Chaston

Here's my summary of the key events from overnight that affect New Zealand, with news from all over.

Firstly in the US, household net worth grew in the March quarter to US$94.8 tln, which is a remarkable +8.3% higher than in the same quarter a year ago. This comes despite household debt only rising +3.2% in the same period. Overall debt of households, business and government only rose +1.4%, with the government sector, both federal, state and local managing to shrink their debt by about -3.4%, which is also quite remarkable.

In Canada they are seeing some dramatic changes in their housing markets following regulator interventions that are trying to roll back runaway rises in house prices. Unfortunately that is impacting the new-build market hard, with new house starts in Toronto down by -50%. Nationally, the falloff is sharp as well, with new house starts in May, a traditional period of expansion, down for the second straight month and to only 195,000 units, an -8.8% fall. Still, prices are still rising, up +3.9% in May. It is what happens when your build rate falls below demand.

In China, financial regulators are facing a testing period. June is traditionally a tight time for banks because of regulatory checks, and this year, lenders are grappling with an official campaign to reduce the level of borrowing as well. Wholesale funding costs and money-market rates are close to the most expensive in two years, and the 30-day Shanghai Interbank Offered Rate has jumped +44 bps so this month, the worst start to a June since the severe cash shortage in 2013.

Meanwhile on the trade front, China's goods trade is in a healthy state and the demand for exports has risen. They has a May surplus of more than US$40 bln after exports rose +8.7% and far faster than analysts had expected. Imports surged even faster, up 14.8%.

In Europe, the ECB effectively said there would be no more rate cuts. Separate data shows the euro zone economy to be recovering well and at its fastest rate in two years, but the ECB said inflation looks to remain well contained - so it will still pump out the QE cash into their banking system. Currently, that QE level is just on €1.9 tln and grows by €80 bln per month.

In Australia, there is growing nervousness about the way China is trying to influence the country by covert, and sometimes very crude means. Efforts to shut down criticism of China are apparently rampant and a key target is the Chinese expat community. It is a heavy-handed meddling and projection of power that has Canberra worried.

In New York, the UST 10yr yield is higher at 2.19%.

The price of oil is lower again today with the US crude benchmark is now just over US$45.50 a barrel, while the Brent benchmark is now over US$47.50.

The price of gold is lower as well, and now at US$1,279/oz, another US$6 fall.

But the Kiwi dollar is up and now at 72.1 USc. On the cross rates we are at 95.6 AU¢, and 64.4 euro cents. The TWI-5 index is now at 76.3. This is a +4% rise in a month, nearly +6% against the greenback.

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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13 Comments

by Stephen Hulme | 9th Jun 17, 8:29am 1496953767

In Australia, there is growing nervousness about the way China is trying to influence the country by covert, and sometimes very crude means.

From linked article:
Russian interference in the American presidential election may be the most brazen assault by an authoritarian power on democratic institutions. But it is not the only one.

Hmmmm...

While Ex-FBI chief Comey claimed he had "no doubt" about such assaults he proffered no proof to US law makers overnight.

by Advisor | 9th Jun 17, 9:32am 1496957545

I guess that is the heavy price you pay for being the "most attractive destination for wealthy expats".
Did the Aussies really think they could add billions of dollars to their net wealth as a result of migration without importing the "greasy" politics associated with it. How do you think one become a multi-millionaire in China, not just hard-work and perseverance for sure.

by Chris-M | 9th Jun 17, 5:00pm 1496984424

i.e. If you lie down with dogs you get up with fleas.

by Stephen Hulme | 9th Jun 17, 10:09am 1496959789

How does one become a multi-millionaire in the US?

Here is how the CBO recently explained the wealth is distributed:

In 2013, families in the top 10 percent of the wealth distribution held 76 percent of all family wealth, families in the 51st to the 90th percentiles held 23 percent, and those in the bottom half of the distribution held 1 percent.

Average wealth was about $4 million for families in the top 10 percent of the wealth distribution, $316,000 for families in the 51st to 90th percentiles, and $36,000 for families in the 26th to 50th percentiles. On average, families at or below the 25th percentile were $13,000 in debt.

In other words, roughly three-quarter of the $2.4 trillion increase in assets went to benefit just 10% of the population, who also account for roughly 76% of America's financial net worth,

Even worse, when looking at how wealth distribution changed from 1989 to 2013, a clear picture emerges. Over the period from 1989 through 2013, family wealth grew at significantly different rates for different segments of the U.S. population. In 2013, for example:The wealth of families at the 90th percentile of the distribution was 54 percent greater than the wealth at the 90th percentile in 1989, after adjusting for changes in prices.

- The wealth of those at the median was 4 percent greater than the wealth of their counterparts in 1989.
- The wealth of families at the 25th percentile was 6 percent less than that of their counterparts in 1989.
- As the chart below shows, nobody has experienced the same cumulative growth in after-tax income as the "Top 1%" Read more

by profile | 9th Jun 17, 10:38am 1496961539

How does one become a millionaire in the US? Well you have a 73% chance of having at least one year in the top 20% of income earners so not bad odds.

"I looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking.

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.

Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60)."

"It all depends on whether you are talking about what is happening in statistical brackets or what is happening to actual flesh-and-blood individuals who were in those brackets at one time but not another time. We understand that when we talk about sports statistics. But not when we talk about statistics on political issues like income differences.

Do our IQs just drop spontaneously when we turn to politics? Or are there many people in politics and the media with vested interests in misstating issues, and lots of experience in doing so? "

http://marginalrevolution.com/marginalrevolution/2014/04/mobility-in-an…
http://jewishworldreview.com/cols/sowell080712.php3#.WTnMzNwlHIU

by murray86 | 9th Jun 17, 12:37pm 1496968620

Poses a big question - why only one year? Does greed mean they make silly mistakes and lose it all, or is the system geared at fleecing them of their wealth?

by KH | 9th Jun 17, 1:13pm 1496970839

"How does one become a millionaire in the USA" Leaving aside outlier the Gates/Zuckerburg cohort. My understanding is that the majority of the wealthy are in a family business, which is successful, and often with multigenerational success.
Seems to me to be the same in New Zealand. Think of the big car dealerships, the manufacturers whose name is on the product. Even a big plumbing firm.

by profile | 9th Jun 17, 3:32pm 1496979139

"Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years."

by Stephen Hulme | 9th Jun 17, 8:38am 1496954321

Are investors seeking to store converted collateral rather than difficult to convert bank ledger balances masquerading as money?

From safety-deposit boxes in leafy west London to high-security facilities housing gold and silver in Frankfurt, companies that store valuables are expanding to meet demand.

A rush into haven assets that began during the financial crisis is getting a new lease on life from an upsurge in populist politics and a quickening of inflation. Two firms say they’re planning to open vaults in Europe capable of holding more than 100 million euros ($112 million) in gold, offering customers lower costs than exchange-traded products and protection from rising prices. Read more

by Cowpat | 9th Jun 17, 9:10am 1496956207

Exit polls and fx trading , a pair made in heaven

by sharetrader | 9th Jun 17, 10:20am 1496960423

exit polls are a big shock to the conservatives, May will go, how to lose a 20 point lead and not win an election
http://www.telegraph.co.uk/

by Boatman | 9th Jun 17, 9:45am 1496958304

So China is using its former citizens now living in Oz to influence things there ?

Deja vu , Non ?

by RickStrauss | 9th Jun 17, 12:03pm 1496966621

Are we winning, though? Do we have more of China's most wanted living in Auckland, or do they in Sydney?

Surely we at least win the China's most wanted criminals per capita contest? Big thanks to our naive politicians for overruling Immigration NZ's advice when needed to help us win this.