90 seconds at 9 am: China imposes smaller outflow limit

US consumer credit flows drop; Tesla seeks junk funding; China clamps down harder; EU toughens divorce claims on UK; UST 10yr yield at 2.26%; oil down, gold unchanged; NZ$1 = 73.6 US¢, TWI-5 = 76.1; bitcoin hits record high

8th Aug 17, 7:43am by David Chaston

Here's my summary of the key events over the weekend that affect New Zealand, with news the Chinese are clamping down harder on cash outflows.

However first in the US, the growth of consumer credit fell sharply in June. That was what markets were expecting, but not by this much. The growth in May was unusually high high however. June flows were -15.7% lower than for the same month a year ago. Still the amounts outstanding at the end of June were still +5.7% higher than they were in the same month a year ago. This is now almost a US$3.9 tln credit segment.

A good proportion of that is for car loans. But a large car loan of a different sort was announced overnight by Tesla who are about to issue US$1.5 bln of "senior unsecured notes" that will be rated by S&P as junk. The company is seeking to raise production of its mass market vehicle to 10,000 units per week from its San Francisco Bay factory by the end of next year to deliver is backlog of 500,000 orders for the electric car.

On the central bank front, August is the time the bosses of most gather in Jackson Hole, Wyoming to huddle and share war stories. This year is no different. And the ECB boss will be there before he announces his next move.

The Chinese announced they have managed to keep their US dollar reserves at above US$3 tln as at June. That is six straight months it has held above that level. And they are keeping up the pressure to avoid the type of outflows we saw in 2016. They issued a new ruling on Thursday requiring all banks to report their transactions above 1000 yuan (NZ$200) within 24 hours, starting from August 21.

And in Europe, some very large numbers are being thrown around about what the EU expects the UK to pay as part of its divorce settlement. In any case, the UK has been reminded that it has made commitments to the EU out until 2020, so payments under those will still need to be made. The next set of intensive negotiations will restart at the end of this month.

In Australia, the board meeting of CBA continues today, and there is intense speculation about the future of its CEO, Kiwi Ian Narev.

In New York, the UST 10yr yield is essentially unchanged at 2.26%.

The price of oil has slipped however and it is now just over US$49 a barrel, while the Brent benchmark is now just over US$52. A rebound in production from Libya's largest oil field along with worries about higher output from OPEC and the United States are behind the change.

The price of gold is basically unchanged at US$1,258/oz.

And the Kiwi dollar will start today down about ½c at 73.6 USc. On the cross rates we are marginally lower at 93 AU¢, and at 62.4 euro cents. As a result the TWI-5 index is lower at 76.1.

And a few hours ago, the price of bitcoin hit a new high at US$3,459. Remember it 'forked' just a week or so ago, and it was under US$2,000 less than a month ago. And that came after it hit just over US$3,000 a month before that. Volatility is the normal state for this crypto-currency.

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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24 Comments

by dictator | 8th Aug 17, 7:55am 1502135741

Vehicle sales in the US have been hit hard. You can currently buy a car there for 0% deposit with 0% interest on the loan. When you can sell cars with those rates the entire market is tapped out. I'm not sure how long car makers will survive with massive inventory that isn't moving.

by David Chaston | 8th Aug 17, 8:28am 1502137697

But that will only be if you pay the manufacturer's list price. That is the GEM/Harvey Norman trick. I very much doubt you can do that and get any discount on the list price. The normal haggled price leaves enough to pay the 'interest'.

The July volume drop has a lot to do with the car makers refusing to sell at deep discounts to the rental car companies. However, we will need to wait till the September sales numbers to know if there has been a real turning point. I'm not discounting it, but summer holiday volumes won't be decisive.

by dictator | 8th Aug 17, 9:41am 1502142086

I have no doubt that many get a deal. What I see in relation to personal finance problems is that people get all of the add on extras. They turn a deal for a $15k to $25k vehicle into a $50k deal.

It's true they are holding out on selling to rental companies but they will cave in at some point if things are looking grim.

by Stephen Hulme | 8th Aug 17, 10:09am 1502143770

The Uber Effect: Avis Plunges On Huge Miss, Margin Collapse, Guidance Cut, "Over-Fleeting"

by Boatman | 8th Aug 17, 9:09am 1502140164

Britain should tell the EU to get stuffed

by Yvil | 8th Aug 17, 9:17am 1502140663

The EU should tell Britain to get stuffed

by Boatman | 8th Aug 17, 10:58am 1502146684

The EU has not been that good for Britain , its sovereignty was being undermined by un-elected bureaucrats in Brussels , it was forced to contribute too much to EU coffers , they are being arm twisted into accepting more refugees when they also have a housing shortage and worst of all they were being told what to grow and how much , how much they could fish , and being subject to all sorts of rules and regulations simply not their best interests .

by linklater01 | 8th Aug 17, 11:11am 1502147472

Boatman,

You never disappoint. Yet another subject on which you know very little. How do you know that the UK pays too much to the EU? What would be the 'correct' amount and what evidence do you have for that figure? Which crops have they been forced to grow and in what quantities? Evidence please. Again,which rules and regulations are not in their best interests? Facts and figures to support this assertion?

by David George | 8th Aug 17, 11:38am 1502149083

I agree Boatman, the EU as it's structured is an antidemocratic, inefficient bureaucratic nightmare. The Brits did the right thing despite (or maybe because of) the hysterical nonsense that was put about from the likes of Tony Bliar. Here's comment from late last year.
"The most effective propagandists of the "European ideal" have not been the far right, but an insufferably patrician class for whom metropolitan London is the United Kingdom. Its leading members see themselves as liberal, enlightened, cultivated tribunes of the 21st century zeitgeist, even "cool". What they really are is a bourgeoisie with insatiable consumerist tastes and ancient instincts of their own superiority. In their house paper, the Guardian, they have gloated, day after day, at those who would even consider the EU profoundly undemocratic, a source of social injustice and a virulent extremism known as "neoliberalism".

The aim of this extremism is to install a permanent, capitalist theocracy that ensures a two-thirds society, with the majority divided and indebted, managed by a corporate class, and a permanent working poor."
http://johnpilger.com/articles/why-the-british-said-no-to-europe

by Fritz | 8th Aug 17, 1:17pm 1502155027

'Its leading members see themselves as liberal, enlightened, cultivated tribunes of the 21st century zeitgeist, even "cool". What they really are is a bourgeoisie with insatiable consumerist tastes and ancient instincts of their own superiority.'

Brilliant.

by profile | 8th Aug 17, 11:54am 1502150055

"The 50-year-old told The Sun on Sunday: “I think there are great opportunities. For years British bakers have been forced by EU tariffs to buy European wheat instead of looking to the wider world. Any master baker will tell you that the best baking wheat in the world is Canadian wheat. But we aren’t free to buy it because the EU punishes you if you do. And why should we be giving Spain money to grow sugar? What’s wrong with looking to the West Indies and doing trade there? Now when we leave the EU, hopefully we can shop around.”

by Solidname | 8th Aug 17, 9:25am 1502141138

Course they should, I mean it's only the biggest trading bloc in the world, and Britain's largest import and export market, what could possibly go wrong with antagonizing them?....

by David George | 8th Aug 17, 11:45am 1502149535

It isn't about money, trade is one thing, dilution of your democracy another thing entirely. If our largest trading partner started dictating how we run our country would you just roll over and take it. No, and neither should the Brits.

by Solidname | 8th Aug 17, 1:36pm 1502156208

I'm a Brit and the EU regulations had precisely zero affect on my life when I was living in the UK. The UK had veto on numerous EU legislations https://fullfact.org/europe/eu-facts-behind-claims-uk-influence/ democracy in action.

by David George | 8th Aug 17, 4:13pm 1502165595

Thanks, interesting perspective and I can only guess at the background reasons for British leaders to stiff their own people but you have to wonder why the EU bureaucrats need to be wasting their time and other peoples money dreaming up the most absurd intrusions into peoples freedoms in the first place. If a tiny country at the bottom of the world can run its own show why would Britain need unelected foreigners making decision over their lives. It's ridiculous.
I think the final straw for a lot of Brits was forced unwanted immigration. Considering the fact that Britain has hopelessly overshot it's carrying capacity already and the unfolding disaster in western Europe I can't say I blame them. Anyway here's a few of the more ridiculous EU directives for your enjoyment: http://www.express.co.uk/news/world/586742/European-Union-barmy-decisio…

by Solidname | 8th Aug 17, 4:47pm 1502167621

Immigration is and was a hot button issue, again the British Govt had options to prevent it, there was uproar about EU immigrants claiming benefits - the UK could have chosen to utilize the if you don't have a job for 3 months then out you go clause that is in the freedom of movement doctrine, and is used by France, Holland and pretty much everyone else really..

Non-EU immigration was actually higher than EU (maybe still), old empire countries - Pakistan, India etc.. so again the Govt of the time (both Labour and Tory) could have stopped that. They didn't as they needed low income workers to help business generate profit (and Doctors and Nurses to be fair), much as we're seeing here.

As much as the referendum was a vote on the EU, it was also a vote on how the country has been run over the last 30-40 years, the leave areas (despite receiving massive EU funding) are primarily ex-industrial zones. Industry was decimated in the 70s and those places were left to rot. Outside of the big cities, it's pretty bleak, old mining towns, steel works, ship works, silk factories all gone, they were jobs for generations and were never replaced. Unfortunately for the leave areas, that EU funding that they received won't be replaced by local subsidies, so they're going to be even worse off. It's very sad really.

by mfd | 8th Aug 17, 4:47pm 1502167652

What a strange list. Several of them it acknowledges were never passed into law, or the UK vetoed. Having oven gloves that are actually tested to withstand heat seems like a good idea to me.

The limit on vacuum cleaner power was to prevent an 'arms race' where consumers assumed that a higher wattage directly translated to a better vacuum, when actually it just means it uses more power. One of many small, sensible environmental laws the EU has made to incrementally improve efficiency. The UK was similarly outraged when the outdated incandescent bulbs were to be phased out, as if removing horribly inefficient designs was somehow an infringement of our rights.

Most of the others are just an attempt to standardise labeling across the union, nothing to get upset about.

by David George | 9th Aug 17, 6:59am 1502218757

I'm not upset, I thought it was a joke.
You mean to tell me the EU have bureaucrats making regulations (that will, presumably, have to be enforced) dictating the amount of curvature in a banana or cucumber?
That's a perfectly valid reason right there to leave and never have anything further to do with them.

by profile | 8th Aug 17, 11:44am 1502149498

EU is 15% of world trade. It's a big place out there.
“The imbalance of trade is £100bn so, even if we have to pay an import duty, it’s not much and it’s far less than currency swings.”

He pours scorn on the idea that the EU is single market anyway. “It is not. There are different languages, boxes, plugs, marketing and so on, different psychology, different laws. There’s a lot of cost involved.”

http://www.telegraph.co.uk/business/2016/09/13/sir-james-dyson-i-would-…

by CJ099 | 8th Aug 17, 9:16am 1502140579

Looks like China will need to keep its Capital Controls in place for the foreseeable future whilst it transitions from a manufacturing economy to a technological economy to give its self a more robust and less poluted future.

Iceland had its Capital Controls in place for seven years whilst it restructured its economy (And they're a tiny nation) So we could be looking at similar timescales on those controls for China, possible even longer.

by PKchew | 8th Aug 17, 9:21am 1502140916

That's what will happen I believe!

by PKchew | 8th Aug 17, 9:37am 1502141841

Re China, there has to be major changes to the political structure over the next 20 years which will affect the world economy initially for the worse In my opinion and then to the betterment. I have been talking to Chinese students, some younger (20-30yrs) and some a lot older (30-40yrs) and the way they live, what they know and what they dont know, (not being told many things-no Google) and the corruption that they know exists in the current one party system. They readily admit that they feel helpless about how to create change. They feel they are regulated very tightly and now they see our way of life and want that freedom of living. The "great unwashed" are surviving in China but just. That is their main objective especially in the rural areas. In my opinion, this ground swell of awareness about how they are being limited in there lifestyles etc will build until it cannot be contained. With China wanting to be more involved in the Global monetary system (IMF etc) they will have to make changes to their views/structures and regs about capital controls. This will be the dam that breaks, I think rather sooner than later.

by bw | 8th Aug 17, 10:32am 1502145153

China's Dalian Wanda Group... is (selling) two giant development projects in Australia.
The move could be the first of many by mainland companies pulling back from Australia as Beijing tightens its control over outbound investment, potentially putting downward pressure on prices for property, infrastructure and agricultural assets.

http://www.afr.com/real-estate/commercial/development/as-beijing-gets-t…

by 1986 | 8th Aug 17, 12:22pm 1502151771

all part of the plan?