China ups restrictions on capital outflows; National commits to spending more on roads, Labour dips into Greens territory; Fed official stands up for immigration; UST 10yr yield at 2.20%; oil up, gold stable; NZ$1 = 73.2 US¢, TWI-5 = 75.7

Here's my summary of the key events from over the weekend that affect New Zealand, with news of another official speaking out against US President Donald Trump.

Dallas Federal Reserve President Robert Kaplan has come out saying the US’s historic openness to immigrants has given it the competitive edge it needs to compete with China. He notes immigration is what differentiates the US from China and Japan, and says, “Let’s make sure we’re very careful about undermining those things that made us great.”

Kaplan made these comments as Steve Bannon, was ousted from his role as Trump's chief strategist. Bannon had spearheaded the US Administration’s campaign for economic nationalism.

China has taken another step to restrict capital outflows. It has released a guideline restricting Chinese investment in overseas “real estate, hotels, entertainment, sport clubs, outdated industries and projects in countries with no diplomatic relations with China, chaotic regions and nations that should be limited by bilateral and multilateral treaties concluded by China”.

The guideline also prohibits “domestic enterprises being involved in overseas investment that may jeopardize China’s national interests and security, including output of unauthorized core military technology and products, gambling, pornography and other prohibited technology and products”.

New data shows US consumer sentiment improved to its strongest level in seven months in early August. The University of Michigan's consumer sentiment index rose more than expected in the first half of August. However the university’s chief economist questions whether this optimism will hold in weeks ahead, following the white nationalist rallies in Charlottesville.

Back in New Zealand, electioneering is in full swing. Over the weekend the Government announced plans to spend $10.5 billion on 10 routes that will form the next generation of Roads of National Significance. Meanwhile Labour Leader Jacinda Ardern made a rousing speech at the party’s campaign launch, saying climate change is her generation’s “nuclear free moment”. Labour will announce its plans to invest in transport infrastructure in the regions today.

The number of active oil drilling rigs in the US fell by five last week to 763, according to Baker Hughes. However this time last year there were only 406 rigs in action. The jump shows US oil producers are planning to hike output over the next couple of years. However Reuters reports oil companies had mapped out ambitious spending plans, expecting prices to be higher than what they are at the moment.

The benchmark crude price is at US$48.50 a barrel, while the Brent benchmark is at US$52.70.

The gold price is stable at US$1,286/oz.

In New York, the UST 10yr yield has continued to fall since Friday to 2.20%.

The New Zealand dollar is stronger at 73.2 USc, 92.2 AU¢, and 62.2 euro cents. The TWI-5 index has inched up to 75.7.

If you want to catch up with Friday's news, 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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10 Comments

Yes I liked that too ZP. He correctly identified low interest rates and favourable taxation policy as drivers of the housing ponzi.

However, he failed to mention the other drivers - huge bank lending and overseas buyers. Guess he knows who signs his paycheck -:)

Indeed :)

"The jump shows US oil producers are planning to hike output.."

Trouble ahead. http://wolfstreet.com/2017/07/18/are-more-bankruptcies-on-the-way-for-us...
"Last year, Moody’s warned that oil and gas drillers and service providers face a debt load of US$110 billion maturing by 2021. Next year alone, the industry would have to repay US$21 billion. By 2021 this will grow to US$29 billion. What’s more, Moody’s said, 65 percent of that debt is speculative-grade, or junk. Shale drillers have entered a vicious circle, succinctly described by oil analyst Michael Fitzsimmons. They boost production because they need to generate cash to repay their debts.."

Robert Kaplan might want to reflect on....

Since 1995, the number of listed (US) stocks has fallen 42%? What market force could be causing that? Actually, several. The financialization of the markets since 1995, making it cheaper to buy your competitors than to actually invest in equipment to compete, has produced a constant stream of mergers. This is not creative destruction. It has not resulted in new jobs and greater competition. It is, rather, a result of the central banks of the world messing with the free market and of businessmen optimizing the value of their earnings and cash. When cash is cheap, buy your competitors.

(Bloomberg)

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US immigration: College scholarships to the worlds brightest and athletic.
NZ immigration: Enrol in 3rd rate providers and graduate as a pump attendant/dishwasher/fruit picker.

Look at the top US technical companies (Google, Apple, Microsoft, etc) and you find PhD graduates of the top level Indian universities. In NZ the (very pleasant and hard working) Indians are pumping gas. If we went for true quality immigration it might be interesting.

Note that when Dallas Federal Reserve President Robert Kaplan compares the USA with Japan and China then all three have been very successful. Immigration made the USA great when there were natural resources (farm land taken from the Red Indians) that needed sheer man-power to be exploited - that was back in the 19th Century.
During my lifetime USA has stayed No1 but it now has Japan as a strong competitor (do you drive a Japanese or an American Car?) and their start point was the total destruction of WW2. And just in the last 30 years China has gone from a basket case to an economic power (USA/China: which country has the debt and which owns the debt?)
In the modern world a successful immigration policy is a matter of exceptional talent not numbers. If it was numbers then NZ with triple the per capita immigration of the USA would be the world leader by far.

What edge does America have ?

Its social problems are deep seated and seem irreversable, and it certainly does not need any more unskilled migrants to boost its unemployment numbers .

Unskilled South Americans are certainly not going to solve the problem

It has huge problems of substance abuse , urban decay , unemployment , a crime wave , racial tensions , de-industrialization without a plan to secure alternative work for those losing their jobs, poor quality production that has led to Japan taking market share , a highly unionised labour force that has gutted GM and Ford . GM is routinely referred to as the biggest pension fund on the NYSE.

They are also tied up in middle eastern wars that have gone on for longer than any other conflict they have waded into , and its without an end in sight .

Frankly its unsurprising Donald Trump won the election when you look at the mess they have got themselves into .

Their only saviour is they control the worlds reserve currency , other than that , they have just as many problems as the rest of the world .

David Goodhart in "the British Dream" says the USA's internal problems are caused by a lack of trust inherent in a multi-cultural society. In other words wealthy Americans do not trust or identify with their poor mainly ethnic sub-classes so are unwilling to pay the taxes needed to alleviate poverty, improve schools, pay medical expenses. And from the other side the poor are easily persuaded to prey on the wealthy (that is criminal behaviour becomes a norm).

Not a problem if everyone feels they are a single community. So while everyone is firstly proud to be a Kiwi before they consider their ancestry/ethnicity then all will be OK in New Zealand.

George Friedman puts a lot of USA's success at the feet of it's geography?