90 seconds at 9 am: ASIC warns on 'liar loans'

US household incomes rise strongly; job openings rise; China consumers confident; China SOE banks go global; ASIC watching banker scrutiny of brokers; UST 10yr yield at 2.17%; oil up, gold lower; NZ$1 = 72.9 US¢, TWI-5 = 74.8

13th Sep 17, 7:31am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news markets are in a risk-on mood, with many signals reinforcing the upside.

Firstly, official data out overnight for 2016 shows the American median household income in 2016 was US$59,039 (NZ$84,700), an increase in real terms of +3.2% from the previous year. That gain is after-inflation. Their poverty rate in 2016 was reported at 12.7%, with 40.6 million people in poverty, 2.5 million fewer than in 2015. (For a two person household, that is income below US$16,151 or NZ$23,200.) Their Gini index was unchanged at 0.48 (NZ = 0.33).

Meanwhile, American job openings rose to a record high in July, suggesting a slowdown in job growth in August was an aberration.

Consumer confidence in China has surged to a two-decade high.

And the pace of lending by Chinese banks outside their country (and all the major ones are SOEs) is changing the face of international foreign direct investment. The total value of cross-border investment was a mammoth US$132 tln in 2016, and for the first time in a decade, developing countries as a group are net recipients of capital. China may be leading this trend but it not the only one. Banks from Japan and Canada are also large offshore funders.

In Australia, the head of ASIC is reinforcing warnings about the prevalence of 'liar loans', loan applications usually from brokers, that embellish the applicant's financial situation. Banks trusting brokers is a growing risk, apparently, and their regulator is watching closely.

In New York, the UST 10yr yield is rising again and is now at 2.17%.

The price of crude oil has also risen slightly and is now just over US$48 a barrel, while the Brent benchmark is just over US$54. OPEC is reporting a fall in production. But this may be less than it seems; the decline comes principally from one country, Libya. And there are now multiple reports that China is likely to phase out the sale of petrol and diesel cars over the next 20 years, joining a range of other EU nations in a trend started by France. Interestingly, sales of cars in China are rising fast, and it is local brands that are winning the biggest share of what is now the world's largest car market which sold more than 28 million cars last year. The US is next largest with 17.5 mln sold.

The price of gold has fallen today, down -US$5 to US$1,326/oz.

And the Kiwi dollar has risen on a weaker greenback, now just over 72.9 US and its highest level in three weeks. On the cross rates we are still at 90.8 AU¢ however, and 60.9 euro cents. And the TWI-5 index is now at 74.8.

If you want to catch up with all the changes on yesterday we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

10 Comments

by sharetrader | 13th Sep 17, 7:56am 1505246215

if you incentivize people to sell sell sell, why would you be surprised if some break rules to achieve the rewards, greed is a powerful motivator.
bank outsourcing loan creation is more about hear no evil see no evil
its up to the banks to have robust checks to make sure the data supplied is correct or wear the consequences if it goes tits up

by Zombie ponzi | 13th Sep 17, 9:10am 1505250635

ASIC is at least 5 years too late. The liar loans have already been made and are sitting on the books. Just another reason the RBA can't hike without Australia's mortgage market blowing up.

by Stephen Hulme | 13th Sep 17, 9:48am 1505252881

Even more interesting was Goldman's observation of the collapse of traditionally most profitable for banks FICC sector, which according to Goldman has seen the addressable industry size/revenue plunge from $121 billion in 2009, when Goldman owned a 19% share of industry revenues, to just $66 billion, of which Goldman now holds a paltry 10%.

Of the current $66 billion in total addressable FICC revenue, Goldman holds roughly 10%, broken down between $6.7 billion in market making/liquidity provisioning (rather an oximoron in our days), and $0.9 billion in financing.

Also of note: Goldman's response to the shrinkage of its this profitable segment: a 30% drop in FICC comp and benefits, a 20% decline in FICC headcount in the past 5 years, coupled with a 50% plunge in RWAs and a 15% decline in allocated balance sheet space. Read more

And they are not alone.

Yesterday it was Citi's turn: Citigroup CFO Brian John Gerspach warned that the bank's markets revenue in the third quarter which is ending in less than three weeks, will be down 15%, as the third quarter "is lacking the volatility that pushed revenue higher in third quarter of 2016" underscoring as he did last quarter, that volatility remains “subdued."

Not even 24 hours later we got another confirmation that to every Fed VIX slam, there is now an opposite revenue reduction by the Big US banks, which desperately need volatility to boost their sales and trading business. Moments ago JPMorgan’s Jamie Dimon spoke at the Barclays financial conference, where he said that trading revenue in Q3 was on pace to drop by 20% Y/Y, and worse, the CEO said he is considering halting guidance on trading revenue. Read more

F-I-C-C Spells Money

by bw | 13th Sep 17, 11:40am 1505259616

"People will panic, you will panic, running through the door like everybody else." JP Morgan's Dimon reminded conference attendees that turmoil had not been permanently banished from financial markets. "You will have volatile markets again", he said.

by Stephen Hulme | 13th Sep 17, 10:03am 1505253794

For the past eight years, the US yield curve has been flattening like a banshee, with the 5/30 spread declining from 300 basis points, all the way to the current 102 bps.

Having a look at that chart, it’s difficult to find a period where the curve consistently steepened. But if we pull up the seasonal matrix, it becomes a little more obvious. Read more

by Cowpat | 13th Sep 17, 10:04am 1505253897

So how will Mortgage brokers in New Zealand respond as debt /mortgage volumes continue to decline, and overheads escalate. Will the client paperwork be stained by coffee cups or squirrel droppings. Will the Banks simply do away with this unnecessary service sector and take mortgages back in house, to avoid potential legal issues as house prices fall.

by Stephen Hulme | 13th Sep 17, 10:15am 1505254545

Something has to give if credit growth as a percentage of GDP remains moribund. View graphic evidence and article

by Cowpat | 13th Sep 17, 10:29am 1505255361

Cheers Stephen, ' something has to give' four words that resonate.

by Stephen Hulme | 13th Sep 17, 11:24am 1505258642

Is the US making claims it cannot implement?

The US could impose economic sanctions on China if it does not implement the new sanctions regime against North Korea, the US Treasury Secretary has warned. Steven Mnuchin said the restrictions could involve cutting off Beijing’s access to the US financial system. Read more

I would have thought the creation of Eurodollar credit and it's redemption is beyond the purview of US authorities.

It’s a lot harder for David Yim to rack up the airline miles these days. The bond underwriter at Standard Chartered Plc used to fly across the Pacific from Hong Kong to the U.S. four or five times a year to arrange dollar-debt deals, but he’s not sure he’ll make it even once in 2017.

Such is the gravitational pull China is having on the market for dollar bonds issued by Asian companies and banks. Borrowers used to tap U.S.-based investors when they sold dollar securities. Now, there’s a big enough pool of greenbacks in Asia and predominantly Chinese buyers are able to take up the vast majority of bonds sold in dollars.

Within three years, this market may reach $1 trillion, composed mostly of Chinese dollar bonds, according to projections from Australia & New Zealand Banking Group Ltd. Big Chinese demand may be changing the risk dynamics of the dollar bond market in Asia, according to market watchers.

"Having a Chinese buyer means there’s a different risk profile -- it’s not like Western money managers investing in Thailand before the Asian crisis," said Nigel Pridmore, a long-time capital-markets attorney and partner in Hong Kong at law firm Ashurst. Read more

by bw | 13th Sep 17, 1:36pm 1505266581

Re:"Firstly, official data out overnight for 2016 shows the American median household income in 2016 was US$59,039 (NZ$84,700), an increase in real terms of +3.2% from the previous year."
Nice! But....

US census figures published on Tuesday showed real median household income rose a healthy 3.2 per in 2016, to $US59,039, but had barely increased from $US58,544 in 1999...."For the American middle class, it hasn't just been a lost decade. It's pretty much a lost two decades.