US fines HSBC, Deutsche Bank; Chinese PMIs rise; China targets more SME lending; German jobless rate falls; foreign ownership of AU rural land falls; UST 10yr yield at 2.34%; oil unchanged, gold lower; NZ$1 = 72.1 US¢, TWI-5 = 74.7

Here's my summary of the key events overnight that affect New Zealand, with news of how much rural land "the Chinese" own in Australia.

But first, the US Federal Reserve fined HSBC US$175 mln on Friday for "unsafe and unsound practices" in its foreign exchange trading business, the latest in a series of fines for banks that failed to prevent market manipulation. (HSBC made a tax-paid profit of US$11.5 bln in the year to June, 2017, so this fine represents 1.5% of that.) In a separate settlement, Deutsche Bank agreed to pay US$190 mln to settle US litigation accusing it of rigging prices in the same roughly US$5 tln-a-day foreign exchange market. (A judge still needs to confirm this second deal.)

Chinese official PMI's improved more than expected in September, both rising to more than one-year highs.

And staying in China, their government is actively encouraging banks to make fewer real estate loans, and more personal loans. The drive is on to bolster consumer spending, and their economy, rather than real estate gambling. But it is not working. Savvy Chinese borrowers are taking on more personal loan debt - but they are using those funds to make housing loan deposits, undermining both government objectives. Estimates are that at least one third of all short-term consumer loans issued since March have gone toward property purchases.

And the Chinese central bank is going further, easing capital requirements for lending to SMEs, a boost it hopes will support their economy without aggravating already high corporate debt. Basically, they want to reduce the amount of cash lenders must hold as reserves from next year, with the size of the cut linked to the flow of funding to parts of the economy where credit is scarce. A lot of action is coming now, hard on the heals of S&P's recent credit rating downgrade, which must have stung.

It is Golden Week in China, so news and data out of there will be limited until next week.

In Germany, their unemployment rate reached 5.5% in September, the lowest rate since German reunification in 1990. (New Zealand's equivalent unemployment rate is 4.8%.) The growth in German retail sales was also a strong +4.7%.

Volkswagen is taking another US$3 bln charge to fix diesel engines in the United States, lifting the total bill for its emissions-test cheating scandal to around US$30 bln. A senior manager has been arrested in Germany. The technical fixes for this scandal are proving much harder in implement.

Don't forget that today is a public holiday in Australia (Labour Day).

However, we should report that an official survey of foreign ownership of agricultural land in Australia shows the Chinese own 2.5% of it. The largest holders are British at 2.6%, and these two are followed by the Americans who own 0.7% and similar holding by the Dutch. All up, foreigners own less than 15% of their agricultural land. But just like in New Zealand, it is only 'news' and generates political angst in some quarters when people notice the Chinese ownership. And actually foreign ownership went down in Australia in 2017 from 2016. Go figure. Still, that won't stop those will willful blindness continuing their rage. (That "3%" number there sounds familiar here when we did our own official surveys.)

And, for the record, Tesla's Elon Musk signed his deal with South Australia over the weekend to install 100 megawattt/129 MWh system of battery storage in 100 days for US$50 mln, or the installation is free. It looks like he will easily meet that, because he got a jump on it while the bureaucrats prepared the paperwork and half of it is installed already. The system is part of the state's wider AU$550 million plan to power South Australia which suffered blackouts earlier in the year because baseload capacity was taken offline before new capacity was ready.

In New York, the UST 10yr yield is rising again and is now at 2.34%.

The price of crude oil is will start the week unchanged at US$51.50 a barrel, while the Brent benchmark is just over US$56.50.

The price of gold is lower again, down -US$3 to US$1,283/oz.

And the Kiwi dollar is also marginally softer starting the new week at 72.1 US. On the cross rates we are at 92 AU¢, and 61 euro cents. And the TWI-5 index is now at 74.7.

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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14 Comments

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13

15% ownership of your agricultural land is quite a bit, actually, and it would be even more significant if the same is found here, as we rely so heavily on agriculture for our income.

It sure does. Take 5 steps on a paddock. The next step covers land that is owned off shore. For more context it would be interesting to know the value (as a proxy for desirable characteristics) of that land. Can't imagine the foreign owners are buying up the poor quality land first.

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Agree.
It's completely disingenuous to fall back onto the 15% (or 3%) figures without some context.
15% of all land could well be 40% of all highly productive land, for all we know.

Not often would residential agents sell a 100ha farm

http://www.phrealty.co.nz/Dairy-Farm-for-sale/104.9-Ha-Conditionally-SOL...

Posted on another thread previously. A friend was saying half a dozen sold in the last 12 months in the greater south Auckland area for the same if not more money. Off the street door knocks for prices that would never make the returns from dairy farming alone to people who told the current owners to keep farming the place like it's their own, or have leased for cheap. No two guesses required for the nationality.

Agree on the type of land being sold into foreign hands, apart, possibly, from some of that Crafar land, some of which was land that was forestry land, can't imagine that stuff returns much without a lot of input, but I still think that purchase was a foot in the door for vertical integration which is as much a concern, if not more, than simple land purchase.

The Truth may create crises, but lies lead to catastrophe

(Reminder for HSBC, and CBA and Citibank and......Jean-Claude Juncker, of course)

Monetary officials continue to maintain that inflation will eventually meet their 2% target on a sustained basis. They have no other choice, really, because in a monetary regime of rational expectations for it not to happen would require a radical overhaul of several core theories. Outside of just the two months earlier this year, the PCE Deflator has missed in 62 of the past 64 months. The FOMC is simply running out of time and excuses.

The updated estimate for the PCE Deflator in August 2017 was 1.43%. Despite a large contribution from gas and energy prices that boosted the CPI, indicated consumer price inflation here was basically unchanged from the last two months. In fact, the rate of growth has settled down right about where we thought it would going back to last autumn; the predictable contribution, and then withdrawal, of oil price base effects largely concluded. Read more

Low-Balling Inflation Puts the Fed at Risk

.Beware of any metric that doesn’t fully reflect housing prices.

The U.S. has an inflation problem. It has nothing to do with inflation being too high or too low. Unlike the raging inflation of the 1970s, it doesn’t need to be solved with a lengthy and painful recession. Instead, it is a problem of measurement because the cost of housing — the single biggest expense for many Americans — isn’t explicitly included in the inflation data.

…Recent research from the Bank for International Settlements finds that the transmission mechanism for monetary policy has shifted. In their paper “Monetary Policy Transmission and Trade-Offs in the United States: Old and New,” Boris Hofmann and Gert Peersman concluded that changes in monetary policy — rate hikes or rate cuts — are being filtered into the economy increasingly through housing prices and less so via businesses raising prices as in years past. So even though the Federal Reserve’s policies are causing those prices to rise, they aren’t registering in the form of higher overall inflation.

..This creates a troublesome landscape for executing monetary policy. The Fed is wedded to a 2 percent annual inflation target without being able to get a reliable read on whether it is accomplishing that goal..
Bloomberg, September 28

shadow stats calculates CPI inflation with the methodology used back in 1980 and also the method used in 1990. the 1980 method has it at almost 10% the 1990 method has it at about 5%
http://www.shadowstats.com/alternate_data/inflation-charts

From time to time I check this site to remind me that the CPI is NOT "inflation" .. but just a manmade construct that tries to measure one of the ways monetary inflation can manifest in an economy. ( consumer prices)

http://www.shadowstats.com/article/no-438-public-comment-on-inflation-me...

I have just looked at a world map and 15% of Australia by surface area is probably as big as Japan , Hong Kong South Korea and Taiwan combined .

And enormous areas of Australia are very barren lands that I very much doubt are being acquired.

Have you noted that the area in foreign ownership actually FELL in 2017 ?

After Friday's Ping An $5.3 million fine money-laundering facilitation the test today will be how many of the huge numbers of Queen St hole-in-the-wall money-changers don't open for business

FEAR OF CHINA not FEAR OF NON-WHITE PEOPLE!!!!

All up, foreigners own less than 15% of their agricultural land. But just like in New Zealand, it is only 'news' and generates political angst in some quarters when people notice the Chinese (non-white?) ownership.

I highly doubt that much of the anxiety about Chinese ownership is about the colour of anyone's skin. I personally have never heard a single expression of anti-Chinese sentiment that was based on a lack of whiteness. Is there anywhere near the same fear and anxiety expressed towards other Asian cultures (Japan, Singapore, South Korea, Thailand, Vietnam, even India)? No. There isn't. This suggests that the issues are far more complex than a lazy assumption like "non-white".

I would suggest that FEAR-OF-CHINA is to do with power, conquest, difference and imperialism. Much like the fear of Islam. Most of the world lives with America's soft power and the remnants of European soft power and imperialism (although I am not suggesting that this is superior or preferable). Chinese culture is very very different. Very different, by itself, can be enjoyed, embraced and nurtured. Very different, very powerful, and MASSIVE-GLOBAL-OWNERSHIP-SHOPPING-SPREE can be unsettling and provoke fear.

The Land ownership data from Australia, much like our pathetic LINZ data, is not weighted by the value of the land. Useless.