Fed Beige Book positive; Trump reveals Fed shortlist; US homebuilding sags; Rio Tinto charged with fraud; Canada factory output jumps; OECD warns on pensions; UST 10yr yield at 2.34%; oil and gold unchanged; NZ$1 = 71.5 US¢, TWI-5 = 74.2

Here's my summary of the key events overnight that affect New Zealand with news Rio Tinto is to face a major fraud charge centered around some dodgy market disclosure.

But first in the US, the Federal Reserve reported that economic activity "grew at a measured pace" across the country in September and October, despite sector-wide disruptions caused by recent hurricanes in the Southern and Eastern states. This Beige Book release was more positive than many had expected.

In Washington, the President is considering his nomination for the Fed chairman position and a decision is expected within two weeks. The candidates are The finalists are now Janet Yellen, current Fed governor Jerome Powell; former Fed governor Kevin Warsh; White House official and ex-Goldman Sachs boss Gary Cohn; and Stanford University economist John Taylor. None are considered a 'favourite' at this stage.

American homebuilding fell to near a one-year low in September as those major storms in the South disrupted the construction of single-family homes, suggesting housing probably remained a drag on US economic growth in the third quarter. Still, that data was actually +6.1% higher than for the same month a year ago. Building permits, while running at a higher level than housing starts, are however actually now -4.3% lower than the year-ago month.

In New York, the SEC charged Melbourne-based miner Rio Tinto and two of its former top executives with fraud, saying it deliberately withheld disclosure and left inflated the value of coal assets in Mozambique when they knew they were distressed, concealing this while tapping the market for billions of dollars. ASIC is now also looking at the alleged flawed disclosure. Rio Tinto claims innocence.

Canadian factory sales jumped in August with a sharp gain. Markets had expected a third straight fall. The positive reversal was based on higher demand in their car industry, and higher oil prices.

News out of China this week is all caught up in shameless propaganda. But we should note that the Chinese yield curve suddenly turned negative overnight - well at least the 5-10 curve did.

The OECD today released a report on what younger people can expect from their retirement programs and the tone was grim. They say younger generations will face greater risks of inequality in old age than current retirees and for generations born since the 1960s, their experience of old age will change dramatically. Moreover, with family sizes falling, higher inequality over working lives and reforms that have cut pension incomes, some groups will face a high risk of poverty. But the outlook for New Zealand presented in the Report is far more positive. Where New Zealand data is referenced, we seem to exhibit few of the issues the OECD is banging on about.

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

The price of crude oil is marginally firmer today and now just over US$52 / barrel, while the Brent benchmark is just over US$58.

The price of gold is marginally softer and now at US$1,283 oz.

And the Kiwi dollar is also marginally softer at 71.5 US¢. On the cross rates we are at 91.1 AU¢, and at 60.6 euro cents. Our TWI-5 index is now at 74.2.

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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11 Comments

Have to admire the US authorities

RIO TINTO is an AU registered company with its shares listed on the AU and UK stock exchanges and ADR's (American Depository Receipts) listed on the NYSE. The company doesn't do any mining in US

The SEC is gunning for RIO and will ping RIO for many millions and fatten it's operating budget nicely thank you while the ASX and LSE and AU and UK authorities remain silent. RIO has an active presence in NZ. Anything happening here?

Two otherguys your interpretation of the details are somewhat misleading.

Crony capitalism at it's best.

Misleading - How so?

The FCA has been working with both US Securities and Australian Securities and Investment agencies, regarding Rio's transparency/ disclosure relating to the changed circumstances in regards to the Mozambique mine. The FCA fined Rio 27.4 million pounds this week. The fact that Rio was actively seeking funds in the United States to promote the venture suggests the SEC will proceed vigorously.

One has to wonder how many $ billions the US authorities have Fined HSBC and Deutsche Bank
Billions and Billions and Billions
Both global banks whose operations are global and whose naughty activities were not confined to just the US but the global system. Yet only the US imposed any penalties

Can you provide any details of any other jurisdictions imposing fines?

The fines were still small enough to make the return on their illegal activities totally worth it, unfortunately. Fines aren't enough. Accountability of people would be necessary to change behaviour.

NZ's mice that roar SFO and FMA each have an annual budget of $9 million which has been acknowledged as insufficient for taking action against felons - hardly inspiring - most of their activities are making press releases on how un-corrupt NZ is. How much better would we be served if both those organisations had held their hand out for just a few million each - they are deliberately underfunded by the government - makes you feel so good

At this point in the longer term process of unwinding the Fed’s prior emergency activities, the yield curve was supposed to flatten. That was the plan all along. If monetary policy was successful, or had even run into just dumb luck somewhere in the last ten years, here where policymakers declare the economy to be short rates would be moving faster than those at the long end.

The flattening is taking place, to be sure, and more so over recent weeks. But it isn’t the same process as would have defined success and recovery; it is instead the opposite indication.

Actual recovery would have been predicted by long rates. Sensing a real reduction in liquidity risk in combination with higher inflation risk (both of which equal out to higher economic opportunity), long rates would have risen faster first, well ahead of short rates stuck at or near zero. The resulting steepening would have been a very positive sign; as it was taken to be in Reflation #1 and Reflation #2 (Reflation #3 was appreciably less so). Read more

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