US budget deficit jumps, outlook dims; Japan re-elects Abe; UN embarrasses itself again; Baltic Dry high; bitcoin surges above US$6,000; UST 10yr 2.38%; oil up, gold down; NZ$1 = 69.6 USc, TWI = 72.4

Here's a special holiday update of some key events and data you may want to know about today.

Locally, interest rates are up in wholesale markets and exchange rates are down. 'Stagflation' may be a term we need to refamiliarise ourselves with.

The Americans have recorded their largest annual budget deficit in four years, highlighting the nation's worsening fiscal trajectory as lawmakers consider a US$1.5 tln tax cut. A Treasury Department report released over the weekend showed that the budget deficit for fiscal 2017 grew by +US$80 bln, to US$666 bln (a number their Bible Belt will notice), as federal spending eclipsed revenues and economic growth remained average. The deficit also edged higher as a share of the economy, rising to -3.5% of gross domestic product from -3.2% last year. The ballooning deficit comes as Republican lawmakers push for deep tax cuts that could turbocharge their national debt, and do little for growth.

In Japan, Prime Minister Shinzo Abe has achieved a big electoral victory, helped by improving economic growth.

Today, there is disbelief in the UN/WHO decision to appoint Robert Mugabe as its Goodwill Ambassador for Africa. The WHO claims Mugabe's Zimbabwe "places universal health coverage and health promotion at the centre of its policies to provide health care to all". UN corruption is famous, but this one is more validation that it has completely lost its way.

In Australia, they are about to triple the penalties available to watchdog ASIC to punish companies for wrongdoing. They are also looking to force companies to forfeit the profits from such law breached.

Regular readers will know that we prefer to take the temperature of world trade by reference to airfreight shipments. That replaces the traditional measure, the Baltic Dry Index. However that older index is on the up as well. It climbed to a three-and-half-year high at the end of last week. The Baltic Dry measures the trade in bulk commodities. It ended the week at at 1578 its highest since March 26, 2014. It is a significant rise from its low point of 290 reached in February 2016.

Bitcoin surged to a record high of almost US$6,200 on Saturday, pushing its market capitalisation to US$100 bln at one point, as investors continued to bet on an "asset" that has a limited supply and has paved the way for a whole slew of crypto-currencies. The price is still above US$6,000 this morning. A sudden rush in by big-time investors is driving the surging demand.

In New York, the UST 10yr yield is sharply higher, now at 2.38%.

The US benchmark oil price is marginally higher today and now under US$52 a barrel, while the Brent benchmark is just under US$58.

The gold price is lower by more than -US$9 at US$1,278/oz.

The New Zealand dollar is significantly weaker as part of the election response by markets and now at 69.6 USc. On the cross rates it is down to 89 AU¢, and 59 euro cents. The TWI-5 is now down at 72.4. These are shifts that will definitely require price increase responses for most imported goods.

The easiest place to stay up with event risk over the holiday period is by following our Economic Calendar here »

Daily exchange rates

Select chart tabs »
The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a 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.

14 Comments

"Investment" in bitcoin seems to me to be a bit like investing in art. It also has the feel of a ponzy scheme to me.

Bitcoin is worse, you can't even hang it on the wall.

UN at it again. "The World Health Organization’s cancer agency dismissed and edited findings from a draft of its review of the weedkiller glyphosate that were at odds with its final conclusion that the chemical probably causes cancer.

...Reuters found 10 significant changes that were made between the draft chapter on animal studies and the published version of IARC’s glyphosate assessment. In each case, a negative conclusion about glyphosate leading to tumors was either deleted or replaced with a neutral or positive one. Reuters was unable to determine who made the changes."

https://www.reuters.com/article/us-who-iarc-glyphosate-specialreport/in-...

Homelessness Reveals the 'Blatant Failure' of Capitalism: New NZ PM. Read more

Sputnik News?

I'm wondering if we should build special facilities for the homeless and micro manage them. This would provide training in life skills, ensure the kids are healthy and house them before they transition to their pre-fabricated homes in the new towns. I'm sure Kate, gingerninja and PocketAces would would agree to this plan.
I call it the New Deal for the Homeless.

The homeless definition in NZ is very broad compared to other countries. In NZ you are classed as homeless if you are temporarily living with friends or family, in emergency/homeless accommodation etc.

Due to our welfare system definitions, we appear to have more homeless than a place like Lativa, for example, where homeless is classed as "sleeping rough". Jacinda has said she will change these definitions so no doubt many of our homeless will simply disappear under the new government at the stroke of a pen.
http://www.oecd.org/els/family/HC3-1-Homeless-population.pdf

Outrageous Fortune?

With the world's focus falling on Beijing this week, where president Xi Jinping give a glowing account of China's future during the 19th Party Congress, boasting that “the banner of scientific socialism with Chinese characteristics is now flying high and proud for all to see," not all are impressed by China's vision of the world in which China sees itself as increasingly taking over from the US as the world's superpower. And it's not just stories about China's neverending behind the scenes bailouts of anything that may telegraph a hard landing for the economy (as decribed in "China's Government Is Expected To Buy 24% Of All Residential Real Estate For Sale In 2017"); it's the country's entire financial system, which Kyle Bass has been shorting for nearly two years now but which he has failed to recognize now holds the entire world hostage: if it goes, so does the global financial system, unleashing a worldwide depression the likes of which have not been seen. Read more

Underpinning the strategy is a cycle of debt. Cities borrow from state banks for purchases and subsidies, then sell more land to developers to repay the loans. As developers build more housing, they, too, accrue more debt, setting up the state to bail them out again. The burden on the state rises, as does the risk of collapse.

Ring any bells?

The Federal National Mortgage Association (FNMA), typically known as Fannie Mae, is a government-sponsored enterprise (GSE) founded in 1938 by Congress during the Great Depression as part of the New Deal. It was established to stimulate the housing market by making more mortgages available to moderate- to low-income borrowers.

Fannie Mae does not originate or provide mortgages to borrowers. It purchases and guarantees them via the secondary mortgage market. In fact, it's one of two of the largest purchasers of mortgages on the secondary market. The other is its sibling, the Federal Home Loan Mortgage Corporation, or Freddie Mac, which is also a government-sponsored enterprise created by Congress. (For more, see: How Does Fannie Mae Make Money?)

By investing in the mortgage market, Fannie Mae creates more liquidity for lenders, such as banks, thrifts and credit unions, which in turn allows them to underwrite or fund more mortgages. According to Fannie Mae, since 2009 it has provided $4.2 trillion in liquidity to the mortgage market.

.The mortgages it purchases and guarantees must meet strict criteria. For example, the limit for a conventional loan for a single family home in 2014 is $417,000 for most areas, and $625,000 for high-cost areas including Hawaii and Alaska.

In order for a mortgage lender to be eligible to be backed by Fannie Mae it must agree to not practice unethical subprime lending practices. Subprime loans have higher rates than prime rate loans and are offered to borrowers with poor credit who are considered a higher risk by the lender. (For related reading, see: Subprime Lending: Helping Hand or Underhanded?) Read more

(Further....)

The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that's using an exchange rate of call it 6.7 to the dollar, right? So it's grown 1,000% in a decade. And we're on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves...Somebody's going to be holding that baby in the end, and China's got the biggest basket in the short dollar issue.... And what about a time horizon?.... my best guess is between November and call it June. November 2017, June 2018.”

Just an opinion, of course, but....it's November...next week....

http://www.zerohedge.com/news/2017-09-17/kyle-bass-chinas-40-trillion-ba...

Outrageous Fortune? - I feel that when this party ends in a monsoon of tears, a house invested in better be a family home you love to live in. If you're fortunate enough to have savings suggest spread it amongst the strongest banks, this will help limit any personal OBR impact. Those who lose least will win most. As today's highly leveraged face an "out of love" era with houses and stocks, it won't be pretty, it will be down right scary.

"ANZ to settle BBSW.... it has brokered a deal to pay around $80 million to settle the long-running bank bill swap rate case."
http://www.afr.com/business/banking-and-finance/anz-set-to-settle-bbsw-c...

Wellington to Auckland on less than one tank of fuel.

https://www.bloomberg.com/news/articles/2017-10-18/toyota-targets-620-mi...

Lots of cars already do that, it's only 650kms. 60L tank and 15km/L is 900km range. And that's easy in a non-hybrid 2004 Honda. A Prius would probably do there and back on the same gas. I wish they'd stop wasting time on hydrogen, it's a daft idea, difficult to store, transport and not economical to make in the first place.

Balancing the grid in Europe using Hydrogen seems a good way of saving all the surplus renewable energy....especially when they are so close to brown outs. Large scale adoption of Battery Electric Vehicles can't happen due to grid constraints so they need to find a way around it.