Here's my summary of the key events overnight that affect New Zealand with news the outgoing head of ASIC has ripped into the auditing firms.
But first, there was an impressive consumer confidence survey out earlier today in the US. That showed confidence increased to its highest level in almost 17 years in October after remaining relatively flat in September. Consumers’ assessment of current conditions improved, boosted by the job market which had not received such favourable ratings since the summer of 2001. Consumers were also considerably more upbeat about the short-term outlook, with the prospect of improving business conditions as the primary driver. Confidence remains high among American consumers, and their expectations suggest their economy will continue expanding at a solid pace for the remainder of the year.
And new data out today shows the American home ownership rate rising again, and for the fifth quarter in a row. It is now at 63.9%. (The equivalent NZ rate is 62.9%.)
The World Bank has released its "Doing Business 2018" report and New Zealand tops the rankings for the second year in a row, ahead of Singapore and Denmark. Interestingly, our score in this survey is miles ahead of second place Singapore. (see p 11).
In China, there is hint of drag in their latest official PMI reports. Both slipped for the period ahead of the Communist Party congress. The manufacturing index fell to 51.6 in October from 52.4 in September. The services index fell to 54.3. Both are still showing good levels of expansion, despite the slippage. Their pollution crackdown may be the cause.
The EU released data that shows it growing at the rate of +2.5% in the year to September.
Here is a lesson in the cost of trying to manipulate your own currency for political purposes. Switzerland wanted to reduce the value of its currency which it thought was being marked by the market "too high". So it bet the store. At first the policy was a dud. The Swiss franc rose even though they had poured billions into the effort. But they kept going, eventually pouring an incredible US$750 bln (NZ$1.1 tln) into the effort. And that has finally worked. In fact the Swiss National Bank has just reported a profit from the exercise of NZ$44 bln, a +4% return. But it is trapped. It can't cash in any of that result because to do so would require it to buy its own currency, reversing the effort.
In Australia, the outgoing head of ASIC said in an interview with the AFR that the quality of Australian corporate audits is appalling and getting worse, potentially leading to an Enron-style corporate collapse. It is so bad, he said, government intervention in the audit market – assigning auditors to jobs and setting the fees they can charge – should be seriously considered. He claimed declining audit quality was a "sleeper" issue, with his staff finding serious issues with a quarter of key audit areas within reviewed reports. And he claimed the big four accounting and consulting firms – Deloitte, EY, KPMG and PwC – have privately acknowledged the problem, but publicly wanted to keep a lid on questions about the quality of their auditing service. These firms have disputed that.
In New York, the UST 10yr yield is unchanged at 2.37%. Across the Pacific, Chinese Govt bond yields rose further with their 10 yr now up to 3.92% - and their 5 year is now now at 3.96%.
The price of crude oil is higher again today, now just under US$54.50 / barrel, while the Brent benchmark is just under US$61.50.
The price of gold is down -US$7 at US$1,267 oz.
The Kiwi dollar is lower today. We are now at 68.4 US¢. And on the cross rates we are at 89.3 AU¢, and against the euro at 58.7 euro cents. Against the British pound, we are at 51.5 pence, the lowest since June 2016. That puts the TWI-5 index just under 71.6.
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 ».
Daily exchange rates
Select chart tabs
17 Comments
The Swiss debacle cost more then meets the eye. When they abandoned their efforts in 2015, it sent FX brokers, broke and cost untold numbers of investors a lot, if not all, that they had.
"on January 15th, when the Swiss National Bank (SNB) suddenly announced that it would no longer hold the Swiss franc at a fixed exchange rate with the euro, there was panic."
https://www.economist.com/blogs/economist-explains/2015/01/economist-ex…
In the press release announcing a removal of the currency “floor”, the SNB made a point that is somewhat clouded by these arrangements but very clear in the proper context:
Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified. [emphasis added]
Notice the highlighted phrase as it more than implies what is important is not the euro but the “dollar.” In short, by tying the franc to the euro the SNB had made Swiss banks’ short “dollar” position as untenable, or nearly so, as those in Brazil or China. As the “dollar” “rises”, gets more expensive in funding, Swiss banks are squeezed in the same manner as their emerging market counterparts – though not likely, yet, which is the point here, to the same degree.
Will Trump get praised for the good news coming out of the US?
Also National must have been doing somethings right for NZ to be #1 in the Doing Business 2018 report. Will be interesting to see how next year's one looks.
In other news China is clamping down on dissent:
Disrespecting China's national anthem could result in three years in prison
I ask again though, is there any law in NZ that prohibits an ex Chinese Communist Party member from becoming an MP? It seems to me that someone who was interested in a political career in China would need to be a member. Such a person may want to follow the same career if they emigrated.
Does anyone know?
I have no problem with someone who worked for Cinese secret service. I myself worked for a computer software house and one short contract was for a major tobacco manufacturer. I did my job because I wanted the money and Dr Yang may have done the same. But if asked I'm very happy to criticise cigarettes and I never kept my previous employment secret when I applied for NZ residency. My problem with Dr Yang MP is his unwillingness to say anything negative about the Communist Party of China nor anything positive about any of its critics (Tibetans, Falun Gong, etc). Please ask me to criticise either the UK or NZ governments - could keep writing for a month.
If I had a chance to vote for Jain Yang would not or at least not until he clearly expressed why he chose to come to NZ - is it just better pay or does he actually prefer living here?
I have no problem with someone who worked for Cinese secret service. I myself worked for a computer software house and one short contract was for a major tobacco manufacturer. I did my job because I wanted the money and Dr Yang may have done the same. But if asked I'm very happy to criticise cigarettes and I never kept my previous employment secret when I applied for NZ residency. My problem with Dr Yang MP is his unwillingness to say anything negative about the Communist Party of China nor anything positive about any of its critics (Tibetans, Falun Gong, etc). Please ask me to criticise either the UK or NZ governments - could keep writing for a month.
If I had a chance to vote for Jain Yang I would not or at least not until he clearly expressed why he chose to come to NZ - is it just better pay or does he actually prefer living here?
Most experts contributing to the discussion have noted it's not normally possible for someone in intelligence to "leave" the party - which raises doubts about the nature of Jian's work, and questions about why he was was removed from the foreign affairs, defence and trade parliamentary select committee and the fact Bill English has so far refused to explain why (also re SSIS investigation).
Was he China's eye in the Five Eyes?
There's also the fact he appeared to admit to lying on his citizenship application because the Chinese state told him to. That would seem to be against NZ law.
National seem to be using the same stonewalling tactic that served them well with making the Todd Barclay issue go away: https://www.youtube.com/watch?v=mic4nP2Rdns
Chinese Govt bond yields rose further with their 10 yr now up to 3.92% - and their 5 year is now now at 3.96%
Hmmm....
Inversion in the 5s10s is about long versus short, bonds as well as economy. Five years and in reflects perceptions about what is happening right now; five to ten, the curve space where almost all the real money goes, the belly, is about how the short run may affect ultimately the long run – or not.
In other words, rising nominal rates as the 5s10s flattens and/or inverts suggests that the bond market perceives perhaps better economic growth now (or, alternately, lack of PBOC money market control), but that it won’t last much beyond now. In terms of China’s economic history the past five or six years, maybe Governor Zhou is right (for once) and that Chinese growth “may surprise to the upside” but it won’t be the kind of acceleration that changes China’s dangerous zero-growth economic baseline. Read more
China has developed a system of cross-border payments in yuan, the China International Payments System (CIPS), to expand the use of its national currency in international payments, according to Prikhodko. He said some Russian banks have already joined CIPS. Read more
Enron quality auditing is expected as it's a common problem. Unfortunately you can only sweep financial problems under the rug for so long. There have always been problems that will emerge the same as every other time a bull market ends.
Talking about bull markets that are over the euphoria in Auckland has officially ended with a $1m shack in Ponsonby failing to sell. It's now referred to as a "rickety old shack" instead of an "opportunity".
https://www.stuff.co.nz/auckland/98425259/rickety-old-ponsonby-shack-fa…
In Australia, the outgoing head of ASIC said in an interview with the AFR that the quality of Australian corporate audits is appalling and getting worse, potentially leading to an Enron-style corporate collapse. It is so bad, he said, government intervention in the audit market – assigning auditors to jobs and setting the fees they can charge – should be seriously considered. He claimed declining audit quality was a "sleeper" issue, with his staff finding serious issues with a quarter of key audit areas within reviewed reports. And he claimed the big four accounting and consulting firms – Deloitte, EY, KPMG and PwC – have privately acknowledged the problem, but publicly wanted to keep a lid on questions about the quality of their auditing service. These firms have disputed that.
That is truly remarkable. Thus, I have remarked on it.
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.