US job growth underwhelms; US slaps Canada; US truck orders zoom; Canada jobs improve; China risks rise, QE jumps; Venezuela infects bond yields; UST 10yr yield at 2.33%; oil up and gold down; NZ$1 = 69.1 US¢, TWI-5 = 72.5

Here's my summary of the key events over the weekend that affect New Zealand with news there are emerging threats to junk bond yields.

First however, in the US the non-farm payroll report was better than for September, but markets were underwhelmed. 261,000 new jobs were added in October, less than the 313,000 expected, and the unemployment rate edged down to just 4.1%, in fact a 17 year low. Wages are up +2.4% but those gains are slowing. In fact, that was the slowest gain in more than 18 months.

And Trump has confirmed that Jerome ("Jay") Powell will replace Janet Yellen at the end of her term at the US Fed chair.

The US has leveled new duties on Canadian softwood lumber and is threatening Canadian milk imports. It's an NZ$8 bln annual trade. Canada said it will take the US to the WTO over the matter. Both countries are also trying to 'renegotiate' the NAFTA Agreement.

Orders for heavy-duty commercial trucks in North America soared in October, reaching the highest level in nearly three years. Trucking companies last month ordered 36,200 big rigs. That was up +60% from September, and a +160% gain from a year ago, when truck orders plummeted.

North of the border, Canada produced a bumper jobs report, and it is seeing wages growing more positively, up +2.4% year-on-year. The combined impact however was to draw more people back into their labour force and in fact their jobless rate rose marginally to 6.3%

In China, their financial system is getting significantly more vulnerable due to high leverage, according to central bank governor. Risks are growing he said, including some that are "hidden, complex, sudden, contagious and hazardous," even as he claimed the overall health of the financial system remains good. The government should also open up financial markets by relaxing capital controls and reducing restrictions on non-Chinese financial institutions that want to operate on the mainland, he said.

China added more than NZ$100 bln to the liquidity of its banking system in October, according to official data. That means it has now built up liquidity support to just a whisker shy of a massive NZ$1 tln - this is China's version of quantitative easing.

An interesting, and potentially worrying, situation is developing in Venezuela. They have signaled they need to 'restructure' their US$150 bln foreign debt. Investors until now had just assumed they would keep on making interest payments, partly because the country is being backed by Russia and China. But the US has it under embargo and the IMF is unhappy, so markets now are realising a 'restructure' is unlikely, especially as China and Russia will move to reinforce their priority. Default is looming. Junk bond yields are rising fast for the debt of other emerging economies. And that is threatening places like Turkey. The main investors likely to be hurt are large hedge funds who drank the Kook-aid. The losses could be steep for them. And their pain could be felt in corporate junk bond credit markets which have had a surprising rally recently. Something to watch closely. Graeme Hart will be.

In New York, the UST 10yr yield ended last week lower at 2.33%.

The price of crude oil is noticeably higher, up more than +US$1, now just under US$55.50 / barrel, while the Brent benchmark is just over US$62.

The price of gold is down to US$1,268 oz.

The Kiwi dollar is little changed today. We are now at just under 69.1 US¢. And on the cross rates we are at 90.2 AU¢, and against the euro at 59.5 euro cents. That puts the TWI-5 index just on 72.5.

If you want to catch up with all the changes on Friday, 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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16 Comments

A chocolate fish for whoever can find the first mention of "New Zealand" in this - https://projekte.sueddeutsche.de/paradisepapers/politik/the-new-offshore-leak-e969006/

I win. The Cook Islands, John Key, his lawyer Kenneth Whitney and NZ feature in the AFR article here;

The files raise questions about the loose oversight role that New Zealand's government holds over the Cook Islands, a year after the Panama Papers forced changes in how New Zealand foreign trusts operate.

Former Allens Arthur Robinson lawyer James McConvill reported after a 2010 marketing trip for Appleby to Auckland and Wellington that law firms told him that then Prime Minister John Key was leading measures to promote New Zealand as an offshore hub through foreign trusts, which pay no tax on earnings outside New Zealand.

"Apparently the New Zealand Prime Minister is personally pushing the proposal, and it is expected to come into effect in 2011," Mr McConvill reported.

"In numerous meetings I was told that this proposal, if implemented, could lead to a lot of work for Appleby and other offshore firms." 

http://www.afr.com/news/policy/tax/paradise-papers-link-to-firm-that-sued-murdered-malta-journalist-daphne-caruana-galizia-20171105-gzf1v0#ixzz4xaUXSbUb

People should buy up more of Argentina's 100 year junk bonds, there's no risk of default there.

Somewhat surprised nil mention of the events within Saudi Arabia over our weekend.

Quite. "the grandson of Abdulaziz ibn Saud, founder of Saudi, has gone from a relative outsider in the royal family to one of the world’s richest and most recognisable investors"
Aside from a possible a Friday lunchtime date in the Public Square in Riyadh at some future stage, this could shake-up not only those in Saudi , but those in many other countries.....
https://www.ft.com/content/84a3b114-c23e-11e7-b2bb-322b2cb39656

I read "The Kingdom" a year or two back and the catch 22 the House of Saud found themselves in hasn't changed since the early 70's. They invested their considerable surplus income (double their expenses) from oil in western stock markets. They could not scale back their oil production because the resultant increase in the oil price would collapse the value of their investments. Kicked the can down the road.

I debated whether to include. There was a lot of other stuff more directly relevant for the NZ economy however.

"Russia has signed agreements with Nigeria to build and operate a nuclear power plant in the oil-rich West African nation that has a deficit of reliable power and faces security challenges by Islamist militants in the far northeast."

Fair bit of coal there too but at least Nigeria are doing their bit fighting on the front lines of climate change.

Jerome Powell is moderate, he is middle, and he is mediocre. He is collaboration, he is consensus, but chiefly he is continuity. He is, in short, the last thing we need.
Ever since he joined the US Federal Reserve as a Governor in 2012, Jerome Powell has been a loyal foot-soldier in the élite army that backs Yellenist fantasies about massive QE and Zirp (along with a barrow load of tapering lies) being a measured response to untargeted credit......he also seems a little slow to grasp the successful campaign by Wall Street to dilute, undermine and reverse all the measures we were told would ensure that 2008 “never happens again”.
The FT described his appointment to the Fed Chair last Friday as ‘only the start’. In which case, I’m bound to observe that Powell’s accession marks the start of more of the denialist fairyland we had before....To understand this opinion, you have to accept one simple truth about macro-economic data: they do not measure what is, but rather that which suits the neoliberal monetarist narrative.... I have tried to show that gdp and earnings growth, inflation rates and unemployment numbers use an injudicious mixture of selective measurement, silly estimates and voluntarily applied blinkers.....It is in the midst of a joyously Jobless Recovery that somehow means 96 American adults out of 100 have a job....All you have to do is ignore the 7.6% of Americans who have given up looking for a job. (NB – 7.6% is a bigger number than 4.1%)

(John Ward)

... he has been a loyal foot-soldier in the élite army = Donor Class

It has been widely reported that Yellen was "fired" while Powell is sympathetic to Trump = rubber stamp

Their backgrounds, Powell and Yellen, could not have been more different. The current Chairman was an academic economist, a PhD in every sense. The likely next Chairman was, as he told Congress in testimony in support of his nomination to the Federal Reserve Board in 2012, a lawyer, an investment banker, and an investor (private equity).

On the surface, they should be night and day. Yet markets so far, as well as most commentary, find them to be roughly equivalent. Most focus on the perceived “hawkishness” or “dovishness” of each person as their defining standard, and finding them in equal measure, but it’s actually much more basic than all that. Read more

And ... in the short space of a few years Alan Greenspan PhD has already been forgotten

It is in the midst of a joyously Jobless Recovery that somehow means 96 American adults out of 100 have a job....All you have to do is ignore the 7.6% of Americans who have given up looking for a job. (NB – 7.6% is a bigger number than 4.1%)

Hmmmm....

Slowing labor participation is the reason the unemployment rate keeps falling to ridiculously low levels. Even though total employment fell back by 484k for the Household Survey in October, the much larger decline in the labor force left the unemployment to drop to just 4.1%, the lowest since December 2000.

Economists have tried their best to ignore those 15 or 16 million (or more) Americans who have fallen outside the official labor force tally. There are all sorts of explanations, really rationalizations, why it might have been appropriate to do so, but with the level of the unemployment rate and continued slack still being indicated in not just wages but national incomes and spending, too, there really is no option but to reject those benign interpretations. Read more

And ...
Ben Shalom Bernanke said he would begin raising interest rates when unemployment fell to 6.5%

He lied

The US has leveled new duties on Canadian softwood lumber and is threatening Canadian milk imports. It's an NZ$8 bln annual trade. Canada said it will take the US to the WTO over the matter. Both countries are also trying to 'renegotiate' the NAFTA Agreement.

Hmmm...

The US decision to increase antidumping duties on Chinese aluminum foil is an attempt to assure voters that Trump hasn't forgotten his promises to be tough on Chinese imports; however, imposing higher tariffs on Chinese goods is a "double-edged sword," Alexander Larin of the Russian Academy of Sciences' Institute of the Far East told Sputnik.

The US decision to increase antidumping duties on Chinese aluminum foil has angered China ahead of President Trump's visit to Beijing on November 8.

On October 27, the US Department of Commerce announced it would impose preliminary import duties ranging from 96.81 percent to 162.24 percent on the product, citing concerns that Chinese state subsidies for the domestic industry mean that aluminum foil is being sold at unfairly low prices. Read more