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Republicans battle each other on tax cut; China inflation up; China housing fall expected; gold demand drops; EU growth rises; AU home loans fall; UST 10yr yield at 2.32%; oil and gold unchanged; NZ$1 = 69.5 US¢, TWI-5 = 72.8

Republicans battle each other on tax cut; China inflation up; China housing fall expected; gold demand drops; EU growth rises; AU home loans fall; UST 10yr yield at 2.32%; oil and gold unchanged; NZ$1 = 69.5 US¢, TWI-5 = 72.8

Here's my summary of the key events overnight that affect New Zealand with news more analysts are expecting 2018 to be bring higher economic growth.

Firstly, in the US, the battle for a signature Trump tax cut is shaping up to be one between two Republican factions. The House Republican version is quite different to the Senate Republican version. Both are enormous offering US$1.5 tln in tax reductions. But half the benefits will go to "the 1%", according to one analyst. (Golf course tax breaks are not being changed.) Substantial delays in getting the this program passed are now expected.

Chinese consumer inflation edged up to just under 2% in October, its highest level of 2017, but the signals are that the rise is losing steam. Producer prices are up +6.9% pa.

And Moody's is reporting they expect Chinese residential property sales to fall in the second half of next year due to extended government property restrictions. They say sales will likely fall by up to -5% for the second half of 2018, following an estimated growth of more than +7% for the full 2017 year.

The World Gold Council has released its Q3 stats and that shows a sector in demand decline. Demand in the quarter was at its lowest level in nearly ten years. Supply on the other hand was at its highest level in 13 years. The price in USD has risen +10% since the start of 2017, but with a demand/supply mismatch like this continuing it is hard to see that being sustained. And more supply is coming.

The European Commission has raised its 2017 growth forecast for the eurozone and expects the 19-country bloc to grow by +2.2% this year, its fastest pace in a decade.

Housing finance data out in Australia yesterday looks a little grim and far below expectations. Finance commitments for owner-occupied housing is down -2.1% in September compared with the same month a year ago. Finance commitments to investors is down much more sharply by -6.2%.

In New York, the UST 10yr yield is still at 2.32%. Moody's is reporting that defaults for junk-rated corporate debt is falling world-wide and will be at the rate of 2.7% in 2017. (It was at 4.8% at this time a year ago.) It is marginally higher for 2017 in the US at 3.0%. They see significantly lower rates of default in 2018. A broadly expanding global economy is driving the good experience, up +3.2% in 2018 and +3.1% in 2019, similar to 2017 and up from +2.5% growth in 2016.

But the situation is getting tougher for HNA. Last week we reported them having to pay 8.875% for some emergency US$300 mln short term funding. Now they have done a repo deal in Europe for another NZ$35 mln.

The price of crude oil unchanged at just under US$57.50 / barrel, while the Brent benchmark is just over US$63.50.

The price of gold is also unchanged at US$1,286 oz. The bitcoin price has had a very sharp correction from yesterday's heady heights. It is down to US$7,182, a fall of -7.1% in a day.

The Kiwi dollar is slightly firmer today. We are now at just on 69.5 US¢. And on the cross rates we are at 90.7 AU¢, and against the euro at 59.7 euro cents. That puts the TWI-5 index at 72.8.

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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9 Comments

"John Cryan (Deutsche Bank's CEO) is almost too honest. It’s not good for morale....In 2015 he was the antidote to take the poison out of Deutsche Bank...But he’ll go....I’d be surprised if he was still there this time next year."
And we wonder why the World is in such a pickle. A good read...
https://www.ft.com/content/60fa7da6-c414-11e7-a1d2-6786f39ef675

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"[G]ive us billionaires an extra hundred years and you'll know what ... wealth disparity (really) looks like."

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In an ever-widening gap, the troika of America’s richest people has as much money as do 160 million of their compatriots in the bottom half of the US population, which the Institute for Policy Studies (IPS) warns has created a “moral crisis.’

A report prepared by the Washington-based think tank and aptly titled “Billionaire Bonanza,” estimates the combined wealth of Bill Gates, Jeff Bezos and Warren Buffet at a whopping $248.5 billion.

It warns that President Trump’s proposed tax reform would “exacerbate existing wealth disparities” as 80 percent of tax benefits would end up in the pockets of the country’s wealthiest 1 percent. Read more

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Steve Keen a useful idiot? They don't seem to be holding back from defamatory statements, not only that but he's running circles around them. Perhaps they hate modern monetary theory and want to keep status quo on inequality.

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I would be less worried about what facebook is doing for kids than what it is doing to 40-50 something year olds. Those are the people with purchasing power, so advertising will be directed towards them.

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I thought the new government spelt 'economic disaster' for NZ??????

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I can only recall National Party MPs making public statements to that effect. They are very bitter sore losers. I'm almost in the mood to watch Bill English's victory speech from election night again.

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How long can the Chinese manufacturers hold up selling price hikes? Producer prices have consistently hit higher than expected rates for over a year now but the Chinese have been forced to absorb those costs for the fear of losing their cost competitiveness to other Asian countries.

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