US sentiment falls; China opens up financial industry, Singles Day hits stunning levels; China SOE banks hit limits early; Saputo to challenge Fonterra; UST 10yr yield at 2.40%; oil and gold lower; NZ$1 = 69.3 US¢, TWI-5 = 72.5; bitcoin tumbles

Here's my summary of the key events over the weekend that affect New Zealand with news Chinese consumers may be taking over the role American consumers have of driving the world economy.

Firstly in the US, consumer sentiment slipped sharply in early November, and unexpectedly, though the index remained at the second-highest level of the year so far. The University of Michigan's index fell to 97.8 in November, well below the expectations of a level higher than the 100.7 index at the end of October.

Over the weekend, China announced that foreign financial institutions can set up there independently. It is a major step toward opening of its financial system, saying it will remove foreign ownership limits on banks while allowing overseas firms to take majority stakes in local securities ventures, fund managers and insurers. China is raising its foreign ownership cap from 49% to 51% and said it will scrap the limit altogether in three years. It's being claimed a 'big bang' moment, one Wall Street has waited a long time for. Others doubt its importance, noting how hard it is to operate in China profitably given the sector is dominated by State-owned enterprises.

China 'Singles Day' sales have reached gigantic proportions. Alibaba said it sold more than US$25 bln of merchandise through their Alipay payments platform on November 11, 2017, an increase of +39% compared to 2016. Mobile Alipay accounted for 90% of total Alibaba sales that day. Think about that. $25 bln plus in just one day. Its a monumental level. US$1 bln in one year is huge; US$25 bln in one day is in another sphere altogether. And that's not all: JD.com said it booked US$19 bln in sales over an 11 day period, stretched so it could handle the logistics. Other rivals also booked huge increases this year. This sort of activity is certainly large enough to think that the Chinese consumer could replace the American consumer as the driver of the global economy. As a point of reference, the whole US economy books activity of about US$50 bln per day.

And staying in China, their major (SOE) banks are in trouble with regulators, lending more in the nine months to September than for all of 2016. The four large one are having to get waivers from those regulators and that is putting a crimp on second tier banks. The central bank is trying to restrain runaway lending growth. At this rate it is up more than +30% pa. The Chinese media is calling this a "tightening".

The financial crisis in Venezuela is getting severe now. The state electricity company defaulted. And the International Swaps and Derivatives Association is to decide soon whether late and partial payments of US$1.2 bln due last week from their state-owned oil company constitutes a default. It probably does. The creditors can now take legal action to confiscate Venezuelan assets abroad, such as oil tankers or even refineries owned by the US-based Venezuelan subsidiary Citgo.

In Australia, Fonterra's new status as Australia's largest dairy company after the stumbles and auction of Murray Goulburn, is going to come under quick challenge from Canadian giant Saputo which is close to acquiring MG. Saputo announced it is ready to pay "leading prices" to dairy farmers for their milk. Game on, and Fonterra's new-found profitability there could be short-lived.

In New York, the UST 10yr yield ended last week up sharply at 2.40%.

The price of crude oil is slightly lower at just under US$57 / barrel, while the Brent benchmark is just over US$63.50.

The price of gold is also quite a bit lower, down -US$11 at US$1,275 oz. The bitcoin price has fallen very sharply, down -$1,100 and now at 'just' US$6,076. That is a -15% drop in just two days and in NZ dollars bitcoin is now priced at NZ$8,776 and a long way from the NZ$10,600 it was at the end of last week. Fast up, followed by very fast down.

The Kiwi dollar ended last week on a slightly softer note. We are at just on 69.3 US¢. And on the cross rates we are at 90.5 AU¢, and against the euro at 59.4 euro cents. That puts the TWI-5 index at 72.5.

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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47 Comments

You would be a very brave bank to want to set up in China given the uncertainty of regulation and currency manipulation.

Do you believe the ECB is not manipulating the Euro?

The Eurogroup: The banker cabal hidden in plain sight

The Eurogroup is, at face value, an informal monthly meeting of the finance ministers of the member countries. Ah, government representatives getting together for discussions and planning – sounds democratic, right? Hardly….

I will quote Varoufakis often, because his matter-of-fact condemnations will carry more weight than my own:

“Moreover, the Eurogroup, where all the important economic decisions are taken, is a body that does not even exist in European law, that operates on the basis that the ‘strong do as they please while the weak suffer what they must’, that keeps no minutes of its proceedings, and whose only rule is that its deliberations are confidential – that is, not to be shared with Europe’s citizenry. It is a set-up designed to preclude any sovereignty traceable back to the people of Europe.”

So there are no rules, no records, no democratic process and no democratic accountability…and this is what is in charge of the world’s largest economic engine.

These are appalling realities. They cannot be diffused widely enough or often enough. Read more

Thanks for the Saker link Stephen.

Good interview here with Yanis Varoufakis:

Yanis Varoufakis blows the lid on Europe's hidden agenda

https://www.youtube.com/watch?v=nGt82RFfg3U

In New York, the UST 10yr yield ended last week up sharply at 2.40%.

Hmmmm...

If it is a day ending in “y” you can be sure there is somewhere in the financial press a story or “news report” of the looming bond selloff – even if it is due to some future event or made up phenomenon. Today’s is another in the series this time using a dramatized setup for technical analysis. A three decade old trend is inching closer to breaking:

With inflation only disappointing, the labor market, too, the comparatively slight economic rebound on the wane, and liquidity risks rising (slowly) all over the world (not just US$ repo and Hong Kong) there are much clearer downside risks being fed into UST futures than what the Fed is going to do regardless of them. The result, classic yield curve flattening, is all the evidence one really needs of where things stand. Read more

I dont really understand this stuff. Presumably when the bond sell off occurs interest rates will take a tumble while the Fed tries to raise rates....???

When bonds are sold off their prices decline and the income from the bond remains the same and therefore their yields (interest rates) increase. A bit like if the price of a rental property goes down, and the rent stays the same, this results in a higher % yield.

In an interesting piece of analysis by the Tranick Lab at MIT, the emissions over the life of conventional cars and electric cars were compared. The three cars analysed were: Tesla Model S P100D, BMW 7 Series 750i xDrive and a Mitsubishi Mirage CVT. The analysis showed that the emissions over the lifecycle of the three cars ranked the BMW with the highest, then the Tesla with the winner being the Mitsubishi. Not the answer you would expect.

say it aint so ... i thought Tesla was the future ...

https://seekingalpha.com/article/4122890-tesla-approaches-terminal-decline
"The Tesla narrative is based on an illusion, a contradictio in adjecto - the promise that humankind can shop and consume itself into a sustainable future. However, even a million Teslas on the world’s roads will not impact the environment for better or worse. It is a systemic issue. The Financial Times agrees. Sustainability and promoting the purchase of raw-material consuming heavyweight products are mutually exclusive"

Over the lifetime...so factoring in the initial construction as well as the life's use and the destruction/recycling.

Makes me wonder why they chose two large cars against the very small Mirage CVT. Given a massive component must be the emissions in the construction of the cars, that would hand the Mirage a huge advantage from the get go.

The results were (in grams of total CO2 per km driven):
- BMW 750i - 385
- Tesla P100D - 226
- Mitsubishi Mirage - 192

Given that the largest Tesla with a 100kwh battery pack is nearly as good as the smallest petrol car, it is definitely an improvement although not enough to save us long term (gains will be overtaken by increasing car ownership).

Presumably a Nissan Leaf with a 24kWh battery would be significantly less than the Mitsi.

The following should really be quoted whenever the Tranick Lab results are reported.

"It should also be noted the Model S’ emissions are based on it being located in the US Midwest, meaning its use emissions are tied to the CO2-intensive ways in which electricity is produced there. Professor Trancik cautioned that “if we consider the US average electricity mix, the CO2 emissions intensity of the Tesla Model S is significantly lower than that of the Mirage.”

The US Midwest is less that 10% renewable, hence crap placement in the report. Put the Tesla in a country/state that is 80% plus renewable like NZ or California and it'll win that test by a large margin.

https://www.eia.gov/todayinenergy/images/2016.06.17/chart3.png

Put the Tesla in a country/state that is 80% plus renewable like NZ or California and it'll win that test by a large margin.

Not sure your reference source to claim that NZ / Cali are 80% "renewable" (whatever that means), but you'r wrong.

"In 2014 79.9% of New Zealand's electricity was generated from renewable sources. Hydro stations accounted for 57.1%, of total generation, with the balance from geothermal stations (16.2%), gas (15.7%), coal (4.3%) and, bio-mass plants and wind farms (6.7%)."

from http://www.mbie.govt.nz/info-services/sectors-industries/energy/electric...

One of the issues I saw with bitcoin is that the volatility would prevent it becoming money like. How would you feel if you take payment for your product, and the next day the value of that payment drops 15%? But I still wish I had bought some at $250USD.

I wish I had bought UST 15% 30 year bonds back in 1982. The Japanese scooped them up in nearly every auction at the time. Got their money back ~six times.

I am beginning to regret that I used mine to buy drugs.. Might be some sort of life lesson there...

Ah, the avocaffine smack... guilty of that too...

Free Trade be damned - UK government underwrites Saudi trade credit.

The UK Treasury, according to CityAM, is said to have carried out substantial due diligence, and is now in the process of "finalizing" a credit backstop for the world's largest oil producer via the UK Export Finance (UKEF) group, which provides overseas purchasers of UK goods and services with credit lines and guarantees in order they buy British. Read more

The Saudis are major buyers of British military good, particularly the Eurofighter Typhoon.

Jacinda needs to order 10,000 of these pronto - "Arkup, the “avant-garde life on water” company, has designed a new luxury home that integrates solar on the roof and a newly approved lithium ion marine battery system. The main selling features are that it can rise with sea levels via jacks, withstand extreme weather, move as a regular electric propelled boat, and provide it’s own water plus – of course – electricity."
https://electrek.co/2017/11/10/solar-and-battery-technology-power-a-nove...

How to really cut your CO2 emissions - let the EU run your economy. Germany wastes $222 billion on Energiewende yet the biggest reason for CO2 reduction... "Our results suggest that, by far, the biggest share of abatement was attributable to the effects of the economic crisis."
http://www.sciencedirect.com/science/article/pii/S0140988315001061

"Germany has spent an estimated 189 billion euros, or about $222 billion, since 2000 on renewable energy subsidies. But emissions have been stuck at roughly 2009 levels, and rose last year, as coal-fired plants fill a void left by Germany’s decision to abandon nuclear power."
https://www.nytimes.com/2017/10/07/business/energy-environment/german-re...

dp

Farmers should be afraid, very afraid.

todays Herald - http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1194...

I have tried it and its b.e.a. beautiful.

i don't think the usual kiwi head in the sand approach is going to work here....

Milk is next.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1193...

So the green hollywood and tech folk are backing this on the basis of do good by the planet? If it just becomes a population growth enabling exercise then might not get a pass on that front. Not saying it isn't viable though.

Hi Profile...

Producing all the materials for this sort of thing is what causes the Climate Change, so producing these would be a double negative...never mind a whammy in a storm of humongous proportions.
Would not rock-my-boat anyway. Could play "Pitch and Toss" pretty frequently, storms come out of nowhere these days..
Any port in a storm will be im-material if we keep "Global Warming' on a high.
Any Tidal Wave and you would end up with yer Crows Nest up with a real crows nest.
Do not wish to be negative, but a home from home on a boat, that cost the Earth is what is gonna be the final straw.

Stupidity come in big packages. We will all pay for it in the end...Mark my Words.

If ya need a boat to live on...Think reasonably small not big. And a bow to cut through the waves, would be sensible. OH! and a Life Boat to call on when needed...We ain't got enuff now.

I do like sailing before the mast in old boats, already built,...but living it up large, is self defeating.

A bit Like building electric cars to save us all....now it is too late. A plug for Tesla...I ain't.

Alter - you lost me on the beginning of the first sentence... I was thinking more of the we're running out of land and NIMBY brigade.

The UK on the other hand is positively bursting at the seams compared to us "Actual built-on land in the UK comprises only around 6% of the total. The rest is made up of natural wilderness (35%), farmland (57%) and green urban areas (2.5%)."
https://www.theguardian.com/commentisfree/2017/nov/12/britain-overcrowde...

Hi.Profile, etc.

Taint what I meant..We is tainted. Not so much in NZ....but too much crap here anyway, just adds to the mess, we are producing on a compounding Daily Basis. Rough seas...just a buy product.

I could explain, but maybe these 15000 scientists will make my point.

http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=11943717

"Investors cause housing crisis" Herald today.

http://www.nzherald.co.nz/sponsored-stories/news/article.cfm?c_id=150370...

Makes my blood boil

up
11

Phil - I think the buck stopped with the Pm of Parnell and his crony the double dipton billshitter.
They were in charge but not sure really what they actually did in 9 years. They definitely did not put the breaks on these investors, foreign buyers, whatever. It was all " nothing to see here, what Crisis- how about those All Blacks". What indeed.

Still waiting for someone to list that dastardly duos achievements. Pls dont say that they got us thru the GFC and an earthquake. The drovers dog could have done that by borrowing and selling off the silver like they did.....

Geez Smalltown - Helen used to own six houses back in the day and the prices went up faster under Labour's tenure than National so you really need to blame all pollies - not just your pet bogeymen.

"But data shows that, historically, it has been Labour governments that have overseen New Zealand's biggest house price rises.

Data from CoreLogic shows house prices grew 49 per cent from 1990 to 1999, under National-led governments.

Then, from 1999 to 2008, prices rose 113 per cent under the last Labour-led government.

Through the most recent government's term, there was 69 per cent growth in house prices nationwide."

https://www.stuff.co.nz/business/property/98475352/labour-governments-ha...

i think you might find there was the small thing called the GFC in 08 .... where it became somewhat obvious (or should have) that a debt based money free for all utopia has very clear limits .. Obvious to all but good old shonkey apparently, who then helped sweep everyone under the bus

"Data from CoreLogic shows house prices grew 49 per cent from 1990 to 1999, under National-led governments"

So from 1990 to 2008 we had a housing (exponential) bubble taking off driven by tax free capital gains and in 2008 the GFC cut that in half.

Double, rather than exponential. Simple explanation is pollies own lots of houses and aren't as altruistic as they, or their ardent supporters, think they are.

"Data from CoreLogic shows house prices grew 49 per cent from 1990 to 1999, under National-led governments.

Then, from 1999 to 2008, prices rose 113 per cent under the last Labour-led government."

National campaigned on the housing crisis and the fact they were the party to take action and address it. But they did nothing, and changed to denying any crisis existed. That's the problem.

1. Identify a problem and promise action.
2. Gain power.
3. Pretend the problem doesn't exist, instead.

No denying Labour did a bad job. But that's why people voted for National, based on their campaigning.

Percentages also only tell half the story. They've left out absolute numbers along with multiples of household incomes.

And of course under the recent National Government interest rates were very low so house price increases more rapidly outpaced the cost of living fpr most New Zealanders (read non property speculators.)

Or that other path to power:

1. Identify a non problem (CO2 is flavour of the month) and promise action
2. Gain power and spend loads of taxpayer money and achieve nothing (see Germany example above)
3. Tell the voters how caring you are compared to the other lot.

Yes, Labour did a bad job of housing too. Amazing how people have a problem with this rather obvious fact.

Wow - CO2 is not a problem. Who knew?

(See my comment a few above re "i don't think the usual kiwi head in the sand approach is going to work here....")

Yes, a bunch of parasites on hard working people. And surprise surprise the Herald telling the truth.

Only poor hard working people. If you are making good money then investing a "pension" in housing makes good sense as the payout is tax free.

but this is so endemic that there are not enough voters left to stop it. What is interesting is the research shows just how big the problem is.

The problem now is, more FHB's are getting onto the property treadmill, and they will also be casualties together with speculators. Innocent/ignorant bystanders in the war against property speculation.

Groen_mamba , what do you mean by more FHB are getting into the market, relative to what metric?

Agree actual numbers haven't increased for FHB's. https://www.rbnz.govt.nz/statistics/c31 . The concern is that they haven't dropped significantly either, which means they are continuing to buy at the top of this price cycle, increasing the total number which will be exposed to negative equity when prices decrease.;

There is no war lol. And what is everyone talking about with specuvester? Most people buying houses for rent keep them long term. That is why home ownership rates fall. If they bought and sold, then you would not see home ownership rates falling...

Depends on how you are measuring home ownership.. With population growth exceeding construction rates you get intensification.. 2 household(s) living in what was and may legally still be one house. Even if one of those households are actually the owners then that is counted as only 50% owner occupier. If you measure if by number of dwellings owned by occupiers/total dwellings that is a owner occupied dwelling and counts as 100%.