China new loans rise less than expected; Juwai issues 'last chance' promotion; RBA laments lack of bank support for SME lending; UST 10yr yield at 2.40%; oil and gold unchanged; bitcoin bounces; NZ$1 = 69.3 US¢, TWI-5 = 72.5

Here's my summary of the key events overnight that affect New Zealand with news the pressures are on for a flatter rate curve.

But first in China, new loans issued in in October came in under market expectations, indicating that official pressure to quell credit growth may be having some impact. It brought the slowest loan growth in a year. The growth in their money supply in fact was the slowest since January 1996, even though it was up +8.8%. And all this comes as more off-balance sheet loans have been dragged on-balance sheet. The push to deleverage the system is showing some signs of working; but the issue will be that this is not helpful for growth.

Chinese realestate listing service Juwai has announced that it is to run a major promotion of New Zealand residential property to its readers, saying now is the time to move before restrictions kick in. "Act now before you miss out" is their campaign headline.

In Australia, their central bank has taken aim at the lending practices of banks, criticising them for lack of support for small business lending. "It's not the absence of entrepreneurial spirit, it's the absence of entrepreneurial finance that's been the main factor holding that part of the economy back," they said. And it seems to be more than just lack of support; banks seem to penalise the small in favour of the large. In fact they show that interest rates charged small enterprises are double those of large ones.

In New York, the UST 10yr yield is unchanged today at 2.40%. But their 2-10 spread is now its flattest in ten years. In fact the whole US yield curve is flattening. Demand is rising for 'duration' while supply is rising for short term issues, causing a squeeze. It is a trend that seems unlikely to go away soon.

The price of crude oil is also little changed at just under US$57 / barrel, while the Brent benchmark is just under US$63.50. However Opec says it sees higher demand for crude oil in 2018.

The price of gold is also unchanged at US$1,272 oz.

The bitcoin price recovered overnight and is up more than +US$500 from where we left it at 4pm yesterday, up to US$6,438. Still, it is a long way lower from its price on November 8 when it reached US$7,722.

The Kiwi dollar has extended its slightly softer note. We are at just under 69 US¢. And on the cross rates we are at 90.5 AU¢, and against the euro at 59.2 euro cents. That puts the TWI-5 index at 72.3.

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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18 Comments

Banks have always been punitive towards small business owners. some years ago when i looked at buying a business it was the finance cost that made it unprofitable. Everything else was great. the bank essentially demanded that I sell my soul for their support. I talked to a friend however who had set his business up without finance, building it slowly as a self employed, hiring staff as his customer base grew. Now with 20 staff, he says he regularly gets visits from the bank who want to lend him money! He just politely invites them to ensure they don't get hit in the butt by the door as they leave while he asserts considerable self control.

I suggested to him that he could offer to sell them 49% of the business (at an exceedingly fair price of course!) but he just laughed and said they keep turning him down on that offer!

NZ & AUS banks just want our houses - because the RWA capital leverage concessions are greater for residential mortgage assets and thus bank profitability.

I think you'll find Murray that small businesses are the greatest source of repeated loss for banks - If they weren't of such higher risk, and requiring the owner to "sell their soul", we wouldn't need banks, we'd all be investing equity in them as fast as we can - but the facts are as the public few of us do even although we'd be getting 100% of the upside as equity owners which the banks don't get. The truth is banks know a hell of alot more about the associated risks, and structure or refuse such business based upon decades of experience.

But we desperately need new businesses. When small businesses borrow they get to pay higher interest rates which add onto an already high cost structure. So yes failure is high but often due to unforeseen costs imposed by councils and other regulatory boards.

When you look at all the big businesses in NZ most started in someones garage, now those same businesses use regulation and trade restrictions to stop competition.
Eventually NZ won't be able to keep it's standard of living without borrowing, oh wait..

Chinese marketing NZ property before restrictions come in - Jacinda should make owning property against the law for foreigners. Make it that all foreigners have five years to either divest themselves of the property, or gain residency and become residents here at least. That way we'll know for certain just how much property is affected. Having residency, but not living here should not be an option - smacks too much like bribery!

I wonder on how easy it is to get residency though? Say, you send your child to a NZ uni doing something like Business or accounting and during that time buy up properties via a company you form. Then employ the child as the financial officer or something?

I agree on divestment, I must admit I assumed this was part of the new restrictions.

Residency, unless its changed you get 2 or 4 years and you have to live here for that time. Otherwise when you come to re-apply if you have only been here say 3 months in those years then 3 months is all you get as a time for the second residency, I watched this happen...

And our new PM is hell-bent on annoying the Australians .

WTF is she trying to prove ?

Its not helped by Labour's meddling before the election and causing the Barnaby Joyce fiasco, which nearly brought down Turnbull's government .

You would have thought that Ardern wold have backed off interefering in Australia's affairs having caused enough damage already .

Now she is kicking the hornets nest over the refugees on Manus Island ( many of whom are suspected criminals and are known to be militant ) and are wanted back in their home countries

So if we accept them , we will need to house them , in the middle of a housing crisis, and feed them , and when some commit offences we will need to incarcerate them at a cost of $100,000 per annum using taxpayers money . And there is a militant undertone among those who are on that island . These are not your 'huddled masses' , but opportunists , who have paid good money to try their luck as ' refugees"

Australia has very good reason for not accepting our offer.

Firstly , these refugees will become NZ citizens , and then by default will get automatic access to Australia .

Secondly , quite .simply , Aussies have just got on top of the people smuggler boats from Indonesia trying their luck , and now if the people smugglers know they can get into New Zealand in a convoluted round trip, they will start all over again . People smuggilng around the world is a massive criminal enterprise and we have it almost everywhere from Central Europe ( France ) to South America to the Middle east , North and South Africa , Indonesia , Malaysia , the Horn of Africa ..

And then , what about our very own homeless New Zealanders ?

Labour garnered a significant number of votes over the issue of our very own homelessness . As far as I know they have done nothing since the election to resolve the issue . Is there even a plan or a strategy ?

I know this is a play on the correct use of the idiomatic expression , but charity does really need to start at home .

"Its not helped by Labour's meddling before the election and causing the Barnaby Joyce fiasco, which nearly brought down Turnbull's government ." Com'n Boatie let's not continue the political distortions that are populist media scandal mongering. Labour did not meddle in Aussie politics. True Hipkins did ask a question in parliament that could have been answered other ways, with less profile, but instead he did it in the open. Australia's problems are caused by their Government enacting poorly written law that is now coming to bite them. One of our ministers asking questions here hardly constitutes meddling in their politics unless you are just a little overly precious - which we know most Australians are!

I must admit though that I do like Fitzsimons opinion piece on Stuff though (here)

And its not like Julie Bishop wasn't meddling in return with her comments before our election here.
The level of comment following our election here and final forming of government was pretty hard to read. Thanks to Pete for making me feel pride in being a kiwi again.

Its already started, Newshub report the criminal gangs have started sending boat loads of refugees towards New Zealand because of Jacinda stating NZ wants to take refugees on Manus Island. Apparently 4 boats have been turned back by Australian Naval patrols in recent days.

http://www.newshub.co.nz/home/new-zealand/2017/11/people-smugglers-take-...

There's little chance their boats will make it to New Zealand so perhaps instead of turning them back Australia can intercept these boats and transport these refugees to New Zealand?

We need to do our bit so perhaps reduce immigration by 20,000/ year and increase the refugee numbers by 20,000/year?

Take the people, scuttle the boats. That will disincentivise the smugglers if their boats become single use only.

Good on for Jacinda for giving the Aussies a poke..unlike the previous Government she is not afraid to push back.As for solving the homelessness in a month, come on Boatman the last government had 9 years at least you could try to be less impatient. Perhaps you could take some in your mansion in Greenhith?

Why poke the Aussies for goodness sake ?

Apart from bowling an underhanded ball a generation ago , what have they ever done to us ?

They keep our entire banking system afloat .Their defence spending covers us not having to do so .They buy more stuff from us than anyone else .

They accept our people in every large numbers with an open door policy .

I dont know what Jacinda is trying to prove, and she seems to be enjoying rocking the boat

What have they ever done to us? Try perpetual bullying - they single out Kiwis in their laws to exclude us from the benefits of contributing to their economy, they blackmailed us over the ANZAC frigates, costing us $500 mil more than if we had them built in the dutch ship yards. Banned our apple exports for decades on the basis of a BS story that was not then or ever based in fact. What have they done? Lots, they deserve no sympathy, they are arrogant and bullies. We do need to push back, not suck up to them.

Isn't it normal for every nation to act in their own interests? (except the Nation-al party of course). Maybe if NZ built a real economy instead of being Australia's back door we'd have some bargaining power.

I suspect the Jacinda's poking the Aussies about Manus Island refugees is actually a way to distract her supporters from the TPP agreement.

Rubbish.

In New York, the UST 10yr yield is unchanged today at 2.40%. But their 2-10 spread is now its flattest in ten years.

A well defined liquidity preference due to a lack of bank capital commitment where potential opportunity could exist but the perceived risk/reward calculations say otherwise.

Though spared the worst, investors came close to creating a scenario where ETF activity drove prices. Calling it the “ETF spiral,” Peter Tchir of Academy Securities Inc. describes a snowball effect where a dislocation develops between the fund price and the value of its underlying assets.

The issue’s endemic to liquid ETFs that trade without dipping into the underlying market. In that case, the selling doesn’t affect the actual securities it holds right away, so for a time the fund is priced differently than the cumulative value of its assets, known as its NAV.

Here’s where an arbitrager can step in, selling the individual debt securities and buying the newly discounted ETF, all the while profiting off the price discrepancy. The arb provides a service to the market, narrowing the gap between the price of the ETF and the underlying bonds with each trade.

But according to Tchir, the process isn’t always so smooth. When fixed-income traders become concerned about illiquidity in a falling market they’ll perpetuate the selloff by driving down bond prices even faster than the ETF, or short the ETF as a hedge, he said.

“It is this additional nervousness (which is largely rational) that feeds the potential spiral effect rather than closing the discount as one might expect,” Tchir wrote in a note on Nov. 10. “Discounts to NAV in high-yield and leveraged loan ETFs open the market up to more selling pressure rather than less.” Read more