Key China benchmarks slow; German growth rises; IEA sees 'major upheavals'; Venezuela in default; FDA approves digital drug; Aust. confidence high; UST 10yr yield at 2.40%; oil down, gold up; NZ$1 = 68.8 US¢, TWI-5 = 71.9

Here's my summary of the key events overnight that affect New Zealand with news of huge shifts coming in the energy market.

But first in China, factory output and retail sales growth both slowed in October although they are still expanding at a relatively high rate.

The German economy grew by +2.8% in Q3 2017 from a year ago, driven by strong investment. Italy said its growth rose to +1.8% year-on-year. But there were slowdowns in France, Spain and the Netherlands.

In a major assessment, the International Energy Agency is predicting "major upheaval" as the US becomes the world's largest oil and gas producer, while China overtakes it as the biggest oil consumer. It sees energy demand rising by +30% by 2040 driven by higher consumption in India. It also sees renewable energy sources gaining to supply 40% of the increase in demand. They see coal's share collapsing and oil's falling. Gas will hold its own, they say. Through all this, demand signals will be driven by China. And most of that renewables supply will originate in China. But the largest impact will be from energy efficiency - they say demand growth would be double the +30% predicted without the major strides being made in efficiency.

Standard & Poor's has declared Venezuela to be in "selective default". It's state-owned oil company has also defaulted. The country owes its creditors US$140 bln and now can't pay the interest due let alone the scheduled principal. Nor can it get any agreement to roll over its facilities.

In the US, their Food & Drug Administration has approved the world’s first digital drug, an antipsychotic pill that signals smartphones once it reaches the gut so doctors can track whether patients are taking their medication. It is the start of a pharmaceutical revolution.

In Australia, the latest survey of business confidence has it at record levels. The rises are across all industries including retail. According to the National Australia Bank's monthly business survey, business conditions rose Australia-wide by seven points to 21 points in October, a record high and up to four times the long run-average since the report began in 1997.

And staying in Australia, the ex-CEO of ANZ has apparently never heard of Godwin's Law. He is accusing their Government of whipping up mobs to turn on banks. "Hitler did it," he said.

In New York, the UST 10yr yield is at 2.38%, -2 bps lower than this time yesterday.

The price of crude oil is down -US$1.50 to just under US$55.50 / barrel, while the Brent benchmark is just over US$61.50.

The price of gold is up +US$7 at US$1,279 oz.

The Kiwi dollar's softer tone is continuing. We are now just under 68.8 US¢. And on the cross rates we are at 90.2 AU¢, and against the euro at 58.5 euro cents. That puts the TWI-5 index at 71.9.

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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40 Comments

sometimes I have to work, interesting now it's in the public domain what action gets taken and the trade repercussions.

Under this govt we may be headed in the same direction as Venezuela. Turns out Steven Joyce was right all along Labour do have an $11 billion hole!
https://i.stuff.co.nz/business/98870648/economists-see-government-debt-r...

from the article " In the days following the election Bagrie had also warned that if National had been able to form a Government, it too was likely to borrow more than planned to secure the support of NZ First"

Still suckling the lemon of defeat eh delboy?

Do lemons suckle?

Not particularly, I dislike all politicians. National had become too smug and needed taking down a peg or two.

Credible attempt at a disingenuous segue Rastus - to remind you, Delboys point was about Labours denial of a fiscal hole, not what the Nats budget may or may not have been. There always was a hole, Joyce spotted it first, Robertson emphatically denied it.

And you are not being disingenuous. I think you missed the bit about NZ First. Labours policies on there own may not have resulted in the fiscal "hole" but having to incorporate NZ First's policies as well may make a difference.

'may' (not have) being the key word. Robertson's budget even without NZFs reckless promises relied on heroic assumptions about future growth, increased recovery of corporate tax etc.

Labours capitulation to NZF spending demands means NZ will now be forced to borrow significantly more. Lefties can blame Peters but Ardern had a choice, as English demonstrated.

" Italy said its growth rose to +1.8% year-on-year." Looks good, but Italy was Greece before Greece was Greece, and still is by the look of it!

Quantitative easing by the ECB has worked wonders for Italy’s apparent fiscal health. It has mopped up half the gross supply of Italian debt, shaving at least 100 basis points off Rome’s borrowing costs. But it has not changed the country's underlying pathologies. “The end of QE poses a threat to Italy. As the ECB pulls back, it will have to find new marginal buyers of its sovereign bonds. This might not be easy,” said HSBC’s Europe Economist and a former trouble-shooter during the eurozone debt crisis for the UK Treasury.
The country must refinance debt worth 17pc of GDP next year – one of the highest ratios in the world – yet there are no obvious buyers to step into the breach.

http://www.telegraph.co.uk/business/2017/11/13/italy-risks-storm-qe-ends...

There are any number of things which may precipitate the next financial crisis.

and everyone runs to the exit

According to Godwin you can mention Hitler if it is appropriate. I think Godwin is wrong though and he has missed an extremely important aspect about the whole concept of Hitler comparisons. People assume, incorrectly, that Godwin's Law means that whoever uses Hitler first loses the argument. Apparently this is not his 'law' (*see below) but I think it should be. The reason this corollary to the law would be a better law is that in this day and age an opponent is not allowed to counter the Hitler comparison by claiming that in this particular case Hitler was right (stirring up a mob against the banks may be arguably okay) thus it is unfair and should be considered invalid. You make a claim that cannot be reasonably countered in an age of political correctness.

As an online discussion grows longer, the probability of a comparison involving Hitler approaches 1.

If you wanted to use history to make a point in a politically correct way you could just say: In Germany prior to 1939...

Yes I recall watching a video about the US testing a captured V2 rocket and the narrator laughably claimed that Hitler designed and built the weapon.

Today the world's greatest rocketeer is Kim Jong Un.

Or space cadet. It may have been space cadet.

So it is all about context.....

Bitcoin = NZD $9545.62

Contrary to IEA's fake news, there a lot of links here on our energy trajectory... Oil being the master resource
https://srsroccoreport.com/u-s-shale-oil-production-update-financial-car...

http://charleshughsmith.blogspot.co.nz/2017/11/mideast-turmoil-follow-oi...
"Venezuela is just the first domino that's toppling. The Saudi leadership is trying to avoid being in the line of oil exporting dominoes that will fall in the 2018 global recession"

The world would be wise to increase the use of electric cars and buses instead of fossil fuel engined vehicles .

And governments should be incentivizing the use of electric vehicles using both carrots and sticks

yes ... you mean electric trams and buses in cities .... wait a minute - didn't we rip them all out?

rip and ripping, I think Wellington's trolley buses just went?

The thing about "market forces" is they dont see past next week so an oil shortage a month away isnt even considered let alone mitigated.

They are.. regional fuel tax in Auckland, priority/transit lanes for EVs, no RUC for EVs for another 4 years at least. But EVs are still only a good option for city dwellers or as a second car for now. (unless you have 6 figures to drop on buying a Tesla)

The new model looks like being only around $50k here.

Unfortunately, no ludicrous mode. Only 5.5 seconds to 100kph. Psshhht.

Its still a growth for ever model. Thing is being able to extract lithium or any other raw material, transport it, process it, finish it and transport it to point of use still takes and I think will always take prodigious amounts of fossil fuels.

So yeah sure some of us will have EVs but not that many. And when the panic comes I expect they'll be confiscated under emergency powers anyway.

Could someone please give us a rundown on what exactly Bitcoin and crypto currencies are and why they increase in value so rapidly and what actual use they will be to anyone.

- bitcoin - a new age tulip mania whereby any man or his dog can create purely speculative "investment" and bless it with a official sounding ICO.

Bitcoin is / was used on the dark net for illegal purchases however there have been several instances of people setting up escrow services and then disappearing with the money.....crims ripped off by more savvy crims....

http://nymag.com/selectall/2017/07/alphabay-exit-scam-may-be-the-biggest...

- Fiat - a new age tulip mania whereby any man or his dog can create purely speculative "investment" and bless it with a official sounding ICO.

Any particular cryptocurrency, possibly. However, the value proposition of the underlying blockchain technology is sound and will stick around. Distributed ledgers and everyone having a copy of the truth.

I agree Rick...check out the forward thinking Canadians..hope fully will be introduced to NZ soon.
The technology puts control of personal information directly in consumers' hands and uses blockchain, the digital ledger, to privately share details without going through a central system. That avoids creating "honeypots" of data that could tempt hackers, according to Wolfond.

"This is transformational for identity," Wolfond said in a phone interview. "It makes it easier for me to prove it's me and harder for the bad guy to masquerade as me."
https://www.stuff.co.nz/technology/digital-living/98893860/forget-iris-s...

Nothing can explain it better than the original whitepaper. Here's the link:
https://bitcoin.org/bitcoin.pdf

Could someone please give us a rundown on what exactly Bitcoin and crypto currencies are and why they increase in value so rapidly and what actual use they will be to anyone.

The price of crude oil is down -US$1.50 to just under US$55.50 / barrel, while the Brent benchmark is just over US$61.50.

Hmmmm....

In other words, oil may be rising on upside risk potential, the Middle East at the forefront of those, but also the small possibility that “globally synchronized growth” does happen, that the Fed does get one thing right after the last ten years. If it was anything other than a slight probability, with actual evidence for it, WTI would be flirting with $90 or $100 because that’s how markets work.

So when the International Energy Agency (IEA) cuts its forecast for global crude demand growth, those downside risks are also factored in to the price holding it below $60. For the mainstream, however, it’s somehow a bit shocking: Read more

The marginal cost of new oil fields is in the $80~90US range and oil fields typically take 5~8 years to get on line. Assuming that is correct then it makes no business "sense" for oil companies to develop these fields while oil is $55 until they are needed ie the market price is $100+. Then the time lag bites and prices will rise, $148 caused a mega recession, the only Q is how far away is such an event.

IEA lives in lala land IMHO, it projects demand, supply will however be limited and that means longer term its rationed via a price model....

So, quelle surprise, Venezuela has finally run outta OPM.