90 seconds at 9 am: Yuan management changes

US manufacturing jumps; Canada's likewise; China improves yuan signals, suggests more reform coming; China fx outflow becomes inflow; UST 10yr yield at 2.36%; oil down, gold unchanged; NZ$1 = 68.6 US¢, TWI-5 = 71.7

17th Nov 17, 7:36am by David Chaston

Here's my summary of the key events overnight that affect New Zealand with news of interesting changes in how the Chinese are managing their currency.

But first, American industry rose strongly in October, with output up +1.3% and making up almost all output lost from prior month storm effects. Hurricane-related catch-up drove most of the growth, with cars and car parts playing a big part in the rise. There was a strong rise in Canada as well.

A new New York Fed analysis of the Chinese yuan concludes that it is behaving more like a managed float than its previous arbitrary settings. It is now much more responsive to economic and market signals, despite some occasional "assistance" from key SOE trading. However they note that the real test will come when there is downward pressure on the Yuan; will it then be allowed to follow market signals? And there are new internal calls for changes in the way exchange rate policies are managed.

In China, non-financial outbound investment slumped to US$86 bln in the ten months of 2017 to October, a drop of over -40% from a year earlier, as projects in some industries dried up. Most outbound investment that was approved was in leasing and business services, manufacturing, wholesale and retail sales and IT services. The Chinese government is making a big effort to halt "Irrational" outbound investment and that has been successful in halting net capital outflows. In calendar 2016 that outbound investment hit US$170 bln. However, for the first time in two years, Chinese foreign currency reserves had a positive gain in September, and in October that gain rose to +US$2.8 bln in the month.

And China is flirting with a new real estate property tax as a way to curb irrational property speculation.

A new analysis out in Canada suggests their employment growth is about to hit a snag. After rising growth for almost all of 2017, Canadian jobs growth is expected to turn negative in October.

In New York, the UST 10yr yield is at 2.36%, +2 bps higher than this time yesterday.

However, the price of crude oil is lower today, now just over US$55 / barrel, while the Brent benchmark is just under US$61.50

The price of gold is unchanged at US$1,277 oz.

The Kiwi dollar is little changed today as well. We are at under 68.6 US¢. And on the cross rates we are at 90.4 AU¢, and against the euro at 58.3 euro cents. That keeps the TWI-5 index at 71.7.

And the roller-coaster ride continues. Bitcoin has powered to a new all-time high, currently trading at US$7,706.

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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16 Comments

by Tom Joad | 17th Nov 17, 7:50am 1510858214

TradeMe Auckland residential listings up by nearly 500 in a week. Now nudging 12000.

Popcorn shortage warning issued.

by Groen_mamba | 17th Nov 17, 7:52am 1510858345

How did B&T auctions go yesterday?

by David Chaston | 17th Nov 17, 8:36am 1510860967

We will have a report, due soon.

by frazz | 17th Nov 17, 8:50am 1510861822

Might get a fanta and crunchie, no word from Eco Bird lately?

by Uninterested | 17th Nov 17, 9:24am 1510863866

Yes I've been noting it down every Friday.
Fri 27th: 10585
Fri 2nd: 10966. 381 gain
Fri 10th: 11494. 528 gain
Fri 17th: 11986. 492 gain
And as some are suggesting, the increased QV out soon may cause a few more to be put on the market as well.

by Plutocracy | 17th Nov 17, 12:12pm 1510873938

It's over 12000 now. The smart money has left Auckland, now it's a rush to the exits as people try to capture whatever gains they can before they evaporate.

by Stephen Hulme | 17th Nov 17, 9:19am 1510863548

It's called the American 'Dream' because you have to be asleep to believe it.

Federal Reserve officials are pushing for a potentially radical revamp of the playbook for guiding U.S. monetary policy, hoping to seize a moment of economic calm and leadership change to prepare for the next storm.

While the country is enjoying its third-longest expansion on record, inflation and interest rates are still low, meaning the central bank has little room to ease policy in a downturn before hitting zero again.

The Fed in 2012 officially settled on 2 percent inflation as an explicit target for the price stability half of its dual mandate from Congress. The other goal is maximum sustainable employment.

Allowing prices to rise slightly higher would give the Fed more scope to ease in the next downturn. The federal funds rate is quoted in nominal terms, or not adjusted for inflation. So if neutral stands at 0.5 percent, in real terms, and prices are rising at a 3 percent pace, the Fed can get rates as high as 3.5 percent before policy would be restrictive. If inflation were only 2 percent, that level in nominal terms would be 2.5 percent. [emphasis added] Read more

What other than easing have central banks been up to for the last decade?

by CJ099 | 17th Nov 17, 9:49am 1510865341

Intresting how even China is prepared to do something about their local property speculators by taxing those who land bank in their over crowed cities by taxing them. Looks like this is a growing global trend that's highly likely to take effect here too.
Of course many Auckland second home owners will moan that they're having to pay extra tax on their holiday batch. But I sure Labour will be kind enough to extend a loophole for kiwi citizens.

Let's face it we need to do something about empty homes especially in Auckland.

by Yvil | 17th Nov 17, 3:28pm 1510885727

The government is not going to earn much by "taxing those who land bank" as you claim, you cannot own land in China, LOL

by Stephen Hulme | 17th Nov 17, 10:54am 1510869295

China’s central bank boosted its supply of money to the financial system by the most since January, adding to speculation that policy makers are looking to ease concerns sparked by a bond market selloff.

The People’s Bank of China pumped in a net 310 billion yuan ($47 billion) through reverse-repurchase agreements on Thursday, the biggest one-day addition since Jan. 18. That brings this week’s injections to 820 billion yuan, also the most in 10 months. Read more and more

by bw | 17th Nov 17, 11:52am 1510872771

"Look. I know I owe you a couple of hundred million bucks, but I can't just give it to you, because, you know, it was for 'Special Deals'. So I tell you what! There's this painting that coming up for sale....."

How is this, or any other recent asset market dealing, possibly any different that Gangs laundering their money through the local property market?

by Stephen Hulme | 17th Nov 17, 12:10pm 1510873841

I had extensive bullion dealings with an art dealing family reputedly worth $6 billion. They built it up from scratch in the 60's when Picassos were selling at $60,000 - the underlying business premise was that which underpins rare stamp collecting - there is only one of each example and pay up at public auctions to revalue existing stock .

by Yvil | 17th Nov 17, 3:38pm 1510886317

Did they sell everything every time the market went down or did they ride it out and hold long term ?

by dictator | 17th Nov 17, 12:18pm 1510874292

Time to sell that painting (or whatever other inflated asset) to make the minimum payments. I'm used to helping people sort out $50k of credit card debt. The minimum payments for credit card debt eventually become overwhelming. I dread to think what the minimum payments on $300m @ 2.5% would be like.

by Yvil | 17th Nov 17, 3:29pm 1510885795

Have you ever considered that a painting doesn't provide you with income ?

by bw | 17th Nov 17, 3:56pm 1510887400

So a bit like a Negatively Geared house then?! "But it will become Positively Geared, one day!" is the usual answer. But it never should as part of a portfolio, should it, if the tax system is used to its full advantage....