China pulls plug on new subway plans; China house price growth cools; US housing starts jump; Aust. watching AfterPay, and contactless systems; UST 10yr yield at 2.35%; oil and gold up; NZ$1 = 68.2 US¢, TWI-5 = 71.1; bitcoin at new record

Here's my summary of the key events over the weekend that affect New Zealand with news from around the world

Firstly, China’s full-on and impressive construction of underground transit systems in cities all over the country may be easing. There are reports funding has been pulled for some projects. If China is taking a more discriminating approach to infrastructure growth, it marks an about-turn. The burgeoning public debt required for all these systems will be behind the re-think.

And staying in China, they are claiming 'stability' and 'control' of house prices and to be sure there is some sign of that in the major cities. But prices are still rising fast in the next tier cities. On a month-on-month basis to October, new residential housing prices fell in 9 of the 15 largest cities. But of the 70 large and medium-sized cities surveyed, home prices in 50 cities rose month-on-month, compared with 44 in September. And don't forget, these prices are all for leasehold situations. 'Homeowners' never own the land in China.

In the US, housing starts surged +14% to an annual rate of 1.3 mln units. That was the highest level since October 2016 and also the second-best reading in 10 years. September’s sales pace was revised up to 1.1 mln units.

In Australia, ASIC said it will look into potential risks to shoppers from the boom in new online buy-now-pay-later platforms such as Afterpay. Consumer groups worry these services escape laws designed to protect customers. Merchants are promoting these systems and strong growth in the peak Christmas shopping period is anticipated. The largest provider, Afterpay, does not charge interest, so it is not covered by consumer credit laws. It makes about 80% of its revenue from fees charged to merchants, and the remainder mainly from late payment fees from buyers caught by their impulses.

Auction clearance rates have been high in Australia, but they have been falling in the past four weeks. CoreLogic reports that it was "only 65.4%" in the week that included this weekend. That is down from about 80% a few months ago. (For comparison, we reported an Auckland auction success rate of 25% in our latest survey. We will have another local update tomorrow.)

And again in Australia, the RBA wants banks to push back against Visa and Mastercard who are grabbing most of the transactions for tap-and-go. And those come with high costs, payable by merchants to Visa and Mastercard. Which is why many small businesses resist using the systems. The RBA has threatened regulation if the banks don't open up the option to use the low cost eftpos system for contactless payments.

In New York, the UST 10yr yield is at 2.35%. And we should also report that the 5-10 inverted yield curve in China has disappeared and gone back to a slight positive curve.

The price of crude oil is up by more than US$1 today, now just over US$56.50 / barrel, while the Brent benchmark is just over US$62.50

The price of gold is sharply higher, up +US$17 at US$1,294 oz.

However, the Kiwi dollar will start the week much lower. We are now at 68.2 US¢. And on the cross rates we are at 90.1 AU¢, and against the euro at 57.8 euro cents. That keeps the TWI-5 index at 71.1, which is in fact an eighteen month low.

And the roller-coaster ride continues. Bitcoin has powered to a yet another all-time high, currently trading at US$8,026 having pushed up sharply in the past hour.

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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End of day NY time
Source: CoinDesk

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15 Comments

It should be quite amusing when the Chinese housing bubble unravels.

It's not rocket science that a hard landing of the Chinese economy is inevitable. The day of reckoning has been repeatedly delayed using old tools. The more its delayed, the harder the landing will be for us all. Shed that debt now!

Yes agreed, China must be very much in debt if they're having to curtail their major infrastructure development. But that's what happens when you turn a blind eye for years on huge amounts of capital outflows. Doesn't look like they will be lifting their capital controls any time soon.

Consequences. We all know that Ireland overbuilt (or at least that's the reasoning )prior to its housing downturn. It is quite stunning what has risen for 21 consecutive quarters.

Hi Cowpat, X2, Celtic Tiger houses were labelled overbuilt after it all tanked in central Dublin by -60%. It all rose to bubble proportions because there existed a housing shortage in the face of an exploding labour force and easy finance. I suggest it could easily collapse here too as the surplus of highly leveraged sellers mounts, banks further restrict lending, buyers run for the hills and labour exits Auckland Airport.

Hi Retired -Poppy. Sadly , what have risen for 21 consecutive quarters, are rents. As at November 1 , only 3400 properties to rent, just 1300 for Dublin.

In New York, the UST 10yr yield is at 2.35%. And we should also report that the 5-10 inverted yield curve in China has disappeared and gone back to a slight positive curve.

10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity - new low 62bps

If inflation was to actually accelerate along with economic growth and opportunity, bond rates especially at whatever long end would be rising. Each yield curve would steepen first in doing so, and then flatten as the process wound down into full recovery and an actual rather than imagined economic boom.

Yield curves are flattening, alright, only at the start of the process rather than at its end. It’s this that has central banks, and the media, nearly apoplectic. Central banker after central banker says things are working and getting better, and that because of this they will raise the short end of each curve. The bond market reply isn’t that central bankers are wrong about what they will do, it’s more so that markets don’t care one bit because they are wrong about why they will do it.

In short, bonds are calling the inflation/growth bluff. And why wouldn’t they? We’ve heard all this before, several times, and often in just as emphatic terms as now. Let’s not also forget 2004-06 and the last “conundrum” which pretty much amounted to the same exact dissonance. Alan Greenspan said growth was rising and the world normalizing from the dot-co bust while at the same time the US Treasury market said risks were rising not growth. Which view was proven correct? Read more

Contrary to popular belief none of these rivers are in NZ. “Up to 95 per cent of plastic polluting the world's oceans pours in from just ten rivers, according to new research.

Massive amounts of plastic bits that imperil aquatic life are washing into the oceans and even the most pristine waters.

But how it all gets there from inland cities has not been fully understood.

Now a study shows the top 10 rivers - eight of which are in Asia - accounted for 88 to 95 per cent of the total global load because of the mismanagement of waste.

The team calculated halving plastic pollution in these waterways could potentially reduce the total contribution by all rivers by 45 per cent.”

http://www.dailymail.co.uk/sciencetech/article-4970214/amp/95-plastic-oc...

It screams late-cycle liquidity, recalling Japan’s impressionist (painting) fever in the late Eighties before the Nikkei collapsed and the bottom fell out of the art market. Bitcoin clinches the argument. It has risen 1,200pc over the last year to $7,800 - five times an ounce of gold - on a "greater fool" presumption.

http://www.telegraph.co.uk/business/2017/11/19/art-auctions-ring-bell-pe...

...meanwhile gold just went above 60K NZD per kg. Currently $61,161 / kg

The price of parking spaces in some areas of Hong Kong has been growing faster than the price of homes, and has continued to do so over a period of 18 consecutive months, making a tiny piece of concrete a vastly more attractive investment than a traditional flat or apartment in the crowded city. Read more

It looks like we're hitting the peak of a number of bitcoin ponzi schemes. There's plenty of people going all in. We're in the pre-anger phase while people "invested" in the ponzi schemes are being told they will receive their BTC until the penny drops. Others are bullied into not saying anything negative. I guess there's a sucker born every second on the internet.

Here's an example: Bitconnect.

Trevon James has been pumping Bitconnect harder than real estate agents pushing houses. Nothing at all suspicious about going from $110 to $100,000 in 6 months. Most of it is in commissions but the ponzi is in unusually high interest rates (I believe up to 2.5% per day).
https://www.youtube.com/watch?v=EsOBglLht8A&t=95s

A few weeks later he's obviously figured out the ponzi is caving in and he's not as rich as he thought he was. The reason for him rambling is the requirement to not post anything negative or they "confiscate" all of their bitcoins.
https://www.youtube.com/watch?v=Oin7VcJ3VF0&t=296s

jsnip4 is providing coverage of these scam. jsnip4 is a pretty weird guy, annoying youtuber and he's probably a bit unhinged but even he can see it's all a scam.
https://www.youtube.com/watch?v=BOp7f3Q2CS4

There's a lot more going on but financial coverage of what's really going on with cryptos receives no attention. Just reporting the bitcoin price, which is irrelevant when used as a medium of exchange, doesn't tell the real story.

Interesting stuff - so is BitConnect the bucket shop for bitcoin? A lot of greedy speculators are going to lose their shirts on cryptos fairly soon I reckon. Oh and the regulators have seriously dropped the ball opn this as well.

Bitconnect is a loan platform that accepts bitcoin. Of course the owners are anonymous and so is the array of companies taking out the loans, nothing suspicious there. However they also have their own cryptocoin. In fact now that it looks like payouts in traded cryptos has ended they are telling their victims to sign up to receive Bitconnect's currency as payout in their ICO (initial coin offering). There's layers upon layers of ponzi, ICO and probably other fraudulent activity going on.

It's the whole trading in tokens that made me think of the old bucket shops - the marks are essentially betting on the price of bitcoins, without actually owning any bitcoins - plus with a whole extra helping of pyramid scheme 'referral payments' to juice up the returns. I'm impressed by the brazenness of the whole thing!

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