Dairy prices drop again; US to start a trade war; US home sales rise; HNA in credit trouble in Hong Kong; 'girls better than boys'; UST 10yr yield at 2.36%; oil up, gold down; NZ$1 = 68.3 US¢, TWI-5 = 71.4

Here's my summary of the key events overnight that affect New Zealand with news of even more trouble for HNA Group.

But first, this morning's dairy auction has brought another -3.4% fall in prices, with the WMP price down -2.7%. There has been some large falls for other products however; butter is down -5.9%, cheese down -4.2% and skim milk powder down -6.5%. In New Zealand dollars the overall price is off -2.5%. Prices are now back to where we saw them in March this year. We have now had four consecutive falls since September and it is beginning to add up - that is a -10% drop over that period. Farm gate returns are under pressure. (Although it may be worth noting that Fonterra's share of this drop may not be quite as bad as the overall result; according to their update released yesterday they suffered less at prior auctions than the overall results suggested. And new season milk volumes are higher than last year.)

And on the trade front, a trade war is about to break out between the US and China. The American are readying tough punitive measures against China. New Zealand is sure to be caught up in the development and may have to navigate very carefully. Multilateral trade deals will be more difficult and more important all at the same time. Some tough choices await.

And in the US, existing-home sales rose in October. That comes after a sharp jump in new home sales. The median existing-home price for all housing types in October was US$247,000, up +5.5% in the year. That is the 68th straight month of year-over-year gains. Total housing inventory for sale at the end of October slipped -3.2%, and is now -10% lower than a year ago. Unsold inventory is at a 3.9-month supply at the current sales pace, which is down from 4.4 months a year ago.

In China, the explosive growth of online loans in recent years has been worrying the Chinese government and regulators. It has been estimated that the total amount of unsecured short-term loans in 2017 is set to be six times more than in 2016, reaching NZ$220 bln.

In Hong Kong, HNA Group is reported to have 'requested' an extension of time to pay back a NZ$650 mln loan to three local banks. But Beijing has indicated it wants banks to be generally tougher on runaway debt growth by companies like HNA, so their chances are not good. HNA’s request comes ahead of a slew of repayment obligations and concerns about rising financing costs at the indebted airline-to-property conglomerate.

Girls are much better than boys at working together to solve problems, according a new OECD PISA survey. Some 125,000 15-year-olds in 52 countries and economies took part in the test, which analyses for the first time how well students work together as a group, their attitudes towards collaboration and the influence of factors such as gender, after-school activities and social background. Singapore and Japan top the list, but New Zealand students (at #6 overall) score higher than you would think compared to their science and math scores.

In New York, the UST 10yr yield is at 2.36%.

The price of crude oil is marginally higher today, now just above US$56.50 / barrel, while the Brent benchmark is at US$62.50

The price of gold is a little lower at US$1,282 oz.

However, the Kiwi dollar will start today a little higher. We are now at 68.3 US¢. And on the cross rates we are at 90.1 AU¢, and against the euro at 58.2 euro cents. That puts the TWI-5 index at 71.4.

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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24 Comments

I have a simple answer to over priced houses, Butter and like this link shows, over priced petrol.
(Ours way above Aussie prices)

Boycott the stuff...

https://au.finance.yahoo.com/video/finance-221755138.html

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13

"the 68th straight month of year-over-year gains...The median existing-home price for all housing types in October was $247,000.
Median Wages the USA ? $60k, a multiple of 4.
New Zealand Median Wage? $50K = existing-home price should be $200k.....It's at least twice that, and the Americans actually produce more than 3 things.....

...NZ house prices are certainly at utopian levels thats for sure. If the average working week was say 26 hours like Germany and our sovereign wealth fund was 1 Trillion like Norway, then maybe it's sustainable. The following might at least help bring down the immediate cost of building and its earthquake proof! : http://www.dailymail.co.uk/news/article-5103629/Home-takes-SIX-hours-bui...

Retired-Poppy,

Where did you get the idea that the average working week in Germany is 26 hours? The actual figure is around 35 hours,similar to France.

linklater, in Germany, year 2016, 1363 hrs pa.

https://en.wikipedia.org/wiki/Working_time

RP; it may pay to go to the OECD site and ascertain what those figures represent.

They are an average of all workers.
As per linklater, a standard working week in Germany is definitely not 26 hours. Perhaps in Sweden, but not in Germany.

nymad, ooops my bad, I stand corrected - thanks :)

On trade, NZ may be forced to side with US or China. Could it all go pear shaped leaving us on the outlier altogether? This as been building to a head for years - now here we are!

Thankyou for not putting the grotesque bitcoin ponzy on this site today. By noting the daily price you were in a subtle way "buying into" the frenzy.

1 Bitcoin = $12,059.79 New Zealand Dollar, just don't mention house prices as they are not to be considered a ponzi scheme

Yeah best not to think about how the dollar is devaluing against an innovative technology based on maths and code.

Better to think about how the dollar is devaluing against dirt and sticks!

With a few exceptions, the community of chief executives that once championed reducing the debt as the nation’s top priority is taking up a position on the other side of the issue. They are advocating an overhaul package that will reduce corporate taxes, even though both the House and Senate plans will increase the national debt by an estimated $1.5 trillion over the next decade.

Ardent virtue signalling amounted to nothing more than it is.

Chief executives like Mr. Dimon and Mr. Cote offered to pay higher individual tax rates — which the Simpson-Bowles plan called for — but significantly cutting corporate taxes was always a central tenet of the “fix the debt” effort. And with the current tax plan, Mr. Dimon and others have not taken a public position on anything but the corporate tax reduction element; they have not spoken out about the individual rate or other elements. Read more

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10

I work for an NZ branch of a Global IT Company recently bought by HNA for $6B.

I was very surprised when the deal was allowed to go through...now looking at the shady dealings around HNA and their "financing" I'm more than slightly worried.... shadow banking and 2nd tier lenders for an enormous global spending spree...

Corporate China - what a dodgy deck of cards.....

ha ... you mean we have been naive to trade our physical resources for dodgy fiat debt?

Corporate China - what a dodgy deck of cards.....

I am surprised political parties sought to almost ignore China during the election campaign, given some publicly expressed doubts over the integrity of our trade relationship with this supposedly miscreant nation.

The British press is damning in it's condemnation of Chinese practices in general.

Xi, whose “thoughts” were enshrined in the party constitution in October, has effectively turned the brittle nationalism of Chinese cyberspace into government policy. China is building a new physical infrastructure across Central Asia and into Europe, buying up assets as far as Greece and the Balkans and building up its military to match the US’s presence in the region. Xi has cracked down on all potential opponents, issuing a series of warnings to anybody who might be thinking of opposing him. And he has ordered the party cadres to learn actual Marxism – not the neoliberal management theories people thought were Marxism under his predecessors. Read more

No mention of Google's latest jape.

Google will create new algorithms to derank Sputnik News and RT content from appearing on its Google News service. Speaking to Sputnik, Jim Jatras, former US diplomat and foreign policy adviser to Senate Republicans, said this issue isn't even so much about Sputnik and RT as it is about Americans' freedom of access to information. Read more

It appears Mugabe's murderous regime has long since enjoyed the sponsorship of our Mainland Chinese friends.

China, which has displaced Western rivals to become Africa’s largest trading partner and is a major investor in Zimbabwe, notably declined to call for Mr Mugabe’s restoration yesterday, despite his long ties to Beijing dating back to the Cold War.

http://www.telegraph.co.uk/news/2017/11/15/zimbabwe-general-visited-beij...

“During 37 years of President Mugabe’s leadership, tens of thousands of people were tortured, forcibly disappeared or killed. President Mugabe condoned human rights violations, defended criminal actions of his officials and allowed a culture of impunity for grotesque crimes to thrive."

https://www.amnesty.org/en/latest/news/2017/11/zimbabwe-post-mugabe-gove...

Unfortunately the Troops behind the problem, are still the problem.
A sick old man cannot rule by force, without a force behind him.
Having a figure head that ruled the past 37 years, aided and abetted by those who shall be nameless, but obvious to me and others, is a uniform problem, often supposedly ruled by those not actually in one uniform way above the others.
The biggest problem for NZ is closer to our borders than Zimbabwe Africa. They are insider Trading, believe it or not.
The biggest threat is who rules the roost in the cabal, he who must be obeyed..

(Not like in our House...she who must be obeyed).

Two entrenched problems are manifest and totally obvious to all those who not "Politically Correct'

Borders on insanity, are the problem...but when that insanity is allowed to spread, World Wide....then we really have a problem 10 + a factor of UN.

I will leave Russia out of this at the moment..they too are invasive...but they are now Venezuela's BFF....1 Yank...to close for my and others...liking.

Retired-Poppy. You overlook NZs secret weapon; our 'comprehensive and progressive' trade deal special. The Yanks and Chinese will be falling over each other to sign up.

Or as some call it, "Prosperity through selling all our assets".

That is rubbish. NZ ownership of the nations assets are higher now proportionately than in a long time.

Can you explain further David? The current account has been in the red for years, the government has sold off chunks of SOEs and the boomer's have sold off land parcels to Chinese.

I looked at it detail here.

You can get a similar conclusion by looking at the National Accounts that Stats NZ publish. Total international liabilities including foreign equity ownership as a proportion of all national net capital stock is now at its lowest point in almost 30 years.

The "the foreigners are buying all our assets" story is one for the 1970s and early 1980s. It has long passed.

The CA deficit is low - under -3% of GDP, but people remember the -8% over a decade ago and think that continued.

All the while, the assets of the country as a whole are growing quite fast. Those national accounts show them up +4.5% in the latest calendar year, up +56% in ten years. To give you the scale, they are up +$260 bln in ten years. The growth in foreign ownership of New Zealand is only a small fraction of that, up +$150 bln including debt. If you just take the equity (ownership) portion of that, it is less than +$70 bln.

So our total assets are growing much, much faster than foreign ownership of those assets. Even including debt where local owners borrow overseas debt, "we" are still ahead significantly.

The "we've sold everything" claim is nothing but partisan myth by people with their memories stuck a few decades ago. It is just not true. In fact, the reverse is true - New Zealaners now own more of the nation's assets than at any time in the past 30 years proportionately, and more on an absolute basis, ever.

The collaborative problem solving study reminds me of the time a manager of mine took delivery of 5 pedastal fans for the office. He took 3 others way with one of the boxes to the smoko room to assemble it. By the time they had that done and came back for another box I had already assembled the other 4.

The study has its uses, but is also flawed in a major way. It is studying solving problems to which the solution is known. The big technological innovations are made my individuals that can see past the known. Bringing the new innovative step to wider acceptance is definitely a group activity though.