90 seconds at 9 am: Shanghai stocks slide, yields jump

China stocks drop; China eyes large aircraft orders; EU confidence jumps; AU seeks new way without the US; Adelaide battery ready; UST 10yr yield at 2.32%; China 10yr yield hits 4%; oil and gold up; NZ$1 = 68.9 US¢, TWI-5 = 71.6

24th Nov 17, 7:37am by David Chaston

Here's my summary of the key events overnight that affect New Zealand with news of sharp falls in Chinese stock markets.

But first in the US it is their Thanksgiving holiday today with markets closed. But the next four days will set the scene for the holiday shopping period for their retail industry.

Across the Pacific, the Shanghai Stock Exchange closed down sharply yesterday, diving to a -2.3% loss on the day. It will be a nervous opening today. Driving the fall were local 'blue chip' stocks with technology, consumer and health-care sectors recording the steepest losses on the day. The Shenzhen market fell by almost -3%. Bond yields are also causing concern.

China has issued a report saying it will need another +6,100 new passenger aircraft by 2036. But that is 'only' 15% of the total worldwide demand forecast by Boeing of +40,000 and by Airbus of +34,200 new passenger aircraft. (Freighters and military are on top of that.) Underpinning this 'must-have' stream of new orders is fuel efficiency; and for this reason alone, they will be built.

In Europe, the latest consumer confidence survey shows further strong gains. And the latest business survey is equally positive, led by Germany. That is not to say others in the region aren't showing similar gains; just not the UK.

In Australia, they want to strengthen ties in the region a new policy paper says, showing just how concerned they are about America’s wavering commitment to Asia and sharp turn away inward - and China’s growing sway.

In Adelaide, Tesla has finished building its 100-megawatt battery - within its promised time. It will be switched on in a day or so. Recall Elon Musk promised it would be ready in 100 days "or its free". It won't be; he will get the AU$50 mln subsidy fee. The contract cost has not actually been revealed (but probably about NZ$75 mln). Interestingly, he built it on the back of Samsung battery cells, rather than Tesla product.

In New York, the UST 10yr yield has ended their short holiday week down at 2.32%. But going the other way, Chinese Government 10 yr bonds are now yielding over 4%. That is up from 3.06% at the start of the year, and the highest we have seen in over three years. Shorter durations are on the rise as well.

The price of crude oil is again higher today, now just over US$58.50 / barrel, while the Brent benchmark is just over US$63.50.

The price of gold is up +US$9 to US$1,292 oz.

And the Kiwi dollar will start today a little higher again. We are now at 68.9 US¢. And on the cross rates we are at 90.3 AU¢, and against the euro at 58.1 euro cents. That puts the TWI-5 index at 71.6.

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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Source: RBNZ

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43 Comments

by Penguin | 24th Nov 17, 7:51am 1511463076

Sound familiar?

The Party Is Over for Australia's $5.6 Trillion Housing Frenzy https://www.bloomberg.com/news/articles/2017-11-23/australia-faces-hous…

by Cowpat | 24th Nov 17, 8:59am 1511467171

Today's RBNZ data will continue to show what is ahead. With the summer hiatus approaching REINZ ( Auckland) listings will move beyond 14000. I believe that's the number when ol David will take a look . The recent revaluations will stagnate the market further, as no seller wants to jump ship first. In a game of confidence, I cannot see what will push buyers into this market, sufficient to propel it upwards. David is quick to point out when listings peaked in Auckland and that we are way off , however when i look at October 2007 and October 2017, 2018 could be a watershed. As the Australian housing market begins to roll , opportunities will arise to benefit

by MikeM | 24th Nov 17, 8:01am 1511463682

When is the doom and gloom Brexit BS going to end for the UK? Looking at their trade relationship with Germany, the UK is Germany's third largest export destination - some 60 billion pounds worth of goods and services are purchased each year.

The UK actually has a great deal of leverage in Brexit negotiations and if the pound weakens sufficiently enough (but not too much) there's some very good economic opportunities for the UK as a stand- alone trade partner to the EU and beyond. It's up to the politicians to get this right.

by Retired-Poppy | 24th Nov 17, 8:15am 1511464502

Add to the mix, China's breathing down our backs with its own woes - rising interest rates! For me, I struggle to see how this could all wind down smoothly. I suggest, unlike in 2008, China will be NZs black Swan - via Australia.

by Brock Landers | 24th Nov 17, 9:56am 1511470561

Not just Chyna. The U.S. will be raising rates several times next year.

by Uninterested | 24th Nov 17, 8:09am 1511464170

100 MWs for one hour is a very small amount of power. Its going to be interesting to see whether it makes any difference whatsoever when system stability or power shortfall issues crop up. There will have been numerous studies done but until the real events occur nobody really knows whether it will be enough to make any difference. It depends on what assumptions have been made in the studies. Backup diesel generators are going in as well. So it will be doubly hard to identify whether the batteries made any difference or not.
In NZ static var compensators have been put in to make up for the loss of generation in Auckland. These ones are there for system stability issues rather than power shortfall issues. Relying upon this sort of technology rather than encouraging the installation of thermal power generation in Auckland is "bold". Time will tell....

by Uninterested | 24th Nov 17, 8:33am 1511465624

The commercial aspect may work against the political aspect. The commercial justification is that the owner can play the daily market. Buying power during times of the day where power is cheap and feed it back when its high. But will it be charged up when really needed??????

by ham n eggs | 24th Nov 17, 8:57am 1511467060

"The new battery will produce enough energy to power about 30,000 homes for a little over an hour."

And in hour 2?
Welcome to the Elon Musk clean revolution

by waymad | 24th Nov 17, 9:33am 1511469197

For some Interesting comment on the whole schemozzle of trying to mate up unreliables (wind, solar) with baseload, and maintain grid stability (as to voltage, frequency and availability) Euan Mearns is a good read.

http://euanmearns.com/grid-scale-storage-of-renewable-energy-the-imposs…

Even back-of-envelope calculations show that for the UK, it just ain't possible unless new laws of physics are enacted. And that mixing politicians and engineers is never a good idea....SA is the poster child here, with a string of whoopsies including a black system event, nicely dissected by AEMO here: https://www.aemo.com.au/Media-Centre/AEMO-publishes-final-report-into-t…

There's a new International Unit of Measure for grid storage capacity from the article: the BSAB (Big South Australia battery) - which takes it's place alongside the Olympic Swimming Pool (volume).

At core, there's just no way unreliables can - er - Reliably supply baseload, which for Australia excluding WA is 18 terawatts.

by Roger Witherspoon | 24th Nov 17, 10:34am 1511472848

Might work better here as the hydro lakes are effectively decent sized batteries. Personally I would prefer a broader base of production, including coal and gas and wind but not nuclear. Electric cars should give us a giant battery of sorts too.

by Didge | 24th Nov 17, 10:33am 1511472802

If the cost is $75,000,000 that is only about 75 Auckland houses. Chicken feed.

by dtcarter | 24th Nov 17, 8:18am 1511464727

Of course Tesla didn't use Tesla batteries, they can't even manage to make batteries for their own cars in the gigafactory.

by Andrewj | 24th Nov 17, 8:39am 1511465981

Michael Reddell
https://www.newsroom.co.nz/2017/11/23/63103/forbes-gross-caricature-of-…

by Alter Ego | 24th Nov 17, 8:42am 1511466120

Bubbles popping. Blown up out of all proportion. No substance, hot air...drivel talked up. I think it used to be called fraud. Why did no Politicians see this coming...Sub Prime is back

Thank God it is Friday.....here is a Pub and Politician joke, to lift your spirits. No names....Fit your own.

A Sub-Prime-minister called his Finance Minister into their office one day and said, " I have a great idea! We are going to go all out to win the country voters."

"Good idea Leader, how will we go about it?" was said in reply.

"Well," said Prime Munyster, "we'll get ourselves one of those wet weather coats, some rugged boots, a walking stick and a wide brimmed hat, oh yes, and a Border Collie dog. Then we'll really look the part. We'll go to a typical old country pub, and show we really enjoy the bush."

"Right ," said the Finance Minister

Days later, all kitted out and with the requisite Collie dog, they set off into the interior farmland. Eventually they arrived at just the place they were looking for and found a typical country pub. They walked in with the dog, and up to the bar.

"G'day mate," said The Prime Munster (in a typically deep matey voice), to the bartender, "two pints of your best beer."

"Good afternoon Leader," said the bartender, "two pints of our best coming up". They stood leaning on the bar drinking their beer and chatting, nodding now and again to those who came into the bar for a drink.

The dog lay quietly at their feet. All of a sudden, the door from the adjacent bar opened and in came a grizzled old stockman, complete with stockwhip. He walked up to the Border Collie, lifted its tail with the whip and looked underneath, shrugged his shoulders and walked back to the other bar.

A few moments later in came another old stockman with his whip. He also walked up to the dog, lifted its tail, looked underneath, scratched his head and went back to the other bar.

Over the course of the next hour or so, another four or five farmers came in, lifted the dog's tail and went away looking puzzled. Eventually, The Prime Minister and His Finance Minister could stand it no longer and called the Barman over.

"Tell me," said The Prime Minister in a haughty, voice "why did all those old men come in and look under the dog's tail like that? Is it a normal farming custom?"

"Strewth no!" said the barman. "It's just that someone went 'n told 'em there was a Collie dog in this bar with two arseholes...............!"

by murray86 | 24th Nov 17, 8:55am 1511466954

That last line should be the quote of the day!

by Yvil | 24th Nov 17, 9:22am 1511468568

Aller Ego, you have too much time on your hands, go do something productive

by Didge | 24th Nov 17, 9:53am 1511470402

The kettle calling the pot black?

by Alter Ego | 24th Nov 17, 11:45am 1511477140

I did, thanks anyway, that is why I retired a rich man, very early on in life, though I can spot a free loader from a mile away.

I can also take a joke as well as deliver them. I think the joke today is not much productivity around these days.

Politicians and bankers, houses and robotics.

I could automate the lot of em...and build a brighter future. Has the penny dropped yet?.

by Yvil | 24th Nov 17, 4:54pm 1511495678

Comon then, please build a brighter future for us all

by Alter Ego | 24th Nov 17, 8:04pm 1511507053

All may not be willing to participate.
The Country is split already.
We would have to work...together.

by Stephen Hulme | 24th Nov 17, 9:28am 1511468885

Some useful evidence.

by Kate | 24th Nov 17, 9:34am 1511469247

Article on mean rates paid around New Zealand - as I've said before - Aucklanders pay some of the lowest rates in the country (by a significant margin);

https://www.stuff.co.nz/business/99155251/your-rates-wellington-has-pri…

Auckland region: $1940
Wellington region: $3430
Rest of North Island: $2950
Canterbury region: $3040
Rest of South Island: $2960

by murray86 | 24th Nov 17, 9:38am 1511469530

yes and their wingeing has forced the ADC to go the the Government, cap in hand for money to pay for their infrastructure. They are leaches, bleeding the rest of us.

by Ex Expat | 24th Nov 17, 9:52am 1511470341

Wow, this is outrageous. I'm paying $4,900 in Auckland so effectively subsidising others' rates. If $1,940 is the mean, who paying these low rates?

BTW: Just checked my Kapiti Coast based parents' rates. They're paying $3,500 so they're close to the mean.

by Kate | 24th Nov 17, 10:23am 1511472199

If $1,940 is the mean, who paying these low rates?

I'm guessing the low end will be cross-leases and unit titles.

But that's neither here nor there. The point is on a per capita basis, AKL is cheap - that's why your infrastructure is not being renewed and maintained properly and so many of your beaches are polluted and not swimmable (as one example of the negative outcomes).

by Ex Expat | 24th Nov 17, 10:54am 1511474099

Fair enough, but I question who in Auckland is not paying enough?

If I work back through the rates calculation the mean of $1,940 would have a CV of $460,000 as $730 of my rates are not tied to my CV. Is this plausible?

by Kate | 24th Nov 17, 12:39pm 1511480387

but I question who in Auckland is not paying enough?

Everyone is not paying enough. It's not a distributional matter in that I'm pretty sure costs are equitably distributed - it's just that all rateable units need to pay more - an across the board 10% hike would be ideal for starters, followed by a series of progressive annual hikes in order to bring Auckland's mean in line with the NZ average.

Were I your council, that's the way I'd do it - the evidence for under charging relative to the rest of NZ is very compelling.

by Kate | 24th Nov 17, 12:42pm 1511480536

Yes, statistically that's plausible in that the mean is likely somewhat skewed by the very high valuations, as opposed to the very low ones from a relative position.

by Ex Expat | 24th Nov 17, 12:46pm 1511480812

A link to the actual Stats report would be helpful. Without that and the methodology it's all supposition.

by Kate | 24th Nov 17, 12:49pm 1511480971

LOL - it's a bit of an inconvenient truth, eh?

by Ex Expat | 24th Nov 17, 11:25am 1511475914

BTW: Auckland Eastern Bay beaches appear to be fine https://www.theswimguide.org/beach/5900?set_language=en

by Kate | 24th Nov 17, 12:48pm 1511480897

Cold comfort, ... as the saying goes.

by Double-GZ | 24th Nov 17, 10:34am 1511472865

It can't be right. I'm paying over $5k rates per annum in Auckland and I would have thought the median should be around $4k not $1.9 - Jeepers!!

by Uninterested | 24th Nov 17, 11:36am 1511476596

Yep. There is definitely a huge balls up in the article. plus they probably didn't include water, rubbish bags transport levy etc etc.

by Ex Expat | 24th Nov 17, 11:51am 1511477503

With no link to the Stats study it's impossible to tell and I can't find a report on the Stats page. Fake news?

by Kate | 24th Nov 17, 12:45pm 1511480726

lol - they won't be wrong - it's hard to believe, I know in that when I initially made these comparisons on a more limited sample basis I found it hard to believe too. I'm guessing that in the 'old' multi-council Auckland situation - the various council's were competing with one another to keep rates low so that people would not leave for cheaper councils/suburbs. Hence the reason (I'm guessing) that you are found to be historically low compared to the NZ mean.

by Kate | 24th Nov 17, 12:58pm 1511481508

Uninterested, from the report;

That includes variables such as water, which in some areas is billed separately from the main rates bill.

I think the separate charge for rubbish bags and/or bins has been implemented pretty much throughout NZ - I don't know of a council where rubbish collection is included in the rates bill. The transport levy - isn't that presently included in your rates bill? Lots of councils have those - they are normally charged as part of the regional council responsibilities.

by Uninterested | 24th Nov 17, 1:58pm 1511485137

I live in Ak. My rates are $4940. Sure I have a tiny minor unit on my property, but technically I am one ratepayer. I am charged double the fixed component, twice the waste management component and twice the interim transport levies. I also have to pay to buy rubbish bags. There is also the fixed water bill cost plus a variable component. The study if done properly must make some assumptions on how much each ratepayer uses. My water bill comes to about 720 a year. (Way less than most people because I have a water tank). So all up, I pay about three times what the article says is the average.
I can't believe that $1940 is correct.

by Kate | 24th Nov 17, 2:10pm 1511485810

So your rates would be much lower if you didn't have the minor unit - and as I said earlier - virtually every council in NZ charges on a user-pay basis for rubbish (to landfill) waste disposal... you either buy the bags or lease a bin from a third-party supplier of rubbish collection. Auckland is really no different at all in that regard and as the report points out, (a mean calc) for water is included.

Perhaps interest.co.nz can contact the originator of the article and get the link to the stats to verify the calcs.

by Kate | 24th Nov 17, 2:18pm 1511486301

PS - I'm assuming your minor unit is separately occupied (or could be if not actually occupied at present) - that is why you are double-charged for all the fixed cost services. You are two units for rateable purposes on a single title.

Given that, your rates bill is around $2,500 per rateable unit. That's lower than the mean of $2950 for the rest of the North Island (as per the article linked above).

by YoungTel | 24th Nov 17, 3:34pm 1511490882

This does not look right, especially when you consider this comparison from 2014 (by the Taxpayers Union), when Auckland's average rates were among the highest in the country at over $2,600pa.
http://www.stuff.co.nz/national/10140703/Which-place-has-the-highest-ra…
Hard (impossible actually) to believe that Auckland's rates have gone down since then. I can only guess that there was a massive and distorting difference in the methodology between the two studies.

by Kate | 24th Nov 17, 4:17pm 1511493459

I think I'd put my money on Stats NZ getting the methodology right over and above the Jordan Williams' version of virtual reality.

by scarfie | 24th Nov 17, 12:41pm 1511480477

Something I had never considered, but is worthy of consideration, net neutrality. .

https://robinwestenra.blogspot.co.nz/2017/11/kim-dotcom-envisages-new-i…