90 seconds at 9 am: China tries to clean up its 'wild west'

US new home sales jump unexpectedly; US retail sales strong; China moves to control WMP industry; EU meat industry facing upheaval; La Niña signaled; UST 10yr yield at 2.34%; oil down, gold stable; NZ$1 = 69.1 US¢, TWI-5 = 71.8

28th Nov 17, 7:58am by David Chaston

Here's my summary of the key events over the weekend that affect New Zealand with news New Zealand red meat farmers are facing damaging market changes in the EU.

But first, sales of new American single-family homes rose much more than was expected in October, to their highest level in 10 years. Analysts were bracing for a decline in sales volumes. The median price is US$312,800 (NZ$452,600) and somewhat surprisingly that is -3.7% lower than for September and only +3.3% higher than for October 2016. Essentially, more entry-level houses are selling faster and this will boost their construction industry.

Also positive are reports of US retail sales; both online and in-store sales seem to be exceeding market expectations. And this is despite car sales plateauing.

In China, their NZ$22 tln wild west market for asset management products is facing far stricter oversight as regulators are adopting sweeping rules to rein in financial risk and curtail the rampant growth of the shadow banking. In future, Chinese wealth management institutions will have to offer investment yields based on the net asset value of their products that actually reflect the performance of the underlying assets. Really.

New Zealand's meat industry is facing some very tough consequences if there is a no-deal Brexit. The impact would be catastrophic for the European meat industry, according to a new report. A no-deal outcome would lead to “trade collapsing and market prices falling, resulting in job losses across the EU”. Meat products would face the highest tariffs of all industries, the group said. The collateral damage on New Zealand would be severe.

In Australia, they have issued an alert that a La Niña weather patter is imminent. For New Zealand, that tends to mean moist, rainy conditions to the north–east of the North Island, and reduced rainfall to the south and south–west of the South Island.

In New York, the UST 10yr yield is unchanged at 2.34%.

The price of crude oil is a little lower today, now just over US$58 / barrel, while the Brent benchmark is just over US$63.50. The slip is ahead of the next Opec meeting.

The price of gold is unchanged at US$1,287 oz.

And the Kiwi dollar will start today slightly higher. We are now at 69.1 US¢ which is its highest level in two weeks. And on the cross rates we are at 90.8 AU¢, and against the euro at 58 euro cents. That puts the TWI-5 at 71.8. Bitcoin has moved little overnight (the big move up was yesterday's news). However it did top US$10,000 on Korean markets, although elsewhere prices are pulling back from yesterday's extraordinary highs. And new wasy to short bitcoin are emerging.

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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7 Comments

by Stephen Hulme | 28th Nov 17, 9:38am 1511815095

But first, sales of new American single-family homes rose much more than was expected in October, to their highest level in 10 years. Analysts were bracing for a decline in sales volumes. The median price is US$312,800 (NZ$452,600) and somewhat surprisingly that is -3.7% lower than for September and only +3.3% higher than for October 2016.

Too indebted to pay more?

Not content with merely driving short-term rates down to near zero, the committee embarked on a fantastic speculative adventure of market manipulation. The FOMC supposed that open market purchases of trillions of dollars in securities would somehow help the economy and get the heavily qualified measures of inflation like the Consumer Price Index to rise to a 2% target.

Since then, statistical measures of inflation have barely moved, but asset prices for stocks, housing and commodities have galloped along at double digits. The true goal of the FOMC was not to restore full employment much less price stability, as required by law. Instead the US central bank was and is still today fixated on preventing a general debt deflation. Thus pumping up asset prices seemed the logical idea, even if it did not fit into the Fed's policy narrative.

The fact that overall debt levels have surged thanks to the Fed’s use of low interest rates obviously begs the question: what was really accomplished? It also proves the wisdom that the monthly payment is all that matters, both to consumers and to heavily indebted governments. The global reality for the Fed, Bank of Japan and European Central Bank is the relentless increase in public debt.

The Yellen Put has increased the debt load in the US and globally, but left the financial markets even more fragile than in 2007. A key measure of this danger was illustrated recently in Grant’s Interest Rate Observer, quoting Asset Allocation Insights, which notes that since 2008 the duration of the Bloomberg Barclays US Aggregate Bond Index has increased 62% to 6.2 years. Read more

by scarfie | 28th Nov 17, 10:11am 1511817094

Interesting claim from the CEO of my power company (Flick), 20% of New Zealanders live in energy poverty. They can't afford electricity, so don't have it.

by murray86 | 28th Nov 17, 11:04am 1511820273

If it is accurate, it is more proof that the National Government of the time lied to us about the privatisation of power generation and distribution, and successive governments for failing to act to correct the mess that has resulted.

by Stephen Hulme | 28th Nov 17, 11:07am 1511820425

Also positive are reports of US retail sales; both online and in-store sales seem to be exceeding market expectations.

Hmmmm....

Unless holiday shopping actually contracts like it did in 2008, every year is a record high level. That doesn’t say anything apart from spin. We’ll know more tomorrow about this past weekend, and the inclusion of Cyber Monday within it, but until then there isn’t any indication whatsoever anything has changed about this economy – and consumers’ place in it. Read more

by Gareth Vaughan | 28th Nov 17, 11:29am 1511821747

Here's ANZ on bitcoin;

Bitcoin rose over 15% through the weekend, closing in on $10,000 (+900% y/y). The market cap of all crypto-currencies has topped USD300bn, compared to USD18bn at the start of the year. That’s a massive lift. But it’s chicken feed in a macro sense, meaning a sharp fall in the cryptocurrency poses few systemic risks. There’s also been interest in whether crypto-currencies will take over from regular money any time soon. The Reserve Bank released an analytic note this month that concludes that crypto-currencies currently fail most of the basic tests of useful ‘money’: as a broadly accepted medium of exchange, as a store of value (too volatile), or as a medium for the extension of credit (because of its pseudo anonymity). The underlying blockchain technology is highly promising but is running into problems in that the size of the ‘ledger’ information that needs to be transmitted and reconciled grows with every transaction. This means Bitcoin is taking a heavy toll not only on computing power but also on good old-fashioned electrical power as trading volumes explode. “Mining” (creating by reconciling) Bitcoin is using more electricity than Ireland, and rising.

by kiwimm | 28th Nov 17, 1:44pm 1511829889

An interesting read of the state of the (US) nation:
http://thereformedbroker.com/2017/11/22/the-year-of-living-dangerously/

by Andy Rodgers | 28th Nov 17, 3:03pm 1511834595

That's a good read.