US tax changes to be voted on overnight NZ time, more European heat on Bitcoin, Aussie PM to reshuffle, NZ dollar at US70.12 cents

Here's our summary of key events from overnight that affect New Zealand, with news that everybody's gearing up in the United States for the sweeping tax changes, likely to be given the green light overnight tonight New Zealand time. 

The Republican-controlled U.S. House of Representatives is expected to vote on the tax legislation early Tuesday afternoon US time, aides said, bringing President Donald Trump’s goal of overhauling the U.S. tax system one step closer to fruition.

This means, meanwhile, that financial advisers and accountants are working overtime as many U.S. taxpayers scramble to pay the rest of their 2017 taxes before January 1 when the proposed Republican tax overhaul would sharply cut the amount they can deduct on federal tax bills.The tax legislation caps the amount of state, local and property taxes individuals can deduct from their federal tax bills at $10,000. However, the average American who itemised his or her tax bill in 2015 claimed more than $27,000 in deductions. 

In further signs that things are going swimmingly in the US at the moment, confidence among U.S. homebuilders jumped in December to the highest level since July 1999, exceeding all analyst estimates, as a growing economy boosts housing demand, according to data Monday from the National Association of Home Builders/Wells Fargo.

And amid the flurry of excitement about the tax moves, major U.S. stock indexes hit record highs in a broad rally that was also helped by a flurry of dealmaking, further buoying sentiment. U.S. stocks have enjoyed a near year-long rally – the benchmark S&P 500 and the bluechip Dow Jones Industrial Average are set for their best year since 2013 – that has of late been powered by increasing expectations of an imminent tax overhaul. At 10:42 a.m. ET (1542 GMT), the DJI was up 172.88 points, or 0.7%, at 24,824.62 and the S&P was up 16.37 points, or 0.61%, at 2,692.18. The Nasdaq Composite was up 54.83 points, or 0.79%, at 6,991.41.

In Europe, there's signs that the heat is being turned up on Bitcoin. Germany joined European governments pushing for global bitcoin regulation amid mounting alarm that the world’s most popular digital currency is being used by money-launderers, drug traffickers and terrorists. Germany’s Finance Ministry said it welcomed a proposal by French Finance Minister Bruno Le Maire to ask his counterparts in the Group of 20 to consider joint regulation of bitcoin. The concerns are shared by the Italian government, which is also open to discussing regulation, while the European Union is bringing in rules backed by the U.K. that would apply to bitcoin.

Bitcoin futures got a muted reception after their debut on CME Group late on Sunday, with volumes in the tens of millions of dollars in the first 12 hours of trading, as warnings about the risks of bitcoin sounded ever louder. The launch of futures by the world’s biggest derivatives exchange operator, and by its rival Chicago-based exchange Cboe Global Markets a week earlier, had been hailed by many as the moment that bitcoin reached the investment mainstream.

Meanwhile in the actual world of cryptocurrency, Bitcoin's actually having a bit of a breather, down about 3% in the past 24 hours to $18,640, but other cryptocurrencies, notably Bitcoin Cash, which is over $2200, are enjoying rallies.

Back in Europe EU competition regulators will investigate whether Swedish furniture retailer Ikea’s [IKEA.UL] tax arrangements with the Netherlands which cut its tax bill in a way which amounted to state aid, as the authorities seek to crack down on unfair tax deals between multinationals and EU countries.

Closer to this side of the world, China’s Foreign Ministry on Monday defended trade with the United States as a win-win scenario ahead of a speech by U.S. President Donald Trump laying out a new national security strategy that makes clear that China is a competitor. Trump has praised Chinese President Xi Jinping while also demanding that Beijing increase pressure on North Korea over its nuclear program and changes in trade practices to make them more favorable to the United States.

A recent increase in military exercises focused on Taiwan suggests mainland China is gearing up to take over the self-ruled island by force, a military expert says. On Sunday, the People’s Liberation Army released a video of an H-6K bomber accompanied by two Su-30 fighter jets conducting “encirclement” patrols close to the island. 

And, closer still to home, following the weekend by-election results, Australian Prime Minister Malcolm Turnbull is later today set to end the political year with a shake-up of his front bench that will see Social Services Minister Christian Porter replace Attorney-General George Brandis. Brandis will be named as Australia's high commissioner in London, taking over the position vacated by former foreign minister Alexander Downer, when the Prime Minister refreshes his team ahead of what's seen as a a make or break 2018. 

Oil prices edged higher, supported by a North Sea pipeline outage and a workers’ strike in the Nigerian energy industry. Brent crude futures LCOc1, the international benchmark, were up 27 cents at $63.50 a barrel 

Gold has spiked overnight. It's at US$1262.10 up $7 or 0.56%.

In New York 10-year Treasury Bonds were up 0.018 at 2.373%.

This morning the Kiwi dollar is up at touch against the American currency at  US70.12 cents, slightly down against the Aussie at AU91.35c, and also slightly down against the euro at 59.42 euro cents.  

 

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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15 Comments

Closer to this side of the world, China’s Foreign Ministry on Monday defended trade with the United States as a win-win scenario ahead of a speech by U.S. President Donald Trump laying out a new national security strategy that makes clear that China is a competitor.

Indeed and a NZ major trading partner.

Countries using state-led capitalism are dominating international politics. Whereas after the Cold War, countries clamoured to establish their neoliberal credentials, now they are rushing to sign up to China’s Belt and Road Initiative (BRI) and its Asian Infrastructure Investment Bank (AIIB). Washington’s leadership is being challenged in a way that was unthinkable a decade ago, and this is because China shows that free markets are not critical to economic growth. Read more

Everybody holds up the 'but China' as an example of successful oligarchy/autocracy to counter democratic supremacy. But China owns a few special advantages:
High average intelligence population with internationally low wage costs, could they compete if their wages were at same level?.
Very difficult language barrier preventing easy departure of talented individuals.
Chinese government preventing western competition, state sponsored industrial spying and IP theft, no prosecution of software theft. All to subsidise their industries by stealing IP from abroad.

It is by no means certain that Chinese 'miracle' will continue as their wages get ever higher and tightly controlled chinese have less opportunity for increased consumerism to drive a transition to a modern consumption based economy. Western tolerance of their law breaking will not endure forever and China will eventually be forced to protect western IP and allow western businesses to compete or they will lose access to markets (the cheap labour that China supplied is losing power as industrial automation improves). Their (mostly woefully uneducated) working age population will also soon start to decline (an accelerating trend)

The west needs to focus on rewarding politicians for making decisions based on long term benefits rather than short-termism of election year lolly-scrambles and emotion - so that we can start to improve infrastructure and foster education and industry growth over long term. But most critical issue is impact of endlessly increasing regulations on all aspects of western labour productivity - health and safety being the most deleterious and unwarranted in terms of cost benefit - but appeasing various lobby groups also hurts greatly through employment of vastly increased numbers of unproductive bureaucrats. Eg; why can 3 year old's play on adventure playgrounds but adults workers are no longer allowed to use ladders?

Everybody holds up the 'but China' as an example of successful oligarchy/autocracy to counter democratic supremacy.

Hmmmm...

One of the most steadfast beliefs regarding the United States is that it is a democracy. Whenever this conviction waivers slightly, it is almost always to point out detrimental exceptions to core American values or foundational principles. For instance, aspiring critics frequently bemoan a “loss of democracy” due to the election of clownish autocrats, draconian measures on the part of the state, the revelation of extraordinary malfeasance or corruption, deadly foreign interventions, or other such activities that are considered undemocratic exceptions. The same is true for those whose critical framework consists in always juxtaposing the actions of the U.S. government to its founding principles, highlighting the contradiction between the two and clearly placing hope in its potential resolution.

The problem, however, is that there is no contradiction or supposed loss of democracy because the United States simply never was one. This is a difficult reality for many people to confront, and they are likely more inclined to immediately dismiss such a claim as preposterous rather than take the time to scrutinize the material historical record in order to see for themselves. Such a dismissive reaction is due in large part to what is perhaps the most successful public relations campaign in modern history.

What will be seen, however, if this record is soberly and methodically inspected, is that a country founded on elite, colonial rule based on the power of wealth—a plutocratic colonial oligarchy, in short—has succeeded not only in buying the label of “democracy” to market itself to the masses, but in having its citizenry, and many others, so socially and psychologically invested in its nationalist origin myth that they refuse to hear lucid and well-documented arguments to the contrary. Read more

CEOs suffer FOMO in mega-deal avalanche...No chief executive wants to be seen to be sitting on their hands at a time when their competitors are aggressively chasing growth through mergers and acquisitions. For their own career survival, they need some decent M&A proposals to show boards, and major shareholders(AFR Today)

In June 1987 one of my clients, John Spalvins from Adelaide Steamship Co, suffered from exactly the above. He'd spent the previous 12 months warning that 'a Crash is coming to the economy. Sell down you shares!" and he looked rather silly at mid-year. By August he'd reversed his 'poor' judgment and geared up. Then October 19th arrived....
I read headlines like "CEO's suffer FOMO ..." and wonder if I've seen all this before.....(NB: His volt-face near wiped out Spalvins and AdSteam)

I have just read the Herald story about how 1,700 people applied for 100 jobs at K - MART in Rotorua .

This Government , which claims to want to help the underdog would do well to come up with a strategy and incentives to encourage investment in the regions to reduce unemployment .

Even if such incentives involved a lower Corporate tax rate , or rebate for investment that creates jobs in the regions it may not be a bad thing .

Problem is , it will not happen .

After years of denial, it is now widely known that the opening of the U.S. market to Chinese imports was devastating, inflicting deep and lasting damage to many areas in the U.S. Regions most exposed to competition from China not only lost manufacturing jobs, they saw overall employment decline and never recovered. Areas with higher exposure have also been shown to have more people relying on food stamps and disability payments, more people addicted to opioids, lower rates of marriage, higher rates of political polarization, and higher rates of incarceration.

New research suggests that one of the main reasons the damage has been so deep and lasting is that the jobs lost from Chinese imports were not just from companies downsizing or becoming more efficient but from closing manufacturing plants altogether. The paper by four economists — Brian Asquith of the National Bureau of Economic Research and University of California at Irvine’s Sajana Goswami, David Neumark, and Antonio Rodriguez-Lopez — finds that the so-called “China shock” operated mainly through “deaths of establishments.” Read more

Same for NZ?

The only difference between the rise of Trump in the US and the rise of Adolf in Germany is that n the US case the economic damage was self inflicted..how bad can it get is the question because as I see it they have not realised their mistake yet, Same for NZ? Hopefully not though our damage is also self inflicted, the flood of cheap skilled labour and capital nflows has simultaneously suppressed wage inflation and pumped house prices so how do we unwind that?

I recently stayed in Rotorua, major tourist Motel. All visible staff were non Maori (and appeared non kiwi but that could be my bias). I spoke with one who had recently arrived from India, nice chap, very polite and efficient - faultless service.. But what a contrast form my previous visit....all the young Maori staff had gone. Perhaps they are in the queue at K Mart?

My experience in tourist areas recently is that 90% of the staff are themselves tourists on working holiday visas.

Yep, that is also was what I found when I had a two-week holiday exploring the South Island last year.

This....is what any Corporate tax cuts or other 'savings' will go towards...

ANZ announced the share buyback on Monday after the proceeds from its $1.8 billion sale of a 20 per cent stake in Shanghai Rural Commercial Bank, announced in January, came through. Elliott has hinted there will be more to come given the bank should have more than $6 billion in surplus capital following a string of asset sales over the last two years.

No mention of "We will lend more into the commercial sector of the economy to create more jobs" etc....

Exactly!!!!!

Another factor that may be contributing to a slowdown in longer-run output growth is a decline in the rate of investment. As is typical in a downturn, movements in investment were important to the cyclical swings in the economy during the Great Recession. And, as would be expected given the depth of the downturn, investment declines were especially large in this episode. However, in the United States, and in many other countries as well, the growth rate of the capital stock has yet to bounce back appreciably–despite historically low interest rates, access to borrowing for most firms, and ample profits and cash–causing concerns over the long-run prospects for the recovery of investment. Read more

In further signs that things are going swimmingly in the US at the moment, confidence among U.S. homebuilders jumped in December to the highest level since July 1999, exceeding all analyst estimates, as a growing economy boosts housing demand, according to data Monday from the National Association of Home Builders/Wells Fargo.

Hmmmm....

US 'Living Off 1950s Infrastructure,' Must Spend $2 Trillion to Modernize

Regional index for the West jumped eight points to 85; South increased three points to 75, highest since 2005

Houston and Florida + a shortage of labor inflating costs - confidence plus for homebuilders alright

Index for Northeast declined eight points to 53

not so much elsewhere