US Federal budget plans growing deficits; China new lending leaps; Spring Festival travel underway; AU Banking Commission 'lawyers picnic' underway; UST 10yr at 2.87%; oil and gold up; NZ$1 = 72.4 USc; TWI-5 = 73.8

Here's our summary of key events overnight that affect New Zealand, with news of vast new increases in debt at the two largest global economies.

Firstly, the new proposed 2019 US Budget is to spend US$4.4 tln with boosts for the military, infrastructure, and border security. The same budget envisages tax collections of US$3.4 tln. (see pg 121). That involves an annual deficit +48% higher than in 2017 and +13% higher than in the current year. Total US Federal debt is growing very fast indeed. The Americans have abandoned the concept of a balanced budget.

And in China, new yuan loans have come in sharply higher in January than the same month a year ago and blowing past analysts estimates. Overall, they are +41% higher than the same month a year ago. New loans to companies in January totaled ¥1.8 tln, an increase of +43%, central bank data showed. New long-term loans taken out by households, basically for housing, totaled almost ¥600 bln, an increase of +10% from a year ago.

But the really big global event is happening in China, one that gets plenty of attention: the Chinese Spring Festival and its huge migration. More than 390 mln people will travel by train domestically over the next two weeks.

In our region, the big event is the start of the Australian banking Royal Commission. It is widely expected to be a 'lawyers picnic' with estimates of the cost now up to AU$1 bln. There is zero incentive to bring anything to a conclusion. Expect it to run for many years. The latest beat-up is over missing unrealistic and arbitrary timelines. It's going to get messy, and partisan.

The UST 10yr yield is still pushing higher and is now at 2.87%, up just +1 bp from this time yesterday although at one point earlier it did touch 2.90%. Local New Zealand swap rates are getting steeper with the 2-10 curve up to +115 bps, a one year high.

Measures of market volatility are easing today however.

Gold is making a small move higher. This morning it is at US$1,324, up +US$8.

Oil prices are up slightly with the US benchmark now just under US$60/bbl and the Brent benchmark over US$63/bbl. Opec has raised its oil consumption forecast based on the broad economic expansion underway globally.

This morning, the Kiwi dollar opens little changed at 72.4 USc. On the cross rates we at 92.4 AUc and 59 euro cents. That leaves the TWI-5 at just on 73.8 and still within its 2018 narrow range.

Bitcoin is at US$8,760, a +5.2 rise from this time yesterday.

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

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9 Comments

Total US Federal debt is growing very fast indeed. The Americans have abandoned the concept of a balanced budget.

Indeed.

The exceptional state and it's lapdog.

I notice our little rural town has put bars on the benches to stop vagrants sleeping on them. Feeling more like California all the time.

I would have to cast my mind back so I maybe wrong but I thought the last attempt at balancing the budget was Clinton? a democrat. How ironic that since at least GWB the right in ht eform of the GOP has been the fiscally irresponsible party in extreme.

"Firstly, the new proposed 2019 US Budget is to spend US$4.4 tln with boosts for the military, infrastructure, and border security. The same budget envisages tax collections of US$3.4 tln. (see pg 121). That involves an annual deficit +48% higher than in 2017 and +13% higher than in the current year. Total US Federal debt is growing very fast indeed. The Americans have abandoned the concept of a balanced budget."

Interesting strategy at a time when the Fed is preparing to sell debt back into the market.

I'm waiting for the day when border security is to stop US Citizens from fleeing to Mexico for work and better living conditions.

So instead of tax and spend we now have cut and spend. How many bankruptcies is it for trump so far?

Apparently there's a bit of debate but six apparently. Including two from his publicly listed companies which I believe is a record that no other individual has achieved.
https://www.washingtonpost.com/politics/2016/live-updates/general-electi...

Re the Australian Banking Commission, there may well be, as you suggest, years of rich pickings for lawyers. The banks themselves do, however, have a record of unscrupulous feasting on their customers, and there must be some effort to hold this behaviour to account or at least bring it into the public eye.

The Guardian 29th April 2016 published a helpful timeline of Australian banking scandals since 2009: ( https://www.theguardian.com/australia-news/ng-interactive/2016/apr/29/ti... )

In the UK, a 2016 report by the think-tank New City Agenda, April 2016 (http://newcityagenda.co.uk/the-top-10-retail-banking-scandals-50-billion...) puts the 10 biggest scandals since 2000 as having cost UK banks £53 billion. To summarise, between 2000 and November 2014 UK retail banks and building societies had set aside over £38.5 billion to pay compensation to customers, meaning that £1 in every £4 of pre-tax profits earned by the banks had been paid out in redress and associated administrative costs. By 2016, provisions for mis-selling and breaches of the Consumer Credit Act had increased to over £60 billion.

The Australian inquiry, if nothing else, will be informative. The ownership, if not the culture, of our banks is largely in Australian hands.