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US car sales fall; US car loan rates rise; Canada GDP disappoints; Japan jobless very low; China CPI jump expected; Germany decides, Italy deciding; UST 10yr at 2.87%; oil and gold up; NZ$1 = 72.4 USc; TWI-5 = 73.5

US car sales fall; US car loan rates rise; Canada GDP disappoints; Japan jobless very low; China CPI jump expected; Germany decides, Italy deciding; UST 10yr at 2.87%; oil and gold up; NZ$1 = 72.4 USc; TWI-5 = 73.5

Here's our summary of key events over the weekend that affect New Zealand, with news trade is the latest partisan football grabbing all the headlines.

The world is shaking its head over the antics of US trade policy, as announced on Twitter. Fortunately there are other more substantive things going on in the world's economy.

The data is in for American car and truck sales and they tailed off in February as discounts were scaled back. Sales fell -2% overall from last February to 1.3 mln vehicles. Sales by both GM and Ford fell -7% each, and at Chrysley/Fiat they fell -1%. At Toyota (+5%), Subaru (+4%) and Volkswagen (+6%), they reported sales gains over last February although they hold much smaller market shares.

Separately in the US, car loan interest rates are rising, and quite quickly. According to one survey, they now average 5.2% pa which is up from 3.9% five years ago. This latest level is the highest in eight years. And it is pushing buyers to seek lower payments by extending the length of their loans.

Canada’s GDP expanded at a slower pace than expected in the December 2017 quarter, marking a disappointing end to a strong year and adding to worries that their economy faces stiff headwinds from American trade and tax policy.

In Japan, their jobless rate fell to 2.4% in January. That's a 25 year record low, while a ratio of job openings remained at a 44-year high, the latest signs that their labour market is tightening as growth improves. China claims a jobless rate of 3.9%.

China is expecting inflation to rise to +2.5% in February. It was 1.5% in January, so that would suggest something substantial is occurring there.

In Germany, both parties to their grand coalition have now now consented, so a Merkel-led continuation is in place, albeit with natural tensions between Merkel's conservatives and her 'socialist' allies.

Meanwhile, elections are underway in Italy right now and a result may take days to become clear. Opinion polls are banned in Italy in the final 14 days of the campaign. Indications are for a split and confusing outcome

In New York, the UST 10 yr yield is back up to 2.87%.

The gold price is also back up and will start the week at US$1,323/oz today. Gold production is rising quickly in Australia, the world's second largest producer after China.

Oil prices are just marginally higher however, with the US benchmark now just under US$61.50/bbl and the Brent benchmark under US$64.50/bbl. Overnight Russia suddenly reneged on its agreement to supply natural gas to the Ukraine and Europe. This is likely to spark an ugly trade impasse.

The Kiwi dollar will start today a little changed from Friday at 72.4 USc. On the cross rates we are at 93.3 AUc and but down ½c at 58.8 euro cents. That puts the TWI-5 marginally up at 73.5 and at the bottom of its 2018 range.

Bitcoin is now at US$11,130, up +2.3% from this time on Friday.

This chart is animated here. For previous users, the animation process has been updated and works better now.

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

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24 Comments

Turns out the MSM consensus and the we-know-best class were slagging off the wrong demographic. No wonder they were blindsided by the Trump election result. The perils of bigging up a consensus.

"On Nov. 9, the New York Times front-page article about Trump’s victory characterized it as “a decisive demonstration of power by a largely overlooked coalition of mostly blue-collar white and working-class voters.”

There’s just one problem: this account is wrong. Trump voters were not mostly working-class people.

....In short, the narrative that attributes Trump’s victory to a “coalition of mostly blue-collar white and working-class voters” just doesn’t square with the 2016 election data. According to the election study, white non-Hispanic voters without college degrees making below the median household income made up only 25 percent of Trump voters. That’s a far cry from the working-class-fueled victory many journalists have imagined."

https://www.washingtonpost.com/news/monkey-cage/wp/2017/06/05/its-time-…

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The question remains - who did vote for him? Is there a common demographic? Or are they all into mass denial now that the true madness starts to become clear?

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a lot of people really hated Hillary and the needless wars, thats why they had to do a job on Sanders, thats were the leaks started, in the democrat party to out Sanders, perhaps they should have let him win.

Also lots of people are worried about student debt, govt debt, credit card debt, housing debt, jobs offshoring etc.

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so without a considered response - they actually made the situation worse, much worse!

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The murder of Seth Ridge didn't help the democrats either!

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Trade wars = the war over unearned income. How long back did I first predict that the war for unearned income would heat up over time David?

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When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has been produced: it merely constitutes an increase in the value of the asset. This may increase the wealth of the landowner and they may choose to spend more or drawn down some of that wealth via home equity withdrawal. But they equally many not. Moreover, the rise in the value of that asset has a corresponding cost: someone else in the economy will have to save more for a deposit or see their rents increase and as a result spend less (or, in the case of the firm, invest less).

In current national accounts, however, only the increase in wealth is recorded, whilst the present discounted value of the decreased flow of resources to the rest of the economy is ignored as Joe Stiglitz has pointed out. Rising land values suck purchasing power and demand out of the economy, as the benefits of growth are concentrated in property owners with a low marginal propensity to consume, which in turn reduces spending and investment. In addition, most new credit creation by the banking system now flows in to real estate rather than productive activity. This crowds out productive investment, both by the banking system itself and non-bank investors who see the potential for much higher returns on relatively tax free real estate investment.

https://evonomics.com/josh-ryan-collins-land-economic-theory/

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Added to that - labour flexibility is reduced as workers can't afford to take the risk to trade houses to take that better job/opportunity in the next town.

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At the risk of stirring up a hornets nest - what is the solution?

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The solution is you don't create the parasitic process in the first place :-P Do you think the problem (if you identify it correctly) can be solved using the same processes that created it? Greed seems to be impossible to control, so my view is that matters will run their course. Destruction of wealth will be the outcome, which is okay because it was fictitious in the first place. Just numbers in a computer.

A lot of people think it is those at the top causing the problem, but I disagree. It is the numbers of ordinary folk not considering their actions that generate it. How many people expect money for nothing? Everyone with stocks, bonds, or rental properties. But try telling them that :-)

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I wonder what such a sharp rise in China's CPI means for the rest of the world. After all China is the factory to the world; a jump in CPI will eventually be met by increase in wages and the cost of which will be passed on to importers. I am not sure if New Zealand with its muted wage growth is prepared for a jump in import prices as yet.

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Pity the peak oil tragics. The US hits all time crude oil and gas production figures.
https://www.aei.org/wp-content/uploads/2018/02/graph02main.png
https://www.aei.org/wp-content/uploads/2018/02/natgas.png

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The USA has peaked in oil production before, and will again. Just like Great Britain has peaked in two energy sources 90 years apart. The lesson is that people don't learn the lesson of exponential growth. Have you bothered to watch Professor Al Bartletts on the Exponential Function, he covers off the US oil situation quite well.

When I look at the graph of world energy in the following link, what i see is a shift in 2006 from a positive growth rate to a negative one. https://yearbook.enerdata.net/total-energy/world-consumption-statistics…

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"My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates.

We put the cart of asset prices before the horse of enterprise.

We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.

We actually worked to foster inflation, which we called 'price stability' (this was on the eve of the hyperinflation of 2017).

We seem to have miscalculated."
https://www.zerohedge.com/news/2018-03-03/jim-grant-bond-markets-worldw…

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I will assume the"generation" referred to is the Boomers. But i would venture a slightly different view. Rather than being a whole Generation, it was the moneyed rich and powerful, the political elites if you will, entrenching their own power and wealth. The masses probably did not know or understand what their leaders were doing, but what those leaders did was to put certain benefits in place to keep the masses content and not asking hard questions. The consequences of these are now causing some inter-generational angst, as the benefits put in place are no longer able to provide to keep every one happy. So the hard questions are now being asked. The real question, and problem to be solved is how to roll back the current economic models to something that everyone benefits from, but that avoids the extremes of communism, socialism and capitalism. To date I see little hope in avoiding a catastrophic melt down, as many persist in their denial. "Do you hear the people sing?...."

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One off the radar,Swedish house prices are now in longest slump since 2008,even with historically low mortgage rates and a Central Bank with negative rates.What happens to consumption when so much debt has been accumulated. When Barfoots anounce their monthly figures,today/tomorrow with sales figures close to centuries best will it be the weather,the New Year or return to schools that kept a lid on the numbers.

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Norway is no better regards housing
http://bawerk.net/2016/08/19/toward-stagflation/

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Cheers Andrew.Every currency has a value,not all can be weak or strong at the same time. Consequences of central bank policies and willingness to take on debt.Some countries undoubtedly will see their exchange rates reset..Will New Zealand be fortunate?

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Workers Aren’t Getting A Raise: An Economic Detective Story
https://www.mythofcapitalism.com/worker-s-wages?platform=hootsuite

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Thanks for posting this Andrew. It is relevant to so many conversations and debates on this site - but particularly my question from last week - can the Free Market ever be truly free?

I have always argued that it can't, as even though it might be free of regulation, it will never be free of manipulation. thus the need for regulation. The big corporates either force smaller competitors into failure, or buy them out creating effective monopolies (or duopolies) minimising competition. Just as in all systems for a market to be efficient there must be rules around it to restrict the behaviour of some or all players. Without those rules it is essentially the wild west.

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The corporates are rolling on, around here family orchards are being consigned to the dustbin of history, when I was young I used to bike out from school to a friends, the family made a good living on a 15 acres of apples.

Today its large corporates with 1000 acres plus, pushing the small orchards out. Just as in the States where %80 of farm subsidies go to corporate farmers. Large orchards using cheap immigrant labour. Min wage all round.

Dairy is the same, most sales around here are to the same farmers some have purchased 15 sheep and beef farms in the last few years, others over 20. What do we want the future to look like?

Farming is going to have to change to a new world order, Brazil is huge, China is huge, but Russia potentially can be biggest of all. New 70 day Maize, Soy planted all over Canada, times have changed but whats the new order going to look like, how will we transition, will GMO keep food cheap? Wheres the leadership?
https://www.economist.com/news/united-states/21719813-farmers-are-makin…

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Hong Kong risks becoming epicentre of the next global crisis as property boom spirals out of control
https://www.telegraph.co.uk/business/2018/03/04/hong-kong-risks-becomin…

http://www.alhambrapartners.com/2018/03/02/chart-of-the-week-this-ones-…

The Hong Kong dollar is today trading at the lowest level since 1984. It doesn’t fall outside of these other comparisons. This is not a good sign for global liquidity, money, or just plain stability.

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