Here's our summary of key events ovenight that affect New Zealand, with news interest rates are falling, but mainly for long durations.
In the US, economic growth slowed less than previously estimated in the fourth quarter, rising at an annual rate of +2.9% and down from +3.2% in the third quarter. They have growth that is fueling imports driven by rises in consumer spending.
In fact, their merchandise trade deficit has remained over -US$75 bln, surprising analysts who thought it would be tracking lower. American consumers are choosing "Chinese" imports in their spending habits. Their exports were up +7.3% in the year to February, but their imports were up +10.4% over the same period with the consumer goods component up +12.6%. Voters/consumers and the Federal Administration are on different pages here. The President's reaction is to threaten Amazon.
In Beijing, the smog alert we reported a few days ago is getting worse, deteriorating because it is now mixed with a dust storm.
And it has been revealed that China's Belt & Road rail network that now stretches from China's Pacific coast all the way into Europe is a financial burden on China. These trains require subsidies of almost 50% to enable the service to operate in competition with sea freight. The reasons the service is expanding is entirely political.
We should also note that while much has been written about the parlous state of the Australian Federal Budget, including by credit ratings agencies warning a downgrade is possible unless they see improvements soon, in actual fact their latest Federal accounts to February show a fast improving situation being built on fast rising tax collections. They are AU$10 bln better off now than they forecast in December. This is the sort of news that is rarely reported, but is a remarkably quick turnaround. If it continues, the heat will go out of their presumed budget woes, and quickly.
The UST 10yr yield has fallen overnight again, back to 2.78%. The Chinese 10yr is down, now at 3.75% (-2 bps) and the New Zealand equivalent fell even further, now at 2.74% (down -8 bps). And we should note that local swap rates have fallen hard, dropping late in yesterday's trade. We are now back to levels not seen since the end of 2017, and since September for longer term rates. The 2-10 curve is now just +84 bps, down from +104 bps about two weeks ago, so that is a fast change. The UST 2-10 curve is under 50 bps, a level not seen since 2007. All the movement in rates down has been at the long end. The short end is holding its levels, and for New Zealand that does not give any room for fixed mortgage rate cuts.
The gold price is down even more, down -US$16 in New York today and now at US$1,327/oz.
Oil prices are down as well by more than -US$1 with the US benchmark now just over US$64/bbl and the Brent benchmark just over US$69/bbl.
The Kiwi dollar will start today ½c lower at 72.3 USc. On the cross rates we are now up at 94.2 AUc and at 58.6 euro cents. That leaves the TWI-5 at 73.5.
Bitcoin is now at US$7,915 and virtually unchanged from this time yesterday.
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25 Comments
Joe Hockey was quoted as talking about a "mining boom stretching into the future as the Chinese middle class emerges" 3-4 years ago. Ridiculous salaries for relatively unskilled labor in WA didn't seem so too ill-matched to the Dazzas and Shazzas based on what these charlatans were saying.
Plenty of used jet skis up for sale in Perth now.
A key measure of the US yield curve, traditionally a powerful recession harbinger, has hit one of its flattest points since the end of the 2008-09 recession, catching the eye of investors even as most economists remain optimistic.
The difference between 10- and two-year Treasury yields on Wednesday was 0.4998 percentage points. If it holds that level, it would mark one in only three times since the start of the economic recovery that the gauge has closed at such a low level, Reuters data show.
https://www.ft.com/content/c376dece-3260-11e8-ac48-10c6fdc22f03
search, Analysts keep calm but carry on watching signs from yield curve ', to find article
MIT figure out how to passively harvest water from desert air. Innovation coming to a scarcity problem near you.
"The test device was powered solely by sunlight, and although it was a small proof-of-concept device, if scaled up its output would be equivalent to more than a quarter-liter of water per day per kilogram of MOF, the researchers say. With an optimal material choice, output can be as high as three times that of the current version, says Kim. Unlike any of the existing methods for extracting water from air at very low humidities, “with this approach, you actually can do it, even under these extreme conditions,” Wang says.
Not only does this system work at lower humidities than dew harvesting does, says Rao, but those systems require pumps and compressors that can wear out, whereas “this has no moving parts. It can be operated in a completely passive manner, in places with low humidity but large amounts of sunlight.”
“This provides a new approach to solving the problem of water scarcity in arid climates,” Yang says. “This technology, if one can further increase its production capacity, can have a real impact in areas where water is scarce, such as southern California.”
http://news.mit.edu/2018/field-tests-device-harvests-water-desert-air-0…
So MIT have come up with wind traps. These have been in use on the planet Arrakis for some time.
http://dune.wikia.com/wiki/Windtrap
Importantly, even though Q4 2017 is seven quarters after that low point, profits from current production remain slightly lower than the prior peak registered in Q4 2017. This is not what stock prices, in particular, have been anticipating. It also undercuts the inflation hysteria narrative provided especially by the unemployment rate; adding further basis to alternate views on the labor market that run contrary to wage acceleration and even economic recovery overall.
Though we have to discount other profit estimates for Q4, this unaffected series tells us that the sluggish nature of the upturn prevailed throughout all of last year. There was no shift in trend consistent with the hyperbolic rhetoric of a boom. Rather, the struggles in profits (and likely cash flow apart from the distortions) further emphasizes the lackluster nature of it, and therefore this continued “ceiling” on growth in addition to its uneven fashion.
http://www.alhambrapartners.com/2018/03/28/stocks-price-to-eventually-r…
French “supercop” Paul Barril interviewed about anti-Russian false flag operations
https://thesaker.is/french-supercop-paul-barril-interviewed-about-anti-…
And even more interesting:
https://www.sott.net/article/380979-No-way-nerve-agent-could-escape-UK-…
https://www.sott.net/article/297677-Russian-Foreign-Ministry-says-Penta…
we are fast approaching no return point....
Almost Sergei Skripal case:
https://www.stuff.co.nz/national/crime/102678216/poisoned-and-just-48-h…
.....
Yvil, I understood that if the long yields closely match that of short yields, its one indicator of an approaching slowdown or very much reduced inflation expectations at least. My personal view for what is worth, the next recession will involve deflation making 2.8% a pretty good deal if shorter yields were to head into negative territory. If the long yields move below that of short yields, its one indicator amongst many of an approaching recession; https://www.marketwatch.com/story/trouble-ahead-what-4-recession-indica…
In reality a recession will always eventually come whatever the forecast!
Yvil .. UST 10 yr bonds is a mkt that responds to the forces of supply and demand..
Now that QE is being withdrawn.... these mkts will more properly respond to the mkt forces of supply/demand.
In that context, the drop in UST prices might.. ,or might not, be meaningful..?
maybe China is on a buying spree.?? who knows..
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