90 seconds at 9 am: China readies a sharp response

US trade deficit in goods falls; durable goods orders uninspiring; Toronto house prices drop; ECB sits pat; China ready to hit US; UST 10yr at 2.99%; oil up and gold down; NZ$1 = 70.7 USc; TWI-5 = 72.8

27th Apr 18, 7:45am by David Chaston

Here's our summary of key events overnight that affect New Zealand, with news Wall Street is up strongly today, especially tech stocks. Benchmark bond yields have retreated.

Meanwhile, the US trade balance in goods came in lower than markets were expecting for March at -US$68 bln and -10% lower than for February. However, it was slightly higher than for March 2017.

March American durable goods orders grew more than market expectations but not as fast as for February, so this is a slight slowdown in growth.

However, new orders for American-made capital goods actually fell in March, weighed down by the biggest decline in demand for machinery in nearly two years, and a drop in shipments confirmed the view that business spending pulled back in the March quarter.

For households, updated data shows their home ownership rate unchanged at 64.2% (New Zealand's is 62.7%) but the average rent jumped to US$954/month (NZ$311/week), one of its largest rises on record.

North in Toronto, Canada, the number of homes sold to foreign buyers has dropped steadily over the year since the province introduced a 15% tax on such purchases, falling from 7.2% of sales in May, 2017, to 2.5% over a three-month period ending in February. The average price of a home in the Greater Toronto Area was just more than C$920,000 last April, but by March of this year had fallen to around C$785,000, a decline of more than -14% driven by plummeting sales volumes.

In Frankfurt, the ECB reviewd its monetary policy positions and in the end decided to leave all its QE arrangements in place unchanged. It says it wants to be sure the upturn in the European economy is for real.

In China, a ministry of Commerce spokesman said China is ready to hit back at the US if the American start imposing investment restrictions on their companies.

And this comes as signs of a mild slowdown appear in the Chinese economy.

We should also note that HNA is now expected to sell the TIP Trailer Services division that was trying to buy UDC. It is a business it purchased from GE, but it now needs to sell to pay down growing debts. An American private equity firm is expected to be the purchaser.

The UST 10yr yield has slipped and is now at 2.99% (-4 bps). However, the Chinese 10yr is higher at 3.64% (+2 bps) and the New Zealand equivalent is at 2.95% (up +4 bps).

Gold is at US$1,317/oz in New York, and down another -US$4.

Oil prices are a little higher today and now just over US$68/bbl and the Brent benchmark just under US$75/bbl.

The Kiwi dollar is unchanged at its lower level of 70.7 USc. On the cross rates we pretty much unchanged as well at 93.5 AUc and 58.4 euro cents. That puts the TWI-5 at 72.8.

Bitcoin is now at US$8,848 which -1.9% lower than this time yesterday..

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9 Comments

by NoFax | 27th Apr 18, 8:07am 1524773273

I always find it amusing that these Chinese officials can say such things with a straight face. Do they not know how hard it is to invest in China? However, we must remember that China is Communist and mercantile in outlook.

by stp | 27th Apr 18, 8:57am 1524776235

Correct plus they know what the state and government are for. New era is coming when states and nations will become more important for their governments. Pendulum in other direction....

by xingmowang | 27th Apr 18, 9:53am 1524779628

Do Americans, Australians and even NZers know how hard it is to invest in these countries and how IMPOSSIBLE it is to invest in certain sectors in those countries?

by Andrewj | 27th Apr 18, 9:36am 1524778603

https://www.smh.com.au/business/the-economy/excessive-incentives-austra…

by J.C. | 27th Apr 18, 10:34am 1524782086

The futility of being middle class in Australia and NZ.

Middle income people are the cohort in greatest financial risk. They are highly leveraged: they spend more of their income on loan repayments than do people with higher incomes.

Second, their assets are undiversified: they own labour market skills, some home equity and some superannuation. Third, these assets are illiquid (not easily sold): you can’t transfer your skills to another, houses are costly to sell and superannuation is generally inaccessible. By contrast, people at the top of the income distribution also hold more debt, but their assets are more diversified and liquid, and many generate income streams. Conversely, low income people hold proportionately less debt and are more diversified than the middle: they don’t have their (more meagre) assets tied up in housing.

Fourth, middle income people are under-insured or, in financial terms, unhedged. Their insurance isn’t keeping up with their borrowing. Low income people are relatively well insured. They face compulsory insurance, such as for cars and health. High income people have also not increased their insurance, but their need is less because they are more diversified and have more discretionary funds.

http://www.canberratimes.com.au/business/banking-and-finance/new-type-o…

by Boatman | 27th Apr 18, 12:04pm 1524787495

Finally , someone is curbing China's manipulation of the World economy .

They have been allowed to get away with flouting WTO rules , ignoring intellectual property rights including copyrights and trade marks and manipulation of just about everything .

They routinely cheat by copying designs and have no respect for patent rights whatsoever ............. even the State openly cheats in this way , and its regarded as GOOD to do this and get one over the West .

Its often times openly encouraged and sometimes a little more subtle and with some blind-eye turning .

by J.C. | 27th Apr 18, 12:52pm 1524790336

You used to read similar arguments about Japan.

by xingmowang | 27th Apr 18, 1:36pm 1524792961

It sounds like your thoughts in your comments were not copied somewhere.

by gingerninja | 27th Apr 18, 12:24pm 1524788642

I am remembering how many commenters who are bullish on property investment crowed about how the Foreign Buyer Tax had done nothing to deflate the Toronto bubble. And here we are, foreign investment down and prices down 14%. So, at least in Toronto, the disappearance of foreign buyers have had an impact. Many argue that the retreat of foreign buyers has also led to house price decreases in London (NB outside of London house prices are still growing but then, foreign buyers weren't active outside of London to anywhere near the same extent).

All very interesting.