Here's our summary of key events overnight that affect New Zealand, with some speed wobbles appearing around the world.
Yesterday, stocks closed down sharply in Shanghai. They lost a whopping -2.5% on the day, wiping out a cumulative -20% of value since the beginning of the year. Some other markets like Tokyo and Korea were hard-hit too, falling almost as much. Cumulative concerns about trade tension fallout is behind the rapid shift in sentiment. Hong Kong was closed for a public holiday yesterday. But in stark contrast, Hong Kong actually rose +1.6% in a powerful day-long surge. New Zealand and Australia closed about even. This morning Wall Street is also unaffected.
Worryingly, all this China dump comes after their central bank eased credit requirements for banks, and after authorities intervened in their currency markets - all to no avail it seems. Today's market responses will be watched closely.
In China, new data release by authorities there shows that the country owes the rest of the world more than US$1.8 tln in debt. That is up +7.8% from the end of 2017. The issuing of US dollar bonds by corporates is a growing share of those liabilities. As a reference, that compares with the US$1.2 tln in UST assets holding they currently have.
One optimistic note is worth reporting; China may have passed peak CO2 emissions. In fact, their peak may have been five years ago. A new report says that they are on track to decrease them from here on out.
In Mexico, a left-wing candidate has had an overwhelming win in presidential elections. The key focus of those elections was corruption, and it is unsure what impact his ascendancy will have on Mexico's involvement in the TPP or NAFTA will have, although early signs are that a revised NAFTA deal may be easier now.
Adding to policy uncertainty, the MMP coalition government in Germany is looking a little shaky.
In Australia, concerns are growing among analysts that the turn down in their housing market values may ne indicating something more serious. There is talk of a 'nasty cycle' developing, one that may see the RBA need to trim official rates there.
Commodity prices are starting to fall. Copper is down to seven month lows and have fallen -8.5% in a month, albeit from four year highs. The rise and rise of aluminium prices seems to have run out of puff. And dairy prices look like they will be soft again at this week's auction.
The UST 10yr yield is marginally firmer at 2.87%, up +2 bps in New York. The Chinese 10yr is at 3.49% (unchanged) while the New Zealand equivalent is now at 2.86%, down -2 bps.
Gold is down sharply, down -US$10 in New York to just US$1,242/oz in New York. That represents a -US$100 drop or down -8% in just 90 days.
US oil prices remain high and unchanged, and now just under US$74/bbl. The Brent benchmark however is more than -US$2 lower at US$77.30/bbl.
The Kiwi dollar starts today below 67 USc. That is its lowest level in 27 months and a steadily declining confidence in our currency, a cumulative fall of almost -9% since the September general election. On the cross rates we are at 91.5 AUc and at 57.7 euro cents (a -7% drop). That puts the TWI-5 at just 70.6, also almost a -7% decline.
Bitcoin is now at US$6.613 and more than +4% higher than yesterday. in fact it is its highest level in twelve days.
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23 Comments
Interesting times. Putting my conspiracy hat on, are we seeing the Trump administration attempting to do to the People's Republic of China what Ronald Reagan did to the Union of Soviet Socialist Republics?
From the US point of view, military matters always come first. Always. So the threatening expansion of China's military capability, particularly it's blue water navy, is their most serious concern. Pushing up the US dollar at the same time as pushing up the price of oil strikes at China's weaknesses just as pushing down the price of oil and pushing up the price of the dollar struck at Russia's.
It is always tempting to look at America's foreign policy as bumbling and counter-productive, but they aren't number one for nothing. Food for thought.
This article is one of my all time favourite articles, the inside story from the Russian side by someone who was actually there, I still find it astonishing:
http://www.aei.org/feature/the-soviet-collapse/
Thanks. It is just such a thought provoking article. Grain and oil and urbanisation and socialism and militarism and societal disaster. You could not make this up. A warning from history.
Another favourite link. You might need to copy and paste it. Press play (bottom left) to see life expectancy from 1800 to present day. Then try China and New Zealand. Then give thanks you live here.
https://www.gapminder.org/tools/#$state$time$value=1800;&marker$select@…
"There is talk of a 'nasty cycle' developing, one that may see the RBA need to trim official rates there."
There was talk of it here first ;-)
Just wanted to point that out before it becomes the consensus forecast - when in actual fact every economist was calling the next rate move as up.
There used to be a Danish physicist called Per Bak. He made a sandcastle by piling sand up and up until it collapsed, not a big collapse more like lots of little ones. It reached a kind of equilibrium.he called it “self-organized criticality.” What we have is politicians /bankers who in trying to avoid a collapse have managed to pile the sand up until its very unstable. It is more important to keep up appearances and have a glass half full attitude, than actually looking under the hood and letting nature take it's course. If you read my' books on Friday' you would know of him.
"It's a fantastic question," he said in a recent radio interview. "How can we start with quarks and gluons and get humans and astrophysics and earthquakes?"
The answer, he believed, lies in a concept called self-A large, physically imposing man, Dr. Bak delighted in prodding colleagues to confront what to him was the deepest mystery of all: how a universe made from simple fundamental particles produces such intricate order. criticality. He frequently illustrated the idea with the image of a sand pile, like one that forms at the bottom of an hourglass.
As grains of sand trickle onto the cone-shaped hill, the structure grows larger and larger until it reaches a point — a state of criticality — where it can grow no more. Each additional grain sets off a landslide, paring the pile back down.
What fascinated Dr. Bak was that it is impossible to predict whether a particular grain will cause a tiny, barely perceptible shudder or a catastrophic avalanche.
The probability can be described by what mathematicians call a power law: there are many small disturbances and relatively few giant ones. But each individual event comes as a surprise.
Dr. Bak proposed that other complex phenomena, from real earthquakes and mass extinctions to stock market fluctuations and traffic jams, follow the same pattern "
http://www.cns.gatech.edu/~predrag/friends/Bak/index.html
https://www.scientificamerican.com/article/sand-pile-model-of-the-mind-…
I studied ecology at Vic. The best course was plant ecology. Nicely constructed that layered learning upon learning. But at some point, I couldn't see the point. Ecology to me got stuck at 'ecosystem'. i.e. ringfence a physical space and measure what lies within the boundary. And that is fine when there is stasis of all 'outside of said ecosystem' inputs. I was happier just looking at the world and being amazed at some of the natural events that happen that nobody expected to see :) Cause and effect. Path of least resistance. But if you weren't looking wide enough or close enough or far back in time enough, then these things will surprise you.
a state of criticality
https://www.news.com.au/finance/economy/australian-economy/another-big-…
"Rising commodity prices are eating away at what little nominal growth can be found. In other words, despite a 3.8% unemployment rate and all these confident anecdotes seemingly reflective of a “prosperous” economy there are far too many Americans who still cannot handle a relative small rise in gasoline prices (compared to other points in the “recovery”, such as early 2011)."
http://www.alhambrapartners.com/2018/07/02/theres-no-income-so-there-ca…
"One optimistic note is worth reporting; China may have passed peak CO2 emissions...."
Compare this with ...
"‘Chinese energy consumption has increased by 46% over a decade (and it’s far from coincidental that prosperity has expanded by a similar 41% over the same period). But sustaining this critical growth-driver is looking distinctly problematic. Whilst China will seek out every oil supply deal it can get its hands on – helped, perhaps, by the mutual hostility between Washington and Tehran – switching towards coal seems the favoured strategy. America, too, may re-emphasise coal. In neither instance, though, is coal likely to be an effective fix."
https://surplusenergyeconomics.wordpress.com/
I follow a number of Chinese stocks,listed on both mainland and Hong Kong markets. Using the Chinese ifeng.data website I have been able to obtain then translate into English company announcements and various filings for a number of years. As these markets plunge downwards,the ability to gain information thru this website has for some weeks become unavailable. Perhaps I should take a walk down Great South Rd
The quoted forecast figures for house and apartment price changes (declines mainly) shouldn't spook the average person - even if very few people ever seem to be 'average'. The worst case scenario quoted for Sydney house price declines over 2018 and 19 only erodes three quarters of the 2017 rise. Don't reach for the life jackets yet.
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