TPP gets new momentum; US jobless claims fall, Trump criticises the Fed; Canada jobs slip, China loosens; UST 10yr at 2.85%; oil up and gold down; copper slumps; NZ$1 = 67.6 USc; TWI-5 = 71.2

Here's our summary of key events overnight that affect New Zealand, with news the TPP is gaining new momentum.

Singapore has become the latest to ratify - New Zealand has said it will do so by the end of the year. And now there is news that plans are afoot to expand the group from 11 to include Thailand and Columbia. The TPP is an impressive trade agreement if only for the reason that it contains strict labour and environmental obligations usually absent from other such free trade pacts. FOMO is sucking in these and other signatories.

In the US, the number of people filing for jobless benefits dropped to almost a 50 year low last week as their labour market continues to expand even as trade tensions are casting a shadow over the economy's outlook. That low benchmark however was on a seasonally adjusted basis. On an actual basis, the number has been rising since the low point in May.

A Presidential criticism of the US Fed's indications that a gradual raising of policy rates is their plan has seen both benchmark bond yield's fall and the US dollar go soft. Political interference in monetary policy is very rare in the US and it now uncertain how the Fed, and its newly appointed chairmen will react to the pressure. The comments also turned Wall Street negative.

In Canada, an early indication of their jobs market in June shows worrying data. The huge payroll processor ADP is reporting that more than -10,000 jobs were lost in the month, a sharp reversal of the +26,000 gained in May. In June 2017 this survey reported a +48,000 gain.

And staying in Canada, their federal housing agency has announced new rules to help the self employed qualify for a mortgage.

In China, the central bank set its Yuan:USD currency rate at 6.7 to the greenback in an acceleration of its depreciation and an eleven month low. Offshore markets have marked it down even further, currently at 6.8.

And the Chinese central bank is loosening rules, trying to encourage banks to "invest" in more sub-prime debt, especially that of local authorities. Banks however have expressed scepticism about their risks from this policy push. The whole move smells of official urgency to ameliorate a coming slowdown.

The UST 10yr yield is falling again and now at 2.85%, down -3 bps. The Chinese 10yr is at 3.50% (unchanged) while the New Zealand equivalent is now at 2.87%, also down -3 bps.

Gold is lower yet again at just on US$1,224/oz in New York. In London it closed at just US$1,218/oz. These are both about -US$6 falls taking the yellow metal's price back to levels we last saw almost 18 months ago. The World Gold Council is calling this an "attractive entry level".

We should also note that the price of copper has hit a one year low overnight. Its descent has been steep recently. It is down more than -13% over the past five weeks. Copper - often called Doctor Copper - is an important leading indicator of emerging markets growth trends. So this fall is ominous.

US oil prices are a little higher and now just over US$69/bbl. The Brent benchmark is softer, now just over US$72/bbl.

The Kiwi dollar is starting today softer but more in line with where it has been over the last week, at 67.6 USc. On the cross rates however we are holding at 91.7 AUc, and at 58 euro cents. That puts the TWI-5 at 71.2.

Bitcoin is holding at its higher level at US$7,426 which is essentially unchanged from this time yesterday.

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25 Comments

Sure enough, TIC figures show a further drawdown in HK dollar activities. Like Russia and RUB, HKD and TIC for Hong Kong continues to suggest 7.85 as a hard limit. The net effect of that limit (banks unable to be compensated for the increased risk of lending toward China, any part of China) is the further closing off of that important eurodollar bypass into the mainland.
http://www.alhambrapartners.com/2018/07/18/tic-confirms-pretty-much-ever...

Thanks for sharing, Andrew. Very worrying yet insightful information.

Chinese public companies do not have enough cumulative cash flow to support debt repayments or justify a debt/equity swap unless at ridiculously low valuations.
http://thesoundingline.com/chart-day-chinese-corporate-debt-bubble/

Thanks Andrewj

The links you provide are always very insightful

Andrew do you foresee a slowdown or a crash in China?

My books of the week,
Let’s start with something related to the Economy. The energy world is flat; opportunities from the end of peak oil

https://www.amazon.com/Energy-World-Flat-Opportunities-Peak/dp/111886800...

Then

How to live by Sarah Bakewell, the life of Montaigne in one question and twenty attempts at an answer.

https://www.amazon.com/How-Live-Montaigne-Question-Attempts/dp/159051483...

The Discovery of France by Graham Robb

https://www.amazon.com/Discovery-France-Historical-Geography/dp/03933336...

When central banks distort the markets, risk disappears from view.
https://wolfstreet.com/2018/07/18/risk-pricing-central-bank-bond-buying/

..time for NZ farmers to included in the emissions scheme - instead of the tax payers paying it for them.

Wow. That makes them almost as bad as rice paddies.

frazz - Total oil is 1533T and total dairy and meat is 578T - that is a fairer comparison. Fonterra @ 41T it is 10 x + less polluting than any single oil company - so your point is????
The biggest dairy companies in the world are not Fonterra and DFA, Nestle, Danone etc are bigger companies than Fonterra. So it interesting that Zerohedge chose 2 cooperatives and not the corporates to include - or is it they are the only companies that state their carbon emissions?

Zerohedge are reporting on a "study" done by an outfit called GRAIN and IATP, whoever they are. Hardly peer reviewed science, and I notice in the references they are using articles by Greenpeace and the like as research.

This is a more reputable source which sets out the most effective ways to reduce your carbon footprint:

"We recommend four widely applicable high-impact actions with the potential to contribute to systemic change and substantially reduce annual personal emissions: having one fewer child (an average for developed countries of 58.6 tonnes CO2-equivalent (tCO2e) emission reductions per year), living car-free (2.4 tCO2e saved per year), avoiding airplane travel (1.6 tCO2e saved per roundtrip transatlantic flight) and eating a plant-based diet (0.8 tCO2e saved per year)."

http://iopscience.iop.org/article/10.1088/1748-9326/aa7541

Millions of km's of copper wiring is being replaced by Fibre globally.

It had to have an impact eventually.

Just wait until Elon Musk starts transferring electricity via Tesla Coils!

Physics should be a first year paper in all economics degrees.

And a second-year one.

You may want to think a bit further... the amount of copper used for telecoms infrastructure has been sod all for quite a while. Think how much copper is in a usb cable compared to the power cable for your computer/laptop charger.

Okay copper may recover somewhat , and its fall does not bode well as it is a marker for the world economy , but lets face it copper has got substitutes , like Aluminium ( for conductivity ) or PEX or Polycop ( plastic that can sustain high temp water ) which has replaced copper piping .

We are using fibre-optic cable for the internet and telephony

Bras and stainless steel are used for weather exposed stuff like nuts and bolts on windows , yachts , etc instead of copper

And the US , Russia and China have all stockpiled the stuff, as it was "strategic" after WW2 , so there is likely an overhang of unused copper about .

What else is interesting is that due to its properties it can be re-used over and over

So given the points raised above , I dont see a good future for the commodity , and those economies who rely on it (like Zambia , Peru , Chile, Mexico, Katanga copperbelt in DRC , and 2 huge copper mines in Zimbabwe ( Mangula copper which are now derelict due to nationalisation and mismanagement ) ) these countries should have devirsified over the past 70 years , because they have earned mega bucks from copper .

Of course the money has been squandered on fruitless and wasteful expenditure , or just plain corruption and mismanagement in Africa , and I would surmise much the same in South America.

"Bras and stainless steel are used for weather exposed stuff like nuts and bolts on windows , yachts , etc instead of copper"

And the ingredients of bras(s) are?

I don't think they have used Copper in bras since Madonna in the 80's.

So given the points raised above , I dont see a good future for the commodity , and those economies who rely on it (like Zambia , Peru , Chile, Mexico, Katanga copperbelt in DRC , and 2 huge copper mines in Zimbabwe ( Mangula copper which are now derelict due to nationalisation and mismanagement ) ) these countries should have devirsified over the past 70 years , because they have earned mega bucks from copper .

Of course the money has been squandered on fruitless and wasteful expenditure , or just plain corruption and mismanagement in Africa , and I would surmise much the same in South America.

LOL, hilarious. No future for copper as a commodity. And yet everybody is scared of automation.. Automation which by and large uses electric motors, whose major cost is copper windings (and for some the permanent magnets).
And Electric cars, again, huge users of copper wiring and electric motors, both in the car, and in the charging infrastructure. And no, aluminium is a poor substitute in lots of situations, particularly when you want high power density, its only about 60% of the electrical and thermal conductivity, and usually has fatigue issues.

And then we have consumer electronics.. every Iphone, TV etc has a printed circuit board, which has copper conductors, and the switch mode power supplies all use inductors, which again, use copper. Not much of it in each Phone/tv, but the shear quantity of these things is huge.

https://www.jltspecialty.com/our-insights/thought-leadership/mining/copp....

@pragmatist ......... dont be silly now , read what I wrote , I did not say "no future " for copper .

I said "i dont see a good future for copper " .................. just like I dont see a good long - run future for coal , anthracite , peat , lignite or even asbestos ( which is still being installed in China ) and other fossil fuels.

The fact remains , copper has substitutes (the textbook economic sense ) in almost all its applications , and this does not bode well for copper producers .

The examples you use in respect of copper use in say mobile phones is , while relevant , not anywhere near the tonnages used in running electricity across the country . And most first world countries have got the infrastructure in place , its the 3 rd world who a big users along with China ( who have stockpiled )

The other issue is that copper is not in short supply , its constantly re-usable , and there are massive reserves of it in Central Africa and Australia alone has a few TRILLION KGS left to mine , which at the current rate of mining could last 1,000 years .

Quite simply , if you asked me to invest in a mine , it would not be a copper mine , maybe Iron ore , bauxite , or oil wells .

mmhmm, Go read the report at the end of my last post.. It seems that those that study the industry have the complete opposite view (although that is no doubt contingent on BAU) , which is not surprising. They probably know that brass is copper and zinc. ;)

Your claims about copper having substitutes.. yes, in potable water plumbing plastics are a good substitute in many cases. Also in HV transmission lines and arguable HV power transformers also. But how about refrigeration piping? Electric motors? LV Household and industrial wiring? Power electronics? Electric Vehicles including electric forklifts, e-bikes and mobility scooters? Nope, copper is king. And with 4 or 5 billion people on the planet that all want to move from developing/emerging market economies to live in McMansions with heat pumps, large flat screen TV and electric garage door openers the long term demand is going to be huge.

Manias, Panics, and Crashes: A History of Financial Crises, Seventh Edition

https://www.amazon.com/Manias-Panics-Crashes-History-Financial/dp/113752...