Facebook thrashed; US trade deficit swells; US home ownership rises; China & Mexico make non-tariff retaliations; ECB winds down QE; Aussie regulators panned; UST 10yr at 2.98%; oil up and gold down; NZ$1 = 67.9 USc; TWI-5 = 71.4

Facebook thrashed; US trade deficit swells; US home ownership rises; China & Mexico make non-tariff retaliations; ECB winds down QE; Aussie regulators panned; UST 10yr at 2.98%; oil up and gold down; NZ$1 = 67.9 USc; TWI-5 = 71.4

Here's our summary of key events overnight that affect New Zealand, with news of one of the largest value losses of all time - in just one day.

There is drama on Wall Street today's as the value of Facebook shares has dropped precipitously. Their earnings and prospects took a tumble and that triggered a rout. The sheer size of the value evaporation (-US$110 bln) is news in itself. The focus is on other FAANG stocks. Google has already surprised markets on the upside and attention is now on Amazon which will report after the market closes today. The S&P500 is down -0.3%, the NASDAQ is down more than -1%.

The American trade balance in goods for June has come in -5.4% worse than for June 2017. However some of this may well be due to importers front-loading in anticipation of tariff actions. (The American run a substantial surplus in services, plus a gigantic surplus in investment.)

US durable goods order data for June disappointed markets. It came in at a +1% pa rate higher following a -0.3% rate decline in May, but markets were expecting a +3.0% rise. This data is not a sign of a fast expanding economy.

The American home ownership rate continues to rise, with more Americans benefiting from the sharp rise in home values in recent years. This rising trend started in 2016 after dipping below 63% after a ten year relentless fall from a peak of 69%. But it is now back up to 64.3%. (The New Zealand home ownership rate is currently 62.6%.)

China is flexing its non-tariff muscles, denying approval of a major takeover offer from an American company for a Chinese rival.

Mexico is doing the same, forsaking American wheat for Russian supply.

The ECB remains on track to pull the plug on its massive stimulus program for the eurozone, despite an uncertain global trade outlook and signs of slowing growth in the 19-member bloc. It announced today that it is cutting its bond purchases from €30 bln to €15 bln per month from October to December, and then their QE scheme is due to end.

In Brazil, their balance of payments situation is getting worse. They had a +US$435 mln surplus in June, down from a +US$729 mln surplus in May, and down from a +US$1.3 bln surplus in June 2017. This latest data swells their annual balance of payments deficit to -US$13.9 bln, as the country struggles to overcome a recent truckers strike that compounded their economic problems.

In Australia, the Federal Treasury has written to their Banking Royal Commission revealing it is unhappy with how the regulators, ASIC and APRA especially, have handled their responsibilities.

The level of use of the Chinese currency in international payments is slipping, and slipping faster. In June, the SWIFT network pegged it at just 1.1% as a share of all international payments. That is down from 1.8% at the end of 2015. By this measure, the USD is now used in 42.4% of transactions while the EUR is used in 36.2%. (The EUR gets a boost from European inter country transactions.) The NZD is now used in only 0.4% of trade transactions but that is enough to make it #14 and the same as Singapore's currency. Australia is #7 and is above the Chinese yuan at 1.4% use.

The UST 10yr yield is at 2.98% and up +4 bps near the market close. The 2-10 curve has remained at +29 bps. The Chinese 10yr is at 3.56% (down -1 bp) while the New Zealand equivalent is now at 2.80%, down -2 bps.

Gold is down -US$8 today US$1,224/oz in New York.

US oil prices are firmer again today and now just over US$69.50/bbl. The Brent benchmark is now just over US$74.50/bbl.

The Kiwi dollar is softer at 67.9 USc. On the cross rates we are unchanged at 91.9 AUc, and at 58.3 euro cents. That leaves the TWI-5 at 71.4.

Bitcoin is a little firmer today and now at US$8,210 which is up +1% from yesterday.

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Source: CoinDesk

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Why so much wholesale emphasis on collateral? Easy. The monetary history of recent times hasn’t been very kind in that regard. On the one hand, the repo market has become so much more important than it was, as scared interbank participants fled unsecured eurodollar markets eleven years ago next month for the presumed shelter of security(ies).
But in turning toward collateralized interbank funding, participants have run into almost constant problems here, too. That they continue no matter what suggests there just isn’t any alternative, an observation about both repo and repo’s suggestion of the eurodollar system as a whole. If you ditch unsecured for secured, where do you turn when secured isn’t so secure?
http://www.alhambrapartners.com/2018/07/24/beware-the-collateral-underne...

Many property investors talk about requiring excess new supply as a necessary requirement for property price falls.

Here is an example of how free markets work. An example of a market where there is no new supply, yet the market price fell 20% - this was caused by an imbalance of market driven supply and demand in the market for shares of Facebook.