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US strongarms Canada after doing deal with Mexico; US threatens WTO; Argentina gets IMF's "full support"; India growth rises; China PMIs rise; EU challenges Aust; UST 10yr at 2.86%; oil softer, gold firmer; NZ$1 = 66.2 USc; TWI-5 = 70

US strongarms Canada after doing deal with Mexico; US threatens WTO; Argentina gets IMF's "full support"; India growth rises; China PMIs rise; EU challenges Aust; UST 10yr at 2.86%; oil softer, gold firmer; NZ$1 = 66.2 USc; TWI-5 = 70

Here's our summary of key events overnight that affect New Zealand, with news the Americans are trying to bully their trading partners.

Talks between Canada and the United States to update the North American Free Trade Agreement soured sharply over the weekend after the US President said a pact would be on American terms, and Ottawa stood firm against signing "just any deal." The key sticking point is whether Chapter 19 will survive. That is a section that resolves disputes over arbitrary tariff actions by the other party. The US wants freedom to break the agreed terms without consequences; Canada is wary of giving the dominant party such leverage. It looks like there will be no agreement soon and Canada may in fact get shut out. It all may depend on Mexico's attitude to the US threat of a Canada exclusion.

And the US is threatening to pull out of the WTO, also over the restriction of having to go to arbitration for disputes.

Emerging market troubles are spreading. The dramatic interest rate hike in Argentina on Friday failed to stop the rout of its currency. Turkey is facing a faster falling currency as well. And Indonesia and Brazil are watching their currencies fall to fresh lows. (One consequence might be rising demand for gold.) But on Saturday the IMF has pledged "full support" for the Argentina government and that has staunched their bleeding, for now. All this comes as the US and China seem to be making no progress at all in their trade dispute.

India has reported its economy grew at the rate of +8.2% in the June quarter. That was up from +7.7% in the March quarter, and well above analysts expectations. And it is their ninth quarter of growth gains.

In China, their factory activity expanded faster in August than July according to official data, and to be fair that is matched by private surveys. But the absolute level of factory expansion is pretty modest. And the sub-category "new export orders" in the index reveals a fall, which may be telling. The service sector expansion also picked up and that is growing at a much more healthy rate.

Chinese appliance manufacturer Haier has reported first half profits up +10% on a +24% rise in mainland Chinese sales and a +2% rise in international sales. Those international sales account for 40% of their revenue and include the US GE Appliances brands, and New Zealand's Fisher&Paykel brands.

New Australian energy policies promoting coal-fired power plants to "get power prices down" may well cause them real trouble with their free trade deal aspirations. The EU is saying the level of Aussie coal exports is a "red line for us" and the proposed EU-AU FTA may be stillborn.

The UST 10yr is lower at 2.86% but their 2-10 curve is back out to +23 bps. The Aussie Govt 10yr is at 2.52% (down -3 bps since Friday), the China Govt 10yr is at 3.60% and down -4 bps, while the NZ Govt 10 yr is at 2.56%, down another -2 bps. New Zealand swap rates are also lower with the 2 year now at 1.98%, a -5 bps fall in the past week and a -16 bps fall over the past month.

Gold is marginally firmer from Friday and is now just on US$1,201/oz in New York, up +US$2.

US oil prices are marginally softer and now just under US$70/bbl. The Brent benchmark is now just over US$77.50/bbl.

The Kiwi dollar is starting the week at 66.2 USc. On the cross rates we are at 92 AUc, and softer at 57 euro cents. That puts the TWI-5 at 70 and -50 bps lower over the past week.

Bitcoin is now at US$7,275 and rising +3.3% over the weekend. That makes it the highest level in a month. This price is tracked in the exchange rate chart below.

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21 Comments

America and Australia putting their sovereignty above trade, whatever will they think of next?

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Anzusexit ? (If indeed there is still an NZ part to that!)

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What we have probably seen is the peak of global corporatism.

They tried to bypass governments, with some wide-eyed idea of changing the world. Henry8 made a similar play some time ago - it all comes back to power and top-doggery. The problem for them, though, is that they are parasitic, like a cancer. They socialise their costs (dam proposals anyone? Aluminium cleanup anyone? AirNZ bailouts anyone? Kiwirail buybacks?). And they need Laura Norder - police, rules, courts, penalties - to keep the playing-field mowed, so they can play.

Two potential problems with that approach - if society runs out of ability to bankroll (Local Govt currently, Central Govt currently, both classes of debt escalating) the corporates have to pay more of their way - but their way is totally dependent on society buying their products. A bootstrap problem.

But the bigger problem was that they - like cancers - cannot survive if the body ceases to function. Meaning their ultimate goal was invalid from the get-go. All we are seeing now is that tide going out. The odd fish stranded. The rocks becoming defined again. Interesting shift.

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Good post.

We see the reactions of the hoi polloi against this model in the likes of Brexit and Trump. Unfortunately with Trump, it looks as if in too many ways they've been sold a pup (the latest: federal employees seem likely to forgo their inflation-based pay rise next year...they need to tighten their belts so the top end can have their tax cuts).

NZ's situation is perhaps still unfolding.

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Peak corporatism? The flashy corporates are what you see, the bankers and their militarist masters prefer the shade. Bernanke openly copies Korekiyo, but no one draws attention to who benefited most.
https://en.wikipedia.org/wiki/Takahashi_Korekiyo

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Fantastic news this morning. The first 18 Kiwibuild Homes about to be balloted off. National would not have built 18 homes in their entire nine years in power. The Coalition are certainly getting things done despite all the negatives comments from some commentators on this site.

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Wow, so many, so fast. Just like the Christchurch rebuild really.

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And until we address population, Twyford is absolutely wrong - you can't fox the 'housing crisis' without fixing the numbers you want to house.

Could Gordon - presumably a minor Labour minion - purvey that back to Phil?

Thanks :)

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I agree with you on that one.

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I agree but a significant cut in migration could simply add fuel to fire in an already slowing economy. I guess the number of Kiwis whose wages directly and indirectly depend on this unbridled flow of migrants could easily run into the hundreds of thousands.

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No, unfortunately the Christchurch rebuild was entrusted with the National government,
the evidence of their failure still litters the city.

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Exactly. Politics seems to be something of a parody of life, called Entitled Buffoons In Power.

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Yes Roger National really stuffed up the Christchurch rebuild. Labour will get it fixed as well as all the other problems National left behind. For the record I voted National in the last election as I could not stomach the thought of Winston in power. In hindsight the coalition will do a great job as they actually care about people. Key could not even admit we had a housing inflation issue when he was in power.

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I agree with your comments about National, although I think Bill English did a lot of useful stuff behind the scenes, but are you sure you are not seeing what you want to see with Labour? Hopefully they will do some useful stuff too, and building houses is good, but even there I am choosing to turn a blind eye to the devastation and desecration caused by turning beautiful productive farmland into future urban blight. What would the hard working people who created the farmland from the wild think of it all?

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Quit with the 'failed rebuild' meme. Take some local advice.

Only true for the Old CBD, to which the local Council keeps administering CPR,. without noticing that the pulse rate is near zero and body temperature dropping. All that's keeping the Old CBD show ticking over to the minimal extent that it is, is Ballantynes, the Gubmint servant class, the firms which are glued to the Gubmint Teat, and a few bewildered tourists.

There were, in fact, three rebuilds,, all very successful, as evidenced by house+plot prices (high 3's to low 4's) and continued business activity:

  1. Businesses. They promptly retreated to Anywhere But the Old CBD, and most discovered to their surprise that things were more congenial than before: better parking, closer to both staff and customers, bump in activity if they were in the supply chains, better per-square rent/lease rates.
  2. Other-than-Christchurch housing: the TLA's outside the boundary: Selwyn, Waimak, Asburton and Hurunui DC's, all had consenting rates well above that of the city itself. Insurance payouts, sensible district plans, the LURP and far more responsive TLA staff were the key. Poster child: Rolleston. First conceived by Norm Kirk as a 'satellite city', it languished for decades. It's onto its second high school now...and IZone, across the road, has emerged as the logistics hub for the South Island: two inland ports, a plethora of new business, and a pool of workers literally across the main highway.
  3. Within Christchurch City, a protracted tussle over planning (formerly restrictive, aided and abetted by a dopey Council and its rule-bound staff) was blown into the weeds by the LURP, and things finally moved ahead. Poster child: Prestons, which had been stymied by the Council on the grounds (unbelievable to relate) that it was dodgy ground, and that the sewer pressure main that skirted the very site could not be tapped by Prestons, but was reserved for Belfast subdivisions. The geotech conclusively disproved the first assertion, and the earthquakes wrecked the pressure sewer line, so they were left without a leg to stand on when the LURP mandated Mo' Subdivisions. Sad but true: I attended most of the hearings that led to the original rejection, and submitted to them. I still have occasional contact with some of the legal eagles on the Prestons side.

The residential rebuild has set many a family on their feet: it allowed upgrades and better living, because many policies were 'replacement'.

Those days are gone, and the sequence cannot be repeated elsewhere. The Old CBD is still a zombie shambling along, but the rest of the show is Jest Fine.

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So only need 9982 more before September 23rd to meet the 10000/year target? Or is it 99982 in next 9 years? (11109 per year). I wonder how much money has been spent on kiwibuild to get those 18 houses done? (Sadly in Coalition land talk isn't cheap) Best get busy Phil.

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https://www.youtube.com/watch?v=J2VvIgp1YAE

More banks raising mortgage rates in Australia.

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Hi David;

Seen this? https://croakingcassandra.com/2018/09/03/towards-an-mpc/

IMO that is a really, really bad look for the RBNZ Board to be advertising for positions that are not yet legislated for, and even worse positions for which submissions on the Bill that would create the enabling legislation are not even yet closed.

Wonder if someone at Parliament for interest.co.nz could get a comment from the Minister on this?

The pin should be pulled in my opinion and the order of things put right in accordance with proper democratic governance with due respect paid to the Select Committee process.

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I have just returned from a 2 week break in Australia , and frankly I dont feel good about NZ at all .

We have now fallen so far behind them in terms of development , and growth that we will never recover .

At the same time we are BANNING ALL things GAS , they are launching a AU$130 ,000,000,000 gas development project in WA and encouraging LNG firms to set up HQ's there .

Imagine if we did the same , we would cease overnight to be a low wage economy with our people picking tomatoes and Kiwifruit .

We would have enough revenue to build all the schools , hospitals , roads and everything else we need

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Nothing has been banned. But there will be no more OFFSHORE exploration permits issued (for a while at least).

Onshore exploration fine
Development of existing permits fine.

But please rant on, its amusing.

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Agreed Boatman, and we'll slip further behind as we service the interest on the loans they've made us.

Aussie bankers will be licking their lips at the prospect of all our mortgage interest servicing their development for years to come. What fools they've made of us, conning us to pay more and more each year for houses that were already here, whilst lending us ever increasing amounts of money to do so. We may have won a few rugby matches, but I'd swap those victories for control of our banking sector.

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