US home sales flat-line; China makes trade war move; Basel Committee targets window dressing; UST 10yr at 3.07%; oil down and gold up; NZ$1 = 6.8 USc; TWI-5 = 70.3

By David Chaston & Gareth Vaughan

Here's our summary of key events overnight, but first we need to advise there will be no video accompanying this article today.

In the US, home sales flat lined in August but inventory increased for the first time in three years as the housing market continued to struggle despite strength across the broader economy. Median prices were up +4.6% however, despite the low sales volumes.

Those rising prices are helping boost household net worth. June data shows it rose by +US$2.2 tln to a fresh high of US$97.2 tln in the second quarter, boosted by a stock-market rally and those higher property values.

A private update of jobs growth in Canada shows only a modest gain, one far below the gain recorded in the same month a year ago.

Overnight, both the Swiss and the Brazilians reviewed their official interest rates and both left them unchanged.

In the trade war, Bloomberg is reporting China is planning to cut average tariff rates on imports from the majority of its trading partners as soon as next month, in a move that would lower costs for consumers as the trade war with the US deepens.

This comes as Chinese firms start to cut jobs and move overseas as US trade war and rising costs start to bite. Many other South East Asian nations could be significant winners in this skirmish.

The American escalation of the trade war will squeeze export volumes, crunch confidence, stall investment plans and threaten employment and living standards around the world, according to a cautionary OECD assessment.

In Basel, Switzerland the Basel Committee on Banking Supervision has held a two day meeting.Among the topics discussed was the results of its annual assessment exercise for global systemically important banks (G-SIBs), or too big to fail banks. The 2018 list of G-SIBs will be published at a later date. The Committee is also set to publish a newsletter on leverage ratio window-dressing behaviour, through which banks adjust their balance sheets around regulatory reporting dates to influence reported leverage ratios.

In the US the Dow Jones Industrial Average was the last of Wall Street’s main equity indexes to regain record heights as technology companies led a broad-based rally despite the trade war rumbling away in the background, Reuters reports. Elsewhere Turkey sharply cut its growth forecasts for this year and next year.

Meanwhile, the staggering story of Denmark's Danske Bank continues. The bank faces a fresh money laundering inquiry with political anger growing over a scandal involving some €200 billion euros in suspicious payments through Estonia. Danske's CEO Thomas Borgen resigned after an investigation commissioned by Danske Bank exposed control and compliance failings. Now Denmark’s Financial Services Authority is reopening its investigation of the bank. 

The European Commission has described the money-laundering case at Denmark’s largest bank as “the biggest scandal” in Europe. Bill Browder, a US hedge fund manager leading a crusade against corruption and money laundering by Russians, claims Danske’s Estonian branch was involved in the fraud uncovered by his lawyer Sergei Magnitsky, who was beaten to death in a Russian jail in 2009.

The UST 10yr is now just on 3.07%. Their 2-10 curve is softer at +29 bps. The Aussie Govt 10yr is at 2.72% (up +1 bp), the China Govt 10yr is at 3.69% and unchanged, while the NZ Govt 10 yr is at 2.69%, up +2 bps.

Gold is up +US$3 today at US$1,206/oz in New York.

US oil prices are lower today and now over US$70/bbl. The Brent benchmark is now over US$79/bbl. 

The Kiwi dollar is starting today up another +½c at 66.8 USc on yesterday's strong GDP result. On the cross rates we are also firmer at 91.8 AUc, and 56.8 euro cents. That puts the TWI-5 at 70.3.

Bitcoin is also firmer at US$6,412, a gain of +1.8% since this time yesterday. This price is tracked in the currency charts below.

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The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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56 Comments

Just what exactly is the BASEL committee recommending be done about G-SIBs? How are the staff and leadership of them held to account?

Last year's list and some explanation is here Murray - http://www.fsb.org/wp-content/uploads/P211117-1.pdf

Clever move by China to reduce tariffs on trading partners other than US? Will this effectively increase the calibre of the bullet with which Trump shoots himself in the foot?

Nah, hardly. Many suspect that American companies, say for example soybean traders, will build a factory elsewhere, say in "business friendly" Brazil, to perform the final packaging on soybean products grown in the US. These goods won't attract the higher tariffs in China since the mates at the Brazilian customs agency will slap a "product of Brazil" tag on the shipment.
If Chinese companies are willing to move their factories to Southeast Asia to counter tariffs, don't you think American corporations are already zeroing in on a plot for their facilities in Mexico as we speak?

Yeah but that doesn't mean more jobs for Americans, which is the whole Trump drive. You need to "Value Add" to the product the same as the problem we have with just shipping logs offshore to be turned into products we then buy back. No good just shipping off a load of Soy Beans at rock bottom prices to Brazil.

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it doesn't pay to underestimate the efficiency of the American farmer. Brazil doesn't have enough Soy to satisfy Chinese demand. I think China is going to cave, in a way that doesn't involve losing face.

whats with Lumber futures, it's collapsing

https://finviz.com/futures_charts.ashx?p=d1&t=LB

It suggests housebuilders are looking at few orders.

David, what are the bullseyes on the USD chart marking?
Nevermind, on PC now, and can see they are a link to an interest.co.nz story.

Powell and the Fed Face ‘Dollar Doom Loop’ Dilemma
https://blog.pimco.com/en/2018/08/Powell%20and%20the%20Fed%20Face%20Doll...

In the end, it didn’t matter because there is no decoupling. If the global economic system is rolling over, which is the whole point behind decoupling, eventually it will come for everyone. That’s the yield curve’s lack of slope, or the eurodollar curve’s very interesting shape.
http://www.alhambrapartners.com/2018/09/19/processing-powells-rout/

De-coupling is easy, Aj. You just don't paint the house for a few years. Works for a while. Then the bridges fall down, power-poles rot, roads return to gravel.......

But you could have fun playing Monopoly meantine.......

It's the credit based monetary system that allowed us to consume the future. If we couldn't borrow today against tomorrows potential earnings ,the world wouldn't look like this.

Mr Fekete knew it

http://professorfekete.com/articles/AEFHowFedBankruptedInsInd.pdf

Good call Andrew. I wish more people would cotton on to this!

My current idea is that it is the result of the Cold War and the financing thereof. The world lost a measure of value that was fairly constant from place to place and across time.

An ounce of gold bought 89 litres of Octoberfest beer in 1950 and 93 litres today. It bounced about a fair bit in between of course.

Isaac Newton's monetary system worked, but made war finance hard. Fekete was the chap who helped me make the connection to Sir Isaac. Arguably his monetary system was at least as much of a fundamental building block of the modern world, as his Physics and Mathematics clearly were. The western world has taken a giant step backwards, and doesn't know what to do about it.

https://gallery.mailchimp.com/b268a38a165b03979d95268dd/images/d335515c-...
https://gallery.mailchimp.com/b268a38a165b03979d95268dd/images/d20e0fe9-...

Hi Roger. I definitely agree that the world has lost a consistent measure of value, I think this happened in 1971 with the official removal of the gold standard by Nixon though. All asset graphs (including your second attached graph) skyrocket from 71. That for me was the loss of sound(ish) money, your thoughts?

Exactly, as the British empire was replaced by the American empire, the monetary system was degraded. Ben Bernanke openly followed the Japanese currency debasement from the 1930s. Germany followed a similar model under Shacht. Both had the unfortunate effect of enabling the militarists. The venerable Takahashi Korekiyo, ex prime minister and current finance minister got his head chopped off in the night when he tried to rein in the free money. The equally venerated Hjalmar Schacht just survived being shot and was on death row in a concentration camp. His son died on the death march of German POWs to Russia. It is a sad tale.

The old empire finally capitulated with Britain joining the Common Market in 1973, in a shameful betrayal of its former colonies. The economic equivalent of the fall of Singapore.
https://en.wikipedia.org/wiki/Battle_of_Singapore

Very interesting, thanks for the reply. History aside, money creation to me is the root cause of so many of our current ills. I wish we would look at that as a society rather than trying to perpetually band aid the symptoms.

It seems to transfer a nation's wealth to bankers, bureaucrats, and militarists, whilst incentivising all of us to focus our energies on property speculation rather than productive endeavours.

Don't you think a big reset is overdue? ECB, BoJ, BoE, SCB, RBA etc. are all far from normalizing interest rates and reducing their overstretched balance sheets. When the next crisis hits, there won't be room to accommodate or justify more debt and monetary easing, forcing governments around the world into a complete restructure and hopefully realignment of priorities.

We need and are due for a big reset but when it will happen is another thing? I've been guilty of ignoring the ability of the worlds governments to keep propping up this ponzi scheme. I think it would take another big event that noone sees coming to achieve it and as governments around the world have actually appeared to learn from the GFC and are all tinkering in a peverse way to maintain the monetary issues as the alternative is politically unpalatable.

More damming insights in NZ import of Phosphate for our beloved Dairy industry
"New Zealand is the now the only country in the world that buys phosphate rock from Western Sahara. Importers in the United States and Canada have just terminated the controversial imports. The last years have seen importers in Mexico, Lithuania, South Korea, Uruguay, Venezuela, Spain, Colombia, Australia also stop."
https://www.stuff.co.nz/business/farming/107131294/thanks-to-new-zealand...

our soils are low in Phosphate, it's a big deal if we cannot get the stuff.

I can small the uranium on your breath

If I had my way NZ farming inc would produce a lot less at a higher quality. Dairy farmers need to cut production, farmers need to stop looking at asset appreciation as the road to riches.

One of the issues is that no one wants to pay for higher quality Andrew. The number of times I have heard people say 'we should be all organic, then the price of it will come down'........

"Dairy farmers need to cut production" That's a pretty broad statement - all dairy farmers - and by how much?

I am hearing of OIO turning down large farm sales in our area - dairy and non dairy. Once those blocks reduce in price, it will have a domino effect. Banker tells me that some larger dairy farms are now being subdivided as they are almost unsaleable as a single unit. Dairy land in Sthland has come back 10-12% on average. Though there is outliers at both ends of that. A real estate agent told me the only demand here now is for 4-600 cow farms. I would say that there are some concerned banks down here and one in particular.

When i was a young man the price of our milk was half what farmers in the USA got, today we get about the same. When I was young we made good money getting half what a farmer in the USA made, today we struggle getting the same.

A real estate agent told me the only demand here now is for 4-600 cow farms. I would say that there are some concerned banks down here and one in particular.

Coupled with declining migration it's going to be harder to fill vacancies on those big, 800+ cow farms down south.

https://nzfarmsource.co.nz/jobs/vacancy/2563288951

Earning $17 an hour, 3 hours at either end of the day milking plus other work living in a 2 bedroom cottage with someone you work with.

https://nzfarmsource.co.nz/jobs/vacancy/3606340267

1500 cows through an 80 bale shed - 4 hours milking morning and night, shared accomodation.
Rresponsibilities The successful candidate tasks and responsibilities will be feed allocation, effluent and irrigation management, animal health, young stock management, running of the 80 bale rotary shed with in shed feeding and ACR you're looking after 2.2 million dollars worth of animals and $20,000 of milk production a day and receivng $16.5 an hour for your efforts....

Not particularly appealing to many kiwi's.

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Yet the Environment Court blocks us from developing our own Cadmium free sources here in New Zealand. The anti-mining brigade thus causing us to continue poisoning our soils with Cadmium. They never consider the cost of their illogical religious belief that all mining is bad and its better done elsewhere because it is dirty.

Could it be that all other countries in the world have stopped importing it from WS because it contains Cadmium?

NZ's govt departments have failed to allow science to assist in management decisions, instead opting for a cheaper "no science" management paradigm, leading to poorly informed choices with bad consequences. We almost always seem to rely on big outside nations to do the leg work, i.e. figuring out that leaded petrol is bad, that CFCs are bad etc. This has particularly been the case with MPI, and industry is left to self flagellate until the problem goes away (i.e. PSA, MPB). Some of our missteps, like the WS phosphate, ought to lead to economic sanctions against us, but curiously it doesn't. Another big one that is coming is ending the methyl bromide release to atmosphere; the deadline is 2020! I dunno why we get treated with kid gloves in the big wide world. Must be all the free water we give away.

We import it from there because it contains less cadium than other places Jock S.

From https://www.mpi.govt.nz/protection-and-response/environment-and-natural-...

In response to concerns in the late 1990s about cadmium levels in fertilisers, the fertiliser industry in New Zealand voluntarily adopted a limit for cadmium in fertilisers of 280ppm (parts per million).

This was a limit from the 1990s, self-imposed by the fertiliser industry. Is it a safe level? Who knows, because govt is not even equipped to be able to assess this. My argument is that govt in NZ does not used science-based assessments, and has no capability in this regard, and it doesn't look like it ever will, because policy makers cannot understand the need, and justify their omission of science-based decision making as cost saving.

If you had scrolled down a bit further Jock: "Cadmium content in food is monitored as part of the Total Diet Study run by MPI every 5 years. Results from the Total Diet Study (2009 and 2018) continue to confirm that cadmium intake by the NZ population is well below the limit set by the World Health Organisation. There is no evidence of an increase in cadmium exposure through diet." https://www.mpi.govt.nz/protection-and-response/environment-and-natural-...

So mining is not dirty...go figure?

I'd be more worried about the cadmium content. I read somewhere that some soils in NZ are already approaching 1 ppm of Cd. https://www.sciencedirect.com/science/article/pii/S1877705814011059 Hopefully Ravensdown and Balance have it under control. (oops snap just saw Rogers comment above..)

A google search on the issue produces very little apart from Stuff articles having a go at NZ farmers.

Will the Commonwealth countries continue to prosper as manufacturing moves out of China? Those that haven't completely abandoned the useful stuff they learned under the Brits, that is, in trying to get rid of the bad bits.

https://www.australiaunwrapped.com/wp-content/uploads/2016/05/image007.png
https://www.forbes.com/sites/simonconstable/2017/01/26/how-the-commonwea...
https://www.australiaunwrapped.com/2016/05/11/european-union-vs-commonwe...

Good links. Quite possible but it will only work on the cricket model - India rules - we will see Queen Camilla in a sari. The point about the commonwealth countries is their immense potential: obviously India but for example Kenya or PNG have potential resources (especially land and climate) way beyond most European countries.

Yes, and whilst many of the countries indulge in some crazy stuff, they do suspend naughty members from time to time (eg Fiji, while the UN was very happy to continue funding the coup leaders via their mercenaries).

“As the bond rout continues, the biggest call investors have to make is whether the break of the multi-decade downtrend marks the end of the secular bull market. This is the big one. Get on the wrong side of a new multi-year bear market in government bonds and all investment portfolios will be shredded to ribbons, as bonds are the cornerstone of most equity valuation models.”

https://www.zerohedge.com/news/2018-09-20/albert-edwards-why-next-recess...

Is it Denmark or New Zealand that ranks number 1 as the least corrupt nation

Or is Danish Banking being targeted by imperialist forces in the EU, as Iceland, a former Danish Colony, was? England is also a former Danish colony, of course, hence the English phrase "danegeld", and British banking is central to the Brexit saga. Not all actors are benign or visible. Had it been a German or French bank would it have remained hidden?

Thanks for the reminder - now as a POM I can blame all the failures of the UK on our having been a Danish colony; lets make those Danes feel guilty.

Actually I think it is the exact opposite. All our concepts of fair play come from them. The continental system is basically the divine right of kings, which empowers their bureaucracy, whether secular or religious. The very idea they are responsible to the ordinary people is an affront to the divinely ordained rule of the intelligentsia. Can you get any more fundamental than that?

Interesting comments, thanks Roger. Finding myself curious to read up on Denmark and Danish history, not an area I've looked at much at all before. I've friends who live there and love the lifestyle - higher after-tax pay than they had in NZ despite the high taxes, good social services, and a large dry place to live that doesn't cost them that much.

Perceived corruption. I prefer to think of it as gullibility.

I think that we have a very good chance of gaining the number one least corrupt status. The danske bank money laundering scandal, which seems to have had zero coverage here, could turn out to be the greatest ever discovered in the EU, involving billions of money coming from areas east of the German border. Unfortunately those of us with accounts with them have been subject to scrutiny in a classic "after the horse is bolted scenario".

"On Monday, Moody’s said the probability of a no-deal Brexit has “risen materially,” and “would be negative for an array of issuers.” Such an outcome could bring with it a host of ugly consequences for the UK economy, ranging from a further weakening pound to higher inflation and sliding real wages, as well as undesirable knock-on effects for EU economies.

The longer the uncertainty drags on, the more likely it is that companies and banks will activate plan-B contingency plans, which in many cases involve moving a large chunk of their UK-based operations across the Channel. Once those plans are activated, stalling or reversing them will not be easy.

Deutsche Bank is mulling transferring up to three-quarters of the capital it has invested in the City — estimated to be worth around €600 billion — to its Frankfurt headquarters, the Financial Times reported on Sunday, citing sources close to the bank’s senior management.
https://wolfstreet.com/2018/09/20/times-running-out-disorderly-brexit-wo...

Gosh, who would have thought? The German governments pet bank moving to Germany? Banking is the machinery of empire after all. London is the where the American, German/French, Russian and Chinese empires meet and do business, on relatively neutral ground.

London neutral? only if seen through the eyes of a british colonised person. Maybe Switzerland is a more neutral banking centre?

Relatively neutral. Would a Russian oligarch use New York or London? Switzerland, the same applies, as it does to Singapore versus Tokyo.

EU 1 - UK 0

Germany 1, UK 0, rest of EU -1.

Germany consolidates it's power over the EU. The "bad apple" is the Western equivalent of the Communist Purge, or Anti-Corruption Drive in the current parlance. It distracts attention from any questions about the system itself and who it benefits. Hence my suspicion. I don't even think the Germans understand the consequences of the forces that have been set in motion by the creation of the Euro under German control. The French elite bureaucracy think they do, and mistakenly think they can ride the tiger they have created. As a rule of thumb, a country that uses another country's currency is a colony. Unfortunately, Marine Le Pen is probably right there.
https://www.youtube.com/watch?v=hbYGLy_NWns

Bad choice Deutsch Bank which has exposure to derivatives 15 times Germanys GDP what could possibly go wrong????????????????????/

Treasury Inflation Protected Securities (TIPS) five and ten year real yields inverted for a few days now.

Data at bottom part of page here - https://www.bloomberg.com/markets/rates-bonds/government-bonds/us