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BIS warns on zombies; China rejects talks after US tariff hike; world shares jump; US PMIs soft; Canada inflation eases; Australia get ratings boost; UST 10yr at 3.07%; oil unchanged, gold slips; NZ$1 = 66.7 USc; TWI-5 = 70.3

BIS warns on zombies; China rejects talks after US tariff hike; world shares jump; US PMIs soft; Canada inflation eases; Australia get ratings boost; UST 10yr at 3.07%; oil unchanged, gold slips; NZ$1 = 66.7 USc; TWI-5 = 70.3

Here's our summary of key events over the weekend that affect New Zealand, with news investor concerns about how much damage the US can do to China or the world on trade seem to be fading.

But first, a report for the Bank for International Settlements said decades of falling interest rates have led to a sharp increase in the number of “zombie” firms world-wide, potentially threatening economic growth and preventing interest rates from rising.

Another report has said that China has cancelled trade talks with the US after the US imposed its latest round of tariff increases. It's a move that was not unexpected. Kevin Rudd has released a useful review of where things may go from here and he doesn't expect a resolution any time soon.

And it looks like China will win its anti-dumping case against the US at the WTO.

Still no NAFTA progress, although Mexico has said it will do a deal directly with Canada if Canada can't agree with the US.

But despite all this uncertainty, at the end of last week world shares hit a more than six-month high. Shanghai was up a remarkable +2.5%, and Hong Kong was up +1.7%. Other exchanges showed similar enthusiasm. On Saturday (NZT), the S&P500 recorded no gain and the NASDAQ actually fell.

Early data for the US September PMIs shows another pullback in their expansion with the composite index falling to a 17 month low. The same data shows prices rising faster.

Canada’s overall inflation rate eased for the first time in four months to +2.8% in August, but another uptick in core measures of inflation suggest that further Bank of Canada interest-rate increases remain on track.

The Brexit re-negotiations are going badly for the UK, with the UK wanting a deal the EU won't actually even consider. The chances of a hard Brexit are rising.

In Australia, ratings agency S&P has upgraded their AAA rating from negative to stable. A multibillion-dollar boost to income taxes on the back of bracket creep and high migration levels, and company tax receipts, through higher company profits, have allowed the government to bring forward its expectations of a budget surplus to 2019-20.

On this side of the ditch, ratings agency Moody's has affirmed the NZ Government Aaa rating. The outlook remains Stable. S&P and Fitch both rate the New Zealand Government as AA+ Stable, one notch lower than Moody's.

The UST 10yr will start the week at 3.07% and their 2-10 curve will start at +26 bps. The Aussie Govt 10yr is at 2.70% the China Govt 10yr is at 3.71%, while the NZ Govt 10 yr is at 2.70%.

Gold hasn't been able to hold its recent gains and has slipped back to US$1,199/oz in New York, but almost the same level as this time last week.

US oil prices are little changed today from yesterday and now just under US$71/bbl. The Brent benchmark is now just under US$79/bbl. A call by the US Government for its 'friends' in OPEC to cut prices has fallen of deaf ears.

The Kiwi dollar is starting the week firmer at 66.7 USc and up much more than +1c from this time last week. On the cross rates we are marginally firmer at 91.8 AUc, and at 56.8 euro cents. That puts the TWI-5 at 70.3 and almost at its average over the past 3 months.

Bitcoin is now at US$6,688 and little changed over the past few days. This rate is charted in the exchange rate set 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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21 Comments

Andy Xie says both China and the US have built their economies on financialisation while ignoring the people’s concerns, and the trade war will hasten the reckoning both countries need
https://www.scmp.com/comment/insight-opinion/united-states/article/2164…

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Thanks for the Kevin Rudd link. He does add some insights, although he does seem rather sycophantic towards China. Is it that the senior diplomats of his generation, both here and in Aussie, having become aware of the nasty bits of their colonial history, have become traumatised by it, just like the Germans of their generation, but in minor key?

On the same subject, I was chatting to some of the people who move in those circles at a do the other day. They are a thoughtful, competent and highly intelligent lot who enjoy a challenging discussion, and yet there is a sort of underlying Groupthink present among them all. Someone raised the question:
"Why do you see Irish independence as a good thing, but see English independence as a very, very bad thing?

Methinks there is a rich seam of thought here.

My own view is that the NZ intelligentsia have thrown the baby out with the bathwater and have disowned the very heritage that made the place so civilised. The Maori elders chose well. At a time when the world was being colonised by slavers and murderers, they chose the best option, despite its shortcomings and flaws (well France might have been better, who can say,). We should embrace our European heritage as well as our Maori heritage, well, the good bits, anyway. Usually the guideline is about choice versus control, unforced agreement versus rule of force, and thinking a lot about where this will lead for the generations to come.

Politically, we don't have a group that thinks about generational issues. In England that was the function of the House of Lords, before it got gutted because of it's bias towards generational wealth preservation. Generational wealth is a real and most valuable thing though, it has a place. The problem is if it gains excessive privilege. I guess Strategic Studies is the academic area that looks at some of these issues. Few politicians are able to think generationally, but I think it is why I am drawn to Churchill's speeches, Eisenhower's farewell speech and the brilliant Jacob Rees-Mogg.
https://www.youtube.com/watch?v=CWiIYW_fBfY

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Ike would surely be kicking up a stink today!

What a brilliant speech, and piece of statesmanship. More people should take a look.

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I have managed to rub shoulders with a few of the intelligensia over the last decade or so and have to say I have been underwhelmed. Where I did cross some astounding minds was amongst Architecture lecturers, their minds dwarf the other lot.

Are you familiar with the writings of Robert Heilein? Not only a genius writer, but very insightful on the nature of civilisation. He did have the experience of living in turbulent times to call upon.

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I have always thought theoretical physicists to have the most brilliant minds. I used to listen to interviews with David Bohm in awe of human intellectual ability.

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Perhaps, I not long ago read a book on Einstein. But then when pondering a technical matter with an engineer friend of mine I proposed going to talk with someone at a university physics department. His replay was don't waste your time, if you want a practical answer go to the engineering department.

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Watch this https://youtu.be/r-jI0zzYgIE and tell me if your friend knows any engineers at this level of intellect.

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Bank of Japan

Total assets: 540.8036 trillion Yen (JPY) = 4.93 trillion US Dollars (USD)
As of date: May 1, 2018
Asset size as percentage of GDP: 101% of GDP

BOJ now holds almost 82% of all ETFs in Japan & is indirectly the largest shareholder in many large Japanese companies!!
https://pbs.twimg.com/media/DnmWXqXV4AMN1CC.jpg

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Thank goodness there's been no sharp practices by our banks!

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Adrian Orr paying you Nic?

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Hi Murray. he should be because the banks have got a big hole to fill next month if these (not reported) stats are anything to go by;

Noteworthy stats release for the June quarter that I haven't seen published elsewhere. Noteworthy takeaway on the foreign buyer transfers (no NZ citizenship or Residency Visa).
• Auckland – 6.5 percent (741 transfers to people without NZ citizenship or resident visas)
• Queenstown-Lakes district – 5.2 percent (27 transfers)
• Hamilton city – 3.5 percent (48 transfers).
That's a big hole to fill when the marginal buyers disappears next month.

https://www.stats.govt.nz/information-releases/property-transfer-statist...

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With China withdrawing from trade talks with the USA, as I haven previously written, they are going to TEST Trump and see how strong he really is, and may wait him out

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Ah Western Marxists - they don't love the proletariat, just hate the rich.

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As Orwell said about the western socialist, "Though seldom giving much evidence of affection for the exploited, he is perfectly capable of displaying hatred - a sort of queer, theoretical, in vacuo hatred—against the exploiters"

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Fascinating. An NZ Government brochure;

https://www.settled.govt.nz/assets/Uploads/Resources/Guides/Chinese-Sal…

Your taxes at work.

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dp.

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https://www.bloomberg.com/view/articles/2018-09-23/china-must-get-to-gr…

China is an economic paper tiger. All this talk of them being a new super power and overtaking the US economy is as laughable as it was when was said about Japan in the 1980s.

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