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NAFTA deal done with minor changes; US PMIs slip but strong; US construction growth weak; airfreight growth weakens as trade drifts; Hayne consequences angst; UST 10yr at 3.08%; oil up, gold down; NZ$1 = 66.2 USc; TWI-5 = 70.2

NAFTA deal done with minor changes; US PMIs slip but strong; US construction growth weak; airfreight growth weakens as trade drifts; Hayne consequences angst; UST 10yr at 3.08%; oil up, gold down; NZ$1 = 66.2 USc; TWI-5 = 70.2

Here's our summary of key events overnight that affect New Zealand, with news the indications are that global trade is slowing.

Firstly, there appears to be a full renewal of the NAFTA trade deal. The changes seem minor - most interest is in what hasn't changed, and that is most of it. All parties are claiming 'victory', but Mexico and Canada seem to have only given up a few things at the fringes while retaining Chapter 19 and Chapter 20 protections, as well as insulating themselves from wider US tariff 'punishments'. The 'gains' the US made in dairy access are apparently no more than what Canada had already agreed to in the TPPA talks. Duty-and-GST free access by US online retailers has been expanded by a few dollars, but the US is calling that 'major'. Basically what the US gained is being described as 'rounding error'.

The PMIs for the US in September remain strong, although are being pegged back a bit. The ISM one fell -1.5% and the new orders component fell -3.3%. These falls would have been called 'sharp' had they not already been at an elevated level. The Markit one ticked up to a four month high, although not as positive as the ISM one. Both are recording sharp rises in input costs. Both record concerns about trade.

US construction spending rose marginally in August but only because of public sector projects. It surprised analysts that private sector construction actually fell from July. Still, it is +4.4% above the same level a year ago.

Canada's PMIs were weak in September. The Markit one shows expansion dropped sharply, while the RBC one also showed the same thing.

The Mexico PMI expanded faster on rising new orders, and especially new export sales.

Global airfreight demand rose +2.3% year-on-year in August, a rate of increase less than half that of a year ago. In the Asia/Pacific region, the rise was only +1.6%. Airlines are noting that trade invetories are rising which caps freight demand.

The IMF is warning of the risks of global trade 'drift' by policy makers in the face of rising protectionism.

The situation is much more positive for passenger travel which is up +6.4% on the same basis. Asia-Pacific international traffic growth is up +7.5%, but the real stars are doimestic travel growth in both India and China.

In Australia, both the RBA and Treasury are separately warning their Government about the consequences of adopting the likely Hayne Report recommendations. A credit crunch which tips the country into recession is one potential outcome.

The UST 10yr yield is up +1 bp at 3.08%. Their 2-10 curve is now under +25 bps. The Aussie Govt 10yr is at 2.68% (up +2 bps), the China Govt 10yr is at 3.66% (unchanged due to the holiday week there), while the NZ Govt 10 yr is at 2.64%, and also unchanged.

Gold is down -US$3, now at US$1,189/oz in New York.

US oil prices are up strongly today by more than +US$1 and now just over US$75/bbl. The Brent benchmark is now just under US$85/bbl.

The Kiwi dollar is starting today little changed at 66.2 USc. On the cross rates we are also little changed at 91.6 AUc, and at 57.2 euro cents. That leaves the TWI-5 at 70.2.

Bitcoin is now at US$6,563 and and a dip of less than -1% since this time yesterday. This rate is charted in the exchange rate set below.

This chart is animated here.

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28 Comments

The new deal includes stricter requirements on Mexican car exports. Under the treaty, Mexican cars imported into the US would have to be at least 75pc made in North America, an increase from the current 62.5pc.

Another clause stipulates that 40-45pc of the vehicle must be made by workers earning at least $16 per hour. This is to reduce the incentives for American automakers to move production to lower wage Mexico.

https://www.telegraph.co.uk/business/2018/08/30/new-nafta-old-one-contr…

It is possible that Trump's "deplorable" supporters might just see that as a win, even if the fashionable virtue signalling "economists" see it as a rounding error. Either or both could be right or wrong, but both can claim victory.

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The media loves to disparage any Trump victory. No effort is spared in this respect.

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..initial commentary I have heard is that it does not appear to be materially different than the TPPA?

But hey..if trumpy says its the greatest and bets and biggest then it's gootta be true.

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I was not aware he had many victories Zach? Can you enlighten us on his big wins?

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Biggest win......Still in office while those around him fall.

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Frazz, your comment only reinforces my belief that anti-Trump people like you are deliberately ignorant.

It will take you quite a while to read through all of Trump's achievements. You could start here:

https://www.conservapedia.com/Donald_Trump_achievements

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Trump was inaugurated on January 20, 2017, giving one of the strongest inauguration addresses in American history. His first bill signed as president was to allow retired general and Defense Secretary nominee James Mattis to be confirmed. Trump had a very busy and productive first week, undoing Obama's legacy and instituting conservative executive orders.

Uh...sounds impressive and objective.

May as well balance it with some alternative accounts that delve into more specifics, at least for the first 100 days that Trump claimed was historic in terms of level of accomplishment, but Politifact demonstrates doesn't really stand up.

https://www.politifact.com/truth-o-meter/statements/2017/apr/24/donald-…

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Is that the best you can do? An article that is 17 months old?

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It's one article to address a specific and direct claim of Trump and provide a fact check. What's wrong with that.

Bit ambitious of you to be attacking source for fact-checking a specific claim while posting a Conservapedia opening with "made a strong speech", Zach. Is that the best you can do?

Credit where credit's due. I agree with Kate's example below. And think Trump's trade war is potentially worth a crack, versus Bill Clinton's letting China get away with whatever on trade and IP. Specifics are where it's at, not just "best 100 days ever".

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The requirement for Mexican workers to earn at least $16/hour for vehicle manufacture/assembly in Mexico is a HUGE win for both US domestic manufacturing and Mexican workers. Just HUGE. This is exactly the type of stipulations to protect workers rights in reciprocal that are so desperately needed in any modern bilateral or multilateral trade agreement.

Trump ought to get mega-credit for that new initiative - and hopefully it will set an example, particularly for political parties the world over who claim to represent the interests of labour.

Well done Trump administration in setting the precedent. This is the future of FAIR trade.

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Kate, Kate, r u OK? Trump praise? From an Academic? What will the others think? It's close to (gasp!) Apostasy!

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And the US has got rid of the NAFTA Chapter 11 - the ISDS provisions;

Chapter 11, however, will be phased out between the U.S. and Canada, Trump officials said. This chapter, which outlines the investor-state dispute settlement, allowed corporations to sue governments at special tribunals for interfering in their business.

https://www.cbc.ca/news/politics/nafta-finale-sunday-deadline-trump-1.4…

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I have often wondered if Helen Clark and Labour were aware of the idea of "fair Trade" when commiting NZ to a free trade agreement with China...??

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In Australia, both the RBA and Treasury are separately warning their Government about the consequences of adopting the likely Hayne Report recommendations. A credit crunch which tips the country into recession is one potential outcome.

Talk about the foxes in charge of the hen house. No one is suggesting new regulations, just enforcement of existing regulations. And if enforcement of existing regulation is enough to smash the property market and tip Australia into recession, which it potentially is, then what does that say about how bad the situation has become.

Australia is the Guinness world record holder in the sport of can kicking. Australian politicians are balancing "getting tough on banks" which plays well with voters with crushing their economy. And when the current Government gets voted out, the next one is ready with negative gearing and capital gains tax reforms. It's all pretty inevitable from here.

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was watching the aussie money news yesterday, and the big four banks have tightened credit terms on small business,
that will affect their economy over time, no stories yet on home load tightening of credit though

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What I've heard Australian mortgage brokers say is there is a reshuffle. Westpac are removing a number of home loans from their books and they are going to competitors. Apparently there's an upswing of people going to finance companies and not just the other banks.

There's some credit tightening but also an increase in the cost of credit. I'm waiting to see what the impact of the recent changes have been.

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FAST FIVE: In Shock Move, India Nationalizes Giant Shadow Bank At Center Of Market Rout
https://nwostop.com/2018/10/01/fast-five-in-shock-move-india-nationaliz…

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At one time, economics actually cared about eurodollars. Maybe it was because the thing was so new, it was a hot, sexy topic, the kind of strange and unusual deviation from the norm that can grasp someone’s attention and hold it. Perhaps it was the way in which it all began, an entire monetary system clandestinely sorted together out of almost thin air.
https://www.alhambrapartners.com/2018/09/24/eurodollar-university-colla…

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I have been thinking about the Eurodollar as I have worked through the work of Snider. I wonder if it could be said that the Eurodollar was invented by the "Free Market", and is thus an example of the Free Market at work.

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not so much a 'free market' as an 'unregulated market.'

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Surely, not, the history of banking and credit is driven by the need to fund warfare. It is no accident that Eurodollars are created in London for worldwide distribution. It looks like a Cold War funding manoeuvre to me, possibly gone a bit feral. Michael Hudson says it is no accident the offshore tax havens are either British or American, as it enabled friendly regimes, such as African dictators, to get their personal loot offshore and recycled into the US. So if they were deposed they could just go and join their money. The US authorities largely turn a blind eye as it works to their advantage, unless some pesky whistleblower makes it public. Then they are persecuted as a traitor, which tells you something.

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I wonder if the BOJ are at risk here, do they own shares in Orix Corp?

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Policymakers share blame for the shadow banking boom

'Finally, last week, Peter Praet, the ECB’s chief economist, told a Financial Times conference that he was particularly worried about “the degree of leverage in the financial system . . . because of the shadow banking system'

The article is on ft, so you need to search for it to get around the fire wall.

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My mothers Remuera free standing home now has an October estimated value below its QV. Suffering a diminishing marble bag , how can I break this impossible news to her. What will she tell her friends !

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Adopt a leaf from the politicians and estate agents' playbook.

Lie.

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Tasman landlord had people 'crying' and 'begging' to view property
https://www.radionz.co.nz/news/national/367715/tasman-landlord-had-peop…

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Scary as:
Ms Taylor said the government's proposed changes to rules designed to protect tenants were beginning to show in the number of homes going on the market.

So houses sold to Aucklanders selling up and moving to sunny Nelson. Rodney Dickens reckons it takes place over an 8-10 year period following an Auckland boom. Prices here are ridiculous.

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