Wall Street slumps; tame US jobs report expected; World Bank warns; global food stocks rise, prices fall; calls to restrain ATO powers; UST 10yr up at 3.20%; oil falls, gold holds; NZ$1 = 64.8 USc; TWI-5 = 69.1

Wall Street slumps; tame US jobs report expected; World Bank warns; global food stocks rise, prices fall; calls to restrain ATO powers; UST 10yr up at 3.20%; oil falls, gold holds; NZ$1 = 64.8 USc; TWI-5 = 69.1

Here's our summary of key events overnight that affect New Zealand, with news other markets are having a hard time absorbing fast-rising American interest rates.

On Wall Street today, the bond selloff continued with yields rising another +5 bps and the UST 10yr is now at 3.20%. That has shifted up almost +15 bps in a week and was just too much for equities which have dropped sharply today, with the S&P500 down -1.3% and the NASDAQ down an eye-catching -2.2%. These are falls like we have been seeing in Hong Kong recently, and they closed -1.7% lower yesterday. Things look grim for what might happen on the Shanghai market when it reopens on Monday after their week-long holiday.

In the US there was no new data of significance, although initial unemployment claims are still running low. All eyes are now on tomorrow's non-farm payrolls report and analysts now expect that to show a gain of +184,000 and that would not meet the narrative of a booming labour market. OK, but not great, and well below trend.

Thailand and Indonesia are facing a liquidity squeeze and challenges in refinancing debt, the World Bank says. It is not saying these countries are facing a crisis now - mainly because their foreign debt obligations are low - but it is saying that rising protectionism and increased financial market volatility are likely to hurt their economic prospects significantly. The World Bank says their floating currencies are a strength, enabling them to buffer shocks.

In China, the African Swine Fever outbreak is spreading in their important pig industry. This is the pig equivalent to foot & mouth disease for cattle. It is serious for them, and more so because it looks like they can't seem to control the spread. Official numbers are still small but under-reporting will be a major issue, complicating matters. It is another big knock to their national food safety systems.

A UN agency is reporting that global food commodity prices fell in September due to growing inventories of key staples. This is the sixth consecutive monthly fall and their overall food price index is now back to a level last seen in September 2016. Basically, we are producing more food than we are consuming.

In Australia, their departing Inspector General of Taxation has called for increased oversight of the Australian Taxation Office saying there is too much power being concentrated in one individual, the ATO Commissioner. The claim is that their tax authority is becoming too arbitrary, and makes mistakes in at least 5% of cases it reviews.

The UST 10yr yield has risen again to 3.20% and is up another +5 bps. Their 2-10 curve has pushed out to almost +32 bps. The Aussie Govt 10yr is also sharply higher at 2.71% (up +7 bps), the China Govt 10yr is at 3.66% (unchanged due to the holiday week there and possibly due for a big catchup change on Monday), while the NZ Govt 10 yr is at 2.65%, and up +4 bps.

Gold however is little changed at US$1,198/oz in New York. The World Gold Council reports that ETFs are still dumping their gold holdings.

US oil prices are down sharply today, down by about -US$2 and now just on US$74.50/bbl. The Brent benchmark is now just over US$84.50/bbl.

The Kiwi dollar is still declining and down by another -½c at just on 64.8 USc. On the cross rates we are little changed at 91.7 AUc, and at 56.3 euro cents. That pushes the TWI-5 down to 69.1.

Bitcoin is little higher at US$6,554 and a gain of +1.2% since this time yesterday. This rate is charted in the exchange rate set below.

This chart is animated here.

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38 Comments

Comment Filter

Highlight new comments in the last hr(s).

IMF concerns over banks being stuck in a 'doom loop' a decade after the crisis

https://www.telegraph.co.uk/business/2018/10/03/banks-still-stuck-doom-l...

Real estate New Zealand.

Auckland total unsold listings poised to go through 13,000. Start the day at 12,999. 4.5 months of stock at current sales rates.

...it just did @ 13,049. They're certainly piling on quicker this year. I read an article the other day where it was mentioned lower liquidity was driving down Australia's auction clearance rates (now at 55%). Being that B&T are recording clearances in the 30%, what's that tell ya?

Blame the disappearing marginal buyer.

Doesn't matter, Bindy-the-realestate-talking-head will be on TV talking up sale prices despite lower volume sales. And when sales volumes do pick up, and prices drop, she'll be talking up the sales volumes...

Sooner or later people will see through the inherent self interest in this sector and the cyclic marketing spiel that goes along with it.

I'm really interested to see what, if any, effect this foriegn buyers ban is going to have this spring - the volume of properties on the market is growing - we'll know for sure it's having an effect when Bindy-et-al start whining about it.

when sales divided by listings hits 12% (8.3 months stock) you will see serious downward slide in prices according to a real-estate rule of thumb I learned about yesterday from a Canadian article.

Auckland region has had about 1800 sales a month for last 3 months (REINZ), with 13000 listings that is about 7.2months, or 13.8%. Not a lot of wiggle room left. (About another 2000 listings at current sales rates)

It's about to hit 12100 on Trade Me... Gone up over a thousand in 3 weeks

Good news for British consumers of NZ wine (and there are lots of them), as New World wines are now more popular than French plonk.

£1 = NZ $2.01. Raise a glass!

Pretty simple maths: For consistently great wine you need warmth and sun. The more the better. French climate isn't as good on average as Italy or Spain or Portugal or Australia or Chile so they get a smaller proportion of great wine.

Hmmm, those of us who moved here a few years ago remember NZD 1.00 = GBP 0.26. Not that I expect a repeat of that but we are setting ourselves up for a new record low against the USD. 50 cents seems quite possible with Powell tightening and Orr loosening, even 30 cents if they keep going, or something unexpected happens.. Petrol might get pricey in NZD, and houses might get cheaper in real terms, if not so much in NZD.

Talking of unexpected things, they tend to happen more often than you expect. Especially when world interest rates are rising....

Darn that hundred word limit!

The Big Hack: How China Used a Tiny Chip to Infiltrate U.S. Companies

"The attack by Chinese spies reached almost 30 U.S. companies, including Amazon and Apple, by compromising America’s technology supply chain, according to extensive interviews with government and corporate sources."

https://www.bloomberg.com/news/features/2018-10-04/the-big-hack-how-chin...

More from the Bloomberg report:-

“The chips on Elemental servers were designed to be as inconspicuous as possible, according to one person who saw a detailed report prepared for Amazon by its third-party security contractor, as well as a second person who saw digital photos and X-ray images of the chips incorporated into a later report prepared by Amazon’s security team. Gray or off-white in color, they looked more like signal conditioning couplers, another common motherboard component, than microchips, and so they were unlikely to be detectable without specialized equipment. Depending on the board model, the chips varied slightly in size, suggesting that the attackers had supplied different factories with different batches.”

“Over the decades, the security of the supply chain became an article of faith despite repeated warnings by Western officials. A belief formed that China was unlikely to jeopardize its position as workshop to the world by letting its spies meddle in its factories. That left the decision about where to build commercial systems resting largely on where capacity was greatest and cheapest. “You end up with a classic Satan’s bargain,” one former U.S. official says. “You can have less supply than you want and guarantee it’s secure, or you can have the supply you need, but there will be risk. Every organization has accepted the second proposition.” ”

China just jeopardized its position as workshop to the world.

Can't say I'm surprised by this - Russians specialize in software hacking, the Chinese in hardware hacking - and everyone else in the world struggles to keep up.

Seems the US and AU were right all along - in NZ - just how trustworthy are all those Hauwei routers being rolled out alongside Fiber connections? - they're dirt cheap and supplied as part of the contract for most of the big ISPs.

Would suggest the GCSB get someone competent to rip a few of those apart and see whether any of these inconspicuous chips are in place there - can't say I'd be surprised if so.

Ain't globalisation great!? This is what you get when you have your product built by the lowest cost manufacturer, and one in a country with a history of not respecting patents, intellectual property, and is most definitely is not a free democracy.

Wow. Noone is going to trust Chinese produced hardware or software ever again. Huawei's telecoms infrastructure business just got destroyed (amongst others).

Nah nothing will change because people dont really care. This kind of thing has been known in the industry for a while.

But it's the kind of evidence that govts will be compelled to act on with bans.

Money talks, I think it will be glossed over unfortunately.

A week or so ago in another comment stream, I mentioned the possibilities of taking advantage of opportunity. In part the discussion was about globalisation, and I was suggesting a middle path. I wonder if this presents an opportunity. We have companies like Rakon who manufacture electronic devices in NZ, who could possibly consider expanding into manufacturing other devices and boards, providing a reliable source of manufacture, likely cheaper than being made in the US or Europe. Again a big ask, but starting from somewhere is important, making a solid product is vital. I know the pessimists will only see problems, but is there opportunity here - Just asking?

.

BingBings' disappearing trick.

Chinese implement new methods of 'tax collection.' Disappear the subject until they cough up and apologise to the state!. Please keep an eye on your neighbours and do report to the police if any of them go missing unexpectedly!

https://www.theguardian.com/film/2018/oct/04/fan-bingbing-mysterious-dis...

...Bingbing attended a "re-education camp"

Fascinating - and it worked!

Funny how opinion pieces on here (NOT comments I note) mirror TV news in going softly on China whilst slagging USA and Russia. Cannot upset China can we, nothing to do with our trade dependence of course....

So is the consensus view that interest rates will stay lower for longer given these movements in the US? It seems like a big risk to me that the conditions that have held rates down for a decade might change in the next 1-2 years.

If the interest rates here stay lower than the US, our exchange rate will continue to plunge. At some point our rates will have to rise.

Good Morning Mr Chaston

In a recent article on Barfoot and Thompson's September sales numbers, I made a comment that compared September's Sales to Instruction ratios from the last few years and highlighted how the recent September rate had fallen off a cliff to 42% from over 70% at the height of the boom. I am keen to understand why the comment has been shortened to one line if the new requirement is 100 words before the 'read more' kicks in? The article is linked below (absent the relevant info) and the full comment that I submitted, which is still referred to in the thread has but has very much abbreviated (I keep copies because I'm anal), is beneath.

https://www.interest.co.nz/property/96156/auckland-house-buyers-should-h...

'And some September to September Comparisons from B & F for those that like more data.
Monthly Sales to instruction rate
Sept 2018 - Listings 1709 Sales 722 (with the benefit of a deadline to assist sales) 42%
Sept 2017 - Listings 1414 Sales 658 (with an election to slow activity) 46%
Sept 2016 - Listings 1536 Sales 1051 68%
Sept 2015 - Listings 1940 Sales 1358 70%
Sept 2014 No listing data Sales 959
Can't say that the market looks particularly healthy when you study the metrics and see how they've changed over the last 4 years......'

That hundred word limit is bloody annoying. It emphasises all the fluffy, snarky stuff and hides the serious comments. Must polish up my style and pithiness.

It's a bit of a bugger because you and I rarely get into our stride until at least 300 words!

The one I mentioned above didn't even get past 15 words before it had a haircut!

The Fed is hiking rates into the storm again. Multiple countries are now facing big economic issues and the list is growing weekly as new problems pop up. Looks like another Global downturn is on the way so people should get ready. Hopefully I am wrong and nothing happens but unfortunately things just continue to escalate out there.

One of those was housing. For a booming economy, something’s up in the real estate market. Rather than come right out and state the obvious, Powell merely said that housing was more affordable today than it was before the crisis. That’s only true if you have a job, which fewer people as a percentage of the population do.

https://www.alhambrapartners.com/2018/10/04/the-hawk-not-in-housing-nor-...

I see in the Herald that there is a plan to boycott petrol companies over the price .

Once again we blame to symptoms instead of the cause .

Over 40% of the retail fuel cost is tax

Apart from crude reaching over US$85 pbl , there have been a raft of new taxes , levies and ACC increases which are not helping

The boycotters should protest at the Beehive instead

Common Boatman. Fuel taxes existed before Labour got into power and while the Herald will stir up a protest, only the ignorant would write an article without assessing the reality of the numbers. The fall in Oil price from 2014 to 2016 (to historic lows) was masking the sins in the NZ economy. Take a look at the numbers.
March 2016 - FED rate 0.36%
RBNZ rate 2.25% (March 2016 cut)
Exchange rate 0.66-0.68 currency band(and strengthening)
Oil Price US $30-$35 dollars per barrel
October 2018 - Fed rate 2.26%
RBNZ rate 1.75%
Exchange rate 0.65-0.67 band (and weakening)
Oil Price US$75-$80

You couldn't have asked for better conditions in NZ in 2016.. Low oil, reducing interest rates with an appreciating NZ dollar (trend the other way at present).

2016 was definitely the year to walk away and bask in the glories of your success! I'm not talking about Richie's exit from the game he retired in 2015.

Tony Blair did the same thing to Gordon Brown. Reckon Bill got lucky not winning the last election.

Boatman - I've an idea. They should boycott the economists, politicians and otheres-who-stood-to-gain, who tricked them into believing in unlimited progress based on a finite resource

Thanks Cowpat. Missed that tit bit.

So spotlight on the RBNZ eh, from Bloomberg no less. Well if they're paying a dividend of $500,000,000 to the government then government obviously already has an interest (financial). If they are also prevented from introducing tools to slow credit growth, (Nationals prevention of DTI limits on mortgages) then they are also being influenced by government. Hey ho, hum... Well if Bloomberg have published it then 'Mr Market' will now make his own decision.

It's an interesting observation that those who are the specialist property investors don't seem to comment on articles about local and global financial markets such as this one. Not sure if that is a sign that they don't read these articles or don't know enough to comment, or don't think that it is relevant to the property market, or some other reason. A focus on the supply and demand dynamics of property might make one think that financial markets are of less importance than government policy, and legislation on property, etc.

If you watched the US housing bubble, it was those in financial markets that caught wind of the first signs of a potential property price downturn. Very much like the commenters on this article. Those that were owner-occupiers, property investors, property developers in the US were the ones who ended up getting caught out in the credit contraction. They were unaware of the financial market linkages with the availability of credit in the banking system which ultimately had an impact on broader economic activity, and unemployment, (which were significantly impacted) and led to the subsequent impact on property prices.

'Sorry, you lost me at 'observation' (could be a quote from any one of the FOES)