Here's our summary of key events over the weekend that affect New Zealand, with news China is reacting to economic pressures that are building on it.
All eyes will be on Shanghai after 2:30 pm today when its stock market opens after their week-long holiday. While they have been closed, Hong Kong has dropped -7% and US benchmark interest rates have risen +18 bps. Combined with the growing impact of US anti-China tariffs, a rout could be on the cards.
And late yesterday, the People Bank of China cut the reserve ratio for the country's major banks by -1%, effectively freeing up more money for their state-controlled banks to lend out. It is their fourth such cut in 2018 and an unusually large and broad policy move. It comes after many other methods to spur growth have been tried, like boosting major infrastructure spending - so it has the look they running out of options. And it is something of a surprise given the instructions to officials and their media not to report or talk about negative data building in their economy.
China's foreign exchange reserves fell more than expected in September, down -US$23 bln to US$3.09 tln in data released a few hours ago.
In the US, markets fell at the end of last week as well. A ho-hum jobs report - even though the jobless rate was near a record low, the growth was in low-paid jobs, the rate of wage increases slowed, and their low participation rate didn't move - markets are sensing the sharp rise in benchmark interest rates with another rise almost certain in 2018 will be bring the day of reckoning closer.
The US trade deficit for August brought a goods deficit of -US$77 bln (up +17% on the same month in 2017), and a services surplus of +US$24 bln (up +10% year-on-year).
The amount of US consumer debt grew at a faster rate in August than July, rising at a +6.2% pa rate and a jump from the July rate of +5.1%. Neither are sustainable and even the year-on-year increase of +4.6% isn't either. These sort of increases are reminiscent of the 2007 rises. So at some point a slowdown will come.
Canada also released its labour market data over the weekend and that came in apparently very much better than expected. They had a gain of +63,000 jobs with a participation rate of 65.4% in September. Their unemployment rate held at 5.9%. The downside of this data is the rise in part-time jobs at the expense of full-time employment.
In Japan household spending jumped +2.8% in August at the fastest annual pace in three years as bigger bonuses boosted consumption. This was way above market expectations for a -0.1% fall.
In India, their central bank surprisingly held its key interest rate at 6.5% despite fears of accelerating inflation. It was a decision that saw their currency drop sharply to a new low. And may think another rate hike can't be far away.
The Aussies posted retail sales up +2.6% in the year to August and marginally better than for the year to July. This data also beat expectations.
A key high court decision in Australia tested whether a computer-generated notice can issue a penalty against a taxpayer on behalf of the tax authority. And the full Federal Court said such notices "can't be relied on" unless a real person issues them, not just a computer. Given that the NZ IRD issues computer generated rulings and claims against taxpayers in a wholesale way here, this opens up a new avenue of challenging the rulings of the tax authorities.
The UST 10yr yield was up strongly at the end of last week at just over 3.23%, a gain of +18 bps in seven days. Their 2-10 curve has widened to +34 bps.
Gold will start at US$1,203/oz a +US$12 gain for last week.
US oil prices are little changed today at just under US$74.50/bbl. The Brent benchmark is now just over US$84/bbl.
The Kiwi dollar is starting this week sharply lower at 64.4 USc having fallen -2c in the past seven days. Because our benchmark interest rates aren't reacting to the US and global rate rises, it is our exchange rate that is making the relativity adjustment. On the cross rates we are at 91.3 AUc and at 55.9 euro cents. That puts the TWI-5 at 68.6 and a three year low.
Bitcoin is now at US$6,552 and that is a tiny net loss of -1% over the past week. This rate is charted in the exchange rate set below.
This chart is animated here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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29 Comments
Another day and yet again lefties want to lighten my wallet. ZB this am.
1. Chloe after more funds to help drug inflicted morons.
2. Windmill man asking for subsidies so they can supply expensive unreliable power.
3. Our rivers are rooted. More money required to turn them around.
Meanwhile Taxinda is looking closely at petrol prices.
Am I 33% lefty? I'd enthusiastically pay to stop our rivers being 'rooted'. To achieve a solution one essential element must be to have the minister of the environment in public stocks and the public provided with rotten tomatoes to throw at him/her. Include all past ministers - I don't care which party they belong to - all parties are stealing from me. my children, my grandchildren and hopefully an infinite number of further generations.
I think I might be 100% leftie then, but I'll stick with number 1 for now.
I believe what you're talking about is an MP asking for more funding for mental health. I'm wondering how you can possibly be against this so it's hard to know where to start.
We could talk about the number of suicides being 2x the national road toll, and climbing.
We could talk about the lack of funding and the stretched mental health services, I could mention my anecdotes of hearing from people working in mental health in Chch who are close to breaking point and unable to provide the help they should be.
We could talk about how properly funding this would not only make for a better society but would probably be a revenue-raiser for the government - a bit of preventative work can stop a whole lot of wasted money in punishment and treatment later on, as well as increasing tax revenue by supporting our citizens in being healthy enough to contribute.
But maybe you're right, and it's more important that those of us who are comfortable get to keep a little more money to spend on distractions from the pain and death in the society around us.
How does it go? Plans rarely survive first contact with enemy forces. Or something like that. Where is Orr's pain point? 50c? 40c? 30c? Events will hunt it out. When does Career Risk trump all else?
Here we are:
Kein Operationsplan reicht mit einiger Sicherheit über das erste Zusammentreffen mit der feindlichen Hauptmacht hinaus
no plan of operations extends with any certainty beyond the first contact with the main hostile force.
https://en.wikiquote.org/wiki/Helmuth_von_Moltke_the_Elder
RBNZ can’t just sit by and do nothing while NZD plummets to 60c and below, oil prices continue to shoot up and banks cut mortgage rates further to shove more debt down the throats of the average Kiwi.
The quality of life in NZ will seriously begin to deteriorate further for the average earner from high energy inflation, even more wage competition (migration-driven) and lower business activity.
Exactly, methinks Orr is overly sanguine and greatly underestimates the political forces that will impact his position. Hence the reference to the brilliant and world changing Von Moltke the Elder, the miltary commander who created Greater Prussia, aka Germany.
https://en.wikipedia.org/wiki/Helmuth_von_Moltke_the_Elder
.."genuine employment in rural export jobs..."
The trouble is the economy really grows only as it chases economies to scale.
ie industrialize your farming, increase intensity, leverage up, centralise everything etc ... all to reduce prices and increase consumption
To somehow move jobs back to the regions is really a step in the opposite direction
China - “A rout could be on the cards”
Time again for the “National Team” to get back out on the field?
“Since the outbreak of A-share market volatility in 2015, the largest institutional investor in the market has become the “national team,” referring to China’s state-owned firms, Yicai.com reported.
As of the end of June 2018, the team has held a total of 1,141 A-shares, and the corresponding market value runs as high as 3.1 trillion yuan (US$450 billion), far exceeding the amount held by insurance institutions and public funds, which is less than 2 trillion yuan.”
Hi David
I have a question about the TWI-5 constituents, I presume that they are still, USD, AUD,GBR, JPY, EURO Do they ever change the constituents? I was just thinking that with China being such a large chuck of our trading compared to 15 years ago that maybe they would be swapped in for one of the other currencies, particularly given that they are our second largest trading partner. If we are setting interest rate policy and the current TWI-5 partners are considered then we have been using the wrong metrics for years.
If you need a larger TWI, the RBNZ converted to a TWI-17 a few years ago. That incluides the yuan.
But I am sceptical, which is why we have stayed with the TWI-5. The reason is that our trade with most other countries are either done in USD or priced in USD. The destination of the goods isn't the issue, it is what the goods or services are priced in. Often the invoice is in local currency - but the value invoiced is based on a proper reserve currency (usually the USD) and the invoice value will change as that base currency rate changes. So in my view TWI's based on trade destinations is a flawed concept.
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