IMF downgrades growth again; China depreciates, defends against outflows; Hong Kong housing teeters; Canada housing starts droop; UST 10yr at 3.21%; oil up, gold holds; NZ$1 = 64.6 USc; TWI-5 = 68.8

Here's our summary of key events overnight that affect New Zealand, with news 'economic growth' is under pressure worldwide.

At their just-ended meeting in Bali, the IMF lowered its forecasts for global economic growth in 2018 to +3.7% and down from +3.9% in their April estimate (which itself was a downgrade), saying the trade tariff wars and instability in emerging markets is cooling many economies. By their new estimates, they think China's growth will cool to +6.2% in 2019. US growth will cool to +2.5%. They say New Zealand will grow +3.1% this year and +3.0% next. (That compares with the last RBNZ estimates of +2.5% this year and +3.3% in 2019.)

China’s effort to support its slowing economy is putting pressure on the yuan. Their challenge is to keep the growth going without triggering capital outflows. To do that they are letting the yuan depreciate - and it hit a 21 month low against the greenback yesterday - while at the same time engineering a very sharp rise in the cost borrowing yuan in offshore markets, especially Hong Kong. That makes the costs of large sudden capital outflows much less attractive. The overnight cost of borrowing yuan for Hong Kong banks jumped to 5% from 1.7% a day earlier, hitting its highest level since May. The rate for one-week lending reached 7.6% yesterday, up +4 percentage points since last week to its highest level in over a year.

To encourage trade, China is increasing the size of its tax rebates for exporters. Plus it has announced an expanded program to clear away shantytowns and replace them with 'modern' housing facilities.

In Hong Kong, there are serious worries that a housing market crash is imminent. Banks are slashing valuations in the face of a turn in the market and industry insiders are claiming this will just make the turn faster and deeper. But of course no bank wants to be behind the trend of declining market prices. A big reveal of the housing market's reliance on 'confidence' underpinning valuations is about to be exposed in Hong Kong.

In Canada, housing starts slipped to a 19 month low. They were particularly weak in Vancouver, but growing in Toronto.

In Mexico, their inflation topped 5% in September and for the first time since March, establishing a new rising trend.

The Gerrman trade surplus grew larger than expected in August, but for all the wrong reasons. Exports actually fell when they were expected to rise, and imports slumped when a small rise was expected. Perhaps the data is seasonal because August is the height of their summer holidays. But it is a worrying sign for them nonetheless.

The UST 10yr yield is lower today at 3.21%. Their 2-10 curve is now at +32 bps. The Aussie Govt 10yr is at 2.78% and up +1 bp from this time yesterday. The China 10yr is at 3.65%, up +2 bps, while the NZ Govt 10yr is at 2.69%, also up +2 bps.

Gold is at US$1,187/oz this morning, a small US$2 rise overnight.

US oil prices are up by about +US$1 today at just over US$75/bbl. The Brent benchmark is now just over US$85/bbl.

The Kiwi dollar is starting today at 64.6 USc having changed little since this time yesterday. On the cross rates we are at 91.1 AUc and at 56.2 euro cents. That leaves the TWI-5 at 68.8 and just off its three year low.

Bitcoin is now at US$6,587 and that is a tiny slip of less than +1% overnight. 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 ».

Daily exchange rates

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The '¥en' chart will be drawn here.
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End of day UTC
Source: CoinDesk

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All signs of a property slump in the nation of long white clouds

the only reason property will slum is because of liquidity, cash up guy's.

I'm suffering withdrawal symptoms, every Tuesday Greg provides the Barfoot and Thompson Auction report - It's now Wednesday and I'm starting to suffer withdrawal symptoms. Come on Greg, give us a hit, how we looking?

Just over a third.

Nicky Haley has resigned from the UN. Trump has come out hitting in the drug war. He's going to be a two term president.

? Can expand on your comment "2 term president". In my opinion, once the midterms are over he will be a lame duck tweeter.

Escalating volatility out there in the Global stock and bond markets along with a growing number of key countries facing a range of economic issues. Multiple factors are starting to pile up and merge to create the perfect storm while rising oil prices, Fed rate hikes and Trade Wars help fuel the winds. Fingers crossed for some calmer waters ahead but unfortunately for now it looks like the global economic environment may be in for a rocky ride over the coming months and possibly years. Something to keep an eye on as economic conditions across the world deteriorate even further. Countries with developing risks to watch for now - China, Italy, Turkey, South Africa, India, Pakistan, Argentina, Brazil, Venezuela, Greece, Iran, Indonesia, Australia, UK, USA.

AJ... I much prefer view/map of the Monetary/economic landscape in China . ( It was you who introduded me to it )

I'm unsure about the efficacy of alhambrapartrners point of view.. I think they are too caught up in the world of derivatives/eurodollars .. I find their stuff difficult for me to come to an understanding of things...

They are both essentially saying the same thing Roelof. Money isn't getting recycled into US assets because the US is not borrowing the base money into circulation. There is a combination of consumers in the west not buying, and Chinese production in overshoot. We have seen this before, it is what the House of Saud did with excess dollars from the sale of oil. Put those surplus dollars back into US financial assets. They kicked the can down the road. China was last man standing, so now the end of the road is nigh.

The end of the road is no capacity left to take on new debt, that causes a lack of liquidity world wide as the new debt is the basis for derivatives of that debt. Money gets tight and interest rates rise, what a surprise. Defaults will start to happen as interest rates rise. That is probably going to be most painful as debt rolls over and is renewed at a higher rate. Those not credit worthy won't get it.

Lack on dollar inflows mean China is having to sell the family silver just to meet living expenses. That will spread, and eventually hit households in the West when their jobs dry up. The pending wealth destruction is going to be impressive.

It is called "there is no such thing as a free lunch".

The TIC data graph Jeff Snider uses is looking like a Seneca Curve in development, so there could be one or two more reflation attempts yet.

those derivatives allow one to leverage more. They act like insurance, they reduce collateral requirements so you can borrow more, or could borrow more not any more.

Scarfie.. thks..
What u say sounds right... If you look at the Bawerk schematic... the red deflationary cycle has been reasonably spot on.. (China has just reduced reserve ratios )
I agree that China, in particular, will reflate.. and I agree with your idea of a couple more reflations..

In this context... maybe Trumps trade tariffs are more than just a nuisance .. .. for China. ie.. might have an impact on foreign investment in China


Hey David,

Can I say a big thanks to your currency team. I started reading about 6 months ago and the sheer amount of knowledge I have acquired about currency changes and the pushes/pulls is amazing. Currency is a very hard area to articulate so everyone can understand and I think your team does an amazing job at it.

Totally agree, Jason and Nick are both first class so please pass on all our thanks!