Here's our summary of key events over the weekend that affect New Zealand, with news that how China and the EU separately react to issues facing them will set the tone this week.
Markets will open on tenterhooks later today after Wall Street was down -4.9% last week and Shanghai was down -5.8%. The NZX was down -4.0%. Bond market yields fell after the UST 10yr rose to 3.23 at the start of last week and ended lower at 3.17% as doubts started to appear about the sustainability of higher rates.
But surprising everyone over the weekend was Chinese export performance. For the fifth consecutive month where markets were expecting to see sharp declines from the effects of the trade war and rising tariffs, they have defied expectations and risen. In September they were up almost +15%, and the countries’ trade gap with the US hit a fresh high of -US$34 bln in the month. More American tariffs are on the way, but so far the ones imposed only seem to have juiced up the trade between the two countries. Its a trend full of irony and quite unexpected. The "rush-to-beat-tariffs" narrative can't go on forever. On the other hand, Chinese imports fell -14% reflecting subdued domestic demand.
However car sales in China fell for a third straight month in September, and it now looks like they will have their first yearly decline in passenger-car sales in almost three decades. Foreign manufacturers had a particularly rough month.
Europe could prove the center of global market focus this week as Italy's budget and Brexit talks overshadow economic data and central banks. Politicians are gathering to address the EU biggest current challenges.
"History suggests that the world is about due for another financial crisis. One of the places it might start is Italy. Many of the ingredients are there. A pile of questionable debt. Weak banks. An erratic government. And a sizable economy able to inflict collateral damage outside Italian borders." And its new unstable government might find an angry Germany, fed up with all challenges, only too ready to push it out of the EU. The EU is playing with matches again, confident they know what they are doing.
In Australia, house prices are likely to slip further as the demand for new mortgages dries up. The number of new mortgages fell by a larger-than-expected -4.5% in August, to be down more than -10% over the year. It is weakest result in almost eight years when the property market was still struggling in aftermath of the GFC.
The UST 10yr yield is slightly firmer at 3.17%. Their 2-10 curve has at +31 bps. The Aussie Govt 10yr is at 2.74% (down -1 bp overnight), the China Govt 10yr is at 3.61% and also down -1 bp, while the NZ Govt 10 yr is at 2.68%, and up =1 bp. New Zealand swap rates have risen a minor +3 bps across the curve over the past week.
Gold is at US$1,218/oz and that puts it up +US$17 for the week.
US oil prices are little changed today at just under US$71.50/bbl. The Brent benchmark is now just under US$80.50/bbl. But both are large pullbacks from this time last week.
The Kiwi dollar is starting the week little changed from Friday at 65 USc, but up +60 bps in the past seven days. On the cross rates we are little changed at 91.4 AUc and unchanged on the past week, and little changed at 56.2 euro cents (although more than +60 bps up on the week). That puts the TWI-5 at 69 and a good weekly gain.
Bitcoin is now at US$6,274 and unchanged from Saturday but a net loss of almost -5% 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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27 Comments
More data on the Australian housing market collapse. Questions too about whether RBA still has its head in the sand?
Those aren't the annual figures Yvil. Annual figures attached. You'll be okay in the Hawkes Bay with 40% leverage you've got a big equity cushion behind you to soften the falls.
Bavarian elections could be the trigger for chaos in German politics, as Merkel's destruction of the ancient shared conception of European civilisation reaches its tragic conclusion:
http://www.spiegel.de/international/germany/csu-could-face-historically…
Katrin Ebner-Steiner, the AfD candidate in the eastern Bavarian town of Deggendorf, is running her campaign with four volunteers. Two of them join her at the information stand while two others hang posters. The AfD has 63 members in Deggendorf. The Bavarian AfD chapter has one full-time and one part-time employee, but it has temporarily doubled its payroll for the campaign.
It is an unequal battle. On the one hand is a party that is virtually synonymous with the state of Bavaria, one with 140,000 members, almost three-quarters of all government officials in the state and a deep network. On the other is the AfD, a party that essentially only has a shrewd marketing agency on its side. It's posters aim directly at the CSU's Achilles' heel: "We do what the CSU promises," is one example. Another: "If CSU is on the label, Merkel is one of the ingredients." "Both posters do quite well," says Ebner-Steiner.
There are hardly any Bavarian restaurants anymore, she said prior to our meeting, before proposing a place right on the Deggendorf main square. She orders stewed plums with plenty of whipped cream. She ends up laughing a lot on this afternoon. After all, things could hardly be going better for her. In the federal elections last September, the AfD received roughly 20 percent of the vote in Deggendorf and in the region next door. This time around, the forecasts look even rosier. "It really is embarrassing for the CSU," Ebner-Steiner says.
The CSU has its spies everywhere, says Ebner-Steiner. She says she knows Deggendorf municipal employees who are not even allowed to stop by an AfD informational stand. "For these people, it is such a feeling of autonomy to be able to secretly cast their ballots for the AfD. They say: It's time to put an end to the cronyism and the social control." It is a sense of frustration, she says, that has been building up over the course of several years. The refugee crisis was merely the straw that broke the camel's back.
"In Australia, house prices are likely to slip further as the demand for new mortgages dries up. The number of new mortgages fell by a larger-than-expected -4.5% in August, to be down more than -10% over the year. It is weakest result in almost eight years when the property market was still struggling in aftermath of the GFC."
A growing risk to the big 4 NZ banks down here as well...
A much more balance comment than Nic's: "the Australian housing market collapse"
Adam, how do you see possible repercussions to the big 4 NZ banks from their OZ parent's potential troubles play out?
- increasing interest rates in NZ to recoup potential losses in OZ?
- if so how much higher could they go before losing too many customers to other banks like Kiwibank or HSBC?
- what other repercussions?
Yvil
An overall 12 month fall of over 7% in Syndey 'House' prices would suggest a collapse to me. If the trend was reducing that would be different but the month on month 12 month average declines are now magnifying
Here's the data. That's the start of a collapse. By December they will talking about a 10% annual fall if the rate of decline carries on as it has over the last few months.
Yvil - Bit more on Australian Housing Market - An old classic from the Manic Street Preachers with lyrics - Australia - 'There must be someone to blame?'
The –US$34 billion China / US trade gap - yes, surprising.
Summarising a recent Washington Post article:
Increased exports from China to the United States — up 14.5 ¬percent from the same month last year — combined with a decline in imports.
The worsening trade imbalance is also a reflection of the two countries’ economies.
Front-loading because firms that know they’re going to hit with tariffs would rather pay 10 percent than 25 percent.
The 10 percent tariffs were almost entirely offset by the fall in the Chinese currency, which has depreciated by more than 8 percent since June.
https://www.washingtonpost.com/world/chinas-trade-surplus-with-the-us-h…
Violence, Public Anger Erupts In China As Home Prices Slide
https://www.zerohedge.com/news/2018-10-13/violence-public-anger-erupts-…
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
'If you invest the way people do in casinos, then you're not going to do very well' (Charlie Munger on Chinese Gamble-vestments - 8 days ago).
Presumably there are a lot of Europeans who feel the same, as otherwise they would have moved there by choice. I think it is not good to think of a population as group of standard issue people though. Germany has more civilised parts, traditionally the ones in more fertile Western regions. These had a long standing democratic tradition that was destroyed by the East Germans in the Wars of Unification in the 1860s. Thus, West Germany resurrected ancient traditions that appear to have been overwhelmed by more imperialistic thought processes post re-unification.. Ordinary Germans see their civilisation being destroyed but don't know why, just like everywhere else in the Western world.
I have just been through a court process with a couple of Germans neighbours who've been here since 2001. Their interpretation of Negotiation is "This is what we want, give it to us!" Compromise appears to be a foreign concept....(NB: The final judgement was against them)
A tendency to only be able to see things from their point of view? Seeing a negotiation as a win-lose battle? In less politically correct times it was called Germanic Thinking. Trump is the current champion, but also Putin and all the other tyrannical would be autocrats. There also used to be something called Nineteenth Century German Reductionism, which, somewhat curiously, the Greens seem to embrace, hence their Stalinist tendencies.
The fallacy seems to be that because I cannot see a solution, then there cannot be one. Therefore I must be in charge and impose my will on others, "for their own good". In the Vietnam era this became "In order to save the village , we had to destroy it". It is a dark road to travel.
This used to be countered by something like "but all things are possible for .... (insert your chosen name for holiness). The point being that a bit of divine inspiration was called for so as to create a solution that didn't involve slaughter. In a dark room you need someone to turn on the light.
Several retailers in the US hike minimum pay rates. An FT warehouse worker at Amazon can now earn upwards of NZ $50k a year (2,200 hours a year) working in smaller US cities where cost of living is much lower than Auckland and Wellington's. The fight for workers is really heating up in the US; the long awaited real wage growth could finally be here.
https://www.cnbc.com/2018/10/12/amazons-minimum-wage-hike-was-inevitabl…
or is this a bigger bubble ... things really kicked in around the 4min mark
https://www.youtube.com/watch?v=PUwmA3Q0_OE
some might see flashing lights
This is whats behind the high commodity prices
http://www.xinhuanet.com/english/2015-09/11/c_134614345.htm
Meet The Finance Professor Exposing Rigged Markets One Academic Paper At A Time
https://www.zerohedge.com/news/2018-10-13/meet-finance-professor-exposi…
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