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China equities still dropping; other Asian markets down; US retails sales growth stalls; Canadians optimistic, but housing slips; EU-UK talks on knife-edge; UST 10yr at 3.16%; oil unchanged, gold firmer; NZ$1 = 65.5 USc; TWI-5 = 69.4

China equities still dropping; other Asian markets down; US retails sales growth stalls; Canadians optimistic, but housing slips; EU-UK talks on knife-edge; UST 10yr at 3.16%; oil unchanged, gold firmer; NZ$1 = 65.5 USc; TWI-5 = 69.4

Here's our summary of key events over night that affect New Zealand, with news the pressure is ramping up on China.

The Shanghai equity market couldn't hold yesterday and ended up down more than -1.5%. Tokyo was down even more. The ASX200 was down -1%. But Wall Street has opened its week holding on to Friday's levels following similar flat-lining in European markets.

The China falls are getting extreme. More than US$3 tln has been wiped off the value of China equities in this downturn (more than 20% of Chinese GDP) and the index is now back to levels last seen in November 2014. The 'home team' has not proven to be a strong enough bulwark against market pressures and there are now reports that Beijing is leaning on insurers to come to its aid.

American retail sales barely rose in September as a rebound in car sales was offset by the biggest drop in spending at restaurants and bars in nearly two years.

Meanwhile business inventories are rising.

Across the northern border, Canadian companies are optimistic about the year ahead – especially when it comes to sales growth, foreign demand and their investment plans. And that survey was taken before the new NAFTA agreement was struck. It is noticeable how many companies are moving to fill the space of their American counterparts in the trade with China.

However, Canadian home sales fell more than expected in September with sales levels almost -9% lower than the same month a year ago. Prices have stopped rising, and in fact are falling in Vancouver.

In Europe, they seem to be at the pointy end of the Brexit negotiations. The EU has given Britain a day to settle its position on Brexit before deciding how to respond to a new British threat to “disengage” from talks on an EU exit agreement. Everyone seems to understand these are just negotiation ploys, but they are playing a very dangerous, high-stakes game. The UK-Irish border remains a key issue. Markets and the EU are expecting the UK to concede key points. There will be broad ripples felt even here if they don't.

The UST 10yr yield is unchanged at 3.16%. Their 2-10 curve has slipped to just under +30 bps. The Aussie Govt 10yr is at 2.70% (down -4 bps from this time yesterday), the China Govt 10yr is at 3.62% and up +1 bp, while the NZ Govt 10 yr is at 2.67%, and also down -1 bp.

Gold is up +US$8/oz and now at US$1,226/oz. And that is actually nearing a three month high.

US oil prices remain little changed today at just under US$71.50/bbl. The Brent benchmark is now just under US$80.50/bbl. So far, markets haven't reacted to the US-Saudi-Turkey stress.

The Kiwi dollar is starting today firmer at 65.5 USc and its highest in two weeks. On the cross rates we are also up at 91.7 AUc, and at 56.5 euro cents. That puts the TWI-5 at 69.4 and also a two week high.

Bitcoin is firmer today at US$6.534 and up +4.1% since this time yesterday. 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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End of day UTC
Source: CoinDesk

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15 Comments

Looks like Khashoggi got his fingers caught in the toaster
https://www.zerohedge.com/news/2018-10-15/saudi-admit-khashoggi-killed-…

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Thanks Andrewj

For those that want an informed view and are fed up with being spoon fed, then this is an excellent watch.

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The Property investor Centre in New Zealand call time on the Boom and finally recognise that the market is falling.

https://www.propertyinvestorcentre.co.nz/the-boom-is-over/

(Thanks CN for finding this little gem)

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"we are entering a phase of the cycle where there will be some change which will present some exciting (buying) opportunities."
Drips off the tongue doesn't it! It's easy to say or write, but just try actually doing that if things go really pear-shaped.
I know experienced traders who waited all of their lives to have "another '87 Crash" arrive on their doorsteps; convinced it would be their shot at getting in at bargain prices. And you know what? When 2008 presented itself to them, they did...nothing! Because when fear arrives, all the best-laid plans get forgotten. And it's not until the fear is over, that people look back and think "Why didn't I buy back when it was a bargain!". The answer is, because it wasn't a bargain at the time, and no one knows where the bottom is, and in a real correction it is ALWAYS a lot further down than we may think.
Everything, is easy, looking back!

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Plus the bank might not lend.

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I guess the target audience isn’t really the average earners, who stake their life savings on a house when the markets are peaking and ultimately end up with negative equity or, worse, foreclosure.
A few senior level managers and executive at my wife’s firm in the US expanded their property portfolio during the 2011-13 period at highly discounted prices. Banks exclusively offer exciting opportunities (foreclosed properties at prime mortgage rates) to these high fliers.

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You're right! Banks always offer their distressed stock to a select band of in-house buyers etc. It keeps it off their books and doesn't hit the market as price affecting sales. One of my guys bought a tiny island off Fiji from Westpac in that way! It came complete with prepack loan. As with many things in life, it's who you know!

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And then you balance that up with opinion pieces like the following. Capital gains tax is unfair because you had to work hard first to invest your capital.
https://www.stuff.co.nz/opinion/107263365/damien-grant-there-is-nothing…

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Damien Grant. ugh. A quick google should tell you all you need to know about that asshole.

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Picking a bottom in property is not that hard, and I was purchasing post GFC. Contact GJ Gardener get construction cost of new 200sqm house. Then compare to sales price for houses less than 6 years old of similar size and style, in major centre. If cost of existing house is less than half section price + cost of new build, then it is a good time to buy. 2009 NZ Kapiti Coast could purchase 200sqm brick and tile 4yr old house for 390-400K, cost of construction 375K excluding driveways/ landscaping, so effectively getting the land for free (at time sections 170K). 2012 same house 450K, cost of construction 400K, getting land for 50K, at times sections selling for 200K. Do this calculation and will give an indication to bottom, then buy where ever you wish to buy. Key is in this market there will be minimal construction, as houses selling for way below replacement cost. And as long as population rising in area (hence major centre) with presence of CPI inflation, there will eventually be a housing shortage, then prices will eventually correct upwards. Note the above properties that could be purchased for 390 to 450K from 2009 to 2012, now sell for 700K. And if purchased pre-2014, are positive cashflow even including mortgage principal with 100% financing, as rents have risen about 40% over the last 8 years.

More difficult to do with sharemarket, but property not difficult as can compare to replacement cost. This is the method I used during and post GFC. 2009 my wife was worried about purchasing, but once logic explained she was happier, though still wary.

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"Markets and the EU are expecting the UK to concede key points. There will be broad ripples felt even here if they don't."

Good on you EU, you are in a much stronger position than the UK. Also the UK never played ball, refusing to adopt the Euro, not taking the number of refugees as agreed and now making big problems with the Irish border. EU, stand tough and make the UK suffer

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