Dairy prices unchanged; US job openings up; Wall Street up; China local authority debt risk high; EU trade surplus up; German sentiment down; UST 10yr at 3.16%; oil and gold firmer; NZ$1 = 65.9 USc; TWI-5 = 69.9

Here's our summary of key events over night that affect New Zealand, with news that the next big risk in China won't come from trade but rather from local government debt.

Firstly however, today's dairy auction was a bit of a non-event. Prices were virtually unchanged, dipping a mere -0.3% in USD terms and even less in NZD terms. There was a chunky 42,000 tonnes sold, the same as two weeks ago, and the highest volume since August 2015. If anything is of note it is the +2.4% rise in the butter price, ending a continuous fall since May. Overall prices are now -14% lower than this time last year. But today's event will not be changing any payout forecasts.

In the US, new data shows that industrial production increased for a fourth straight month in September, led by small gains in factory and mining output, but the growth momentum has slowed sharply.

And American employers had more than seven million unfilled jobs for the first time on record, reflecting a historically tight labour market that is causing some businesses to struggle to find workers. (The number of worker in their labour force as unemployed is at about six million. And more than 5 million more are not in the formal labour force but want a job.)

Wall Street is up strongly today, gaining almost +2% in late trade. And that follows good gains in Europe overnight. All this is in sharp contrast to Shanghai yesterday which lost the tick end of -1%, continuing its downward track. That has now compounded to -10% from the start of October. Rescue plans are being drawn up.

In China, ratings agency S&P is warning of "titanic risks" in their bond markets. Local authorities have almost US$6 tln in off-balance sheet debt. That is the equivalent of half China's GDP. Defaults on that pile are growing. Much of the build-up relates to local government financing vehicles, which don’t necessarily have the full financial backing of local governments themselves.

The EU's trade surplus came in much larger than expected in August. The 2018 surplus with the US swelled +20% compared with the same period in 2017.

In Germany however, business sentiment is falling quite quickly now. It was negative in September but has sharply deteriorated in October in an influential survey.

And in Brussels, EU policy makers are resisting UK attempts to wring special advantages for the UK in the Brexit negotiations. They are also signaling that they will reject the proposed Italian budget.

In Australia, the minutes of the RBA October 2 meeting showed they expect the weak Australian dollar to hold up domestic economic growth. They indicated that the next move in official interest rates is more likely to be an increase than a decrease, although they do not see a near-term change. They also are showing some concerns over sharp credit tightening as a result of the Haynes Commission report.

The UST 10yr yield is unchanged at 3.16%. But their 2-10 curve has slipped to just on +29 bps. The Aussie Govt 10yr is at 2.72% (up +2 bps from this time yesterday), the China Govt 10yr is at 3.61% and down -1 bp, while the NZ Govt 10 yr is at 2.72% which is up +5 bps.

Gold is up +US$2/oz and now at US$1,228/oz.

US oil prices are a little higher today at just over US$72/bbl. The Brent benchmark is now just on US$81.50/bbl.

The Kiwi dollar is again today firmer at 65.9 USc, its highest in two weeks and bolstered by the strong CPI data yesterday. On the cross rates we are also up at 92.3 AUc, and at 56.9 euro cents. That puts the TWI-5 at 69.9 and also a two week high.

Bitcoin is little changed today at US$6.495. 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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26 Comments

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11

Shanghai stock exchange was up 1% in the first hour of trading yesterday but on news of Simon Bridges media interviews fell back to close down another 0.85%. Fears grow in Shanghai that their political influence in New Zealand may have taken a major hit after 10 years of good times had by all.

Do you really think the National Party matter has that kind of influence/reach?

I agree there is likely more to come on that political donation - no doubt the individual now named will be the subject of much investigation as well... but whether it's that 'big' such that the news could influence the Shanghai stock exchange would be amazing (and very scary).

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Its called taking the piss

Of coarse it was a joke and a good one at that. Thanks for my morning laugh Nic

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no doubt the individual now named will be the subject of much investigation as well

No they won't. This is NZ.

Agreed.
Swept under the rug with all the other dirt.

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And there in lies the problem Jock. Many New Zealanders have been so blinkered (by rising house prices) that they haven't noticed that a certain nation has been taking the piss out of us. We now face a risk of a debt crisis because we have been so pumped full of credit to compete that our economy can't sustain it. The challenge we'll face is that our Chinese overlords will be the ones that will be offering to bail us out (at majorly discounted prices) of assets, businesses, farmland when our system goes bust. The Chinese government must be laughing at how inept we've been while succumbing to their policies. One bright spot on the horizon is that it's only one week until the 'One house, one guaranteed vote for National policy' is revoked by the Foreign Buyer Ban. I'm a POM and always voted conservative, but here the values of a nation and of 'conservatism' have been undermined by one parties 'personal agendas' to the detriment of the common interest of the people.

Whether it's the USA or China or any other foreign power, it's incredibly naive to think "What does it matter who owns the land?" (An argument that used to be very popular among commentators on NBR.co.nz, for example.)

When foreign state-corporate powers control large enough chunks of NZ's productive assets, do we really think a country that could not keep two French terrorists in jail in the face of trade threats, that cannot investigate Chinese steel dumping because of the possibility of retaliatory action, do we really think we'll be able to legislate over that land in ways the foreign powers do not like? No way.

"I'm a POM" Hey Nic, I didn't know you were Australian?

Having seen how the quality of life has deteriorated in the UK and quality isn't about GDP or money, it's about space, fairness, communities, not having a shit fight for a hospital bed or a kids place in a school. Being able to buy a house near family and not on the other side of the Country where it's cheaper to live but where there is no family support. Setting off on a journey and getting there without spending 4 hours in a traffic jam. Not having high levels of corruption. I'd hate for NZ to make the same mistakes that have left the UK divided and broken with a cacophony of self serving voices that make fair policy formation almost impossible.

The real POM's sadly are the one's that are still trapped in mother England. Thankfully I managed to escape with a 6 generation kiwi but we should see the UK as a warning of how quickly society and communities can change for the worse when no one challenges the policy makers self serving interests.

Get your point, but you missed mine. POM or more correctly POHM was what was printed on the clothing of convicts shipped to Australia. So in truth Australians are the POMs and the Brits? Well they're just Brits!

No I didn't miss yours Murray, I just didn't recognise it in my reply which was rude and I apologise.

Wrong - it's already begun;

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12143435&...

There is a groundswell of NZers that are raising concerns about CCP influence in NZ society. They'll keep at it.

I'll remind you of the Jian Yang fiasco.

Nothing came of that.

There was a tremendous amount of reporting. The MP was taken off duty on one particular Select Committee as a result. Nothing anyone can do about the fact that he still sits in our Parliament aside from the National Party - and of course for them, it's complicated and there is much at stake.

The reporting lasted barely 1 protracted month with the intensity focussed in the first couple of weeks...And, then nothing.
What should have been actively and aggressively pursued was abandoned pretty fast... Hell, the dude didn't even really have to front up to media or answer any questions in the public interest.

The fact that he got benched from a select committee is nothing consequential.

He fraudulently completed his application for citizenship and we still allow him to be an active member of parliament, focused directly on garnering donations for the National Party from the Chinese community.

Consequences only exist in the private sector.

Over 20 years

It doesn't matter that Chinese municipals are racking up loads of debt because apparently the central government can just make it all disappear.

Re the birthday honour. Phil Goff seconded the nomination, along with Jian Yang. It would not surprise me if KCC Construction also made a donation to Labour. Don't think Winston would have got much, though. It is interesting, though, to note the strong links between Chinese business and National. Just look at the directorships Shipley disclosed when she gave evidence at the Mainzeal hearing. I'm not saying that it is a bad thing, so long as there is transparency.

Cross party support. Impressive.

Goff has never seemed the smartest cookie.

Chinese local government debt may well disappear but there will be a lot of very angry developers left holding the can. Someone's got to pay & if it is these guys, then you watch the thuggery and after-dark stuff mount up. Very quickly. If you don't pay your bills, you will pay with your health or life. Chaos in China? Wouldn't be the first time.

"And in Brussels, EU policy makers are resisting UK attempts to wring special advantages for the UK in the Brexit negotiations"

Well done EU

So a quick look at the Financial news on Stock Markets

Reuters use the term "battered "t

Fin24 use the term "rout"

CNN uses "sinks , slump and Plunging " in 3 different headlines

CNBC says ......"signalling something bad "

Bloomberg headlines have the words "tumbling , rout and Wobbly " in 3 different articles

But Bloomberg does have an excellent piece discussing what happens on the very rare occasions when shares and Bonds both fall in tandem .

Here's a quote from the Bloomberg article :-

Bonds and equities are doing something they don’t usually do -- fall in unison -- with the latest move driving their normal inverse correlation to the weakest levels of the past two decades. The relationship has come completely apart only three times in that period, and each episode was followed by an equity market slump, i

Bloomberg does have an excellent piece discussing what happens on the very rare occasions when shares and Bonds both fall in tandem .Here's a quote from the Bloomberg article :-

Bonds and equities are doing something they don’t usually do -- fall in unison -- with the latest move driving their normal inverse correlation to the weakest levels of the past two decades. The relationship has come completely apart only three times in that period, and each episode was followed by an equity market slump, i