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China stocks jump; US homes sales slip; Canada inflation lower; China grows slower; China retail sales star, home prices stable; Moody's downgrades Italy; UST 10yr at 3.20%; oil up, gold unchanged; NZ$1 = 65.9 USc; TWI-5 = 70.1

China stocks jump; US homes sales slip; Canada inflation lower; China grows slower; China retail sales star, home prices stable; Moody's downgrades Italy; UST 10yr at 3.20%; oil up, gold unchanged; NZ$1 = 65.9 USc; TWI-5 = 70.1

By David Chaston

Here's our summary of key events over this Labour Day holiday weekend, but first we need to advise there will be no video accompanying this article today.

First, Wall Street and American equity markets closed flat on Friday. But that was in contrast to Shanghai which was up a spectacular +2.6% on the day. It sprang to life in the afternoon session, all happening in the one hour to 2:15pm their time. It has all the hallmarks of a stage-managed pump by the 'home team'.

In the US, home sales volumes fell in September by -4.1% from the same month a year ago and the most in over two years as the housing market continued to struggle despite strength across the broader economy. First home buyers account for 32% of all sales, a proportion that has been rising for a year. The median existing-home price for all housing types in September was US$258,100 (NZ$391,600), up +4.2 percent from September 2017.

In Canada, they had a surprise fall in their rate of inflation. It came in at +2.2% in September, down sharply from +2.8% in August. Easing petrol costs were behind the reduction. A surprise fall in the level of retail sales in August was also reported, a surprise because a rise was expected.

Chile's central bank has raised its policy rate by +25 bps to 2.75% and that is despite inflation easing there. A strong labour market and rising growth were behind the decision to tap the brakes a little at this stage.

China’s economy grew at a slower-than-expected +6.5% in the third quarter, the weakest since the global financial crisis.

Retail sales however rose faster than expected, up +9.2%. With that retail sales data is something of a milestone, from an outsiders point-of-view anyway. In the first nine months of 2018, national online retail sales amounted to 6.3 tln yuan, which means in US dollars that is more than US$1 tln, a year-on-year increase of +27.0%. In 2017 it took all twelve months to achieve US$1 tln level.

Home prices in major Chinese cities were stable overall in September as local government tightening property curbs weigh on markets, especially the large ones. On a month-on-month basis, four first-tier cities - Beijing, Shanghai, Shenzhen and Guangzhou - saw declines in prices for both new and existing homes. Second- and third-tier cities are still posting gains however.

Moody's has reduced Italy's credit rating to the lowest investment grade Baa3, one step away from a junk rating. This downgrade is a direct reaction to the Italian government’s decision to accept higher budget deficits in coming years. The Italian economy is 15% of the total Eurozone economy, compared with Greece’s 2%t. A blowup in Italy, one of the most indebted countries in the world, would not only rattle Europe but spread throughout global markets. Moody's noted that Italy's public debt ratio will likely stabilise close to the current 130% of GDP in the coming years and on that basis it applied a 'Stable' tag to the new lower rating. But there is some contagion. The gap in yield between 10-year Spanish bonds and haven German debt hit its widest level since April 2017 during Friday’s session before narrowing later in the day.

In Australia, a key by-election has brought a 20% swing against the current conservative Federal Government, removing the slim majority the Government had in Canberra.

In the US, benchmark yields rose as investors increasingly accept that the Fed will keep raising rates over the next year. The UST 10yr yield will start this week higher at 3.20% with their 2-10 curve at +29 bps. The other yields we follow were basically unchanged; the Aussie Govt 10yr is at 2.70%, the China Govt 10yr is at 3.58%, while the NZ Govt 10 yr is at 2.69%.

Gold is at US$1,226/oz and that puts it up +US$8 for the week.

US oil prices are marginally higher at just under US$69.50/bbl. The Brent benchmark is now just under US$80/bbl. OPEC is suggesting that prices could fall from here.

The Kiwi dollar will start the week noticeably firmer at 65.9 USc. On the cross rates we are also higher at 92.5 AUc and that's its highest in 16 weeks, and at 57.2 euro cents which is its highest in seven weeks. That puts the TWI-5 at back over 70 and a good weekly gain of +100 bps.

Bitcoin is now at US$6,432, little-changed from Saturday but a net gain of +3.2% over the past week. This rate is charted in the exchange rate set below.

This chart is animated here. For previous users, the animation process has been updated and works better now.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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20 Comments

With the CCP almost certainly buying shares there, and elevating their valuations, what will happen when inadequate dividends flow? Surely it can't subsidize dividends as well?

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Dividends? Who needs them? The CCP certainly doesn't. It does need a compliant populace though....

Is a reversal of globalization inevitable?

The Northeast Asia economic model isn’t compatible with the Western model. In the West, corporations are run for profit. In Northeast Asia, exports have been used to increase employment, income, and market share. In China, average export prices have been unchanged in U.S. dollar terms for the past 15 years, whereas the average wage has gone up six times. A company with such statistics goes bankrupt, but China has escaped that outcome through the use of debt.

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The World Trade Organization should have sanctioned China for applying unfair trade practices, but didn’t. Presidents Clinton, Bush, and Obama, and Europeans, were asleep. President Trump has taken up the issue, as he was elected to do. Middle-class incomes in the U.S. and many European countries have been unchanged or down for the past 30 years in purchasing-power terms, while middle-class incomes in China and its satellite economies have risen tremendously

https://www.zerohedge.com/news/2018-10-20/ecb-worst-run-central-bank-wo…

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Our wages have gone down, when measured against our biggest lifetime expenditure, a house.

https://wordpress.com/post/rogerwitherspoon.wordpress.com/130

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Artificially low interest rates. As simple as that.

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Sounds like Japanese business model, but many Japanese companies saw wage growth hit a ceiling many years ago and many companies are sitting on mountains of retained earnings.

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http://cluborlov.blogspot.com/2018/10/humpty-dumptys-fateful-choice.htm…

"Nor will it be a rational choice: the policymakers in the US have long given up on any realistic measures of such thing as unemployment rate, inflation or GDP growth. Their models might as well be based on tea leaves or goat entrails".

They probably believe that all we need is more productivity, too.

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I am not convinced of what he says Murray. If you can follow Jeff Sniders eurodollar university, demand for borrowed money in the west has dried up. This means they are not buying cheap junk made in China, Chinese money therefore isn't flowing back into US Assets and it is China that is bleeding foreign reserves as as result. They are not selling them down willingly, it is like selling the family Silver. Those assets still return a yield, they are selling an income stream. The other result is the money supply drying up globally, pushing the price of that money up. This hurts the emerging markets the hardest, and one or more are probably going to crack soon. Risnig interest rates affects corporate borrowing also.

Hard to say how this is going to play out, but I think Orlov needs to go a layer deeper.

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China’s Economy Is Not Crashing, It’s Worse Than That
https://www.alhambrapartners.com/2018/10/19/chinas-economy-is-not-crash…

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#PBOC injects net 120 billion yuan via open market operation on Monday, net injection for the 2nd straight day.

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Zheng Xiaosong, head of Chinese central government’s liaison office in Macao, died on Saturday night after falling from his residence in Macao due to depression, according to a statement of the office

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Really? Wasn't suicide by two bullets in the back of the head?

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Does anyone else remember the days foreigners could buy property in New Zealand?

That was so yesterday.

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Well done – I was wondering when someone would throw that in.

Next stop – this week’s auction results that reveal prices haven’t crashed with a “see – I told you FB’s made no difference etc.”

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I know right. Its a public holiday...I've got my funny undies on today.

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ok, so just listen from 2 mins in

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How can you trust anything China puts out. They are proven lairs and data manipulators for their own benefit.

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Not data, "data".

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