Here's our summary of key events overnight that affect New Zealand, with news central bankers seem positive but investors have turned decidedly bearish.
Today, Wall Street is sharply lower, down -1.7% mid-afternoon New York time and that is now a cumulative -3.8 loss over the past week, -7.5% over the past month. Weak earnings from companies in international trade are pervading the market, all the result of the self-inflicted trade wars. As reflected in today's Fed Beige Book surveys, it's the rising costs outlook wot done it. In Shanghai yesterday, they closed flat, That cements a +2.0% gain over the past week, but masks a -6.4% loss over the past month. (Actually, the NZX has lost -7.5% over the same time. The ASX is down -5.8%.)
In the US, sales of new single-family homes fell to a near two-year low in September, down an eye-catching -13% year-on-year, and made worse because data for the prior three months was revised lower too, the latest indications that rising mortgage rates and higher prices are undercutting their housing market. To be fair, new homes are only a small portion of their housing market, but the existing home market is on a downer volume-wise as well.
In Canada, and as expected, their central bank has raised interest rates +25 bps to 1.75%, saying the resolution of the NAFTA deal and easing concerns over household debt gave them more confidence in Canada’s economic outlook. At the same time, they have hinted at more frequent rises in the future.
Sweden also reviewed its policy rate but made no change. But this review is widely seen as setting the stage for hikes relatively soon.
Yesterday, we reported a small and unexpected rise in machine tool orders in Japan. But what we missed within that is a surprisingly large drop of orders from Chinese customers, down more than -20%.
In a new and detailed study, airlines are warning of chaos if there is no Brexit deal. But the main impacts will be on the UK rather than the EU.
Meanwhile, the airline industry has updated its 20 year air travel forecast, predicting a compound annual growth or more than +3.5% to 8.2 bln travelers by 2037, a more than doubling of activity. Yes, China and India will grow as everyone expects, but the big gainer is growth from Indonesia, expected to become the world's fourth largest market.
In Australia, APRA data shows that banks are having trouble making loans that meet the new tighter serviceability criteria. In fact, AU$19 bln of loans issued in 2018 have not met that standard. In a AU$1.1 tln market, that is not a high proportion, but it does indicate that as they move to meet the new standards, credit availability will be getting tighter there, which in turn will depress their housing markets.
The UST 10yr yield will start today at 3.13% and another down -2 bps from this time yesterday, with their 2-10 curve now under +27 bps. The other yields we follow have moved similarly; the Aussie Govt 10yr is at 2.66% and down -2 bps, the China Govt 10yr is at 3.57% and down -3 bps, while the NZ Govt 10 yr is at 2.66% and down -2 bps.
Gold is at US$1,227/oz and down -US$4 overnight.
Oil prices have stayed down after yesterday's big drop and holding at a six week low. Today US oil prices are just on US$67/bbl. The Brent benchmark are just over US$76.50/bbl.
The Kiwi dollar will start today little weaker at 65.2 USc. On the cross rates we are at 92.3 AUc, and at 57.3 euro cents. That leaves the TWI-5 at 69.8.
Bitcoin is now at US$6,467, again little-changed from 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 ».
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41 Comments
USA. The glut of unsold new homes on the market is the highest since Jan. 2009. The supply is equal to 7.1 months of sales, the highest since March of 2011. As inventories rise and sales plunge, that number is headed higher. Home prices will have to fall, wiping out homeowner equity! Shiff
https://finviz.com/futures_charts.ashx?p=d1&t=LB
There are many people who weathered the GFC in the US that only recently went back into positive equity. If big house price falls happen again across the US it will be a repeat for these homeowners. A lot of people will be stuck with their house until their mortgage is paid off, even if they need to move for work.
With all the private debt the US had very little resilience in the GFC and I don't think anything has really improved in any substantial way for everyday workers. There are still a lot of people that lost jobs in the US in 2008 and still can't find work (they aren't reported in unemployment figures).
Manufacturing and service PMI in the US is still running at highs due to new orders, sharp rise in new payrolls and greater business investment.
Manufacturers are reporting a slowdown in output due to raw material shortages. Services saw a bounce back mainly due to new orders and an accumulation of order backlog.
A strong economy should eventually lead to stronger a housing market (the market is weak at major population centres but is holding up in Tier 2 and 3 cities).
https://www.markiteconomics.com/Survey/PressRelease.mvc/2b33e7aa54804c7…
The US is bankrupt and the share market will be dropping like a rock. The signs are already there.
"To put this another way, the Treasury bills owed by the U.S. — or the debt number often referred to in casual conversations — stands at around $20 trillion. But if you look at what the nation really owes, especially related to Social Security, Medicare and Medicaid, that liability number is pushed closer to $80 trillion"
https://thehill.com/opinion/finance/407633-think-our-20-trillion-debt-i…
With intolerable mortgage rates already capping sales volumes, I guess the Federal Reserve's quest to "normalize" interest rates is more of a pipe dream by the day. For Central Banks, it would appear there is
less interest rate margin (ammunition) at the ready come GFC2.
I'd suggest prepare for the "L" style downturn. It's the worst kind and it's coming.
I agree, its seems the fed is being a bit too aggressive IMO, however they have telegraphed their moves which have largely been ignored or not accounted for by the corporate world, emerging markets as well as their own government.
There is a lot of a "she'll be right" mentality at this end of a bull run until....... you know what hits the fan
NZ gets a mention
https://www.bloomberg.com/opinion/articles/2018-10-24/what-s-wrong-with…
This part was interesting:
Slow growth and recurrent recessions without systemic financial disturbances, even the big recessions of 1975 and 1982, have not posed such a risk.
The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking, in effect standing by while bubbles and excesses threaten financial markets. Ironically, the “easy money,” striving for a “little inflation” as a means of forestalling deflation, could, in the end, be what brings it about.
James Grant: If Interest Rates Normalize the National Debt Will Cost More than the Military
https://thesoundingline.com/james-grant-if-interest-rates-normalize-the…
JPMorgan Warns Of $7.4 Trillion In ETF Selling During Next Downturn
https://www.zerohedge.com/news/2018-10-24/jpmorgan-warns
As long as I can still borrow, to buy other borrowers purchases, I will still be a rich man....That is IF...I can on-sell my purchases to purchase some money in return. I derive great pleasure in buying the stories on this great site, but I an losing purchase, on getting to grips with others purchases, that do not hold water....as when hell freezes over, it will be a an icy slippery slope, to repay all those debts i took on, when I was encouraged by a Real Real Estate Agent, who said I could never go wrong, borrowing up to the hilt and leveraging upwards and on-wards and never looking backwards, regretting giving him some money to pay for his SKI lessons on the downwards slope in Switzerland at my Ex-pense. ETF...be blowed.
What’s Really Behind the Gathering Slump
https://www.alhambrapartners.com/2018/10/24/whats-really-behind-the-gat…
%30 of the companies on the Russell don't make money
https://finviz.com/futures_charts.ashx?p=d1&t=ER2
Is that any different from the past, particularly the 10 years Pre-GFC?
The Russell 2000 is small cap companies, they are usually in expansionary mode and spending everything they make on growth and R&D. And many fail, but those that succeed usually do go up in value rather quickly.
Not quite in a correction using my data (I don't see a 9531 max, 9376 on the 21st September looking at end of day figures). But yes, story is on the front page of Stuff and the Herald
https://www.stuff.co.nz/business/108095927/us-tech-market-enters-correc…
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
More than you usually see, the public generally aren't interested in the stock market or business in general.
Two good articles about globalisation and the corrupting influence of the outwash of Chinese money:
- Richard Fernandez on Globalisation and the widening cracks in its foundations.
- Bloomberg on the dependence of Vancouver on Chinese money and its consequences.
Tesla is in the black:
https://electrek.co/2018/10/24/tesla-model-3-best-selling-revenue-gross…
I hope the shorts got out in time.
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