Here's our summary of key events over the weekend that affect New Zealand, with news we start the week with worldwide economic signals on the 'down' side.
But first in the US, their economy slowed less than expected in the third quarter of 2018 as a tariff-related drop in exports was partially offset by stronger consumer spending. An almost +5% rise in defense spending also helped boost the result. Their headline growth is "+3.5% pa" - but on the basis the rest of the world uses, Q3 grew at a rate of +3.0%, while the year to September 2018 was +2.8% higher than the same period one year ago. (New Zealand won't release its Q3 GDP data until late December; our Q2 growth was +2.7% pa.)
US personal disposable income (that is, after taxes) was up +5.2% but their personal expenditure was up +5.5%. That mismatch means that personal savings growth is very weak, up just +0.6%. On a per capita basis, it fell.
Perhaps that is one reason that a key measure of consumer sentiment fell more than expected, even in the face of the GDP outcome. This measure is now -2.1% lower than a year ago. The headline gains are starting to look a bit hollow.
Markets have also been unimpressed by the American results and Wall Street fell -2% in Friday on the news although it clawed back a little ending down -1.7%. In fact, they have now dipped into "correction" territory, being more than -10% lower since the recent peak. Benchmark bond yields have fallen sharply too, down to just 3.08% for the UST 10yr benchmark.
But more interest rate rises are on the way. The Federal Reserve's Vice Chairman confirmed the central bank’s plans to gradually raise interest rates and pinpointed the behavior of inflation as key to deciding when to stop. The new Administration appointees to the Fed are leaning firmly against the President's outbursts against Fed policy - and their steel is strengthening.
In Canada, there are strong signs that household there are taking on less debt. Official data shows debt growth in September was the smallest rise since 1983.
In China, industrial firms are reporting lower profits in the official survey. This is the fifth consecutive month of slowing and they rose just +4.1% in September, down from a +9.2% rise in August.
In Singapore, manufacturing output unexpectedly fell in September, with output falling -3.9% year-on-year and suggesting their economy was finally beginning to feel the chill from trade tensions and slowing growth elsewhere.
The UST 10yr yield ended last week sharply lower at just 3.08%, a -12 bps drop in a week. Their 2-10 curve dipped further to under +27 bps. The Aussie Govt 10yr is at 2.59% (down -11 bps over the week), the China Govt 10yr is at 3.55% and down -3 bps for the week, while the NZ Govt 10 yr is at 2.57% and down -12 bps over the week. New Zealand swap rates were unchanged last week for durations out to three years, but have slipped and flattened for longer durations. In fact, our 2-10 swap curve is now under +80 bps for the first time since November 2016. In between it had gotten as high as +127 bps.
Gold is at US$1,233/oz.
US oil prices are little changed today at just over US$67.50/bbl. But the Brent benchmark is up +US$1 to US$77.50/bbl. But both are pullbacks from this time last week. The Brent price rise may be because of some Chinese moves which will resonate here.
The Kiwi dollar is starting the week at 65.2 USc. On the cross rates we are at 92 AUc, and at 57.2 euro cents. That puts the TWI-5 at back at 69.6. Also, keep an eye on the Chinese yuan as it approaches the 7-to--the-greenback level. Official manipulation and market speculation are battling each other and commodity currencies like the NZ dollar may be at risk of being collateral damage.
Bitcoin is still at US$6,423, unchanged from both Saturday and this time last 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
Interesting stuff on how monetary stimulus tends to benefit investors over wage-earners.
https://fee.org/articles/the-cantillon-effect-because-of-inflation-we-r…
That's why to help the real economy you need fiscal stimulus. Much more direct. Spending is what helps in a crisis, not low interest rates. And the best fiscal stimulus is probably via having very good automatic stabilisers - like a job guarantee, income tax credits (as in Australia post gfc) and lots of shovel ready projects on file.
Merkel's CDU Suffers Crushing Losses In Hesse Election; Worst Result For SPD In 130 Years. Germans are calling this a 'schicksalswahl', or vote of destiny.
https://www.zerohedge.com/news/2018-10-28/merkels-cdu-suffers-crushing-…
https://philosophia-perennis.com/2018/10/26/italien-unter-schock-16-jae…
In Europe it has been primarily lying MSM, here in NZ it has been primarily keeping our masses and too many journalists ignorant of the climatic overseas changes that will eventually impact NZ. Europe is probably doomed. However, there is some hope for the USA. We don't even hear of the violent social problems Australia is now experiencing especially in Melbourne.
Marcel Fratzscher, head of the DIW think-tank in Berlin, said the least qualified had seen their pay fall: “For people with low qualifications, the hourly rate has decreased from €12 to €9 since the late 1990s.”
https://www.ft.com/content/a34ebea0-4b66-11e7-a3f4-c742b9791d43
Yes, I cannot understand why the cry for help from those most disadvantaged is seen as "right wing extremism". People know when their country is going backwards around them. If the people in charge ignore them they are forced towards more extreme views, traditionally communism and nationalism.
The nationalists want their country back. Does that necessarily imply military expansion, which seems to be the fear of doom that it inspires?
"companies will be allowed to recruit foreign workers in all professions, regardless of an official list of sectors suffering labor shortages."
"The paper also proposes that the government will no longer insist that companies give preference to German citizens in filling vacancies before looking for non-EU foreigners."
Things are about to get a whole lot worse in good old Germany where the ruling party is looking to beat a looming migrant crisis with yet more migration.
The neoliberal solution to skill shortages is bringing in thousands of migrants without vetting their skills. Sounds awfully familiar!
https://www.reuters.com/article/us-germany-immigration-law/german-parti…
I believe we in the West are all caught in a debt-migration downward spiral created by neolibs. Businesses constantly look for avenues to undercut wages but begin to worry when the wage depression leads to a fall in aggregate spending across the economy, affecting the profitability of their business.
That's when they look at consumer debt creation and immigration to keep their sweatshops running.
I see your point. What I said isn't that the debt system was created by neo-libs, I implied they simply pushed us into a downward spiral by misusing the system.
The debt creation system was ideally meant to smoothen out some of the rough turns in an economic cycle as a temporary quick-fix through productive lending. It wasn't meant to be used as a growth driver at the centre of the economy (think City of London or Lower Manhattan) or in place of a structural fix.
I see, I misinterpreted the first line. I agree that’s the stated purpose of debt creation, looking back through history and how central banks came about makes me wonder if that was ever the case though. Neo/libs are definately misusing debt but I can’t help but think so is everyone else whether it’s governments, corporations or individuals. I think the system is broken itself.
The neo-libs deregulated the labour market meaning workers lost the ability to bargain for income share and real wage rises to match productivity increases. They then deregulated credit markets to ensure consumers could still buy the products despite low wages, just using credit. "let them eat credit". This works - to a point. The GFC is that point. Which ultimately was sparked by wages being too low to cover mortgages.
Hmmm, I really don’t like most regulation but yes, credit creation is an issue. Rather than regulate it I wish money couldn’t be created from nothing then it would need minimal regulation at best.
Is this really neo/lib as well? Regardless of who is in power it always seems to be “let’s cut interest rates (create credit) to stimulate the economy.” Left or right seems to be happy to let them eat credit. They are both seduced by the power of the sugar hit of credit at the expense of their citizens in the long run.
To summarise my thoughts - deregulation of credit creation isn’t the issue, it’s the fact we can create credit which is the problem. You could deregulate a sound money system and a fiat system and have wildly different results for example. Thoughts?
Italy careening into recession 'wall' and a banking crisis.'
https://www.telegraph.co.uk/business/2018/10/28/italy-careening-recessi…
Buy the dips or sell the rallies?
https://www.telegraph.co.uk/business/2018/10/27/correction-stock-market…
This is a really interesting talk about the human Caravan, I posted it Sunday, if anyone missed it here it is again
https://www.youtube.com/watch?v=3kxWriu7XCs
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