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US car sales weaken; US factory PMIs moderate, mirrored in Canada, Mexico and China; China faces currency crisis; Aussie house prices dropping; UST 10yr at 3.14%; oil drops and gold jumps; NZ$1 = 65.5 USc; TWI-5 = 70.4

US car sales weaken; US factory PMIs moderate, mirrored in Canada, Mexico and China; China faces currency crisis; Aussie house prices dropping; UST 10yr at 3.14%; oil drops and gold jumps; NZ$1 = 65.5 USc; TWI-5 = 70.4

Here's our summary of key events overnight that affect New Zealand, with news the international stresses are taking a toll on factory expansions worldwide.

Firstly in the US, car sales rose only marginally in October, held back by rising interest rates and inflated vehicle prices. Ford said it sees slipping consumer confidence behind its lower sales volumes, indicating sales would continue wind back in 2018.

That is consistent with two factory PMI reports out overnight. The ISM one described demand as “moderately” strong, a downgrade from “robust” in the previous months. It also said consumption had “softened, with production and employment continuing to expand, but at lower levels compared to September.” The Markit one, which scores lower, was virtually unchanged.

In Canada, their PMI slipped to a 22 month low. In Mexico, their factory expansion weakened in October as well. In China, factory growth stalled in this private sector PMI report, much like the official one.

And staying in China, their currency has hit a ten year low of 6.967 to the US dollar and authorities are worried. Their central bank has stepped up measures to defend the currency to try and prevent it going over 7. If that psychological barrier is breached, many worry that the decline will become a stampede. Chinese companies who have borrowed in foreign currency are particularly vulnerable even if they are in the business of exporting.

In the US, their President may fire cheap and insulting attacks at their central bank, but in India it is actually worse, with the central bank isolated and defending its independence. The central bank wants to rein in the cowboys in the non-bank financial sector because of the risks to India's financial stability. But industry and the government are determined to ensure these dodgy financial channels remain open and protected from tighter scrutiny.

In Australia, their factory PMI climbed to a four month high showing reasonable expansion at a faster rate of growth in October. That is consistent with rising growth and booming exports. But that boost isn't being reflected in their housing market, especially in their big cities. Sydney property prices have fallen -7.4% over the past year, the largest annual decline since 1990 as credit curbs intended to slow investor buying also hit other buyers. In Melbourne, prices are down almost -5%. Analysts are expecting this downturn to be a long one.

The UST 10yr yield is little changed at 3.14%. But their 2-10 curve is up to just under +29 bps. The Aussie Govt 10yr is at 2.65% (up +2 bps), the China Govt 10yr is at 3.52% and down -1 bp, while the NZ Govt 10 yr is up +3 bps to 2.60%.

Gold jumped to US$1,236 and a gain of +US$22/oz.

US oil prices are sharply lower today, down more than -US$2.50/bbl and now just over US$63.50/bbl. The Brent benchmark prices are just under US$73/bbl. Rising supply and falling economic growth are factors pushing the price lower.

The Kiwi dollar is starting today a little firmer at 65.5 USc. On the cross rates we are at 92.4 AUc, and much stronger at 58.3 euro cents. That puts the TWI-5 back to 70.4 and its highest in more than two months.

Bitcoin is unchanged at US$6,321. This rate is charted in the exchange rate set below.

This chart is animated here.

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36 Comments

at least that wont happen in Auckland because we are different
. Sydney property prices have fallen -7.4% over the past year, the largest annual decline since 1990 as credit curbs intended to slow investor buying also hit other buyers.
also we still have high immigration (one of the highest in the OECD) so more people need more houses
https://www.stuff.co.nz/national/crime/108136698/immigration-nz-fields-…

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The NZD has jumped a whole cent to 66.5

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It's huge though, 100 basis points.

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"But industry and the (Indian) government are determined to ensure these dodgy financial channels remain open and protected from tighter scrutiny."
Clearly corruption is rife in all sectors.

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The NZ dollar is a little firmer? I was on nightshift watching it rise over 2% in a few hours. Broken well out of a trend it's been holding for months... What happened?

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Interesting; Despite gloom reporting on US and China, the Dow Jones is currently up 0.81% and the Nasdaq 1.46% and Shanghai up marginally at 0.13 but continuing a trend for the last few days.

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A trader with a large parcel to sell will often 'buy the market up' first, before unleashing the sell order; a higher point to start from and twice as much fire-power on the sell side.

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The central bank section of the article infers that they are a positive. Having a look at what they are supposed to achieve tells a different story to me though. They have failed miserably with price stability. The reason for that is the fear of deflation for which they ironically create the conditions needed for deflation through their mechanism to avoid it (money creation). The only other effect I can see is they give the prevailing dominant political party more control over people’s labour which I see as a negative.

What value do central banks actually provide? Why do we need them?

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Yes, it seems that low interest rates are deflationary on goods prices, as they reduce a producer's costs. Inflationary on asset prices as they increase the present value of future income.

It is not what we are told, though. Presumably they understand that, but do and say what their political masters require. Both the institutions and the politicians seek guidance and approval from the banking sector. The banking sector give advice that supports their own interests, carefully quoting academics who support their viewpoint to make it look respectable. Just saying that a policy will cause difficulty because "house prices will collapse, unemployment will rise" is enough to scare both the bureaucrats and politicians witless. It doesn't help that few politicians and even fewer bureaucrats know what a balance sheet is or which way up to hold it, so their priorities are easily manipulated.

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Hi Roger, great point about politicians seeking guidance from the banking sector. Kind of like a lamb getting advice from wolf about what forest path to walk down.
The control over money is too important to have vested interests able to mainpulate it politically and privately. We need a better system which is impervious to this kind of manipulation.

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And don't forget mainstream TV networks seeking economic guidance (read bank economists) from the private banking sector who are only interested in feathering their own nests. Laughable.

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Worth a watch to see if BNZ follows suit. "NAB to end home-loan discounting"

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my Friday book.

The Three-body Problem by Cixin Liu.
Ok, it's science fiction but an interesting read part of a trilogy a top seller in China, you can read the reviews on Amazon.

https://www.amazon.com/Three-Body-Problem-Cixin-Liu/dp/0765382032/ref=s…

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I love the smell of napalm in the mornin'
https://www.electricityinfo.co.nz/

And I really regret going out on the PM's advice and buying those Z energy shares. That fleece was cotted.
https://www.odt.co.nz/business/z-lowers-full-year-expectations

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Glad I am not a Flick customer. When is the Genesis Energy coal arriving to help with demand?

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Wait until the market has another look at what Z paid for Flick to now find their customer base evaporating by the day !

Because there was no margin in their product - just the $ 15 / month / customer now looking very much like an expensive little rush of blood to the head from an ex Flick customer who followed the old maxim - if your going to panic - always panic first !

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Surely a $1/kWhr spot prices on a regular basis will eventually be hurting more than Flick customers. Not much in the way of energy supply resilience here.

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Yep, had a weekly power bill that would be a standard months worth at this time of year. Transferred to a fixed charge of 16.8c/kWh.

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How government majority owned power co's can bring an independent (Flick) to its knees

NZ Wholesale Electricity Prices $/Mwh

18 Jul 2017 $110
09 Oct 2018 $350
14 Oct 2018 $700
16 Oct 2018 $450
20 Oct 2018 $250
23 Oct 2018 $650
27 Oct 2018 $350
28 Oct 2018 $250
02 Nov 2018 $550

http://www.em6live.co.nz/

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Nope.

Flick care very little about the price of power for two reasons.
Firstly they offer spot pricing, which presents zero risk to them.
Secondly, they will have adequate forwards in place to cover the spot price spikes.

Apart from the (unwarranted) disgruntled customers, the current spot prices shouldn't be really be hurting Flick in the long run.

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Explain how Flick with all the cover in the world but without any customers can survive

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I am with flick but am moving before xmas so won't bother changing. I am a low enough user that it doesn't hurt so bad, I can tailor my usage to the lows. I have wondered if this is a deliberate action to bring them down.

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Taleb "Novocain on cancer". Ouch. That is quite the burn.

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he's a survivor

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Indeed. I was just saying that his comment about central banks and commercial banks putting "novocain on cancer" is an extremely acerbic criticism.

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My book of the week is "Skin in the Game". Finished it two days ago. There is no doubt Taleb is a great mind.

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Yeah, I bought it a little while ago but not had a chance to start it yet! It's in the queue though!

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It gets a bit like that, I don't have as much time for reading as I did a couple of years ago. Too busy, but a good reason to be busy :-) For me a lot of smart commentators and analysts have a part of the picture. Taleb and Snider are two that have a bigger view of it IMO.

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Audiobooks are the way forward :)

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Not for me I am afraid, if I am working I am thinking so tune it out. I don't even bother having music on. Too slow also.

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Anybody got any spare cash....a few billion or trillion will do. (Check yer jeans pockets and sofas)

https://www.bloomberg.com/news/articles/2018-10-31/china-s-100-000-deve…

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Real wages in Australia grew at a sluggish 7 percent over the decade to June 2018 while the economy grew consistently at 2-3.5% each year over the same period. No wonder debt grew at a faster pace than ever as consumers had to borrow to sustain their living standards.
I am certain the situation has been similar if not worse here in NZ.

https://www.abc.net.au/news/2018-11-01/fact-check-have-wages-grown-stea…

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Interesting to see Australian household expenditure listed in descending order ex AFR some weeks ago.

Included the following:

Dining out
Pokies & Gambling
Takeaways
Holidays

Way down the list was Power .. Yet that's where all the noise is right now.

Got to maintain those living standards !!!

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When a large majority of households in a country earn enough to spend on discretionary items after paying for non-discretionary items (rent, food, utilities etc.), the national economy is classified as high-income and developed. That's what sets us apart from a developing nation.
So when people in the West have to cut back on discretionary spending as cost of essential items outpace real wage growth, living standards are doomed to collapse.

Annual inflation growth of items in Australia (10-year avg.):
1. Insurance - 6.4%
2. Education - 6%
3. Health - 5.6%
4. Housing 4.4%
5. Wage inflation - 3.2%
6. Rec & culture - 0.4%

Get it?

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