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US producer prices jump; Mexican production rises; China aims for more private sector support; Singles Day record; Fed targets financial stability; UST 10yr at 3.19%; oil and gold fall; NZ$1 = 67.4 USc; TWI-5 = 72

US producer prices jump; Mexican production rises; China aims for more private sector support; Singles Day record; Fed targets financial stability; UST 10yr at 3.19%; oil and gold fall; NZ$1 = 67.4 USc; TWI-5 = 72

Here's our summary of key events over the weekend that affect New Zealand, with news markets are increasingly worried about the state of the Chinese economy, a place where Beijing is trying to keep bad news from leaking out.

But first, American producer prices surged higher at the rate of +2.9% and well above expectations. This was the highest rate since September 2012, and markets expect that to bolster the Fed's resolve to raise rates again next month.

And US wholesale sales for September were revealed to be nearly +8% higher than the same month a year ago. An inventory rise is part of the reason, up more than +5%. But the inventory/sales ratio was unchanged in the month, still a respectable 1.26 invetories:sales.

Mexican industrial production rose impressively in September, although at about the rate analysts were expecting. NAFTA is still working well for them, bolstered by American companies ignoring Washington bluster.

In China, consumer prices rose +2.5% in October and the same as September, while the growth in producer prices fell to seven-month low of +3.3% pa.

The Chinese premier called for lower interest rates on loans to private sector companies. This follows another top Chinese official who called for stepping up credit support for the private sector as China’s economic expansion slowed to its weakest pace since the 2008 GFC. Although the private sector accounts for more than 60% of the economy, it receives only 25% of Chinese business loans. However markets are worried by the push, downgrading bank stocks.

One firm who doesn't need loan support is Chinese e-commerce giant Alibaba who did a record NZ$45 bln in sales yesterday during its 24-hour online retail frenzy, Singles' Day, smashing the previous record. That was +27% more than last year but oddly this is their slowest percentage year-on-year growth ever for the event. The dollar growth of course was still a record.

But Chinese new-car sales are on track to decline this year for the first time since 1990, data released Friday shows, in a further indication of a slowing economy.

Still, the iron ore price is rising and rising on Chinese demand.

Wall Street was down more than -1.3% on Friday. Shanghai was down -1.4% on those Beijing-mandated calls for banks to lend more to ever-risky clients - and at reduced interest rates. Chinese financial system resilience and stability may face some self-imposed challenges.

Back in the US, the Fed will start following many other central banks later this month releasing a semi-annual review of American financial stability.

The UST 10yr yield is now at 3.19% and a net dip of -2 bps last week. Their 2-10 curve is lower at +26 bps. The Aussie Govt 10yr is at 2.75%, the China Govt 10yr is at 3.50%, while the NZ Govt 10 yr is at 2.82% and that was up a remarkable +21 bps over the past week. New Zealand swap rates rose last week +15 to +25 bps across most durations.

Gold is down sharply to US$1,209/oz. That is a -US$24 drop in a week.

US oil prices just keep on dropping and today to just over US$60/bbl. That is a -$US3/bbl weekly change. The Brent benchmark is now on US$70/bbl also a pullback from this time last week. Those cumulative declines puts oil in a bear market. Excess supply is the core reason, from everywhere especially Russia and Saudi, on top of diverted Iranian supply. Now Saudi Arabia has suddenly decided to cut production by -½ mln barrels per day.

The Kiwi dollar ended last week +1c stronger at 67.4 USc after the good unemployment data and higher inflation expectations. On the cross rates we are also firmer at 93.3 AUc, and stronger at 59.5 euro cents. That puts the TWI-5 back up to 72 and starting this week near its highest in four months.

Bitcoin is now at US$6,328 and very little changed. 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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23 Comments

Further signs of inflation heating up..

Good luck to those that expect rates to be lower for longer..

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What does inflation do? It takes disposable income out of peoples' pockets, and that income isn't being replaced by real wage rises. So how do we keep a debt-soaked economy afloat? Give the populace already mired in debt more income to spend on servicing their existing debt. That....is where lower for longer comes in....
As was noted on tv this morn. "we haven't really got a mortgage War on the go until rates drop below 3%". And a mortgage War is coming. Surely we can all feel that?

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You may be the only one feeling it. .

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And that...is how to make money! Lots of it - and I don't mean just the local residential property market. By seeing what others don't; looking at things from an alternative perspective, fortunes are made. Most people would be able to give you 10 reasons why mortgage rates are going to 'go back up, and soon!", and maybe 1 on why they'd fall. It's that solitary 1, that does the biggest damage if it transpires....

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good on you, all the very best ....

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BW. Once embarked upon, Inflation and debt is an irreversible course. If the money supply doesn’t keep growing we will go through a deflationary period. The only trick we have is to lower rates to encourage more debt. There’s no way of ever truely paying it back, only defaulting or devaluing loans. Lower rates would be my guess.

Edit: lower rates until they don’t work anymore then some sort of reset, hopefully for the better.

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It was only a matter of time before China hit the middle income trap. It will never become a developed country under the communist party.

It's a South Asian and American century, mark my words.

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House price growth slumps, becoming 'buyers' market', ASB chief economist says
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…

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I didnt want to post it andew, as a number of people will disagree!!!

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You are welcome to link to the NZHerald if you want to, but why when we had the story up on this at the same time? What's the point of your link?

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its callled 'spreading the news'.. @david, the more the merrier :)

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honest Indian, i missed it.

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Interesting divergence. NZ booming judging by the leap in gov bond yields, ie fall in NZ gov bond values as speculators flog them, possibly because they think inflation is coming, or is it because they need the NZD to repay their margin loans? Leap in NZD, short covering in a bear market rally, or change of trend? Bear market rallies are sudden and sharp as short positions get covered in a rush for the exits.

Opposing the NZ stuff are clear signs of a really big slowdown in the wider world. China car sales down, oil prices down, suggests serious trouble out there.

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Auckland inventories this morning

Trade me = 13323
realestate.co.nz = 14295

still climbing but must surely plateau soon

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Plateau? Why not go hyperbolic? It depends how desperate the sellers are, and how dangerous the lenders.... Trouble in China could have unexpectedly interesting effects downunder.

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50 Million Chinese Apartments Are Empty

If you can believe what you read on Zerohedge, the mind boggles;

https://www.zerohedge.com/news/2018-11-10/nightmare-scenario-beijing-50…

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How many can be transported here?

Would be doing both a favor. . But hopefully they come with a 10 year guarantee

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https://www.youtube.com/watch?v=XopSDJq6w8E

I think I'd rather stay in a typical NZ shitbox rental..

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..why not send some of our lot over there? . One way ticket, give them sky sport, netflix and nz benefit at 50% of the rate. They could live like kings and save us a fortune.

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I'm pretty sure the majority of those buildings will fall down before they ever get anyone living in them.

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Are these trailers for "The Big Short 2" - coming to Chinese theatres in 20?? ?
https://www.youtube.com/watch?v=XopSDJq6w8E&t=582s

Not only are they ghost cities, it seems they can also be terribly built. It is all over YT but no one seems worried - yet.

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They have earthquakes and hurricanes in China - building properly is really important especially building tower blocks. Can we export Auckland building consents dept to advise them?

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Or export people surplus to our housing stock? In late nineteenth century Germany, Bismarck is said to have realised they must either export people (to the US mainly), or products, hence the cultural obsession with exporting.

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