Here's our summary of key events over the weekend that affect New Zealand, with news China may be heading for a dollar-debt crisis and just when investors are turning away from US Treasuries.
In the US, foreign investors, especially governments, are tiring of holding American Government debt. New official data shows a foreign investment outflow in September, essentially ending the long term inflow trend. China's holdings in Treasury securities fell by -US$13.7 bln in a month and -US$31 bln in a year. Japan's holdings in Treasuries fell by -US$2 bln since August and by -US$56 bln from Sept. 2017.
China holds about US$1+ tln of US Treasury securities and has about US$3 tln in foreign exchange reserves. All very impressive until you realise that it's private sector owes about US$3 tln in US dollar-denominated debt. A falling yuan exchange rate to the US dollar, or a rise in US benchmark interest rate, will hurt. Both at the same time would hurt even more. Analysts are now worrying about a dollar debt crisis in China.
In the US, household indebtedness rose again in the September quarter, and across almost all types of borrowing. That is now almost 5 years of continuous rises, following almost five years of straight reductions. But at US$13.5 tln, this is now only +6.5% higher than the last peak ten years ago. Interestingly, mortgage debt is still -4.3% lower than in 2008. However other types of personal debt have climbed to more than +45% above its 2008 level to just under US$4 tln. But of course their economy has grown substantially in the past ten years, so household debt as a percentage of GDP has actually shrunk from 87% then to 66% today. (Equivalent New Zealand household debt levels are 76% on the same basis in 2018.)
US industrial production growth stalled in October but the result is probably better than it first appears. Car production was lower, so that means there is strength in the rest of the American factory sector. And that comes as both Pacific and Atlantic ports report surging import volumes.
Canadian factory sales edged higher in data released over the weekend. And Ontario has decided to exempt new builds from its rent control regulations, in attempt to encourage investors to build more. The current law has seen a much lower volume of apartments being built.
Comments that were interpreted as dovish from the newly appointed vice-chairman of the US Fed saw the greenback fall and US benchmark interest rate yields fall. He said interest rates are at near 'neutral' levels which traders are interpreting as meaning the Fed may be near-done raising its policy rate. The next Fed review is on December 20, NZT.
Mexico however has moved again already. Over the weekend they raised their policy rate by +25 bps to 8.0%. They cited their new government's spending and stimulus programs that have driven down the value of the peso and raised the rate of inflation. Mexican inflation is now at +5% and the new fiscal policies are expected to push it a lot higher.
And Indonesia has also raised its policy rate in a surprise move, upping it to 6.0%.
In India, there is a breakdown in the relationship between their central bank and the Government with the Government insisting on easy money, less fight against inflation and protections for weak banks (some of which are its friends). Later today key decisions will be taken to impose more direct 'oversight' of central bank decision-making there.
The UST 10yr yield is starting the week at 3.07% after a net dip of -12 bps last week which puts it at a 2 month low. Their 2-10 curve is still at +26 bps however. The Aussie Govt 10yr is at 2.68%, the China Govt 10yr is at 3.37%, while the NZ Govt 10 yr is at 2.74%.
Gold will start at US$1,221/oz.
US oil prices are stable today at their new lower levels at just under US$56.50/bbl. The Brent benchmark is now over US$66.50/bbl. Oddly, the US rig count is still holding high this week despite these low prices.
The Kiwi dollar is starting the week at 68.8 USc which consolidates a +10% gain against the greenback in the past three weeks. On the cross rates we are also firmer at 93.8 AUc, and at 60.2 euro cents. That puts the TWI-5 at 73.1 and at its highest level since June.
Bitcoin is now at US$5,536 and unchanged from where we left it on Saturday. 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 ».