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Dairy prices drop; US housing starts fall; US retail weak; S&P500 sinks; China resue plans gamed; IMF tells RBA to hold; China grabs Aussie internet traffic; UST 10yr at 3.05%; oil plunges, gold unchanged; NZ$1 = 68.2 USc; TWI-5 = 72.7

Dairy prices drop; US housing starts fall; US retail weak; S&P500 sinks; China resue plans gamed; IMF tells RBA to hold; China grabs Aussie internet traffic; UST 10yr at 3.05%; oil plunges, gold unchanged; NZ$1 = 68.2 USc; TWI-5 = 72.7

Here's our summary of key events overnight that affect New Zealand, with news markets are in retreat worldwide.

Firstly, today's dairy auction has brought sinking prices. In fact it has now been 14 consecutive auctions since we have had a rise and prices are now back to where they were  in August 2016. Since May prices have fallen -20% so we are in a bear market for dairy products. Since the previous auction two weeks ago we are down -3.5% in US dollar terms and down -5.7% in New Zealand dollar terms. Powder prices haven't fared as bad as some other products; for example AMF is down -9.4% since the last auction, butter is down -9.6%. All up, these are large falls and this result will weigh heavily of farm gate milk pricing forecasts, and more so because the New Zealand dollar is relatively strong at present.

US housing starts have come in weak as well. For October they are -2.9% below the same month a year ago and even below some weak analyst expectations. Building permits fared even worse, coming in -6.0% lower than the same month a year ago.

A clutch of American retailers reported poor results and together with yesterday's news from Apple that they have cut order sizes for their new iphone, that was enough to send Wall Street into reverse. In mid-day trade, the S&P500 is down -1.2% and recall it was down -1.7% yesterday. The drop is now a significant -2.9% just in one and a half days trading this week. In fact, all 2018's equity market gains have now been erased. Yesterday, Shanghai fell -2.1%. These are large short-term retreats indicating rising investor risk-aversion.

In China, the government's rescue plans for private industry financing is being gamed by some large investors who see a way to rid themselves of stocks which have little upside. This comes even as the Chinese government is allowing tax payments to be deferred by companies under severe liquidity stress.

In Australia the IMF has said the balance of risks to Australia’s economy are “tilted to the downside” due to a deteriorating global outlook, urging the central bank to keep interest rates low. And the RBA has kept rates unchanged, even as it notes the the reverse of the IMF position, saying the Aussie economy is doing well and the risks of inflation are to the upside.

And staying in Australia, it is being reported that internet traffic heading to Australia from the US and Europe was diverted via mainland China by state-owned China Telecom over a six-day period last year, in what some experts believe may have enabled a targeted data theft. China claims it was a simple operational mistake, a claim few believe. And Australia has blocked a deal by a Hong Kong company to acquire a major Aussie pipeline business on "national security" grounds.

The UST 10yr yield is starting today a tad lower at 3.05%. However their 2-10 curve slipped -4 bps to +25 bps as short-term Treasuries rise. The Aussie Govt 10yr is at 2.70% and up +2 bps, the China Govt 10yr is at 3.39%, up +1 bp, while the NZ Govt 10 yr is at 2.74% and up +2 bps.

Gold is unchanged at US$1,222/oz.

US oil prices are taking a thrashing today, down almost -US$3/bbl to new lower levels at just over US$54/bbl. The Brent benchmark is now just over US$63/bbl. These levels are the lowest they have been in 15 months;

However, the Kiwi dollar is starting today little changed at 68.2 USc. On the cross rates we are up to 94.1 AUc and the highest since April, and at 59.9 euro cents. That puts the TWI-5 at 72.7.

Bitcoin is sharply lower again today, now at US$4,511, another -US$500 lower than this time yesterday and another -11% dump in a day. At one point it dropped to US$4,280. Losses now exceed -25% in a 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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Source: CoinDesk

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72 Comments

What a gloomy week it has been.
I feel that housing will soon be viewed as one of the few "safe" investments with continuing pressure to lower interest rates. It wont great but it will be sort of stable especially if affordable, either as a primary residence and bolt hole or neutral to positively geared investment. Just my opinion!

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That'll be the case after the knife hits the floor. Not so much before it hits the floor.

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I think that investments that have participants who will run, screaming for the door, at just a whiff of trouble are to be avoided. Only things that have positive returns, that will ride out a storm, should be considered. Some shares that return good dividends, term deposits, houses that give a return either as rent or as a residence.

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Zachary, FONGO has taken hold in Australia. Are you saying it will never happen here? I'm sure I've seen speculation and NZ housing used in the same sentence.

Auckland is still no different than the day you declared Auckland property was following on the coattails of Sydney's, as they are both classed as international cities. Same cheap money, same origins and same attributions.

It's a bit convenient to sever the ties now.

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"...investments that have participants who will run, screaming for the door, at just a whiff of trouble are to be avoided"

Realestate.co.nz Auckland listings are at 14364 this morning. That is people running screaming for the door at the glacial speed that real estate transacts

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Zachary, I'm sure I read somewhere the IRD refunded around 900m to the many negative geared Landlords in the last financial year. To me, that's now a recipe for FONGO. Negative gearing was once the fashionable thing.

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Well said Zach, you're a smart man, liquid investments with little or no income will fare worst.

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Yvil, ummm, its basic common sense.

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so why can't you see it then?

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....oh here we go again - (chuckle)

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..my 2 cents. Mortgage free own home the best investment in this environment. If you have cash left after this...take your pick. But cant see why property might out perform say power company shares or rymans shares and so on.

Owning the roof outright over my head ticks my box (but as council has mortgaged it to the hilt via my rates,I guess its not really mortgage free at all)!.

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Well said rastus! :) Debt only gains value in a deflationary environment. Yvil has yet to discover this and rent reductions make a poor mix.

Everyone's affected to some degree.

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This.

I have said it before. Deflation makes debt a sniper.

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I hope you don’t mind me stealing that saying, I quite like it. It will be good to see the speculative amongst of picked off first.

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Would love to be mortgage free, although our mortgage is about the same size as a house deposit in Auckland.

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and why doesnt that incl housing? I mean how big a % of "investors" need to panic and exit NZ housing before this action causes a spiralling downward effect? 5%?

hmmm

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"soon be viewed as one of the few "safe" investments "
I think you've used the wrong tense there!
That's the problem.
Property has been viewed as THE retail safe investment for nigh on 40 years; certainly the last 30 since The Crash of '87. And just as surely as Bitcoin was seen as a safe haven by its acolytes, so is property, and at some stage, when the maths tells you it's not safe, economic gravity takes hold...The maths is screaming, beware....

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Com'on bw, you cannot claim bitcoin was ever a safe investment, quite the opposite, highly speculative and little understood

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I wonder how that idiot who sold his house to get into Bitcoin is feeling now? You cant keep dry under a Bitcoin certificate, especially since it has fallen 75%.

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It is all well and good buying in, BUT you have to know when to bail too!

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Gold will be the safest place to store wealth and property will also be great when investments correct into territory that makes sense.

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The value of a Property ultimately assumes a return to match it, s its a gamble. Gold on the other hand simply is, a big difference.

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Clearly your narrow mindedness comes into question. . Unable to see the impacts of housing bubbles globally. .

Take those blinkers off. . Hope I haven't insulted you

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Who me? Not sure what you are talking about because I think Property prices are going to be tanking big time globally and in NZ over the coming years.

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Nope. Zach S

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Ah yep!

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The most liquid markets in the world are telling you growth is slowing. The days of high valued assets and gains are over ,for now. Money is shifting from growth to value seeking yield vs capital gains. Why would realestate which has had an unprecedented run over the last decade be any different. Perhaps its more about the "Psyche" than rational investing.

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Because real estate can have a positive return.

I agree that the world may be shifting away from easy money. The idea that you can invest for a few years and retire at 40 is flawed and immoral. Rentier class thinking. Wealth should be units of your own labour that accumulate slowly over time.

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AHHH.. yes you are correct. But inflated assets can and have corrected quickly. Capital losses could very easily wipe out accrued income over the last 5 -10 years. A dangerous situation to be in if you're not a long term investor or highly indebted.

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Perhaps its seen as the failure of Central Banks to create inflation and destroy the value of our earnings?

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The problem with moving to yield is the very reason ppl jumped into capital gains was the yield was collapsing. This in turn fed a "tulip mania" of buying assets and in turn asset appreciation, ie all and every asset is over-priced the result of which is the P/E is simply awful. On top of that the P/E is based on some seriously faulty assumptions and the huge under lying risk and impact ignored.

Property is no different except it can be very il-liquid more like set concrete actually....

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What?
The yield was collapsing as a result of speculative capital gain; not the other way around. People didn't "jump into capital gains" because yield was collapsing. Yield collapsed because people "jumped" for capital appreciation in a market with fixed period earnings.

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This is your opinion, not my one. Now I see assets are all massively over-priced against what they can yield and that doesnt even factor in peak oil etc.

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The diversion of internet traffic between Australia and the US to go through China is VERY concerning. Firstly, I'd like to know how China Telecom could do it? The possibility that one, not democratic, country could somehow manipulate and possibly control world information traffic is an extremely high level security risk, and would also presumably impact NZ too.

I would think the war is getting very much closer.

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We are already in the 'war' murray. Its just war, but not as you know it.

How difficult would if be to drag a grapple hook across our deep see cables as an alternative to diverting?

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Quite hard, but really why bother when ppl will hand you the packets for free.

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100%.

The days of storming the beach are long gone.

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Thinking the same thing Murray. Only explanation i can come up with is it was Chinese technology making the routing decisions at both ends...

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It's happened before - all that it required is a incorrect route to be introduced and the packets flow a different way.

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A recent report from the US (perhaps Canada?) where a review of hardware manufactured in China identified a chip inserted that was not a part of the design. Clearly because most of the technology companies have chosen to have their technology manufactured in China, or by Chinese owned companies, then the world is highly vulnerable to this degree of manipulation.

To other commenters, Yes i agree that the US does it as does most, but they while they openly admit it, they also (relatively) openly discuss the limitations on their efforts, driven primarily by resources. This is evidenced by their inability to intercede in Russian interference in their elections. I would also suggest that both Russia and China are spending a significant portion more in their capabilities on the information war than the western democracies. Autocracies can do that with little accountability.

My reference to 'War' was the shooting one, not the information one.

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In a globalised, interconnected, world it is impossible to stop foreign entities expressing their opinions or even attempting to guide public opinion concerning an upcoming election.

It basically amounted to posting a few memes with some, strangely, supporting Hillary. Whether it was state sponsored or the actions of individuals it is hard to say although the effort was notable for being rather minor. In the interests of human freedom these things have to be lived with.

Certainly nothing like the effort the US put into getting Yeltsin elected or influencing various Latin American political processes.

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Democracy has nothing to do with it, ie you think the NSA isnt already collecting all of this anyway?

How? fundamentally its how the commercial Internet works. They can do it due to the policy of how backbone routeing works, ie keep data off your network if you can and get the data off your network as fast as possible is the underlying themes. Ergo if you want to capture those packets just accept the data willingly and the other party will happily hand it to you. In terms of an error its actually quite possible to make an expensive mistake on configuration, however its not very likely.

In terms of you and I, simply use good encryption. https everything and change passwords on a regular basis and use complex passwords of 12 characters in length as a minimum.

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I don't see what democracy has to do with it, as if China was a democracy you'd still be making this comment.

Swap US and China around in your comment and its what has been the norm for years. What were your thoughts on the NSA tactics? What about the 800 USA military bases has in overseas nations? Diego Garcia for a holiday?

Maybe a challenging of the status quo yes, but the majority of the world are sick of Americas vice like grip on the nuts of the world. Look where it has got us?

战争还在继续

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Yeah, then the majority of the world may be doomed to find themselves longing for the good old days.

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I wonder if the CEO of Spark Simon Moutter will continue to insist there's "nothing to see here" in the face of this on top of other Five Eyes' experience and concern over the close relationship between Huawei and the CCP.

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It's actually fairly easy.

Traffic routing at a macro level (i.e. between ISP's) is controlled by a protocol that advertises routes for how to get from A to B but the protocol has little security because it was written back when functionality was the priority and the notion of someone subverting it for nefarious purposes was unheard of.

That and the many ISPs who trust more than they really should means you the bad actor just advertises bogus routes that divert traffic through your networks and you're good to go. It'll get spotted fairly quickly but then you pass it off as an accidental misconfiguration.

Google BGP hijack if interested in the details.

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Our current global economic climate in unprecedented (post QE and central bank "accommodation"). At the earlier phase of this cycle, markets and investors were excited... they saw opportunities and they took them. Now investors are fearful. That in itself can induce a bear market (with or without massive changes to fundamentals). There is instability building almost everywhere. VIX, stock markets jitters, cryptos, interest rate sensitive asset bubbles, corporate debt and politics... globally. Risks of a dramatic swing to negative sentiment are very high.

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fear and greed.

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Stock markets tanking again today!

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China and US trade uncertainty, slowing growth, Oil down, banks down, growth stocks down 30-50% from all time highs, housing down ( reference to US here) will Fed bow to pressure and hold on rates. Much uncertainty at the moment and markets can't seem to find direction. Stay long, in good companies, buy in bits, sell into gains, keep debt low, buy value and ignore the noise. Sell offs always offer value some where..

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And diversify.

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

but the talking head see a rally for Xmas.

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Bitcoin now at $4,058.51

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All those speculative geniuses being rewarded

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As Charlie Munger suggested. 'Bitcoin is like trading turds in a nursing home.'

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thats a 33% loss in 7 days. That makes some of my extrememly speculative punts on the sharemarket look like wise choices :)

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The world is full of fools

Anyone who bought into crypto is deluded, albeit a lot of them became rich but also a lot will be bankrupted, but you never hear about the losers.

All the commentators, economists and even interest.co.nz report on it like its a viable investment option or a real asset makes me laugh.

They are all worthless, I have many times commented that they will eventually crash back to nothing.

It is all just a speculative fad, that makes the dotcom bubble look small.

The human race has a bad habit of repeating mistakes time and time again.

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Bitcoin has bubbled and crashed 100's of times.

" a price crash in Bitcoin or any other cryptocurrency is nothing new. Bitcoin dies and comes back to life on a regular basis. One website estimates Bitcoin’s death toll stands at 249 and counting, dating back to 2010.

2017 has been the most deadly with 109 stories proclaiming the end of bitcoin".

https://www.ccn.com/bitcoin-crash-the-history-of-bubble-bursts/

I wouldn't want to suggest that bitcoin is a good or safe investment, but the history of cryptos is extremely volatile and that is nothing remotely new.

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Back up to $4340 now. Who is buying? Why?

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Jimbo, this is just what cryptos do. They have ALWAYS done this. It's nothing new at all. I don't think this crash is even as bad as the 2015 one was. They are extremely volatile but they have never not been so.

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Just what you want in a currency...

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After another tough day on the s and p ticker ,Donald has just tweeted and wants higher dairy prices and higher house prices for New Zealand.

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Hmm, whats going on with Barfoots auctions today..

511A Manukau Road has been added to the auction page, but not given a lot number, and 2/57 Symonds street (listing#: 766398) is not on the list anymore , but the ad still says auction today.

And for the Afternoon session they've added 9 Burnley terrace to the auction list on the website, but it's already marked as sold.

Morning: https://www.barfoot.co.nz/Auction-Search?l=34%20Shortland%20St&s=21/11/…
Afternoon: https://www.barfoot.co.nz/Auction-Search?l=34%20Shortland%20St&s=21/11/…

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"When things get serious you have to lie mistakes get made"

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Mornings session must be done

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I wonder if the lumber price Andrewj has been linking to for a while was a leading indicator of the decline in housing starts.

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Stuff-QV
https://www.stuff.co.nz/business/106855889/qv-data-shows-new-zealand-ho…

What you ask isn't always what you get......

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Still cherry picking I see RP, I guess you missed the fourth paragraph.

"On an annual basis, prices are up 4.8 per cent on the same time a year ago. That annual rate is slowing - at the same time two years ago, the annual rate of growth was 14.6 per cent. In July this year, the annual rate was running at 5.2 per cent."

Hardly a crash. Yes prices are in decline but still a long way to go before we are in serious negative territory.

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"...prices are up 4.8 per cent on the same time a year ago." That's an unusual price decline, LOL

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Will be very interesting to see whether asking prices are matched with the sale price. Sellers are certainly still optimistic. (re the trademe asking price index)

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The market needs to flatline for a couple of years at least, those 15% PA gains were just insane and not good for the country as a whole. The whole housing market needs to stabilise and even decline a bit but I'm not seeing the current government pulling the right strings, if they leave it until a global even does it for them its going to get ugly.

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