US retail under scrutiny; US PMIs weaken; Italy warning; Shanghai index tumbles; decisive Victorian election; Aussie SME pain; UST 10yr at 3.05%; oil drops sharply, gold holds; NZ$1 = 67.8 USc; TWI-5 = 72.3

Here's our summary of key events over the weekend that affect New Zealand, with news a big drop in the oil price is being matched elsewhere.

But first, the US has been in holiday shopping mode, it being their Thanksgiving holiday weekend. Some traditional stores are doing ok, but the fear is that top-line sales gains may be at the expense of margins. Certainly Wall Street is worried about that. Plus the oil price plunge. The S&P500 ended last week down -0.7%. The weekend sales results look like overall foot traffic is lower by -1%, sales are up +4%, and the big winner is online, up more than +20%. Hard result data is awaited by markets.

Not helping US equity prices is the latest US PMI data, with both factory and services expansions slowing and at 3 month lows. EU PMIs are sinking faster, dragged down by Germany.

In Canada, consumer price inflation jumped unexpectedly in October, up +2.4%, and above the expected +2.2% rise. But because the jump was largely from petrol prices that were up +12%, and oil prices have fallen sharply since then, this result probably won't change the track the Bank of Canada was on for monetary policy.

Canadian retail sales rose +2.0% in real terms in September from a year ago, after removing the impact of price changes. (Online sales were up +17%.)

The Italian central bank is warning of rising risks for financial stability in the country in its latest financial stability report. It is pointing to fast rising yields on debt which will cost billions in interest payments. And it is not only banks they are worried about; they are pointing to special risks to their insurance sector. Meanwile, the EU ministers have backed up Brussel's tough position on Italy's debt responsibilities.

And the EU's take-it-or-leave-it Brexit deal to Britain was rubber-stamped by EU leaders over the weekend. It now needs to be ratified by the London parliament.

Chinese investors are not happy. The Shanghai stock exchange fell -2.5% on Friday in yet another sharp fall. Since the start of 2018 this market is down -23%. It will be a nervous opening later today. Final October car sales data shows they were down a substantial -13% year-on-year. Economic pessimism may be the reason their lottery sales were up more than +12% in October compared to the same month a year ago.

In Taiwan, the ruling pro-independence party suffered some substantial losses in local elections. Pro-China parties did well.

In Australia there was a strong Labor Party re-election win in Victoria. The opposition Liberal Party ran hard on an anti-migrant, fear-crime platform promoted by a party leadership that had veered to the hard right - it didn't get cut-through, even with strong support from the Federal Liberal government leaders. The incumbent state Labor Government ran on a public infrastructure, renewable energy platform and that did seem to resonate. The result was a landslide for the governing state Labor Party. It seems a change in Canberra is more likely now, in their May 2019 Federal election.

And the Australian Small Business Ombudsman is saying that the Hayne Commission-induced credit crunch now means the Bank of Mum & Dad is supplying up to 25% of SME finance. SME borrowers are facing unprecedented scrutiny of their domestic and business income, and spending, and much tougher property valuations.

The UST 10yr yield is ending the week at under 3.05% and a net dip of -2 bps for the week. Their 2-10 curve has also slipped -3 bps to be at +23 bps which is a two-month low. The Aussie Govt 10yr is at 2.64% (down -2 bps overnight and down -4 bps over the week), the China Govt 10yr is at 3.42% and up +2 bps overnight and up +5 bps for the week, while the NZ Govt 10 yr is at 2.70%, unchanged overnight and down -4 bps over the week. New Zealand swap rates fell this week down -5 to -7 bps except for the one year which was little changed.

Gold is still at US$1,222/oz but who knows what it will do when it opens this morning. But we should note that other key metals like iron ore and copper seem to be holding quite well.

US oil prices are very weak again and at new low levels of just on US$50/bbl. That is a -$US6.50/bbl weekly change. The Brent benchmark is now just under US$59/bbl and a -US$7 plunge. Oddly, the US rig count is still holding at its 200 week high despite these low prices. Industry insights suggest that US frackers will remain cash positive all the way down to US$40/bbl and will keep pumping until then. In fact, there is more North American domestic production than can be transported to markets right now. Saudi Arabia is mulling sharp production cutbacks.

The Kiwi dollar is starting the week lower at 67.8 USc, which is a whole -1c down from this time last week. We have now settled back to where we were at the beginning of the previous week. On the cross rates we are unchanged at 93.7 AUc, and marginally softer at 59.8 euro cents. That moves the TWI-5 back to 72.3 and off its recent highs.

But the bottom is falling out of bitcoin's support. It is down more than -US$600 over the weekend and now at US$3,668 which is compounding a massive loss exceeding -US$1,900 for the week. It is down more than -40% since the start of November. The risks are all to the downside. So far, US$700 bln has been 'lost' in this rout, and across all cryptos the losses are approaching -US$1 tln. This rate is charted in the exchange rate set below.

This chart is animated here.

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