Powell's comments boost Wall St, undermine greenback; US trade deficit widens; OECD says trade growth ends; BofE warns on Brexit; Hayne targets advice fees; UST 10yr at 3.05%; oil unchanged, gold recovers; NZ$1 = 68.8 USc; TWI-5 = 73.2

Here's our summary of key events overnight that affect New Zealand, with news the growth in world trade has stalled.

But first, Wall Street jumped about an hour ago, up about +1.5%, after Federal Reserve Chairman Jay Powell said that their program of gradual interest-rate hikes are meant to balance risks as it tries to keep the economy on track. This new assertion of a rising rate track caught many by surprise. Not only did Wall Street jump, but bond yields fell, and the US dollar fell sharply as well, boosting commodity currencies like the Kiwi dollar.

In the background however are the US Treasury auctions. They are selling US$129 bln of notes in this week alone, up +28% from the same series of auctions a year ago. Now that is a lot of fiscal stimulus, and a heady rise in interest obligation on the US Federal budget.

The Fed has also been assessing financial stability risks to the US economy. They say high asset prices, historically high debt owed by American businesses, and rising issuances of risky debt are the top vulnerabilities facing their financial system. This is the first time they have issued a formal review of their financial systems 'stability'.

Sales of new single-family homes in the US tumbled to a more than 2½ year low in October amid sharp declines across the country, further evidence that higher mortgage rates were hurting the housing market.

Meanwhile, the US trade deficit got sharply worse in October. For goods alone, it grew to -US$77.2 bln in the month, up from -$67.6 bln in the same month a year ago. Whatever they are doing to fix this just isn't working. They are on track for an eye-popping US$900 bln goods trade deficit in 2018, and nearly 10% higher than in 2017 and 20% higher than in 2016.

The upcoming G20 summit in Argentina this weekend may be the next place the trade wars play out.

The OECD reports that, excluding large oil exporters, such as Russia and Saudi Arabia, G20 trade was flat in the third quarter of 2018, suggesting that the steady expansion seen over the last two years may have stalled as recent protectionist measures begin to bite.

In Shanghai, their equity markets rose more than +1% in yesterday's trade.

In the UK, their central bank has warned a no-deal Brexit could send their currency plunging and trigger a savage recession, worse than what they got during the GFC. They said the British economy could shrink by -8% in the immediate aftermath if there was no transition period, while house prices could fall by a third.

At the Aussie Hayne Commission, they are moving on to target ongoing advice fees, so financial advisers, like accountants and lawyers, have to provide service before they can invoice their customers. This comes as many think that product sales commissions will be outlawed.

The UST 10yr yield is lower at 3.05%. Their 2-10 curve has however risen to almost +25 bps as short end rates fall. The Aussie Govt 10yr is at 2.62% (down -1 bp), the China Govt 10yr is at 3.41% and down -3 bps overnight, while the NZ Govt 10 yr is at 2.65% and down -2 bps.

Gold has recovered +US$8 of yesterday's drop to now be at US$1,220/oz.

US oil prices are unchanged overnight at just over US$51/bbl. The Brent benchmark is now just on US$60/bbl.

The Kiwi dollar got a turbocharged boost against the greenback to be now at 68.8 USc on the Powell speech, up +1c. On the cross rates we are little changed at 94 AUc, and up at 60.4 euro cents. That has put the up to TWI-5 at 73.2 and a five month high.

Bitcoin has also moved sharply higher and is now at US$4,214 which is a +14% leap from this time yesterday. 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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NZD
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Source: CoinDesk

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28 Comments

We can but hope trade growth stalling is just the beginning of the world understanding that growth itself needs to be over if we are to get out of this mess with a healthy planet. I am not overly optimistic about this

"the growth in world trade has stalled." + "Wall Street jumped about an hour ago, up about +1.5%, after Federal Reserve Chairman Jay Powell said that their program of gradual interest-rate hikes is meant to balance risks" = Anything that hasn't been disposed of by now should be sold into this rally!

SocGen: Powell Corrected "A Rookie Mistake" But Nothing Has Changed

https://www.zerohedge.com/news/2018-11-28/socgen-powell-corrected-rookie...

Where is the money going
Bank lending best focused on productive activity,
less so consumption activity, less so purchasing power over existing assets.

https://www.youtube.com/watch?v=EC0G7pY4wRE

Reserve banks impeccable servicing

A landmark corruption prosecution that reached the very top of Australia’s financial system and had links to powerful officials across the globe has dramatically ended, almost 10 years after it began, with a guilty plea by a kingpin of the bribery scheme.

Printing money:
It can now be revealed that two companies owned by the Reserve Bank of Australia, Securency and Note Printing Australia, were fined a record $21.6 million in 2012 for their criminal conduct.

https://www.smh.com.au/business/companies/seven-years-and-millions-of-do...

not sure the business of exports cuts it this time.

“Finance is supposed to be a service business, it’s supposed to support industry and it’s supposed to help the economy grow “Therefore, they shouldn’t take too much. If they take too much, it’s no longer a support. It’s more like a parasite.

"It’s much more profitable to destroy rather than to make money in the normal fashion.
https://www.express.co.uk/finance/city/1051364/goldman-sachs-financial-c...

One bank taking almost $2 billion out of NZ? They've been parasites for a long time Andrew

The real question is "Why are our major banks Australian owned?". As the BNZ might show us, we handled it so badly that it went broke ( several times!), the last being in the late 90's and the NAB 'bought it' ( they didn't have to!) to save our skins. We couldn't afford for the BNZ to go under, and so it didn't. Consider whatever we pay to all the Aussie banks as compensation for keeping our economy afloat. Because without them....well, we just couldn't afford it in so many ways. (eg: What do you reckon NZ could borrow at to fund its banks/Government if it wasn't for the Aussie bank funding re-routed to us via their much larger mass?)

That is an interesting statement, and i don't claim to have a sufficient understanding of bank works to understand some of their workings. what i do wonder though, taking KiwiBank as an example is just what their cost structures are, and where their costs go. surely it can't all be to exorbitant excutive and manager salaries?

Perhaps this is the true debate we should be having - what are banks, what do we expect of them, and how should they be managed and regulated, should they be privately owned?

Daniel Lacalle

The biggest mistake that investors can make is to believe that if Fed delays rate hikes it will be a buying opportunity.

If you think investment, consumption or credit will soar, think again.

The message that action would convey is “the economy is in much worse shape, run away”

https://www.youtube.com/watch?v=9kiU305_Smg&feature=youtu.be

Can see Oil is slumping again this morning down 2% in the last half hour, crude looks set to dip under $50

"August saw the largest annual increase in U.S. oil production in 98 years, according to government data. The American energy industry added, in crude and other oil liquids, nearly 3 million barrels, roughly the equivalent of what Kuwait pumps."
https://www.rigzone.com/news/wire/opecs_worst_nightmare_permian_ups_prod...

update: looking at our finance system the finance system we have.

https://www.smh.com.au/topic/banking-royal-commission-hql

bank bosses say they never knew

So another fact free piece of propaganda from the BOE. Their GFC fail and Leave Vote warnings were baseless so we are expected to believe their Brexit prophesy?

"The Bank of England’s chief economist has admitted his profession is in crisis having failed to foresee the 2008 financial crash and having misjudged the impact of the Brexit vote."
https://www.theguardian.com/business/2017/jan/05/chief-economist-of-bank...

from
https://www.rbnz.govt.nz/news/2018/11/reserve-bank-to-ease-loan-to-value...

Debt levels also remain high in the agriculture sector, particularly for dairy farms, implying ongoing financial vulnerability. Balance sheets need to be further strengthened. In the medium-term, an industry response to a variety of climate change-related challenges appears likely, requiring investment.
The domestic banking system remains sound at present.
We are using this period of relative calm to reassess whether the banking system has sufficient capital to weather future extreme shocks. Our preliminary view is that higher capital requirements are necessary, so that the banking system can be sufficiently resilient whilst remaining efficient. We will release a final consultation paper on bank capital requirements in December.

current estimates are they are looking for a debt reduction of $5 billion, could be more, they'd like more, banks been told. the rest after Christmas.

from the archive
https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletin...
- for the nippers
The average nominal sale price of farmland increased 240 percent between 1976 and 1982 while incomes from the land inclusive of SMPs rose only 25 percent.
.... farmers borrowed heavily against their rising equity.....

Did anyone buy bitcoin at the bottom? I snagged a good bunch at 3.7k thanks to some panic sellers. If you had bought when interest.co.nz said it had all the hallmarks of a dying currency, you would have made more gains than a good year on the NZX. And that's in two days. I suppose the Nasdaq announcing its going to list bitcoin in Q1 probably helped a little.

Did you manage to get out at the right time?

Do you still have it ( them)? Let us know so we can see how it goes. Because what will you do if the price goes to $5,000? Sell, or buy more? ( there is a 'correct' answer to that by the way!) And if it falls back to $3,700? or $1,000? Let us know because ALL trading is easy looking back!

I'm not a trader, I generally hold long term with buy and sell points. I have buy points all the way down to 1K. Generally I look to sell at 100% profit (just like I did with my Genesis shares - or close if I recall). Have had quite a few +100% returns this year - mostly recently basic attention token which I sold at a +124% profit. The only +100% return assets I am still holding is Auckland property.

Remember to inform the IRD of those gains when you sell...just like the property traders do..?

Of course I will. And in the even things go badly, I will be claiming my 33% refund. Very generous of them.

still a long way from bottom!

Then you should go on bitmex and short - you'll be rich. A friend of mine put $160k on a x100 leverage trade just before it fell from 6400 to 5400. Back of the envelope calculation said he made something like 4-5 million in one trade (probably took an hour to complete). Insanely risky but for him it paid off

Cheap gas. "Some trades at other points on pipelines in the Permian also traded in negative territory yesterday. That’s right, someone was paid to buy gas in the Permian on Monday. The Permian gas market is flooded with associated gas and won’t see significant new takeaway capacity until the start-up of Kinder Morgan’s Gulf Coast Express (GCX) pipeline in late 2019."
https://rbnenergy.com/keep-breathin-sky-falls-for-permian-gas-prices-on-...

For those of you that are interested - US Financial Stability Report

https://www.federalreserve.gov/publications/files/financial-stability-re...

Our assessment of the current level of vulnerabilities is as follows:

• Valuation pressures are generally elevated, with investors appearing to exhibit a high tolerance for risk-taking, particularly with respect to assets linked to business debt.

• Borrowing by households has risen roughly in line with household incomes. However, debt owed by businesses relative to gross domestic product (GDP) is historically high, and there are signs of deteriorating credit standards.

• The nation’s largest banks are strongly capitalized, and leverage of broker-dealers is substantially below pre-crisis levels. Insurance companies have also strengthened their financial position since the crisis.

• Funding risks in the financial system are low relative to the period leading up to the crisis. Banks hold more liquid assets, and money market mutual funds are less vulnerable to destabilizing runs by investors.

What the benevolent climate saving governments giveth can also be taken away. Subsidies and land rental payments for uneconomic forests spring to mind.
"Government subsidies on solar panels will cease at the end of next March. Miss the deadline and it would take a working household up to 70 years instead of the current 20 to recoup the average £6,500 cost."
https://www.theguardian.com/money/2018/nov/25/homeowners-trapped-solar-p...