Eyes on Xi-Trump meeting; Canada growth soft; Japan gets boosts; China factories stall; India growth slows; investors wary of Australia; UST 10yr 3.01%; oil holds low and gold down; NZ$1 = 68.7 USc; TWI-5 = 73.3

Eyes on Xi-Trump meeting; Canada growth soft; Japan gets boosts; China factories stall; India growth slows; investors wary of Australia; UST 10yr 3.01%; oil holds low and gold down; NZ$1 = 68.7 USc; TWI-5 = 73.3

Here's our summary of key events overnight that affect New Zealand, with news all eyes are in the Xi-Trump meeting in Buenos Aires.

The S&P500 is ending the week up +3.3% and back in positive territory for the year, but it is going nowhere in the daily session as it ends with most investors holding back to see what the G20 summit in Argentina brings, especially between the US and China. At that venue, the updated version of NAFTA was signed. But a new uncertainty surrounds that as the new Democratic Party control of the House of Representatives may may it difficult to ratify.

Canada's final GDP growth data for Q3 2018 came in lower than expected at +2.1% pa and down sharply from the +2.9% growth in Q2. The slippage was something of a surprise because Canada does release month GDP estimates and this quarterly result undershot those. Low oil prices are a key reason. December and January central bank rate hikes that were expected are less certain, maybe even unlikely, now.

Japan's housing starts unexpectedly rose in October, taking them to a +950,000 annual rate and a rare, if only still minor, year-on-year gain. And their industrial production rose +2.9% year on year, also higher than expected. But, as they say, demographics is destiny, and the IMF is saying their GDP “will decline by over 25 percent in 40 years” due to a falling population unless structural reforms are implemented in a credible manner. (See p13.)

In China, their official factory PMI survey indicates that this sector has stopped expanding. The index fell to 50 in November and the lowest this index has been since mid 2016. One key reason for the stagnation is weaker domestic demand. And of the five subindexes that make up the PMI, the one for new orders suffered the biggest drop. Maybe things are even this rosy. The national statistics bureau has called out 92 local reporting entities for data fabrication.

India's growth slowed to +7.1% pa in Q3 2018, a drop from +8.2% pa in Q2.

Yesterday, the ASX200 took a bath, down -1.6% on the day. That means it is down -6.5% for 2018, and down a remarkable -10.8% since the beginning of September. Investors are sceptical of Australia's prospects, and particularly negative about how public policy is [not] being developed in their highly partisan environment. A change of government there in Mat 2019 seems inevitable. And all this comes as trade and tax revenues grow strongly. As someone noted, this is a case of a surplus of money and a deficit of ideas.

The UST 10yr yield is ending the week at 3.01% and a net dip of -4 bps for the week. More importantly, their 2-10 curve has also slipped -3 bps to now be at +20 bps and its lowest since August, and continuing a worrying signal with a new downward trend that started in October. The Aussie Govt 10yr is at 2.59% (down -1 bps overnight and down -5 bps over the week), the China Govt 10yr is at 3.40% and unchanged overnight but down -2 bps for the week, while the NZ Govt 10 yr is at 2.59%, down -2 bps overnight and down -11 bps over the week. New Zealand swap rates fell this week down -4 to -8 bps although compared with a month ago we are up marginally.

The VIX has settled slightly to just over 19 this week. But it is still above its average over the past year of 15. The Fear & Greed index has gotten less extreme on the fear side in the past few days.

Gold is down -US$6 at US$1,220/oz.

US oil prices are very weak again today and at new low levels at just over US$51/bbl. The Brent benchmark is now just over US$59/bbl. These are both levels that are unchanged this week, suggesting low prices are bedding in. Oddly, the US rig count is still holding at its 200 week high despite these very low prices which were down -20% in November.

The Kiwi dollar is ending the week firmer at 68.7 USc, which is a whole +1c up from this time last week but back exactly where it was two weeks ago. On the cross rates we are noticeably firmer at 94.1 AUc, and marginally softer at 60.7 euro cents. That puts the TWI-5 at up to 73.3 and its highest since April.

Bitcoin is now at US$3,991 which is a -5.7% loss for the week, a week when heavy volatility set back in again. This rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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11 Comments

The link for Japan's declining GDP is not accessible. Found this article:

IMF: Japan GDP may drop by 25% in 40 yrs without reforms

Would a declining population cancel the bad effects of a declining GDP? It would be good to see Japan take a path different from endless growth of GDP. Maybe focus on culture and quality of life and quality consumption.

I have been doing a spring clean and taking loads of rubbish to the tip lately. Lots of stuff still works but is tatty like kitchen appliances and furniture. I have huge amounts of computer stuff that works fine but is never used. It all seems so wasteful, the world's resources being used to make poor quality goods to fill landfills. All this stuff should be being preserved for building our inter-stellar spaceships in the future.

Japan's style which is about minimalism and quality is well positioned to change focus away from endless growth. Do it Japan, don't listen to the IMF, please.

Thanks for link heads-up. Fixed now. (You need to download the .pdf from there to read pg13.)

A predicted fall of 25% of GDP, but a projected fall in population of 33%. By my reckoning that makes them ahead, and considering they are a high carbon emitting country that imports a lot of coal, it's good for the planet too.

Yes we need to make the shift from quantity to quality in all areas.... including people.
There's no future in just adding more people, the planet is struggling as it is. By the end of this century I suspect quality will be the key driver for most civilised nations planning, so Japan's declining demographics (quantity) and their attempt at lifting their standard of living (quality) will be interesting to watch.

100% agree. Quality of delivery and process is increasingly harder to find in NZ. But where it is, $$$ be there to be had. Anyone skilled, with low debt, and with a focus to quality product is in a solid position right now.

The Baby Boomers are going to sell....everything they own; everything! It's human nature; it's baked in....
For those who wonder why I suggest interest rates are headed much lower and that the price of everything is going...much lower, here's a concise summary of why I believe that. Inflation, as we know it, is going to be impossible to generate. Not even 2%. It's going negative.
The average American ( and other Western nationalities) will retire at 64, and the average year that they will retire is ...2018. After that, the wave of retirees who have nothing but 'what they have'to live off will overwhelm the asset markets with wave after wave of selling. The days of 'buy the dip' are pretty much over.
This video is worth the time to watch from beginning to end. It's a rainy day In NZ after all, and it will pass the time.
Cheers.
"The Coming Retirement Crisis"

https://www.youtube.com/watch?v=5OFaZcC0lRU

(NB: I'm not in agreement with the cryptocurrency view, but, hey, you can't have everything!)

NZ economy steady while China and Australia slow. Strange, it’s almost like we’re a different country. Retired-Poppy, Nic, what the heck is going on here?

Hi BLSH

No need for NZ to feel like we are being left out, we're just pumping ourselves up with a bit more debt...that and our press are far better at keeping the blinkers on the masses.

NZ is after all, the home of adrenaline sports, bungy, skydiving, gambling and speculation..... Anticipation of the free-fall is part of the fun and the higher you go the more the heart keeps going as you wait for the descent.

It's like Bitcoin, hold, hold, hold.... Bugger!

Worthwhile reading concerning the property market in Japan:

Japan’s housing market remains buoyant

Mortgages are only 1% in Japan but Tokyo and Osaka house prices are growing above 4%. Rental yields currently are about 3.5 - 5% - similar to here.

The population is expected to halve over the next 100 years. That will put it back to what it was around 1900. That is still a lot of people (50M). Abe is heroically resisting all pressure to open the immigration floodgates.

I would think automation will save Japan. No need to export industries to SE Asia when robot labour is so cheap at home. Fewer people, more robots seems like a good combination.

Is Paris burning?

Live streaming of the ongoing rioting in Paris

https://www.youtube.com/watch?v=obMM00CCKSY

If you wind it back you can see what went on during the daylight hours of Saturday. Pretty serious stuff with many burning cars. Macron may not survive this.

Update: Happening now. Tear gas everywhere. Police pointing guns in people's faces. History happening live..

"The G20 nations have ...agreed to reform the WTO while dropping any reference to the need to fight protectionism.."

I'm not sure that's what the World was hoping for?!