Here's our summary of key events overnight that affect New Zealand, with news market signals are all turning negative.
First on Wall Street, markets are very sharply lower. The S&P equity index was down -2.8% in morning trade and in early afternoon it is still -1.7% lower. And that is important because that means the market is now lower that when it started in 2018. UST yields are also a lot lower reflecting the risk-off retreat. Wall Street has followed Shanghai down which lost -1.7% yesterday. Hong Kong fell an eye-popping -2.5% and Tokyo fell -1.9%. In between, European markets lost more than -3% overnight. We are in a major correction now.
Not helping is data from the real economy. We get the US non-farm payroll data this weekend, and the precursor ADP survey has come in weak. In October, they reported a jobs gain of +225,000 and markets were picking November to be lower at +195,000. However it has come in at only +179,000, and that is well below the average gain for the past year of +206,000 and also well below the November 2017 level.
Initial claims for unemployment which jumped last week have stayed high this week, compounding the feeling the giant US economy has gone off the corporate-tax-cut-induced boil.
And new orders for US-made goods recorded their biggest drop in more than a year in October and business spending on equipment appeared to be softening, suggesting a slowdown in activity in their manufacturing sector. And the American trade deficit in goods got even larger in October, making their deficit their largest since the GFC.
Any trade improvement agreements China thought it has with the US took a blow yesterday with the arrest of the Huawei CFO in Canada for extradition to the US. Huawei is a company closely tied to Beijing and controlled by the PLA and the move is sure to damage trade talks. It looks like hostage-taking. The trigger issue is Iran sanctions violations.
There is other news, and some of that is not good ether: Carbon dioxide emissions from fossil fuel burning, the primary cause of climate change, will grow for a second consecutive year in 2018, according to a new report. China’s emissions will increase by +4.7%. Total global emissions are set to increase by +2.7%, after a +1.6% rise in 2017.
The growth in passenger air travel, which sagged in September, picked back up in October. But that uptick is more modest that the earlier rates of growth. Asia/Pacific international passenger travel growth is up +5.8% year-on-year
In Australia, there are growing concerns about how their prescriptive regulation of banks is working out for them. Regulator pressures (ACCC, APRA, ASIC, RBA, Hayne) are driving banks to all behave and respond in the same way - essentially as regulated utilities. But that will have a huge economic impact, essentially lessening competition. The regulators might complain about it (and the RBA did overnight, calling out banks for pack behaviour), but that is the natural consequence of their own micro-managing, prescriptive regulation actions. New Zealand's principles-based regulation approach is far better for retaining competitive instincts in these central financial markets.
The UST 10yr yield is sharply lower than this time yesterday at 2.86% and compounding its recent fall. Their 2-10 curve has stabilised however at +12 bps. The Aussie Govt 10yr is at 2.45% (down -6 bps), the China Govt 10yr is at 3.33% and down -2 bps, while the NZ Govt 10 yr is at 2.48% and also down another -3 bps.
Gold is up +US$4 today at US$1,241/oz.
US oil prices are sharply lower today at just US$51/bbl. The Brent benchmark is now just on US$59.50/bbl. These are big one-day drops exceeding -US$2/bbl and come even after OPEC signaled a production cut. The problem is that they look like they are being gamed by Moscow and the deal may unravel quickly. And here's an interesting twist; the US is now a net oil exporter. Without that market for crude, oil's future looks dim especially if it has to compete with the Americans.
The Kiwi dollar is starting today softer at 68.7 USc. On the cross rates we are stronger yet again at 95.3 AUc and this is a level last seen in July 2017. Against the euro we are at 60.4 euro cents. The result is the TWI-5 lower 73.3.
Bitcoin is lower again today, now at US$3,559 and another -3.4% reduction. 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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