Equity markets hammered; Brexit weighs; India central bank boss quits; OECD and IMF see lower growth; ACCC challenges Google/Facebook; UST 10yr at 2.85%; oil and gold lower; NZ$1 = 68.8 USc; TWI-5 = 73.5

Equity markets hammered; Brexit weighs; India central bank boss quits; OECD and IMF see lower growth; ACCC challenges Google/Facebook; UST 10yr at 2.85%; oil and gold lower; NZ$1 = 68.8 USc; TWI-5 = 73.5

Here's our summary of key events overnight that affect New Zealand, with news momentum is leaking away from world economic growth.

Firstly, in early afternoon trade, the S&P500 index on Wall Street was down another -1.4% (although it has clawed some of that back a little later to be down -0.3%). This follows European markets which were generally down -1.5% who in turn followed Tokyo which closed down -2.1%. Hong Kong was down -1.2% and Shanghai was down -0.8% yesterday. Australia closed down the most at -2.3% while the NZX was down -1.2%. It is a sea of red in equity markets and today's Wall Street drop suggests it is not over yet. So far, the S&P500 is down -4% from the start of 2018.

The US's biting trade policies are behind the overall move lower, but the imminent failure of a key vote on Brexit in the London parliament isn't helping either.

In Canada, even though building permits issued dropped slightly in October, new housing construction rose much more than expected.

In India, their central bank governor has quit over bald political interference in the management of monetary policy. The Indian currency weakened more than -1.5% on the move as financial markets worried about the impact of loose inflation targeting, something India struggles with anyway.

In China, they have set a new record for rice production, this time with a yield of more than 17 tonnes per hectare.

The OECD says that momentum is leaking away in the growth in all its main member countries. But New Zealand stands out going against this trend. And only India among major non-OECD countries comes close to our momentum track. And the departing IMF chief economist has also warned that "the air is coming out of the balloon" of growth, especially in the US. But he was careful to say he is not predicting a recession yet.

In Australia, a new report by competition regulator the ACCC has found "concerns" regarding the market power held by Google and Facebook, including their impact on Australian businesses and, in particular, on the ability of media businesses to monetise their content. The report also outlines concerns regarding the extent to which consumers’ data is collected and used to enable targeted advertising. This report will be influential internationally, and the two firms targeted are expected to push back hard.

And staying in Australia, a cut in interest rates could not be ruled out, a senior central banker said late yesterday, but he emphasised that the next move was still likely to be a rise given expectations for a gradual acceleration in inflation.

The UST 10yr yield will start today at 2.85%. Their 2-10 curve is just at +14 bps. The Aussie Govt 10yr is at 2.48% (and up +4 bps since this time yesterday), the China Govt 10yr is at 3.31% and down -1 bp, while the NZ Govt 10 yr is at 2.47%, and also down -1 bps.

Gold has slipped -US$4 today to US$1,244/oz.

US oil prices have revered and slipped today to be just under US$52/bbl. The Brent benchmark is now just on US$61/bbl.

The Kiwi dollar is starting today firmer again at 68.8 USc. On the cross rates we are almost +½c higher at 95.7 AUc, and also firmer at 60.5 euro cents. That puts the TWI-5 up at 73.5. We should also note we are at 54.7 UKp which is the highest against this distressed currency since September a year ago.

Bitcoin is lower today at US$3,420 which is a -5.0% drop since 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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43 Comments

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But New Zealand stands out going against this trend. And only India among major non-OECD countries comes close to our momentum track.

NZ, awesome as always.

12
up

I think we are just a bit behind the play.. we'll join them shortly.

Positive comment, 1 thumbs up
Negative comment, 9 thumbs up

Summarises the mindset on this forum quite well

Realists vs the delusional? You might be right.

Some look forward and at the evidence (eg from yesterday https://www.interest.co.nz/business/97290/falling-manufacturing-sales-pr....
), others like yourself and ttp look continually in the rearview mirror.

Maybe NZ will be worse off in 6 months, 1 year etc... nobody knows for sure. But it's a bit sad that a good comment on or country gets "out-thumbed-up" 10 to 1 by a bad comment about NZ. It's a mind set, and personally, I'm happy that we are doing better than most right now

11
up

Indeed Zach. It suggests that the government is on a borrowing and spending spree, whilst telling us they are models of fiscal prudence. Capital borrowing somewhere in the system but not actually on the government's books? Now where might that that be hiding? Auckland Council? SOEs? House building? Tower blocks in Auckland built with Chinese capital by Chinese construction companies to accomodate new residents from China?

I guess we will find out.

Why not just simple lag Roger? This data is gothered from a period leading up to it being publuished. The lag may mean the effects were simply not visible att he time the data was gathered and published?

From what I can tell it seems to be real. Yes, it is surprising, but it seems to fit with other people's analysis of the macro world, NZ expanding, the rest of the world slowing. The Hedgeye people think so anyway, and they called the current volatility well. If you are right then NZD should fall to new lows sometime soon. I really do not know what is likeliest. I just try to listen to people who seem to have more insight.

This is a problem with analysis of data. Early data, supported by later data can reflect a trend, and in financial circles many are reliant on the publication of that data. The timeliness of publication can be crucial. But there is a risk that lag effects are not picked up by the time of publication, and these can be important too.

Roger, the debt carried by the likes of Genesis, Mercury and Meridian is off books borrowing.(well51%)
Currently Genesis is paying out in dividends about 8x what they are earning, despite having a billion dollar debt, and Dame Jenny in court rather than on the board at that.

Kind of. They are paying out much higher dividends than their profit, but they are well covered by free cash flow. Profit was $20 million, cash flow minus interest payments and investing was about $180 million. The main reason for the difference is $200 million of depreciation. Despite paying such huge dividends, they actually paid down debt (marginally) from 2017->2018.

You could definitely argue that in failing to keep hold of this cash, they're not preparing adequately for the inevitable replacement/maintenance of ageing power plants.

Good point, but if you are paying dividends and you have debt, you are essentially borrowing money to pay dividends for the sake of it; but all the interest on the debt is money down the drain.
Debt is for business expansion, not for cashflow; an awful lot of companies pay dividends while in debt but it does not make it right.

That's a fair point. I don't necessarily disagree, but the consensus seems to be that carrying some debt is valid and good for the owners (so long as they don't go bust). You'd hope Genesis have a fairly predictable cash flow to service it, and that they have a plan to get debt down before their gas runs out.

A more confusing example is Turners Automotive Group, who have very recently been trying to raise capital by converting bonds to equity, and are now giving it back with a stock buy back. Very weird.

kiwichas,

You are quite wrong to say if a company has any debt and pays dividends,it is borrowing to pay them. Most quoted companies have some debt; think of F&P H’care,Mainfreight and POT to name just 3 of our most successful companies. These companies have debt to grow their business with the return being significantly greater than the cost of the debt and their dividends amply covered by their free cash flow,
I have been investing in these and other companies for many years and would not expect them to be debt free,though I keep a close watch on the debt to equity ratio.

@lonewolfnz - Didnt you call the bottom for Bitcoin at $3700?

Now at $3385

Certainly not! I would not be surprised to see a much lower price (in the 2ks is entirely possible short term), although a relief rally into the 4ks is possible. I will continue to dollar cost average (not just btc of course) although I might be looking for a delayed entry point, need to have some money for my gold investment coming up (down a little today!). Short term price movements don't bother me - like property its all a long term plan (my first rental was bought at the end of 2006, imagine if I had given up in 2008 when the market crashed - that would be 7 figures lost vs today). By the way where are your prices from? I see $3,479 here.

"I will continue to dollar cost average" So, you'd have stuff averaged in at $5,000 and $6,000 and, of course, $19,000 then? What is your dollar average, as a matter of interest? Or do you just buy when prices fall? And that, as we all know, is the ultimate recipe for disaster - be it bitcoin, gold or property...

"People do not like to admit that they were wrong about a choice once they have made it. Therefore, rather than conclude that they made a bad choice, they convince themselves that the choice was right and that since the (asset) has declined it is a better deal now than it was originally. In a state of denial, they buy more of the (asset) that declined."

Never average down!

https://www.stockdisciplines.com/average-down-falling-stock

I have no idea what my average is, as I have a high volume of trades among other altcoins (including stable coins if I should choose). All I will say is I started in 2013 with a cost of NZD $500 I believe. I'm sure I would have had a buy at an upper level, but not 19000 (that was only in place for a very brief moment). So I have been dollar cost averaging from $500 up to NZD $5000 (or so). Just like property (but less transactions of course) - entering since 2006. So you don't like bitcoin, gold or property? You must be buying shares then yes? I have equities too and they are also getting smashed around.

Most of us figured out some post back that you're quite young, and it's why those of us who have seen several cycles before are passing on what we have seen. On that score, here's my latest tip:

"ALWAYS know what your average is!"

When the man comes knocking on your door looking for a margin call ( as he will if he hasn't already at some time!) you'll need to know how much he wants. More importantly, you'll know ahead of time if you have enough....

I do of course appreciate your concern for my financial wellbeing - but if it helps I should note that I am fairly young (well, a full set of hair and no greys) with my net worth with two commas and about to have a 2 in the front. So I am happy with my decisions and acknowledge that not every investment will be lucrative (for example - a nasty trade on the USD/NZD many years ago which took 1.5 year before I went back into the green).

I note lonewolf that it is your assumption that sooner or later things go back into the green. 1. it indicates to me you psychologically can't bear to confirm a loss, so make the classic error of hanging on. 2. Many things go back into the green true, but with bitcoin that is a very brave assumption.

@lonewolfnz

I would say the following is calling the bottom, does it not?????

https://www.interest.co.nz/news/97123/powells-comments-boost-wall-st-und...

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.

As for the price I quoted, it was live from Coindesk, I was thinking that a bitcoin trader would be tracking live changes constantly.......

I’m glad to have given you something to occupy your time but I think you are reading far too much into that comment. That was the flash fall to 3,450, then back to 3,750 or so. And yes that was the bottom of that fall, but nobody can say how far it will go (obviously). For what its worth I see further pain for another quarter, and likely global pain in all assets for another year. As for value, coinmarketcap.com is a far better aggregator of value because it averages every exchange and excludes certain ones with low volume, dodgy figures etc. Its always amusing how people tut tut and giggle and my recent investments (no matter the investment class I should add!) but when I mention my property investment gains are in the 7 figures (over many years) then I either just lucky, or a greedy landlord. Oh and I sold my genesis shares at a 100% return and was told that I was just stealing from the taxpayer or something like that. I wonder if I will be a lucky or greedy crypto / gold / equity investor in 10 years time? Hmmm PS – talking of predictions, when will bitcoin be “zero”?

bw & theglc, I agree I wouldn't average down either, I think it's a mistake but it is Lonewolf's call and his money. Why interfere with other people's affairs? It's certainly not out of genuine concern for a stranger.

A fair comment. For completeness, I think around 95% of my wealth is in property, with crypto less than 1%. I just have a lot more interest in new emerging asset classes. Property gets bashed x100 here - its really quite odd why there is so much hate towards people trying to invest and become independent. Meanwhile, I've made seven figures in tax free gains (for minimal work), plus hundreds of thousands of dollars in rent. I can assure that for each property purchase I have had very similar comments as to the responses above - not to mention when I bought bitcoin in 2013. I would love to know what these armchair warren buffets are spending their money on these days. Perhaps the only sure bet is kiwisaver, and that's because the government tops you up every year with free taxpayer money!

So just another blood sucking parasite sucking unearned income out of the system you hope will support you after you finished sucking. Good luck with that strategy. Not that parasites ever stop sucking until they have killed the host. The best we can hope for is that you choose to engage the thinking power have access to and become enlightened.

Scarfie, perfect example of mindless, envious, ignorant comment based on nothing more than "he has more than me therefore he's a .......

Can't seem to win can I? Bitcoin, gold, property, equities, forex... what's left? Should I mention that I sold my 20 year old magic the gathering cards the other day for a tidy profit. Or will that draw an equal level of scorn and ire?

On the contrary Yvil, it is called philosophy, an endeavour that requires a higher level of thought. Seems you lack it, or at at least blinkered by your vested interests. Being a high net worth individual is not an impediment to rational thinking. A lack of morality is however.

Why can't we do both? Become enlightened and suck blood.

An excellent point you raise. No problem with that because at least you know the outcome and won't complain about it.

China's biggest rice-producing province has announced plans to cut production of the crop as the country copes with a rice glut. This is a reversal of now-forgotten policies aimed at expanding rice production in the same province six years ago.

According to State media, Hunan Province's communist party leadership announced an objective of reducing Hunan's area planted in rice by 3 million mu--equal to 200,000 hectares--during 2018. The province's "number one document" aims to reduce production of double-cropped rice and shift the land into high value specialty crops.

https://dimsums.blogspot.com/2018/04/rice-province-plans-to-reduce-crop....

Hopefully their figures are real these days. Mao exported the rice crop cos his terrified officials told him there was a record harvest. He probably knew all along and just wanted to reduce the population by 50 million or so, just to keep the people in their proper place. The joys of a centrally planned economy, great when it works, not so good when it doesn't, fewer mistakes but bigger ones.

quality could be an issue. China is a big producer of things you don't really think much about.

https://www.westernfarmpress.com/markets/china-ranks-no-1-apple-juice-ex...

"This was the main problem Wen and the Communist government prioritized. In a world without growth, China feared having perhaps too much. Still, by setting the goal for the CPI in 2012 at 4%, authorities were making it very clear they would tolerate quite a bit of inflation if it meant keeping their economy on track in an increasingly indeterminate world.

Just one year later suddenly conventional wisdom was proved wildly inaccurate. It continued as convention for a few more years but exposing the lack of wisdom it had contained. A world without growth would indeed be the whole world without growth."
https://www.alhambrapartners.com/2018/12/10/china-going-back-to-2011/

Does anyone know if New Zealand is signing the UN migration pact? I see now that it is not really officially signed until Dec 17 although the news says 150 countries have signed.

An article of faith for Internationalist Socialists, not so much for Nationalists. Could be interesting to see how Jacinda and Winston resolve that one. Is Winston a closet National Socialist at heart? His party name, New Zealand First, suggests as much. Oops, sorry, I mentioned the political philosophy which Must Not Be Named, presumably because it conflicts with the International Socialist philosophy and must therefore be airbrushed from discussion. The Smarmy, Wet and Conflicted National Party will presumably do nothing, until they have done extensive voter research to identify if there are any votes either way.

Any sense of national competition seems to be going out the window. Nations should compete with one another to see who can do things better. Other countries can watch, observe and mimic or avoid.The UN seems to be there to reduce competition between countries yet we know that healthy competition is what leads to progress. The right balance of nationalism and socialism would seem to be optimal (how else can you have great welfare as well as sovereignty and freedom?) however if you are too successful then they will seek to curb that by injecting international socialism.

How many countries are there? 200? I had heard 45 or so countries have pulled out - what is the guess those are the countries which all the migrants all fleeing towards

Record rice production - it's like Mao has never died.

"The record was set in an experimental paddy in the northern province of Hebei that had been planted with a variety known as Xiangliangyou 900." The Aussies rule the roost on average rice yield.

And staying in Australia, a cut in interest rates could not be ruled out, a senior central banker said late yesterday, but he emphasised that the next move was still likely to be a rise given expectations for a gradual acceleration in inflation.

Must have said it a dozen times......the next move will be a cut.

So, I have junk bonds, you have cash, a money dealer this securities lender can find UST’s from otherwise inert silos, and the bilateral repo carried out under pristine collateral is really a trilateral double bespoke transaction where junk forms the basis of everything. I give the money dealer the junk, he gives me the UST’s, I give you those for cash as if I owned them, and the smallest sliver of the wider world knows only about that last part of the transaction."
https://www.alhambrapartners.com/2018/12/10/contours-of-crunch/