US core CPI stays high; China corporate default risk climbs; big China airport building plans; EU-Japan FTA good to go; equity markets rise; UST 10yr at 2.91%; oil and gold little changed; NZ$1 = 68.5 USc; TWI-5 = 73.2

US core CPI stays high; China corporate default risk climbs; big China airport building plans; EU-Japan FTA good to go; equity markets rise; UST 10yr at 2.91%; oil and gold little changed; NZ$1 = 68.5 USc; TWI-5 = 73.2

Here's our summary of key events overnight that affect New Zealand, with news China may be getting ready to launch a new infrastructure spending boom.

But first, the latest update on US consumer price inflation shows levels unchanged at +2.4% pa in November, held back by a sharp decline in the price of petrol (-4.2%). But underlying inflation pressures remained firm amid rising rents (+3.2%) and healthcare costs (+2.4%). This will underpin the next US Fed rate rise.

In China, company default risk has climbed to the highest level in 13 years as Beijing seeks to rein in its post-crisis construction boom, according to Moody's Analytics.

But perhaps that boom is to get a new impetus. In the past ten years China has built 234 new airports. But it is just not enough for their exploding demand for air travel. Now their aviation regulator is planning to raise that to 450 in the next 15 years in what will be a new large infrastructure spending program. For perspective the US has 503 airports that serve commercial airlines. New Zealand has 21.

The EU and Japan will launch the world’s largest free trade zone in February next year after their economic partnership cleared a final hurdle overnight in the EU parliament.

In the London parliament, a no-confidence vote is underway that we will update here when the result is known. Update: PM May has 'won' the confidence vote 200:117.

Equity markets are stronger just about everywhere today. It started in Tokyo yesterday with their index up +2.2%. Hong Kong was up +1.6% although Shanghai didn't get the bug, rising just +0.3%. But overnight in Europe, most markets gained close to +2%, partly on the relief the Italians aren't about to do anything silly on their budget deficit. And today Wall Street is up +1.6%.

Today's new-found optimism by US investors is reflected in a survey of business managers in the US. Although businesses are less optimistic about the outlook for the coming year than they were 12 months ago, many still expect sales, hiring and investment to rise in 2019.

The UST 10yr yield will start today much firmer at 2.91% as the prospect for the December US Fed rate hike beds in. Easing trade tensions are helping too. And their 2-10 curve has risen back to just over +13 bps. The Aussie Govt 10yr is at 2.46% (and up +1 bp since this time yesterday), the China Govt 10yr is at 3.30% and unchanged, while the NZ Govt 10 yr is at 2.51%, and up +3 bps.

Gold is little changed at US$1,245/oz.

US oil prices are marginally firmer today to be just over US$52/bbl. The Brent benchmark is now just under US$61/bbl.

The Kiwi dollar is starting today softer all round at 68.5 USc. On the cross rates we are also softer at 94.9 AUc, and at 60.3 euro cents. That puts the TWI-5 down to 73.2 and that is a two week low.

Bitcoin is firmer today at US$3,428 which is a +2.5% rise in the last 24 hours. 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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38 Comments

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Someone remind me. Who is doing the surveillance for the Foreign Buyer Ban in New Zealand? I know the OIO gets any applications for exemption etc, but who checks after that? In Aussie, it's the tax people, but here?

"Responsibility for residential real estate compliance was handed over to the Australian Taxation Office in 2015. Since then, 316 Australian properties worth $381m have been moved on after their owners were found in breach of the rules."

(It's a '90 at 9' type of topic over there today!)

The feeling I get about NZ is that if someone breaks the rules, they will squeal to the media and nothing will happen. NZ just doesn't seem to have a backbone for these sorts of things.

Is that because it is part of our culture to go along with the rules for the most part? We seem to be happy to push the boundaries a little, but get furious when someone pushes them too far, gets caught, and stuffs it up for everyone.

Hey bw, great question, can we even accurately police it now?

I think with the new legal rules (Jan 1st on-wards) surrounding Lawyers information gathering and certification of real estate transactions/documentation, a lot of the policing will be done by Lawyers as they wont want to breach the rules. There will be some corrupt lawyers but they will come to light in a few years.

We slap them on the wrist with a wet lettuce and tell them they should have bought a student visa first.

The stock market volatility around the world is insane at the moment. Swings of 1-3% on a daily basis, multiple times per week creates chaos. Hundreds of billions down and up every week is mind boggling.

The trend is drifting downward tho. Wonder how high growth KiwiSavers are going in 2018...

Try this:
https://www.asb.co.nz/documents/kiwisaver/returns-to-investors.html
The financial commentators have gone very quiet with their calls to go for high growth funds....
....Incl DC....

Good results for asbs growth fund there. 10%+ p.a after tax after fees, for last seven years

funny! the same time commentators were crying that people were losing by not being put into growth funds, i was transferring 100% of my KiwiSaver to ultra conservative funds. That was about a month before the volatility hit

Phew!

theglc, I transferred 100% Kiwisaver funds from growth to cash in January. A little early but still very thankful though :)

R-P,

I wish you well,but that’s a gamble with a high chance of failure. You might get lucky once,but there is little prospect of timing your re-entry to the market well.
I can only assume that you are an inexperienced investor.

linklater, assume what you must. I locked in considerable gains and for the time being will sit pat and watch what unfolds. I'll assume you're a highly experienced clairvoyant to know my investment strategy will end in failure. Why is there the assumption of a re-entry strategy? Who knows, maybe the fund will underperform - we shall see. Anyway, my road to financial success has been a rocky (losses) but, in the end, a very successful one. I'll safely assume you know little about this. It's no longer necessary for me to chase the big dollars as I'm comfortable and grateful for my lot in life. I think the investment climate is about to change and not in a good way. The Kiwisaver gains are now locked in and it's just icing on the cake.

I'm still in a reasonably high growth fund, it's been taking a hit lately. Over the previous 3 months its looking at around -2.4/3% Still positive on the year but only just. 6 months ago that was at +16.5% pa. Luckily my deposit is sitting in a mix of cash savings and TD, but I'm starting to look strongly at moving my KS over to a more cash based fund.

Fun time to be option trading. Market went the wrong way? no worries, just wait a day or two and it'll swing back.

My fund is in 100% growth assets and will stay there. The market movements of today will be trivial in 20+ years time and this type of fund is likely to have the best outcome.

Good plan. A rational long term investor should be celebrating stock market falls - the businesses you want to purchase chunks of to fund your retirement just got cheaper!

yep, I love a good share sale

This ? rational long term investor is wavering after the recent large falls

If you time horizon is 20+ years, just keep buying every month.

Try spotting the terrible 1987 crash on this graph https://ibb.co/ZLJLQrS

There is a fellow on /reddit / wallet street traders that showed his trading portfolio. Down 99% in a year with losses of around 850k!!!! And he's just a salary guy (admittedly low six figures but still)

https://www.reddit.com/r/wallstreetbets/comments/a5a18z/it_has_been_a_pl...

And down $1.5 million for earlier in the year high.
Moral: When things start to fall, don't buy more, get out!

New construction boom in China - I assume this will be funded by debt. The question of course will be whether the projects are transparent (i.e. without corruption) and will all the projects be allocated on an economic bases rather than political bases. If done right this could be very beneficial to China and NZ's tourism industry.

If we can't get funding allocated on a cost/benefit basis in NZ, how the heck do you expect that to happen in Communist China?

Personally, I think the last thing NZ needs is more tourists, and the last thing the planet needs is more aviation.

Agree strongly on both counts

Doris - Although I understand where the sentiment comes from, the problem with such comments is that its always easy to say what we should stop doing, and thus negatively impact what food we can put on the table, but the only solutions offered to replace them are generally just alot of hot air (such as what we hear alot from this Govt) that make nice sound bites but make bugger all difference to the economic welfare of NZers. The better idea is to debate ways to maintain the increase in tourist numbers by making changes to moderate the negative effects e.g. more infrastructure spending etc

For the last two quarters running, the banking system has shrunk.
https://www.alhambrapartners.com/2018/12/11/us-banks-havent-behaved-like...

For the last two quarters running, the banking system has shrunk.
https://www.alhambrapartners.com/2018/12/11/us-banks-havent-behaved-like...

And this

"Are we now saying: `You violated US law but if you're willing to buy more US soybeans, we can look the other way'?'' asked Wendy Cutler, a former US trade negotiator who is now vice president at the Asia Society Policy Institute.

https://www.stuff.co.nz/business/world/109316483/donald-trump-says-hed-w...

makes you wonder if you can trust the Trump administration.

It's only giving China what they deserve, they've been taking the piss for years

Theresa May survives confidence vote.

Hilarious that the Brexit Tories vote for Theresa and then change their mind and demand another vote within 2 years but then won't allow the British people the same right. The Brexiteers whip up another tantrum driven, attention seeking media circus, fail to achieve anything, aside from wasting time and are faced with the same, very predictable deal that was always likely to eventuate regardless of who was in charge. Boris promised Brits could have their cake and eat it. Boris was delusional because no one has managed to acquire any cake. That isn't down to Theresa May, various politicians have been involved in the negotiation with the EU, including Brexiteers and have all failed to produce cake (rather predictably). Leading the UK at this time is a poisoned chalice, whoever does the job is committing longer term career suicide as has been revealed today with Theresa May announcing she won't lead the Tories in the next election.
Tories pitched their last tent on the promise of strong and stable and have since done everything to demonstrate that they are weak and chaotic. Perhaps they could get on with settling the Brexit divorce, move on to the trade deals and let the British populace have a bit of peace and quiet to come to terms with the divisive, failure that is Brexit, followed by, I don't know? Governing the actual country? And Corbyn??? How is it possible that an opposition party fails to capitalise on the mess the Tories are in? I despair of the lot of them.

Keep Calm and Drink Wine, Gingy. The Pollys are just as bad where ever you go. Have a Merry Christmas.

Buy Gentailers? bearing in mind that Winston wants to buy them back.
13/12/2018, 12:16 pm GENERAl
Mercury confirmed today that it has entered into an agreement with the Crown under which the Crown agrees to participate in any future dividend reinvestment plan or share buyback of the Company.
Mercury joins the other three Government majority-owned companies in having such an agreement in place.
Mercury does not have any current plan to launch a dividend reinvestment plan or share buyback.