Canada DTIs sky-high; ECB ends EQ; Far East equities rise; US deficit rises further; PBoC boss signals more stimulus; ATO releases tax details; UST 10yr at 2.91%; oil and gold little changed; NZ$1 = 68.6 USc; TWI-5 = 73.3

Canada DTIs sky-high; ECB ends EQ; Far East equities rise; US deficit rises further; PBoC boss signals more stimulus; ATO releases tax details; UST 10yr at 2.91%; oil and gold little changed; NZ$1 = 68.6 USc; TWI-5 = 73.3

Here's our summary of key events overnight that affect New Zealand, with news of more Chinese stimulus on the way.

But first in Canada, an official housing agency is warning over the risks of very high household debt-to-income ratios. It exceeds 200% in both Vancouver (240%) and Toronto (210%) and is over 170% nationally, they say. (New Zealand's national debt-to-income ratio is 124% and only marginally higher than what it was ten years ago.)

Overnight the ECB said it will formally end its €2.6 tln QE bond buying program on December 31. However it also said will keep reinvesting the existing stimulus reservoir for years, bolstering an EU economy which is facing both an unexpected slowdown and new political turmoil.

Yesterday, the Shanghai stock exchange closed up strongly, up +1.2%. Tokyo was up +1% and Hong Kong rose +1.3%. But these gains didn't flow through to European markets, nor have they been reflected on Wall Street where levels are lower in mid-day trade.

And in the US, their monthly Federal Budget Statement is about to be released showing that the deficit rose from -US$100 bln in October to almost -US$200 bln in November and +40% higher than the same month a year ago. Markets don't seen to think this matters, and it won't until suddenly it does matter. It is heading for an annual -US$1 tln deficit. Hard to say when that will be though. (Perhaps when it reaches -5% of GDP?)

The head of the Chinese central bank was out talking up more 'economic support' to weigh against the economic headwinds they are facing. This is a public piece of a government-wide program to counter downward pressures.

And staying in China, authorities there are detaining Canadians in reprisals for the arrest of the Huawei CFO in Canada on sanctions-busting charges. They are paying the price for offending the PLA's investment in its Huawei enterprise.

Yesterday, the Australian Tax Office released its 2017 tax transparency report showing that one in four of Australia's largest companies paid no tax last year. But the news isn't all bad; corporate tax revenues are up +AU$7.4 bln this year and the prior tax losses that allowed companies to shelter current profits are being used up fast - so fast that next year the corporate tax take is expected to rise very sharply. And all this is happening without any changes to their tax laws.

The UST 10yr yield is unchanged at 2.91%. But their 2-10 curve has risen risen to just over +15 bps. The Aussie Govt 10yr is at 2.47% (and up +1 bp since this time yesterday), the China Govt 10yr is at 3.34% and up +4 bps, while the NZ Govt 10 yr is at 2.54%, and up +3 bps.

Gold is a little lower at US$1,243/oz.

US oil prices are little changed again today at just under US$52/bbl. The Brent benchmark is now just under US$61/bbl.

The Kiwi dollar is unchanged at 68.6 USc. On the cross rates we are also stable at 94.9 AUc, and at 60.4 euro cents. That puts the TWI-5 down to 73.3.

Bitcoin is softer today at US$3,370 which is a -1.7% dip in the last 24 hours. This rate is charted in the exchange rate set below.

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26 Comments

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Highlight new comments in the last hr(s).

To debunk the BS claim that is 'USA is a net oil exporter' which has permeated through MSM publications recently. Good reminder to check the official data rather then trusting the media's lackluster reporting on oil production.

No, The U.S. Is Not A Net Exporter Of Crude Oil
https://oilprice.com/Energy/Crude-Oil/No-The-US-Is-Not-A-Net-Exporter-Of...

Chris Cook
China is sanction-proof crude Buyer of Last Resort. With colossal storage & a fleet of refineries they seem (with India cheering them on) to be strategically positioning to dictate product (and hence crude) prices. Meanwhile Saudi sells oil for the rope to hang themselves

https://www.reuters.com/article/us-oil-iea/iea-sees-global-oil-supply-ti...

Are we comparing apples to apples or milk powder to oil. The Canadian metrics appear to include both mortgage debt for home owners and rental properties . It is most likely 'private ' mortgage debt is also included ( Bank of Ma and Pa ) as this is used by the Bank of Canada. The New Zealand data provided appears to provide a sugar coated version. Out of curiosity what is Auckland's household debt/income if the same metrics are used.

And let's not forget that Household Debt/Income here is ~170%. Does it matter what it's secured against ( if it is at all!) when metrics like that apply?
Household Debt/Income has roughly tripled in the last 30 years and doubled in the last 20.

That is just not correct. The data is available in RBNZ C21. There are no 30 year data using the same consistent definitions. The earliest data is from 1998 so just on 20 years and household DTI has risen from 75% then to 124% now. That is nothing like a doubling. That is a rise averaging +2.5% per year.

I'm so glad that the author of the articles on this site call out some of the falsehoods in the comment section

Hence I used the word 'roughly'. I don't look up everything! But I just checked (and we can all look at different stats. and the same ones in a different way!)

https://tradingeconomics.com/new-zealand/households-debt-to-income

It may not be the RBNZ you use, but it does go back further than 1998. It indicated Household Debt/Income was under 60% 30 years ago. Multiply that by 3 and what do we get?!

(NB: Household Debt isn't 124% of Income in that analysis. It is, as I wrote, closer to 170%?
quote "Households Debt in New Zealand remained unchanged at 166 percent of gross income in 2018 from 166 percent in 2017.. Households Debt To Income in New Zealand averaged 123.71 percent from 1991 until 2018, ." unquote)

See AndrewJs post below.. its 3.6 times ( 168% / 46% ) as high in the last thirty years according to the RBNZ paper.

I am aware of the RBNZ article/FSR. But I think there is a flaw. If you are going to include mortgage liabilities of investment rental properties in the "debt" side, you also need to include the resulting rental income on the "income" side.

Exclude them on both sides (so its 124%) or include them on both sides (so it will be less than 164%).

Personally, I think they should be excluded because residential landlording is a business. No one thinks it is a good idea to include other business debt in the national household accounts so why include this type? Makes no sense to me. If we are talking about household DTIs, lets just keep it about households.

If you really think this type of debt should be included how do you deal with most farm debt from rural households? or SME debt from the huge number of small businesses? Clearly that sort of debt is the debt of the business - just like landlording. If you do include these types of liabilities, what is the rationale for excluding the business income? And then you don't have anything relevant for households.

Household Debt is ...Household Debt!

It's relatively 'unimportant' what the funds are applied against - an income generating business; a holiday or a car - it's core Household Debt.

It's like the woman in Aussie who maintained she had a "property portfolio worth $12 million!" and when asked if she had any debt she replied " Not much. About $10,000)" But when pressed about her mortgages ( Household Debt) of $10 million she retorted " That's' not debt! It's just mortgages. Everyone has those!"

Is the method the 1988 figure was calculated with different from the 2018 figure? Or does that 1988 figure also include landlord debt but not income?

Edit: also, if you are excluding the debt associated with residential properties owned by landlord, shouldn't you also be excluding the household income of the people occupying those properties?

ie. either all reisdential property debt compare to all residential property occupier incomes

or all owner occupied residential property debt to all owner occupier household incomes.

A year ago we read:

"The latest Reserve Bank figures show household debt has topped $250b, driven by rising property prices and an increase in consumer borrowing. That's an increase of more than 60 per cent in 10 years"
(NB: My original estimation of a doubling over 20 years probably isn't far off the mark!)

We can compare the absolute amount with whatever any other metric we like ( Income; Population or against GDP - the most popular and misleading !) but it's a quarter of a trillion dollars that our household owe. There's 4.5 million of us.
In my opinion, that's not a healthy situation to be in now, or later on.....

A): There are 5 mln of us, and B) those households have $890.5 bln of financial assets, which doesn't include real estate. Mortgage debt of $256 bln or so is not small but it is under 30% of net financial assets. If the houses somehow become worth nothing there is 3½ times the mortgage liabilities still backing them up with other financial assets. Not everyone is a recent FHB. In fact, my estimates based on C31 suggest that less than $60 bln of the $256 bln in housing loans have been taken out by first time buyers in the past five years. That represents about 20% of the liability that might be most at risk in a sharp downturn. And it won't be all of those of course ...

If you include rental property liabilities (but not the income from them), the NZ data rises to 164%. But obviously both need to be included or excluded consistently. The Canadian series doesn't seem to include business (rental property) liabilities however. Sadly there is no regional data available in New Zealand.

In both cases, we would be keen to get sources if you know where they are.

Bank of Japan buying like mad to prop up the index..

https://asia.nikkei.com/Business/Markets/Bank-of-Japan-s-ETF-buying-hits...

Two scenarios i see for Japan:
1) BoJ becomes the largest shareholder for all traded Japanese companies and uses dividends to pay off public debt over time. Essentially another 'tax' on business profits.
2) Stock prices eventually crashes and brings down the BoJ as they have to write down their shareholdings. Policy decisions to tighten up any aspect of business becomes untenable as the BoJ is the largest shareholders and in-turn doesn't want anything harming future business....

How exactly does one "bring down" a central bank like the BOJ?
“Central banks are protected from insolvency due to their ability to create money and can therefore operate with negative equity.” - ECB
https://www.bloomberg.com/news/articles/2016-04-05/the-ecb-explains-why-...

A good Brexit article from Brian Fallow this morning - https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12176235

Just wait till the savage continent unleashes is fury, then you will have something to report on.

https://www.amazon.com/Savage-Continent-Europe-Aftermath-World/dp/125003...

that can double as my book of the week.

In France the latest terrorist attack was carried out by ISIS, by one of 20,000 people on Frances extreme high risk , and he escaped into Germany.

. Hours after the attack yesterday, before officials labeled it an act of terror, experts like @JcBrisard already knew a key detail: The gunman named Cherif Chekatt appeared not just on France’s S List of people believed to pose a security threat but also on its FSPRT list
Here’s one interesting takeaway: There are over 20,000 names in this database of radicalized individuals in France alone. According to @JcBrisard, some 10% of them live in the provincial department where the Strasbourg Christmas market is located. Or some 2,000 ppl.
And in the last 24 hours, ISIS acolytes have created memes and video tributes, like this one, which begins with a “Merry Christmas” sign written in red letters that then begins to bleed. I agree with French president when he said that the terror threat remains all too real:

British data confirms strong FDI continues despite Brexit chaos.
http://bilbo.economicoutlook.net/blog/?p=41123

"The sense of Brexit chaos in the UK has been amplified by ridiculous new reports from HM Treasury, the Bank of England, and some attention-seeking private research groups who choose to lie and present incredulous analyses as fact.

Which government in their right mind would do nothing while the economy was shrinking 7 per cent? That is what HM Treasury modelled.

Which central bank would put up interest rates by 5 or so percent during a deep recession when they know exchange rate depreciation introduces temporary inflation spikes (if that)? That is what HM Treasury were claiming would happen.

Embarrassing the whole lot of it."

Re China stimulus , I dont see how adding more debt to an existing pile of debt can work in the long run .

Two thirds of systemic banking crises around the world have been preceded by a housing boom and bust.10 Highly indebted households are vulnerable to shocks, such as higher interest rates or unemployment, that reduce their debt servicing capacity. This can lead to households cutting their consumption, selling their house or, if the shock is severe enough, defaulting on their loans.
Household indebtedness has increased dramatically in New Zealand in the last 30 years. In 1988, the average household owed around $16,000 in debt and had an income of around $35,000 – a debt-to-income ratio of 46 percent. By the end of 2017, this ratio had risen to 168 percent, following a ten-fold increase in average household debt to nearly $160,000, while average incomes had only slightly less than tripled to $95,000.
Credit extended to households in New Zealand as a percentage of GDP has risen from 27.9 percent in 1990 – relatively low compared to other countries – to 92.2 percent (figure 2). -

https://www.rbnz.govt.nz/news/2018/11/financial-stability-risky-safe-or-...

If your choice comes down to food, or servicing debt, it doesn't really matter how big the debt is. (as the debtor that is)

It's good to see the ECB stopping the "stimulus" but it's been pumping 15b euros a month into the system. Holding is better than increasing, but I am waiting for the news of when they will unwind and at what rate. The Fed has been taking $50b USD per month out of the financial system but is many years/decades from returning to normal.

If the global economy really is booming, as many politicians claim, why are leaders and their parties around the world continuing to get booted out of office in such a sweeping fashion?
https://www.zerohedge.com/news/2018-12-13/wall-st-bankers-angry-citizens...