US faces govt shutdown again; US data mixed; China data weak; Russia raises rates; Ireland reverses course; US junk bond market eerily quiet; UST 10yr at 2.90%; oil and gold down; NZ$1 = 68 USc; TWI-5 = 72.8

US faces govt shutdown again; US data mixed; China data weak; Russia raises rates; Ireland reverses course; US junk bond market eerily quiet; UST 10yr at 2.90%; oil and gold down; NZ$1 = 68 USc; TWI-5 = 72.8

Here's our summary of key events over the weekend that affect New Zealand, with news China data is triggering investor fears.

But first in the US, the regular debt-limit impasses is upon us yet again with a shutdown looming from this Saturday night if a resolution can't be found. The key sticking point is over 'border wall funding', a pet project of the US President.

And the Federal Reserve is expected to lift rates once again on Thursday (NZT), with US policymakers expected to stick to their tightening path, for now at least.

American retail sales data for November came in flat compared with October and up +4.2% year-on-year. This matched analysts expectations and is seen as a good sign heading into the heart of the holiday shopping season.

US industrial production recovered slightly from a poor October, but the gains in November were 'average'.

It doesn't seem that December will be better however. The early December US PMI readings show the manufacturing sector expanding at its slowest rate in 13 months and the service sector is slowest rate in 11 months. It's a picture of slowing momentum.

Momentum is leaking away faster in the Eurozone, while Japan it is holding at a modestly positive level.

In China, most of the data released over the weekend indicated growing weakness, data that may be behind the stock market reversals at the end of last week. Nominal retail sales in Chine rose +8.1% year-on-year and the slowest such growth rate in 15 years. Data for industrial production was down to +5.4% year-on-year and well below analysts estimates. Electricity production grew at only +3.6% pa (although to be fair that was higher than the November 2017 rise of +2.4% pa). But, of course, there's this to consider.

American exports at their biggest trans-Pacific trade gateway ports plunged last month, in an apparent sign of the impact of China’s retaliatory tariffs. Outbound container volume at the neighboring ports of Los Angeles (-14%) and Long Beach (-8%) fell -12% in November from the same month last year, the first decline after seven straight months of export growth. Imports were down too. This may pick up however as China has signaled that it will reverse tariffs hikes on corn and cars.

Japan is trimming its official growth forecast to +1.3% pa in 2019, from +1.5%.

In Hong Kong, home owners are turning jittery as house price falls now exceed -20%.

In official data, China's home prices have been described as 'stable', with growth evaporating as demand dries up. Meanwhile, there are reports that economic fears in China are reigniting the rush to buy overseas property. Sydney and Melbourne get a special mention, as does New Zealand's new unavailability.

Russia’s central bank unexpectedly increased borrowing costs for the second time this year, increasing them by +25 bps to 7.75%. It also signaled it may raise them again as inflation jumps to over +4% amid a tax hike and possible new American sanctions. Russia is the world's 12th largest economy, about the same size as South Korea (#11) and a bit larger than Australia (#13).

In Ireland, politicians responded to historic banking misdeeds by imposing severe limits on bonuses and banker pay. But that has caused a growing exodus of talent and revolving doors in key positions. In fact, Dublin has become so worried about bank management skills it is about to issue a report recommending a sharp easing of the restrictions. And it is doing so even though the politics will be difficult.

At the end of last week equity markets took a beating. It started in Shanghai with them closing down -1.5%. That has compounded to a -23% loss for the year and well into a bear market. Hong Kong was down -1.6% on Friday, Tokyo down more than -2%. That was influential in Europe where stocks fell about -0.7% on average across all markets. The DAX is now down more than -15% so far in 2018. That weakness flowed on to Wall Street with the S&P500 down -1.9%. From the start of October, the S&P500 is down more than -11%, and that means it is in a technical 'correction' phase. Where to from here is a key question for both investors, and business managers who need to make investment decisions. In the same period the NZX50 is down -6.5%, the ASX200 is down -9.5% and the Shanghai index is down -8.0% (Shanghai is down much more over a longer period.)

And December is on course to be first month without a sale of sub-investment grade corporate debt in the US - since the Lehman Bros. crash. American high yield bond markets are tightening, and fast.

The UST 10yr yield is starting the week at 2.90%. Their 2-10 curve has risen to just under +16 bps. The Aussie Govt 10yr is at 2.45%, the China Govt 10yr is at 3.37%, while the NZ Govt 10 yr is at 2.51%.

Gold has slipped back and is now at US$1,238, a -$10 fall over the week.

US oil prices are down sharply again to just over US$51/bbl. The Brent benchmark is now just over US$60/bbl.

The Kiwi dollar is starting the week softer at 68 USc. On the cross rates we are marginally softer at 94.7 AUc, and little changed at 60.1 euro cents. That puts the TWI-5 a little lower at 72.8.

Bitcoin is now at US$3,209 which is only a small -1.4% loss for the week. 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 ».

Daily exchange rates

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The 'TWI' chart will be drawn here.
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The '¥en' chart will be drawn here.
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The '¥uan' chart will be drawn here.
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The '€uro' chart will be drawn here.
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The 'GBP' chart will be drawn here.
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Source: RBNZ
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End of day UTC
Source: CoinDesk

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Cash (Fund) is best. As the current volatile environment implies.

totally right I moved mine into cash in October, with new funds still a mix of shares, bonds. Wait for market to drop to 40% of peak and go again.

Yeah I put all mine into ultra conservative cash fund in Sept

Good timing, this time.

What's your game plan if the market doesn't drop to 40% of peak in the next few years? What if it's a 10-20% drop then marching up again?

It's pretty well proven that trying to time the share market is a fool's errand. Save, be invested, be diversified. As they say, it's a bit like playing with a yo-yo walking up a hill. Lots of little ups and downs, but it's the hill that matters.

edit: this is what I was looking for. It's fictional, but illustrative.

Anyone who applies to change their KiwiSaver to a Cash Fund today doesn't necessarily get it done today.
It gets done at the next portfolio re-balancing. That could be as late as the end of next January if it's done now.
So anyone who saw the current sharemarket instability last month; changed to Cash may still be on Agressive (or whatever each fund calls it) and is still subject to all the recent and coming movements.
Cool, eh!
You can bet your boots if the market had risen the change would have happened straight away. But as with anything to do with banking, customers are the loss absorber of first resort.....

(NB Ask the Macquarie Bank super account holders, who 'hung on' all through the downturn to be told 'Sorry! We took you out at the bottom for your own protection; it says we can do that in the small print, and you haven't benefited from getting back to square". Funnily enough, some of the banking insiders just happen to have kept hold of the 'good stuff'!)

This is usually the point where people change funds and realise a loss. Nothing like selling after the market is already down. They also miss out on dollar cost averaging.

Perhaps those accumulating would be better served by a balanced fund with 40% bonds and 60% shares/index. At least there's some income in the fund. Or if people are moving to cash by all means move to cash but any new money could go into bonds and shares. This is the time to pick up some deals, especially when we have no idea where the bottom is.

Making investment decisions in hindsight. They'll then switch to an aggressive fund after the market takes off again, likely buying back in at a higher unit price.

It's highly likely. Some people I know in the US pick up bargains from the retirement fund sell offs. Also with hindsight the time to sell off some funds or shares was about 3-4 months ago.

People should also have some income generating financial instruments. Selling those off is foolish when they still generate income despite the price changing.

I thought it only took about a week to change funds?

It depends on when the portfolio rebalancing takes place. If, say, it's done on the 20th and you lodge your change by the 13th, then maybe you get transferred in the next changes. If you lodge on the 21st ( to make a point) you may not get changed until the 2oth of the next month, and as many portfolio managers are on hols at the moment, the 20th Of Jan might be the next time a chance comes to be reallocated.
(NB: Fund Managers don't rebalance on an individual basis - just your change. They wait until a set date and rebalance a bulk lot of those who have lodged notice)

With the continual inflow of kiwi saver funds surely these funds are buying and rebalancing on at least a weekly basis? These aren't boring old established funds with minimal inflows.

Mine took 2 days with Simplicity. Also took 2 days to withdraw from one of their non-kiwisaver funds a while back.

Does Simplicity have a cash only fund?

Conservative fund is ~78% Cash/Fixed Interest, the rest in shares.

Changed a category within Simplicity on Friday. Took about 3 minutes on the website and immediately got an acknowledgement email, and saying it would take 3 days to implement. I think that's pretty good.
Can't work out how to do the same thing with ANZ. Can't get hold of them, and they are not replying to 'bankmail' on my account site. Crap service there. Won't be of any use at all at the time you really need action.

With ANZ Oneanswer it's pretty simple and takes 3 days to change over. Not sure if standard ANZ is set up the same.