US Fed meeting; Canada home sales fall; EU inflation lower; Malaysia sues Goldman Sachs; Indonesia under pressure; Aussie tax revenues jump; UST 10yr at 2.86%; oil down and gold up; NZ$1 = 68 USc; TWI-5 = 72.7

Here's our summary of key events overnight that affect New Zealand, with news markets are waiting for the next US Fed decision.

The Fed is about to start a meeting that is widely expected to bring a rate rise on Thursday (NZT). But the US President is tweeting aggressively against the move.

In Canada the volume of home sales fell for the third month in a row in November. They are now -12% lower than in November 2017. Listings are down and the national average sale price also fell by -2.9% from a year ago. In Toronto and Montreal, average prices rose modestly, in Vancouver they fell modestly although that was their biggest drop in a decade.

In the EU, inflation is falling, now down to under +2% in November in the eurozone and just on +2% in the wider EU. This is despite energy prices being +9.1% higher than a year ago although that element is now fading. And the more it does, the lower their CPI growth will become.

And the EU has told the UK there will be no more meetings to explore revising the Brexit deal.

In Malaysia, prosecutors filed criminal charges against Goldman Sachs and four people involved in a US$6.5 bln bond issue by state fund 1MDB as it attempts to recover about US$3.3 bln that was allegedly swindled. Goldman Sachs earned about US$600 mln in these 2012 deals but prosecutors also want them to pay for the thefts by the then-ruling family members of the Malaysian Government.

Indonesia is facing renewed stress as its trade deficit balloons. Their deficit reached almost US$2.1 bln in November, its deepest monthly result in more than five years.

In China, they are starting to worry about a rise in food inflation as they grapple with the African Swine Fever outbreak that is spreading quickly in their pig farms.

In Australia, the Federal Government released their half year fiscal update showing fast rising tax revenues. A surge in mining industry profits and tax revenue has boosted Commonwealth coffers and will allow them to forecast a bigger-than-expected surplus next year. And next year is election year with a poll expected in May.

Yesterday, equity markets in the Far East were little changed although Tokyo did manage a +0.6% daily gain and Australia managed a +1.0% gain on their strong MYEFU. Overnight EU bourses were quite weak with losses at about -1% in most major markets. In fact we should note that the DAX is down -16% so far in 2018, the FTSE is down -11% and the Paris CAC is down -9%. In mid-day trade, the S&P500 is down -0.7% so far today taking its full 2018 loss-to-date to -4%. (For reference, the NZX50 is up +4.1% in 2018, one of the few year-to-date market gainers.)

The UST 10yr yield is now at 2.86% and down -4 bps. Their 2-10 curve is just under +16 bps and unchanged. The Aussie Govt 10yr is at 2.44%, down -1 bp, the China Govt 10yr is at 3.40% and up +3 bps, while the NZ Govt 10 yr is at 2.49% and down -2 bps.

Gold has regained some ground and is now at US$1,244, a +US$6 rise today.

US oil prices are down again by almost -US$1 to just over US$50/bbl. The Brent benchmark is now just under US$60/bbl.

The Kiwi dollar is starting today unchanged from this time yesterday at 68 USc. On the cross rates we are also unchanged at 94.7 AUc, and at 60 euro cents. That leaves the TWI-5 at 72.7.

Bitcoin is now at US$3,450 which is a hearty +7% gain overnight. This rate is charted in the exchange rate set below.

This chart is animated here.

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24 Comments

The next NZ Cullen super fund update is going to be really ugly!

It's a long term investment plan, a bit of short term volatility is irrelevant. But yes, it will be a political football no doubt.

if they had not stopped contributions it would have been far better than now and a few years of low returns would not matter.
one of the big misconceptions is where it is invested, people listen to politicians and think its all invested in overseas equities, wrong , it s invested in equities, bonds, companies, property, farms etc etc
the biggest rort is how much the government gets back from the fund in tax, (national used this as a source of funding)
and i would love to see the total put in against the amount they got back in tax
https://www.nzsuperfund.nz/how-we-invest/actual-portfolio

Let's hope is short-term - cyclical and not structural because if it's the latter, this short-term volatility might just turn out to be the reverse of the bond market 'short-term volatility' that turned in the '80s and ran interest rates down for 30 years. Now, it could be asset prices' turn...all of them.
(NB: Demographics turned in 2011(?) and an aging global population that has gone from a young baby-boomer one of buying, spending and borrowing into selling what they've accumulated will be interesting to watch. And, No, China won't save us. They are going to get old before they get rich enough to do so - the I Child Policy coming through about now))

got to say i agree with trump for once, they are going to far to fast and need the rest of the world to catch up.
so should slow the increases down.
it seems like they are trying to race to 4% so they have firepower for the next downturn, but may force that downturn themselves
and this from me in the past that said they were to slow to increase rates.

Trump is right to stop rate rises.
He is the voice of reason against the Republican/Democrat ‘no difference’ system.

I agree! not to mention the pressure it heaps onto emerging markets with huge debt in $US

I disagree, because it places huge pressure on "emerging markets", ie Communist China, to stop cheating the West. Trump has them on the run precisely because the Fed has put up interest rates, well, because LIBOR is rising anyway, and the Fed can follow along helpfully.

The West is having an existential crisis, hence all the constitutional crises in Europe and the US. Are they fundamentally going to be democratic nations based on the rule of law derived from a common shared understanding of what sort of society they are? Or are they going to collapse into civil unrest and rapid decline. France is in a state of low level civil war already and the US and the rest of Europe is not far behind.

yes good points however South Africa, Turkey, Hungary, Poland and Argentina get slammed in the process.

I would prefer a slower hike rate from here on would lessen the pain, maybe 10 -15 points at a time instead of the 25

The West isnt having an existential crisis - its having an energy crisis
abundant cheap energy brought a surplus which supports the largese of a democracy ... and the lack of it is bringing civil unrest .. people demand what they had, will blame others for now not having it and will follow anyone who promises more of it
Laws never made democracies - it was simply the surplus which temporarily allowed it
The US democracy has relied on annexing any energy resources it needs from the early 70s on to keep theirs going

https://medium.com/@Cliffhanger1983/the-collapse-of-civilization-manifesto-2039c6a5327

"The average real price of oil since 2005 is 2.5 times higher than in the period 1986–2004. Even at today’s depressed oil prices, the real price of oil-$55 per barrel — is 55% higher than the in 1986–2004 of $34 per barrel. Economists and politicians cannot understand why the economy won’t grow but never consider the underlying cost of energy. Energy is the economy and oil is the master energy resource.

The global economy developed when oil prices averaged $34 per barrel. When oil prices increased to more than $85 per barrel after 2005, economic growth could not continue. No business can withstand a 2.5-fold increase in underlying cost and make a profit. Although oil prices are lower since the price collapse in 2014, they are still 50% higher than in the 1990s. Economic growth is unlikely at these underlying energy costs...

I think Trump just simply finding an easy villain to sell to Joe Average.

In reality all manner of articles and discussion some months ago regarding ridiculously overpriced equities and stratospheric valuations – and that a correction was due.

Same with $US debt– is this party supposed to go on forever?

There is always a trigger at some point.

Trump does little but have massive, undignified tantrums on twitter... pointing and ranting at some perceived enemy or another. It's hardly surprising that he is pointing and ranting at the Fed, or anyone else for that matter. Is this day that ends if a Y? If so Trump will be pointing fingers, blaming, projecting, ranting and tantruming, sometimes coherently, sometimes not.

It's a shame really that he can't behave in a more dignified, statesmanly way, because some of the issues he raises have validity and should be brought to bear, but the fact that he just rants about pretty much everything and thinks everyone is out to get himr rather undermines his meaningful positions.

Donald Trump is pro-America, pro-Israel and anti-world government.
That is why the International community has been so shocked at him becoming President against all reason, and with his own Party against him.
And yes, he is a ‘rough goat’

People are watching their house deposits disappear because they are in growth or aggressive funds in their Kiwisaver accounts. Part of this is that there isn't a good strategy for house prices this high, and people should probably switch to cash in the two years prior to purchasing a house rather than take the risk.

https://www.stuff.co.nz/business/109415285/kiwisaver-collapsing-faster-t...

an aggressive fund is never a good idea unless you are hands on and self manage,
its always best to balance it so you have some protection.
who knows what the markets will be like when you need your money and how many years are you prepared to wait until they recover.
the part of this article that stands out for me is the lack of understanding of investing hence why kiwis invest in houses

My friends have been discussing this on fb and it turns out a lot of people have been switching funds and in some cases to cash. There is a serious lack of understanding of investmenting. Most think the dollar value is some sort of absolute and don't comprehend the underlying asset. The concept that they still own the same number of units of whatever fund doesn't seem to register.

Dictator " People who are watching their house deposits disappear because they are in growth funds or aggressive funds in their Kiwisaver accounts.........." that might be because the big balance they have is exactly because they have been in those growth funds.
None of us is happy when a balance goes down, but that's the sandpit we chose to play in.

Time to get out of the sandpit for a year???

If the market falling is the sell signal what is the buy signal for people.

Why do people act like investors when the market goes up then traders when the market goes down?

It has been shown that people hate losing on investments more than they like winning.
But the entities that are doing the selling here are managed funds most likely.
I have watched my managed fund fall about 10% in 2 months, knew I should have cashed it in when it fell the first 5%, but like a possum in the headlights did nothing, so I'm only up 1% for a year and still have the feeling there is a lot more downside, especially now the Milford CEO has resigned and gone to Aus.
I know DGMs are always saying the sky is falling but currently there are more serious uncertainties than usual around the world, and the markets don't like this at all, and I think they have all gone sour on Agent Orange aka Dolt45 at last.
Will that be one Prozac or two tonight?

“Trump pressures the fed” more like the other way around. Mind you, they are damned if they raise and damned if they don’t. They did damn themselves however.

Russia managed to control ASF and China needs to follow it's example
https://npl971975.wordpress.com/2018/12/16/suu-tam-china-should-heed-rus...

It is a worldwide biosecurity issue. We should halt all pork imports if we can. Presumably we can't. Swine fever is like foot and mouth in cattle, but for pigs.

An ursine sentiment from David P Goldman over at Asia Times. Interesting comments re China:

The Shanghai Composite Index is down 20% year-to-date, but that has minimal impact on Chinese households, most of whose wealth is in property. It seems clear that Beijing wants to ringfence the property market and protect the wealth of Chinese households.

It’s much too early to speak of a negative wealth effect on Chinese spending – stocks comprise barely 9% of household wealth – but it’s not too early for the government to take preemptive measures.