Equity markets dive; many central bank reviews with most downgrading growth; China credit stress; Fitch likes New Zealand; UST 10yr at 2.77%; oil dives, gold jumps; NZ$1 = 67.7 USc; TWI-5 = 72.2

Here's our summary of key events overnight that affect New Zealand, with news prospects are turning a bit grim with investors in retreat after the US Fed disappointed the doves.

On Wall Street, markets are in no mood for risk with the S&P500 down a further -1.5% in early afternoon trading today and benchmark bond yields are falling. This follows -1.5% to -2% losses in most European markets overnight. Yesterday Shanghai was down -0.5% and Hong Kong closed a full -1% lower. Tokyo was down an eye-popping -2.8% while the ASX fell -1.3%. The NZX's small rise was certainly an outlier.

There have been a whole bunch of central banks reviewing official interest rates overnight. The Japanese kept their unchanged following the Indonesians and the Philippines, Thailand raised their's by +25 bps, and the British decided on no change. Almost all of them pared back their growth forecasts for 2019 - except Japan. Sweden also 'raised' rates, but what makes this special is that it 'raised them in the negative, from -0.5% to -0.25%. Mexico raised its rate by +25 bps to 8% this morning.

In China, there are growing signs of credit stress, especially in the corporate world and especially among property developers. And the official crackdown on capital flows is limiting the ability of their corporates to do large deals. And small business in China is fearful of taking on more debt.

Back in the US, the possibility of a Federal government shutdown has suddenly returned. The losing, departing Republicans seem to want to leave a poison pill.

In the EU, Deutsche Bank, Credit Agricole, Credit Suisse and another bank have been charged by competition regulators for being in a bond trading cartel.

And here is some good news, a ray of sunshine; ratings agency Fitch is raising its growth forecasts for New Zealand in 2018 and 2019, the opposite tack to the one ANZ took yesterday.

The UST 10yr yield is now at 2.77% in a major selloff after the Fed announcement yesterday. Their 2-10 curve dropped even more, down -8 bps to just on +10 bps. The Aussie Govt 10yr is at 2.35%, down -4 bps, the China Govt 10yr is at 3.34% and also down -4 bps, while the NZ Govt 10 yr is at 2.36% and down -11 bps from the double-whammy of the Fed and our own gloomy growth data. Local swap rates followed and have fallen dramatically with the two year down -7 bps and that makes -10 bps since the start of the week. The ten year is down -12 bps over the same week.

Gold is higher again and is now at US$1,261, another +US$8 rise today. That makes it a +3.5% rise since the beginning of the month which is a lot for gold. (However, it is still down -4% since the start of the year.)

US oil prices have resumed their sharp falls today, down about -US$2 to now just on US$46/bbl. The Brent benchmark is now under US$55/bbl. Not only is there too much supply, there are growing worries that demand will slide.

The Kiwi dollar is a lot lower today after the Fed rate hike, down more than -½c to 67.7 USc. Our weak GDP data didn't help either. On the cross rates we are at 95.2 AUc, and at 59.1 euro cents. That puts the TWI-5 at 72.2.

Bitcoin has had another large gain overnight, rising more than US$250 or +7.0% to US$4,078. This rate is charted in the exchange rate set below.

Although this is the final 90@9 for 2018, we will be publishing a holiday briefing every business day over the summer break. See you there.

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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20 Comments

And please, pretty please. the opportunity to make ourselves look even sillier than our comments customarily portray, via a 'Give us yer 2019 Predictions' thread......

Have a relaxing Xmas and NY, DC. Just don't look at them stock tickers too much, might not bode well for the important ticker (the one south of the Brain and north of the Interesting bits).

Struggling to remember my prediction from last year. I'm assuming I was wrong.

Yes please. And can we include rents, gold and bitcoin predictions too :)

Minor correction.. S&P is currently down 2.25%.

Edit: and just blew through -2.5%

And now taken off like a rocket back to -1.5%. Wild ride out there this morning. Will be a few traders getting grey hairs and ulcers for xmas.

It will certainly be interesting to see if the uncertainty and angst drives a flow of investments into gold and bitcoin. I see the latter is up $1000 USD in six days, with some of the promising crypto projects doing very well (e.g. stratis up 140% in a week after some promising news) - but time will tell if this is a full reversal in sentiment.

Gold and bitcoin. haha. good way to lose all your rental housing profits.

Don't worry I'm still overwhelmingly a property bug. I should have mentioned property as well - I think the mortgage market and interest rates will be VERY interesting in 12 months. I think we are also going to see rental yields spike this year - the property crisis is now officially over, and the rental crisis is in full swing.

"I think we are also going to see rental yields spike this year"

I imagine you mean next year (2019), how do you expect this to happen ?

Ah yes my bad. Supply and demand is the answer. Landlords vanishing from the market, massive demand increasing, construction falling (let alone the construction companies collapsing) and most of all the bizarre push by the government to massively increase land-lords costs - with details STILL not announced, but possibly as insane as a heat pump in every room. Massive cost increases will be passed to tenants, just as the letting fees have resulted in a $10 rent increase for every new tenancy.

Bitcoin Cash (BCH) was up 112% in appeox 48 hours. Yes, interesting to watch BTC, ETH, and XRP.

BTW, your "retnal crisis" will only result in less money being spent into the consumer economy, which is potentially negative for house prices.

Yes I have a little bit of this - very nice returns. It seems like the hash wars are over and possibly BCH SV is being consigned to the grave. If so, that makes even the current price of BCH very cheap. EDIT: I see a bill has been introduced in the USA that would exempt crypto tokens from securities law. If that passes we could see an astonishing rally.

Up about 200% the space of less than 3 days. What platform do you trade on? I assume you're in NZ.

And what about this "rental crisis" you speak of. Can you give an example of a similar phenomenon elsewhere?

Indeed. I'm up considerably - not bad for a click of a button. I use kiwi-coin (for fiat in and fiat out) and then 96% of my trades are on binance.com, with a few rarer coins on bittrex. If we get a bull-run again I'll be using Idex for newly released coins. The rental crisis is mostly a media driven issue, but essentially its the government trying to pull one lever and then having another lever go the wrong way. I'll need to do some research on other areas, but already it seems to be taking effect with record rental increases. That matters hugely - once rents increase yields increase, and then tenants will realise they would be better off simply buying a house (especially with interest rates low), and investors realise yields are above returns on the bond or share markets - then BOOM!

I don't think Binance is suitable for beginner traders, but that's my opinion. Secondly, while BCH is up 200% in P3D, it's still 70% down from the start of Nov.

As for thinking that rents are completely inelastic, good luck with that. Of course, if you want to show how NZ house rentals behave similarly to say rents in Silicon Valley or even Tokyo during their epic bubble, feel free to show your thinking. I say your idea is garbage and NZ h'hold incomes are constrained, wherther they're renting property or not. More money spent on housing costs means less money spent into the consumer economy without greater debt. If consumer spending falls, so do business revenues and income,

Nice hat DC!

You guys missed the most important news for NZ, Ikea is opening soon (and thanks to Winnie). That's the most positive sign that we should buy more houses so we can dress up with funky Ikea furnitures!

Dealer Behavior Leads Us To Another Big (Collateral) Warning

https://www.alhambrapartners.com/2018/12/20/dealer-behavior-leads-us-to-...

US stocks now 20 % down from highs earlier this year has market average PE back from 20 to 16.
This is a healthy correction but av PE still needs to correct to be at least below 15.
The US fed is doing the responsible thing by raising rates so they dont end up with home loans at 10x income like AU and NZ.
I think the ANZ forecast yesterday is way too pesimistic for our economy, I will side with Fitch on this one.
The Sydney and Melbourne housing correction of 10% and still falling is also a healthy thing, will be interesting to see if Auckland can be immune to the weight of these international forces.
2019 is looking very difficult on all investment fronts, maybe gold is the only thing left!

You now if Fitch says good things about your economy , you usually see the currency strengthen

In Its Fight With the Fed, the Bond Market Wins Every Time
https://www.realclearmarkets.com/articles/2018/12/21/in_its_fight_with_t...