Washington goes feral; markets recoil; US economic data weakens; China plans economic defenses with more debt; hail claims batter Aussie insurers; UST 10yr 2.79%; oil down and gold up; NZ$1 = 67.1 USc; TWI-5 = 71.8

Washington goes feral; markets recoil; US economic data weakens; China plans economic defenses with more debt; hail claims batter Aussie insurers; UST 10yr 2.79%; oil down and gold up; NZ$1 = 67.1 USc; TWI-5 = 71.8

Here's our summary of key events overnight that affect New Zealand, with news of sagging economic data and wild public policy choices in Washington.

As American policy turns become ever more capricious, incoherent and inward-looking, (It is a very odd situation when "Mad Dog' Mattis is now regarded as one of the sane ones.) A Federal Government shutdown seems increasingly likely. Wall Street markets are also dealing with sliding economic indicators.

First, durable goods order growth in November have come in far smaller that expected. (And October data was revised lower). The October weakness (-4.3%) was expected (+1.6%) to be partly reversed on November but the gain was completely underwhelming (+0.8%). Worse, the small gain expected (+0.2%) in capital goods orders turned out to be a decrease (-0.6%).

Not helping was that the final measure of US Q3-2018 GDP came in lower than the prior estimates.

Further, data for personal income growth in November was weak at +0.2% and well below expectations. Personal expenditure growth also undersot (+0.3% and half the level of the pior month). Perhaps 'good news' is that PCE inflation, the Fed's preferred measure, was lower at +1.8%.

And the pace of American car sales is set to slow for the sixth straight month in December despite aggressive discounts from manufacturers. That November personal spending data may not hold even at its weak level.

Markets are still trading on Wall Street, but they are down yet again, today by another chunky -1.1%. That follows European markets that closed generally flat. They followed Tokyo which was also down -1.1%, Hong Kong that was up +0.5%, and Shanghai which was down -0.8%. (Australia ended up down -0.7% and the NZX50 was -1.0% lower.)

Consumers' mood is little changed in the US, but is souring in the EU.

The mood isn't much better in China where their top leadership has been huddling to respond to their downturn. Their central bank has promised "more liquidity" as though more debt can solve a debt-induced problem. And in a Trump-echo, they plan "more tax cuts".

In Sydney, the weather has dumped an expensive surprise on the city. Less than 24 hours after hailstorms pounded Sydney and the central coast, it is already the most expensive catastrophe for insurance companies this year, as thousands of motorists rush to deal with smashed windows and battered cars before Christmas. The cost is expected to exceed NZ$150 mln.

The UST 10yr yield is ending the week at 2.79% and a -9 bps fall for the week. Their 2-10 curve has risen overnight to just over +15 bps. The Aussie Govt 10yr is at 2.38% (and down -7 bps for the week), the China Govt 10yr is at 3.36% and down only -1 bp for the week, while the NZ Govt 10 yr is at 2.42%, also down -9 bps the week. New Zealand swap rates ended the week much lower and weaker from where we started and the curve flattened with the 2-10 curve ending at +68 bps and its flattest in more than two years.

The VIX is much higher reflecting market fears and ending at just over 28. That is still well above its average over the past year, of 15. The Fear & Greed index is as extreme as its ever been since this index was first established at the beginning of 2016.

Gold is holding today and is now at US$1,254, but is a strong +US$17/oz gain over the week.

US oil prices are holding lower today at just under US$46/bbl. The Brent benchmark is now just on US$54/bbl. Falling demand may drive it lower yet. The US rig count is still holding at its 200 week high despite these very low prices, and has in fact inched higher this week.

The Kiwi dollar is ending the week a full -1c lower at 67.1 USc. On the cross rates we are marginally firmer at 95.2 AUc, and sharply lower at 59 euro cents. That puts the TWI-5 at down to 71.8.

Bitcoin is now at US$3,941 and a -2.4% slip back from yesterday but is an impressive +24% gain for the week off its 15 month lows.This rate is charted in the exchange rate set below.

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"...the most expensive catastrophe for insurance companies this year .... The cost is expected to exceed NZ$150 mln."

This cost seems tiny...2018 must have been a very good year for insurance companies

"Mad Dog' Mattis is now regarded as one of the sane ones only by the MSM and the other enemies of Trump. Few normal people would think it sane to have troops in Syria, Iraq or Afghanistan after everything that has gone down over there this century. It's just an immense waste of lives and treasure and the cause of so much misery.

All that money could have been spent on a space force with a base on the Moon and a manned Mars mission plus a wall. The national and spiritual benefits that could have been achieved by pursuing these things would have been incalculable. Instead what do they have? Hundreds of thousands of dead and millions of ruined lives with nothing to show for it.

Merry Christmas Zachary, you may be surprised with Hamiltons feelgood solution to inspiring others. From today's Waikato Times ...
"Kate Hillier, who serves as event director of the New Zealand Flower & Garden Show, says public gardens - even roadside plantings - can engender community pride.

She rates Hamilton's floral roundabouts as some of the best in the country.

"In cities overseas, where an area has got a bit rundown, once they start some work on gardens, maybe brightening up some roundabouts, it gives people a lift. If people see the city is doing a good job, it can inspire them to have a crack in their own gardens," she says."

"Few normal people would think it sane to have troops in Syria, Iraq or Afghanistan after everything that has gone down over there this century"

First, Gen. Mattis' sanity is questioned by no one, except perhaps briefly by those who may have questioned his decision to serve under Trump in the first place.

Second, few "normal people" have the knowledge or temperament to make these sorts of decisions, have you met any? Granted, these are all missions which need to end, but not abruptly or capriciously, because that rarely if ever ends as well. Mattis' worldview that alliances and continued engagement are critical to US interests, and by extension a lot of other interests as well, are terribly conventional, and this is one area where I miss conventional.

Recently the normal people of the US soundly rejected the call to invade Syria.

As Syria war escalates, Americans cool to U.S. intervention

I can't hardly believe what you have written fleabus, everyone has seen what has happened, and it has been an unmitigated disaster and total waste of lives and money. You are either asleep or insane. The people will no longer sleepwalk into these wars or listen to the rantings of the Neocon warmongers and their insane ideas and bizarre motivations.

The people must work together to stop the madness and they have by electing Trump. You wouldn't go and attack your neighbour on the say so of your local politician so why would any normal person support this nonsense? Unless they were unconscious to the reality of war in far off places and the dire consequences such violence always has.

The US has a mere 2200 troops in Syria Zachary
6000 your orange moron Trump has on the US/ Mexican border doing nothing but wire pulling waiting for refugees not illegals
To pull out of Syria now will mean reformation of ISIS which has largely dropped away but is still there awaiting opportunity and Trump has provided that
Thankfully the French will remain but this won’t be enough
Expect more bombs in the West in future with ISIS allowed to rebuild with troop withdrawal out of Syria
Sadly Zach your geopolitics is akin to your household investing fairly poor
Merry Christmas I’m off for a late dive with the sharks

To pull out of Syria now will mean reformation of ISIS

Yes indeed, so the US has to stay there forever. Same in Afghanistan, pull out and bam, Taliban all over the place. Everywhere they go the enemy melts away and is miraculously replaced by grinning "moderates".

Also the US shouldn't have any troops there. They weren't invited and they have no UN mandate. It is completely illegal.

Northern lights the French won't do anything in eastern Syria. The Syrian Arab Army in conjunction with the Russian airforce will make mince meat out of all remaining ISIS there in short order, no Frenchmen or Poms 'assistance' needed.

It's very clear it's the Syrian government and Army that has crushed ISIS, although the USA could never admit that. Look closely at the siege of Deir Ezzor where Syrian patriots held out against ISIS for three years. And were occasionally bombed by the USA for their effort.
Then the retaking of Palmyra and the fight across the vast desert to the Euphrates to relieve Deir Ezzor. And on to Al Burkamal. An epic event by the Syria Arab Army.
And the Syrian Army were then blocked by American airpower from crossing the river and finishing the job. It's history and maps, if you want to argue it, go look at those.
I don't care about Trumps faults, the Syrian withdrawal is the right thing to do, and exactly what he promised his voters.

Hate to say this but the sacking of General Mattis to me, is reminiscent of the sacking of General Guderian by Adolf Hitler. Appreciate that as a comparison is invidious and stretches to an extreme, but even Stalin listened to his generals (those that had survived that is.) We all hoped that political system carefully written and developed by the American forefathers would have had more than sufficient apparatus to restrain and prevent one single identity wielding too much power. But it seems that the GOP in their obsession for power at any cost, has produced just that. One of Republican nominees (was it Jeb Bush?) stated America & the GOP would be better served with another four years of Democrats than Trump. Didn’t stop it though.

"I can easily understand that someone can hate Donald Trump. But hating Trump more than loving peace is not a morally defensible position.
Most problems in the world are perpetuated by bureaucrats (ignorant of complex systems) with no #skin in the game "trying to help". Put the State Department on sabbatical & see how peace will organically erupt.

Also the past was more peaceful than claimed.

Not to mention the corruption and degradation that spreads throughout a society at war. The widespread rejection of the Orwellian Warfare State is the best explanation for Trump's election, to my mind. He was the only candidate that recognised that large sections of America were drained and war weary, filled with broken men damaged by the things they had seen and done.. His election was payback for the corrupt warmongering "Democrats" and bloodlust driven traditional Republicans. All the traditional candidates saw warfare as a good thing, despite their lying rhetoric. How else do you explain Trump's election?

I agree that had a lot to do with Trump's election. Withdrawal from Syria will save lives and money for no loss to the US at all. Clearly Mattis could not swallow that. Trump is sick of fighting other people's wars and I just hope his decision is not swayed. You'd think 17 years of failure in Afghanistan is more than long enough to realize the futility and wastefulness of this sort of exceptionalist meddling.

President Bush senior pulledback from ousting Saddam Hussein because his advisors said that would destabilise the entire Middle East, things would then become hopelessly unpredictable. Wonder what the world would be like if he had not lost the situation domestically and then the election to Clinton. Probably no Bush junior and no Trump. Perhaps Trump though is now appreciative that if domestically the USA is content then the rest of the world doesn’t matter too much. Perhaps he is right. With seven individual states with GDP higher or equal to Russia, well size does matter. Does the world need the USA more than the USA needs the world? What is the answer?

Yes the world does need the US, but a properly behaving one that earns not demands respect. If nothing else to be a counter-balance to other countries thinking of global domination. I would hate to think what would happen if the US ceased to exist or broke up into parts and a country bursting at the seams decided to colonize NZ. Who would stop them? Right now only the US would have the capability to do that.

The USA will lose its dominant place in the World Order soon.
Possibly soon after the USA/Trump attacks Iran for a leadership change.
Yes, it will be a sombre day when other Powers replace the USA as the worlds policeman - all the criticism of the USA will be regretted. Looking at China, Russia and the EU etc dominate proceedings will be very scary.
Trump as the most unlikely/unreasonable/stubborn/uncooperative world leader is surely a wake up call to everyone - how could a liberal, globalised, mainstream media saturated public allow a Trump to power?
How did this happen? How does Trump maintain power despite everyone, every Media outlet against him, every European nation against him, .... surely it doesn’t make sense?

No it defies logic, well logic at least as most of us would see it. He has been there for nigh on two years. So amongst everything else, rightly or wrongly that is stacked up against him politically, the media, domestically and internationally he charges on relentlessly, remorselessly., unbridled. Therefore you cannot deny the man has strength! And lfrom the sound of it, his personal outlook is for another six years of the same.Hard to think of anyone else quite like this, Napoleon?

ps. Actually on reflection, you could go back and find Andrew Jackson was, in that time, as much an outsider, unconventional anti establishment president. Very Stong man too.

'how could a liberal, globalised, mainstream media saturated public allow a Trump to power?' You answered your own question.

The US is not going to attack Iran.

Well, not until the US withdraws it’s military from Syria, Afghanistan etc so it can recoup its forces.
And not until Israel ramps up its attacks on Iranian military who are using Syria as a proxy now.
Israel is Trumps only friend left, & he is hostile to the Iranian leadership.
Watch this space.

Not quite. There are the Saudis and Emirates still.

That doesn't really make sense. Why invade Iran when it will only result in great loss of life and wealth and then spending the next ten or twenty years trying to work out how to get the hell out of there.

Or is the idea to turn Iran into another post war Germany or Japan? That idea again? The people bought into before but I don't think they are going to believe it this time. And anyway nobody cares about this anymore, they care about their own borders and security. If you cannot secure your own borders you certainly cannot afford to invade other countries.

‘Making sense’ is not the issue.
Trump needs to win.
He’s put Iran on sanctions so far. Next step air strikes on Iran’s nuclear bomb sites & leader quarters.

‘Making sense’ is not the issue.

Well, that is a good point, but Trump should remember that he was elected because he made sense.

Not going to attack Iran? until things get so bad at home that he needs an external enemy to distract the people from his gross failures at home and internationally; what about Iran ramping up it's nuclear program with Russian help??: pressure from Netanyahu who might just precipitate a war if Iranian nukes are on the way?

The withdrawal will allow the Kurds who fought Isis to be exterminated by Turkey and Syria/Iran/Russia with nobody caring?
See below for Putin/Trump comments(Trump's incoherent as usual)

Trump was quite coherent. Remember the mission in Syria was only supposed to be three months and that was seven years ago. The UK, France and Germany can continue on there if they are so keen. They are big countries and it is only 2,000 US troops after all. Three big, mature and wealthy countries with centuries of war fighting experience.

If you think about the USA as going broke in 2008, things start to make more sense.

With some comments that the stock market fall, "its as bad as the Great Depression" the event isnt un-expected, but the triggers seem to be ie a loony President in concert with the major political party on the (far) right destroying the US's reputation and economy, way to go....

Wait until Trump declares war on Iran. That will really get the MSM going. Iran is really irritating Trump, & he aims for a regime/leadership change.

And it would end in disaster.

At some point someone will be forced to take out Iran. Either the USA will do it or Israel will do it or both.You only need to watch the way the Iranians carry on and you realise they are a bunch of nut jobs. You cannot reason with nut jobs and you cannot let them develop nuclear weapons.https://www.bbc.com/news/av/world-middle-east-44055625/iranian-politicia...

Well, the EU is not going to intervene in Iran’s Nuclear weapons development.

Ah yes Carlos there is the danger. Not clear and present quite yet, but of a certain potential. If many years ago the USA could develop the B-54 backpack nuke, then today, so can others. And those can go into the hands of ISIS or Al-Qaeda to do the actual job, easily enough. One good way for North Korea to make good on their threats and earn a bit of export income. Merry Christmas.

He cant declare war, at least not without Congress? If he were to "trigger" events that make this moot (and that is entirely possible given he's nuts) the Iranians would target the oil tankers and cut off 20~25% of the World's oil supply, that would be the cause of the biggest economic depression, ever.

As an example the US did a war games on this very event and the price of oil quadrupled overnight as Iranians sunk oil tankers left right and centre. So the present $50US could go to $200 and maybe even a lot more given profiteering speculation. This would trigger huge panics and economic crashes, political instability, riots etc I dont think we want to go there.

The latest liquidations began right after October 3. Oil shifted toward contango/crash, curves collapsed, even stock markets which looked like they had skated past disruptions early in the year were slammed. It was as if every market hit the same air pocket all at once, therefore identifying (global) liquidity as the major issue driven, of course, by reversing economic and risk assumptions. In other words, money dealers.

Usually in these situations we can identify telltale signs of that sort of pullback, places like repo meaning collateral. As has been the case for much of this year, there isn’t any indication of distress at least in domestic repo. In that one sense, the FOMC has it all wrong as they’ve tried to blame T-bill issuance for some of the money market distress still building up; according to repo fails anyway, contrary to the pleading of Powell the bill “deluge” is more likely to have helped than harmed.'

$1.3 Trillion “Leveraged Loan” Boom Comes Unglued
The Fed has warned about them, and investors fear a run-on-the-fund.

or maybe it is just normal pricing returning ...


NEVER average down!

"The sell-off creates “an interesting dollar-cost average opportunity,”

(at the risk of repetition, I'll repost an opinion piece:
https://www.stockdisciplines.com/average-down-falling-stock )

was a day once when I thought I was 'normal.

Without crude oil on an upswing, inflation can only be on the downswing. That may seem like a tautology of sorts, but it’s not. In fact, those advocating for the optimistic economic case have been predicting consumer prices being directed by something other than oil. I know it’s a broken record, but here it is again: labor shortage, competition for workers, wages explode, and companies across-the-board raise their prices to offset the increased costs.

The key to that last part, if it was to ever arise, is that companies are able to raise their prices because the economy is actually booming. The theory about wage-driven inflation is really where inflation is confirmation of the economic processes everyone wants to see.

Instead, consumer prices are being set by WTI alone. There is nothing else, more so what is going on in everything else continues to suggest undershoot – no economic strength. Take away the base effect of oil, like during last month, and the PCE Deflator suddenly loses its position near enough to the 2% target.'

'Cash went from worst to best performing asset this year. Has never been best in 19 yrs.'

My KiwiSaver provider advised that growth funds could be expected to experience a loss once every seven years so I guess it is not so unusual except that this never happened for 19 years.

....but it depends on how big that once-in-7-years loss is....
As we know (1) it took asset prices 70 years to recover from the 'occasional loss' in the 19th century and (2) Japan still hasn't recovered anything like the losses; shares or property prices, from the 1987 aftermath.

In 2008/9 my main fund lost 28%. If it is going to do that every 7 years then frankly it is the wrong thing to be in. Right now a decade later its shaping up to be even bigger.

Yet California is marketed as the poster child for success/liberal mindset etc. The economic reality is something different?