Resignations & shutdowns grip the US; US data weak; markets drop; mood in EU and China dulls; junk bond yields jump; UST 10yr 2.79%; oil down and gold up; NZ$1 = 67.2 USc; TWI-5 = 71.9

Resignations & shutdowns grip the US; US data weak; markets drop; mood in EU and China dulls; junk bond yields jump; UST 10yr 2.79%; oil down and gold up; NZ$1 = 67.2 USc; TWI-5 = 71.9

Here's our summary of key events over the weekend that affect New Zealand, with news of sagging economic data in the major economies of the world.

The seemingly endless wave of resignations and firings at the centre of American power is growing. Now it emerges the American President is trying to find a way to fire Federal Reserve Chairman Jay Powell as his frustration with the central bank chief intensified following last week’s interest-rate hike and months of stock-market losses. Trump wants the Government debt juice to never end, even in the good times.

But the equity markets are falling based on the data, which is continuing to weaken in the US. The political incoherence isn't helping either. The Christmas eve sink into a Federal Government shutdown that could last into the New Year is emblematic of where Trump has driven the American economy.

First, durable goods order growth in November has 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%). A key regional factory index came in low (and a two year low), a down-trend that has been building since May this year.

Also 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 undershot (+0.3% and half the level of the prior 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 ended last week on Wall Street down yet again, this time by another chunky -2.1%. That followed 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 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 ended last week at 2.79% and a -9 bps fall for the week. Their 2-10 curve rose 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.

On Wall Street, the yield spread on junk bonds widened sharply at the end of last week, the biggest jump in more than seven years. As recently as the beginning of November, high-yield investors were holding on to a slight gain for 2018. Now the spread has leaped, their value is down more than -2%, on track for the first annual loss since 2015. And investors are avoiding any new junk bond issues - December is shaping up to be the first month in 10 years with none. Big junk bond borrowers like Elon Musk and Graeme Hart will need to be very wary of this new attitude.

In Australia, regulator ASIC has commenced civil proceedings in Federal Court against Port Philip Publishing and its CEO. It says they "breached various consumer protection provisions of the ASIC Act and Corporations Act, that PPP breached its AFSL obligations, and that [CEO] Sayce breached his duties as a director of PPP. In addition to declarations and financial penalties, ASIC seeks corrective advertising orders, injunctions and disqualification orders against Sayce." This relates to New Zealand because the same company, via a local incorporation, is the publisher of Money Morning, a recent financial; email marketing enterprise. Sayce and PPP say they will defend the Australian case.

It looks like New Zealand retail sales will be up about +5% in 2018 compared with 2017.

Gold is up and will start the week at US$1,256, a strong +US$19/oz gain over the week.

US oil prices are softer at just on US$45.50/bbl. The Brent benchmark is now just on US$53.50/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. But markets won't like an act of State piracy carried out overnight by the Venezuelans. Also we should keep an eye on energy prices from the renewables sector as low crude prices will undermine viability.

The Kiwi dollar starts the very short and thin trading session today a full -1c lower at 67.2 USc. On the cross rates we are at 95.5 AUc, and at 59.1 euro cents. That puts the TWI-5 at down to 71.9.

Bitcoin is now at US$3,982 and a -2% 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.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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Reality kicks in. . Fantasy world of free money can't last forever, which have caused all type of asset bubbles. ..

Exactly what I said. .

"Kiyosaki blamed the US Federal Reserve's money printing policies, known as quantitative easing, for inflating the bubble. "In Australia they always say when America sneezes, Australia passes out," he said"

NZD = A95.5 is handy for those heading to Aus for the holidays.

Merry Christmas to all still working today!

Question: How does the falling share price for AUS banks work with their ability to issue capital into the market? How does it affect their liquidity?
-I don't really understand how share price can affect their risk profile when lending.

I am thinking the banks shares represents a convertible instrument of cash equivalents needed to bolster liquidity. In a falling share price, it represents a reduced dollar amount and therefore reduced capital ratio.
Interested in other views, rebuttals etc.

It might be taken into consideration when assessing how a bank might sell assets to repay debt if it were to go into default. A last resort could be to issue new common stock to raise emergency funds. A lower share price makes this task more difficult. It's a worse case scenario though since banks have a number of options to produce emergency funds and avoid default.

Ah well, at least we're all going backwards together. I'm sure that fits well with Jacinda's friendly agenda.

XRP up 19-20% today. Quite a sizeable move on the eve of a holiday.

My look at XRP shows that it has gained about 20% in the week up to 24/12, not in one day. XRP only needs about another two and a half months of 20% weekly gains to get to the level that it was at the beginning of this year. At present, it is about 17% of the value it was at the beginning of the year. Yes, that 20% is an impressive gain for the very short term.
To get some perspective, on the 18th XRP was $0.33, the 24th it peaked around $0.44, and is currently $0.39. And at the beginning of the year XRP was about $2.30 (all in USD). It is hard to find a better validation of the greater fool theory than crypto!

And all the way back down again after the Nikkei takes a beating and the flight to safety of JPY. Whether or not XRP is just another crypto or an actual use case of how to shift currencies transnationally quicker and cheaper than current technologies will likely make it a target a speculation.

This is incorrect, announced xrp pairings and xrp absolutely surged - 10% in an instant. I was tracking it and at a point in the day it was indeed up 20%, although its entirely possible that the price was also 20% up compared to a week ago. I know a few people that entered crypto around the BTC 3300 mark - their gains are around 50% in 10 days, with some gains other 100%. Truly incredible gains for them - they couldn't care less what the price was at peak, just as those buying gold now don't care that those who bought in 1980 are still behind in inflation adjusted figures. (Replying to Yankiwi in case it isn't clear)

And there are plenty other anecdotal reports of people losing their homes via mortgaging and buying crypto, just in time to see their "investment" lose 75% percent or more of its value in a couple of months. Truly incredible gains, and truly incredible losses. Crypto is a rather interesting public experiment in the greater fool theory. One isn't investing in future productivity when exchanging your money for a crypto. One is hoping that there will be someone else in the future that will exchange their money at a higher rate for your crypto.

As to XRP pricing, it appears that it did make a temporary gain close to 20% for a period of less than 24 hours. If you were the greater fool that bought at that peak, you lost around 20% the next day when it returned to the mean value. Amusing stuff... although not even tangentially related to investment. More like putting your money on a number at the roulette wheel.

Nikkei was open yesterday. Down 1,010 - 5% odd.
Yes, they had a catch-up from Emporers Day on 24th, but still.....

Yes, and movements in JPY relatively benign. Will be interesting to see if they take another monkey hammering today.

Granny Herald goes into bat for the Aussies with the headline "Why Australia's housing market slump won't last Take the bait and click on the link and you are gifted a crafted message of nothingness and some reassurance that it's "all part of the cycle."

Everyone appears to still believe the status quo is divine.

by Wolf Richter

The IPO hype machine has produced some very successful companies and a lot of spectacular wealth transfers from the hapless public to early investors selling their shares. Here are two of the standouts that I covered:

Snap [SNAP], purveyor of the Snapchat app and must-have sunglasses with a built-in camera: Shares peaked at $29 on the second day after its IPO, given it a market capitalization of $32 billion. Shares closed on Friday at $4.96 and this morning trade at $5.24, down 82% from day two of trading.
Blue Apron [APRN], the cream of the crop of about 150 VC-funded meal-kit startups founded over the past five years, was valued at $2 billion during its last round of funding in June 2015 when it was one of the most hyped unicorns that would change the world. Then enthusiasm began to sag. By the time the IPO approached, the IPO price was cut from a range of $15-$17 a share to $10 a share. Shares closed on Friday at $0.68 and are trading this morning at $0.71, down 93% from its IPO price.

For those people that have an interest in the NZ and Global economy, Property and Investing. Please out this new Facebook group. Admins delete if this is not allowed :)

The USA has Trump because of the immense failings of Bush and Obama, especially the democrats pursuit of ever more imported voters at the expense of their own workers. Also the democrats inability (choice or not) to control the excesses of their banks and multinationals. The mostly left controlled MSM continue to bleat like lost sheep, but they brought it upon themselves. Trump in the 'western' world is just the start of major changes. Macron has been accused of treason for signing the global migration pact by 11 French generals and an admiral. I trust our naive virtue signalling leader has noted this.