Apple crumbles; S&P500 drops -2%; US data weak; China adds more stimulus; new Italy bank crisis; Google outed on tax; Aussie credit crunch worsens; UST 10yr 2.59%; oil lower, gold up; NZ$1 = 66.9 USc; TWI-5 = 71.3

Apple crumbles; S&P500 drops -2%; US data weak; China adds more stimulus; new Italy bank crisis; Google outed on tax; Aussie credit crunch worsens; UST 10yr 2.59%; oil lower, gold up; NZ$1 = 66.9 USc; TWI-5 = 71.3

Here's our summary of key events over the holiday that affect New Zealand, with news markets are in the grip of risk aversion.

This big news overnight has been the announcement by Apple that sales and profits are under pressure. In the absence of other news this has caused markets to become more risk averse. In early afternoon trade, the S&P500 is down -2.0% and the bond markets have turned suddenly bearish.

Most American economic data is not good either. The closely watched ISM factory survey took a very sharp turn worse, especially for new orders. There was a sharp and unexpected rise in jobless claims last week. And the weakness in new mortgage applications got worse, to be down almost -10% on a seasonally-adjusted basis and -6% lower than the same time a year ago. The only bright spot is the ADP data for December which came in better than expected. We are expecting a Given there will be no non-farms payrolls report tomorrow despite due to the US Federal Government shutdown, this data will stand on its own for a while. (Recall, the ADP November data was unexpectedly weak and much weaker than the official non-farm data, so today's result may just be a rebalancing.) Markets are expecting a modest +180,000 rise.

One US canary reflecting the general pullback is that Manhattan home prices now average less that US$1 mln for the first time since 2015.

In China, Beijing has given approval for two big new intercity rail projects which will add another US$34 bln in stimulus to their cooling economy. (And we should note that China has landed a spacecraft on the far side of the Moon. China has also deployed a new hyperersonic weapon to launch missiles, so fast they are likely to render defenses unable to respond. China is also clamping down even harder on 'negative information.')

Yesterday, the Shanghai stock exchange closed unchanged even after the Apple news. Hong Kong and Tokyo both posted minor losses.

In Europe, stocks were generally -1% lower overnight. In Italy, the ECB placed an Italian bank into official administration - and it looks like the new populist Italian government will bail it out - exactly the reverse of the firebrand positions they took when campaigning.

Apple may have all the limelight today, but Google is in the news too. According to a filing at the Netherlands Chamber of Commerce, Google moved almost €20 bln through a Dutch shell company to Bermuda in 2017, as part of an arrangement that allows it to reduce its tax bill.

In Australia, following the Hayne Inquiry, directors are being denied D&O insurance or events like the Hayne Inquiry are becoming exclusions. This is likely to reduce the willingness of many directors to continue in their governance roles. The flow-on impact could be very serious for Australian (and New Zealand) corporate governance standards at financial institutions.

And in a further consequence, home loan flows are slowing sharply as lenders try to work out how to stay on the right side of the Hayne Commission recommendations- and they are even released yet. This risks of getting lending standards wrong are now sky-high and so a very conservative approach is being adopted in the absence of new guidance. The result is that there is a housing credit crunch.

The UST 10yr yield had dived -8 bps today to stand at 2.59% and that is after the previous -7 bps fall. Their 2-10 curve however is still at +16 bps. This is a very major bond market event, taking the 10yr yield back to its lowest in almost a year. Bond markets have completely discounted the Fed's latest position. The Australian Govt. 10yr is also lower again, down -4 bps to 2.19% on top of the previous -14 bps drubbing. The China Govt. 10yr is only -1 bp lower at 3.19% today, while the New Zealand Govt. 10yr has fallen sharply as well, down -7 bps to 2.32% on top of yesterday's -4 bps drop.

Things are no better on local interest rate swap markets. Yesterday, the two year fell -3 bps to 1.94% and its lowest since November. The five year is now at 2.15%, a -6 bps daily drop, while the ten year was down -8 bps to 2.57%. That is its lowest since September 2016. The flattening of this 2-10 curve has it at just +62 bps and its flattest since October 2016.

In light of all this risk aversion, gold just keeps on rising and is now at US$1,291 another +US$8/oz gain.

US oil prices are a bit lower at just over US$46.50/bbl while the Brent benchmark is just under US$55.50/bbl. OPEC output cuts have started.

The Kiwi dollar starts today firmer against the greenback at 66.9 USc. On the cross rates we are at 95.5 AUc, and at 58.7 euro cents. That puts the TWI-5 at 71.3. (Yesterday we got an object lesson in the effects of illiquidity in markets and the false signals they can deliver. After the Apple announcement, these thinly traded holiday markets thrashed the Aussie dollar and shoved the Japanese yen higher. At one point, the NZD traded at over 98.4 AUc. Automated trading may have been behind the sudden gyrations.)

Bitcoin is a little softer US$3,785 a -1.6% decline since this time yesterday. 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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Source: CoinDesk

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32 Comments

Perhaps now that Pelosi has won the House Speaker position - she & Trump will work together in unity & settle the markets. She will be a “Champion of the middle class” according to her speech.

Well if she's a champion of the middle classes, we'll see the USA government taking similar legal actions to combat corporate tax evasion;

Google moved almost €20 bln through a Dutch shell company to Bermuda in 2017, as part of an arrangement that allows it to reduce its tax bill.

And NZ and AU sit idly by watching their share get sucked up shipped over to Bermuda

Suckers

I see that 4yr kiwi bonds now only pay 2%

04 Jan 2019
Dow Falls 677 Points after Apple Revenue Forecast slashed. And that's a forecast. Wait till the quarterly results come out. Wasn't expecting Apple. Too busy watching FB

02 Jan 2019
Markets were closed for New Year's day

An early thought for 2019. Will be watching very closely the published results for Facebook for quarter-ending December 2018. Facebook had a nightmare 2018. It lost $270 bn in market value since July 2018. The clicksters are departing. The test is if the advertisers are also pulling the pin. If they are it will be seen as the beginning of a test/loss of faith in the FANG's. Plus a number of countries are putting a leg-rope around Google and FB, including Australia. That will frighten the horses.

Arrived At Next; Moving Past Warnings Into Predictions
https://www.alhambrapartners.com/2019/01/03/arrived-at-next-moving-past-...

Eeeks.

Apple crumbles, dang it DC, now I've got a hankering for some good old homemade apple crumble!

PS AAPL currently down 9.8% from yesterdays close. Market cap now ~675Billion, down from breaking the 1 trillion barrier in August.

https://markets.businessinsider.com/news/stocks/amd-stock-price-cut-in-h...
AMD down as much as Apple. They are at levels first reached in 1983. Noah: how long can you tread water? Thank God for all those dividends over the last 35 years. What? There weren't any? Never mind.
David Collun

New iPhone XS over $2000. No wonder Apple lost touch with reality!
83% of iPhone owners are not planning to upgrade in 2019. Wonder why?

And new samsung premium smartphones aren't that far behind. Partner broke her phone last weekend, went and replaced it with a $350 Huawei smartphone. does 95% of what the $1000+ phones do, but 1/3 or less the cost.

Its not like it used to be when the new phones actually did a lot of new useful things, now its just bragging rights mostly once you get past the $500 mark.

And new samsung premium smartphones aren't that far behind. Partner broke her phone last weekend, went and replaced it with a $350 Huawei smartphone. does 95% of what the $1000+ phones do, but 1/3 or less the cost.

Huawei, Oppo, and Xaiomi are bringing exceptionally functional and powerful shartphones to market in emerging countries such as India for prices closer to USD100. I also recently picked up a Samsung smartphone for USD220 in Vietnam and can manage more than most people would ever need to do on a smartphone.

Apple can’t blame the domestic China market, or the trade war (implicating Trump) for their troubles. Apple have a problematic business model including overpriced products ( retailers prevented from any discounting).

Thanks for the tip. Currently I have a Samsung A3 (2017) and it does everything I want. No way I would ever pay $2000 for a phone and they are too big for my pockets.

Historian Niall Ferguson argues that today’s political polarization echoes the religious polarization of the Reformation.

https://www.youtube.com/watch?v=yLiPPtxKRAA&feature=youtu.be

Warren Buffett to CNBC: Economy Has "Fallen Off a Cliff"
https://www.cnbc.com/id/29592831

That "fallen off a cliff" thing was published 9 March 2009 ??

"It's like deja vu, all over again" ( to quote John Fogarty, or Yogi Berra if you're that old!)

Nikkei already down 3.3%

That was expected. Just hold what you have, and dollar average in as well ( sarc/off)

feed money into the shredder... Nah, i'll stick to making side bets in the options market, and stuff cash under the mattress :)

SSE50 Index Linked ETF (Shanghai Top 50) on the Nikkei down 5.6%.

Is it true that banks set a total liability on their mortgage customers of an amount 2 or 3 times their mortgage?
So effectively your credit card balance, overdraft, etc with that bank are all secured by your mortgage/property?
https://www.stuff.co.nz/business/money/109735208/retired-banker-protests...

Yep, that's been my understanding.

I wonder how many homeowners are aware that their liability is potentially $700,000 not $300,000 if a call up is made?

"A credit card is an 'on demand' facility. This means banks can ask for the credit card debt to be repaid in full at any time, and for any reason, by giving written notice to the borrower."

And I'll bet not many know that either! But have a read of your loan documentation - all of it, including your mortgage docs and you'll see that a bank can call in any loan to you, at any time, for any reason that suits them...Banks can vary the loan terms at their will. You, on the other hand, have no capacity to either object to any action they may wish to take to change the terms ( as they can) unless it suits them. You, have NO RIGHT OF OBJECTION to any action a bank may wish to take against you. Their reasoning is "If you don't like it, go somewhere else. Oh, and good luck with that!"

Their liability is still whatever they owe the bank. The bank can't take more than the owe (except for the no-doubt extortionate fees & RE agent fees they'll add on)

The bank is just making sure it's planted firmly at the front of the queue and leaving no crumbs for other creditiors should the worst happen.

If you are in a fixed rate period, are you also liable for the interest cost for that period in some cases? As well as the cost of the penalties, sale costs and fees.

Here's how they justify the over securitisation of your loan -

'You may wish to increase your mortgage at some stage in the future, so this just gives us the extra collateral we might need, so we don't need to re-register another lien over your assets.'