US data drought raises doubt; Canada starts mortgage rate cuts; EU inflation falls; OECD employment rises; China embraces RMBS; Aussie home lending falls; UST 10yr 2.73%; oil holds while gold slips; NZ$1 = 67.5 USc; TWI-5 = 71.6

US data drought raises doubt; Canada starts mortgage rate cuts; EU inflation falls; OECD employment rises; China embraces RMBS; Aussie home lending falls; UST 10yr 2.73%; oil holds while gold slips; NZ$1 = 67.5 USc; TWI-5 = 71.6

Here's our summary of key events overnight that affect New Zealand, with news of rising employment in the OECD countries just as growth starts to fade..

But first in the US, the number of Americans filing applications for jobless benefits unexpectedly fell last week, and a mid-Atlantic survey of factory improved. But markets (and the Fed) are flying data-blind as the list of unreleased data grows as the shutdown drags on.

In Canada, banks are starting to pass on mortgage rate cuts following sharp reductions in wholesale rates.

In the EU, inflation in December was down to 1.7% pa in data published overnight. It was over 2% for most of 2018 so this fall, triggered by falling oil prices but one which goes much wider than that, won't be welcomed by the ECB, especially as the euro area rate is a lower 1.6%. (Interestingly, Norwegian inflation is 3.5%, and they have an OCR of 0.75%.)

In Germany, they have a new housing affordability problem with demand growing faster than supply - and their supply response is falling short with "no end in sight" to the pressures.

The OECD is reporting that in Q3-2018 the employment rate in this group of 36 countries rose to 68.4%, its highest level since it started collecting this data. New Zealand's rate was 78.0%, the third highest (and bested only by Iceland and Switzerland). Most countries improved, but an exception was the UK. The US employment rate is 70.7% and Australia 73.8%.

In China, it has been revealed that banks and financial institutions issued NZ$128 bln of securitised residential mortgages (RMBS) in 2018, up +242% from the level in 2017. They have become wildly popular there.

Update: New unofficial estimates are now showing that China's debt-to-income ratio is now touching 400%. But Martin Wolf, the Financial Times columnist, says that China’s government and central bank can probably protect their financial system from collapse if an immediate crisis arose. However he added, “…if gross debt were to rise above 400% cent of GDP over the next decade, even that would be less certain.” But suddenly we are there.

China may be suffering growth pains, but not so in India where the expansion continues at a fast pace.

And back to Norway, their giant sovereign wealth fund - the world's largest and built on oil royalties and run by their central bank - is extending its virtue-signaling by blacklisting Chinese companies based for human rights abuses, and an Australian company based on their investment in mining coal. It now has 162 companies on that list, with 26% of them based on the type of conduct they engage in, and 74% by the type of products they produce (coal, nuclear, tobacco - but oil is ok of course).

In Australia, a drop in home loans taken out across the country has prompted more warnings of further falls in house prices. Loan demand is rising from first-time buyers but falling sharply from "investors". New data shows the value of housing-related lending dropped by -2.5 in November with the value of loans to investors alone dropping by -4.5%.

And don't forget, we are now less than two weeks until the final Royal Commission into Financial Services Report will be released - being dubbed "the Hayne Grenade".

The UST 10yr yield is marginally firmer at 2.73%. But their 2-10 curve has softened to +17 bps. The Australian Govt. 10yr yield is up +1 bp to 2.30%. The China Govt. 10yr yield is down another -2 bps at 3.09%, while the New Zealand Govt. 10yr yield is up +1 bp at 2.31%. Local swap rates are slightly firmer and just off their record lows.

Gold has slipped -US$2 to US$1,292.

US oil prices are little-changed today and are now still just over US$51.50/bbl while the Brent benchmark is just under US$61/bbl.

The Kiwi dollar starts today lower at 67.5 USc. That is almost a -1c drop since Tuesday. On the cross rates we are also softer at 94.1 AUc, and at 59.5 euro cents. That leaves the TWI-5 down at 71.6.

Bitcoin is unchanged overnight, now at US$3,597. 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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28 Comments

John C. Bogle, Founder of Vanguard Group, Has Died

https://www.wsj.com/articles/john-c-bogle-founder-of-vanguard-group-dies...

RIP. A very significant life. His approach has certainly helped many.

"I'm not frightened of dying...we all have to go sometime", from a song by Pink Floyd, who also noted that "By 1970, we had made it. None of us needs to ever work again. Then...we started work on Dark Side of The Moon"

The curse of Bigness - by Tim Wu
Similar line of observation
https://www.nytimes.com/2018/12/12/books/review-curse-of-bigness-antitru...

Not bad for a guy who had a heart transplant at 66. From Buffet - “If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle.”
http://freakonomics.com/podcast/stupidest-money/
http://www.philly.com/philly/business/personal_finance/87-Yr-Old-Vanguar...

RIP Bogle.

A friend of mine in the US wrote John Bogle a letter a few years ago. He responded with a hand written letter.

Brilliant! This should be a must read for all who monitor this web site. Thanks for posting it Andrew.

Without saying it in so many words, points to the obvious flaws in the "free market economy" that Milton Friedman invented and was so eagerly adopted by so many. Makes it clear what the purpose of regulation is - that is controlling manipulation. And explains Brexit and Trump, and the French riots and so on.

Big question - who is listening? Now wait for the nay sayers.....?

Still so much dogma in that article. We've been fully indoctrinated into it that we're practically unable to even question the "economic system", capitalism and money.

Capitalism itself literally threatens our survival. It doesn't need saving. Humanity/society needs saving and capitalism isn't going to rescue us.

Are we just that afraid of what the solution might require of us? Are we so afraid we might have to give up the expected lifestyle that we've been taught? Will we have to demand more of ourselves rather than demanding more of others?

I would suggest FDI needs to be targeted and would be of most value in developing, not developed countries. The problem is corruption tends to be more rife in developing countries and can undermine any benefits. plus as the above demonstrates, major corporations, the ones most likely to do FDI, don't do it out of benevolence irrespective of what their PR says, but rather out of self interest and greed. I would not have too much issue with the self interest part if there was a clear meassurable benefit to the country as a whole. But putting a hand out when the parent is reaping billions in profit is a bit too much.

One other thing, FDI tends to be about making more profit rather than making the product cheaper for consumers. Sports shoes and electronic being good examples.

Good article [edit, oops ref AndrewJ 10:14]. Regulatory growth (and abuse) is another tool that is used to stifle competition - and is having an impact in house building where solo operators are struggling to manage the huge increase in regulatory burden (form filling processes) now involved with all construction. Makes it impossible to function or compete unless you are large enough to employ form-filling specialists and has feathered the nests and created more work and jobs of the people who drove the increased regulations (lawyers, consenting specialists and local body planning/consent depts) in the first place. A toxic/corrupt cycle.

"There should be a rule about that", goes the cry. Suits the biggest players best. It is about the simplicity of regulation, not the wearisome quantity. How do we turn the tide? We are a rule following lot, by and large, but it depends on a general consensus that the rules actually serve a purpose we all support. In more corrupt societies the rules are seen as stupid and imposed for the benefit of others. We have started to follow down that well trodden path.

Agreed Roger. Well put. Rules for rules sake are stupid. Everyone has to benefit, not just a few.

Could apply that to many areas - growth for growths sake, production for productions sake, trade for trades sake, technology for technologies sake, etc. Benefit for everyone and over whose lifetime.

True that. The total model we've lived under for possibly over one hundred years needs to be rethought. We live in a finite system, on a planet that cannot endlessly support or tolerate exponential growth. At this point in our cycle we need to challenge almost all that is occuring.

For example technology - I suggest future technological development should be focussed on our species survival. That would mean having an impact on almost every part of our life, as some aspects are entirely unnecessary and have an overall adverse impact. BUT no one can predict the potential benefits that can come from what some may seen as pointless technology. Smart Phones for example, generally utterly unnecessary, but the technological advances that have come from their development can translate into so many other areas that are of strong benefit to the species.

So the question comes up, how do we change to a better model of existence as a whole?

"So the question comes up, how do we change to a better model of existence as a whole?"

I really don't know. We have to want to first.

The model over the last 100 odd years is merely an extension of the models over the previous few thousand years. We haven't learnt. What drove those models, what drives the current model?

I see it as a psychological issue influenced by those models we've lived under, by those in power at any time. We've created a negative self perpetuating system that seems to encourage the worst in human behaviour and we've been taught to celebrate it, to idolise it as the epitome of success. The best aspects of human behaviour appear to only rise occasionally rather than be the norm. Our modern civilization has literally been built on fear, greed, violence, genocide and destruction.

Many teachings, ancient wisdom, would suggest that it literally comes down to our connection to ourselves, to each other and our environment. All the religions have alluded to it, indigenous cultures have alluded to it, great philosophers have alluded to it, even Einstein understood. A lot of the teaching is still used today, unfortunately it has also been distorted by the current model. Modern day science is even starting to prove it.

It is quite literally the human condition and we don't understand it. We've driven the "rational" self interest dogma so hard we no longer realise the influence emotions, personal experiences, ego and the governing external structure has. We don't realise that we are in fact irrational.
"The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honours the servant and has forgotten the gift" - Einstein

Teachings suggest the intuitive mind is the heart, the soul, consciousness. The answer lies within.

We must literally question everything we've been taught, everything we think we know. The solution, which is individual change is much harder than continuing with the status quo.

Discovering Maslow's hierarchy of needs triggered much for me. I suggest studying the books and essays of Charles Eisenstein starting with The Ascent of Humanity and Sacred Economies to really widen one's perspective. https://charleseisenstein.org/books/

"We are an affluent nation operating on a depletion economy which leaves destruction in it's wake. Our people are driven by a terrible sense of deficiency. When the last tree is cut, the last fish is caught, and the last river polluted; when to breathe the air is sickening, we will realise, too late, that wealth is not in bank accounts and that you cannot eat money."

"Commitment for a better society should arise within each one of us. Technology has made the globe into a village, and it is spirituality that will make it into a family. Spirituality will unite people of all cultures, religions, and races into a harmonious society, into a harmonious family. A sense of belongingness should come among all generations. I think without a sense of belonging we are in trouble.
With only technology in our hands, we will destroy ourselves."

I do believe the underlying issues are a flawed concept of "wealth and prosperity" combined with a lack of understanding of our true inherent human nature.

Apologies for the rant.

And change will not be driven by SME's. An important driver for them is saleability to one of the oligopolist corporates that apathetic kiwi consumers and lax anti trust laws allow to dominate our economy. The value of a business that has structure, process compliance regimes and culture that are more easily integratable with those of a prospective purchaser, is higher.

I see that AMEX made a very healthy profit for the last quarter but because it didn't meet Wall Street expectations the share price went down 2.5%.

Are these the same Wall Strret people who didn't see the GFC coming?

What right have they got to make any predictions and virtually drop the SP based on what they think.

ditto with netflix. Actual earnings beat expectations by 25%, on slightly lower revenue than forecast, and future revenue estimates lower than market wanted.. share price down..

Is it a sign of changing times that Netflix see Fortnite as their biggest threat

'NZ's (employment) rate was 78.0%, the third highest (and bested only by Iceland and Switzerland)'

Pity about our productivity rate at 20% below the OECD average, with a low capital to labour ratio a major contributor to this dismal stat. With the coalition in favour of capital taxes that will make investment in NZ business even less attractive, the scene is set for the slide in our relative livings standard to worsen.

The problem is we lack a party with the guts and wisdom to cut company taxes and raise a land value tax instead.