Here's our summary of key events overnight that affect New Zealand, with news Europe has grabbed the spotlight overnight for all the wrong reasons.
But first, the latest PMIs for the US show a solid start to 2019, helped by faster manufacturing output growth. Their service sector however is slipping and at a four month low although still at a moderate level of expansion.
In Canada there are signs that household spending is 'falling fast'. Overall retail spending is in slight decline, but with a strong growth in the number of households analysts are concluding that per-capita spending is shrinking.
The situation in Europe is not so positive. A similar PMI survey shows business growth close to stalling at 5 year low in January with expansions in both the factory and services sector barely noticeable. New order flows are showing a worryingly downward trend.
Overnight the ECB reviewed its policy setting and left those unchanged. But Mario Draghi acknowledged that economic growth in the euro zone was likely to be weaker than earlier expected due to factors ranging from China's slowdown to Brexit.
The euro weakened. But European equity indexes generally rose about +0.5% overnight (except the FTSE100 which fell -0.4%) following Asian stocks rising a similar amount (except Tokyo, which was unchanged). Today Wall Street is down -0.3% in mid-day trade.
In the UK, business frustration with the Brexit situation is boiling over. From carmakers to aircraft production, companies seem to have had enough and the risk of a mass pullout of the UK seems suddenly higher.
In Germany, their government cut its 2019 growth outlook to just +1% from a +1.8% forecast six months ago due to weak global demand and Brexit uncertainty. German growth will pick up again in 2020 to +1.6% they now say.
In Australia, ASIC has sharply criticised the big accounting firms and the stubborn conflict of interest between their audit responsibilities and their lucrative consulting businesses. They say in some cases auditors have compromised even the "appearance of independence".
And the rate rises keep coming out-of-cycle in Australia with the NAB the latest to push up variable mortgage rates, rises of about +15 bps. They are the first major to move, following two challenger bank moves earlier.
The UST 10yr yield is sharply lower at 2.71%. Their 2-10 curve has slipped to +15 bps. The Aussie Govt 10yr is at 2.24% and down -4 bps, the China Govt 10yr is unchanged at 3.15%, while the NZ Govt 10 yr is at 2.37% and also unchanged.
Gold is down -US$5 to US$1,280/oz.
US oil prices are a little higher today at just on US$53/bbl while the Brent benchmark is just on US$61/bbl. Turmoil in Venezuela is keeping prices up even as US petroleum inventories rise.
The Kiwi dollar is marginally softer at 67.7 USc. On the cross rates, we up again against the Aussie at 95.4 AUc while also firmer at 59.8 euro cents. That leaves the TWI-5 at 72.1.
Bitcoin is at US$3,555 and little-changed from this time yesterday. This rate is charted in the exchange rate set below.
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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16 Comments
I looked over that and was surprised by them actually printing it. Slowly the media is turning and that's not a good thing. The media is what dictates a lot of the speculation.
The narrative is that the price growth will be minimal but in case it does fall that will also just be minimal. 12 months ago you could not get any MSM talking about a slowing market & potential price falls.
" in Australia with the NAB the latest to push up variable mortgage rates"
Why? Perhaps to 'force' customers from Variable onto Fixed before the whole curve falls in a heap?
The RBA will likely lower their Cash Rate to 0.75% over time. Those who Fix now might find they would have done better to wait.
(NB: The lower interest rates go, the worse things are, across the board.)
UK Bank Crashes To Record Low After Mismarking Loan Book
"Bloomberg explains that the bank previously put a 50 percent risk weighting on its commercial mortgages, but said it has now increased this to the correct level of 100 percent, a spokesperson for the lender said. For buy-to-let mortgages, the portfolio had been held at a risk weighting of 35 percent, but this has also been increased to 100 percent." -
https://www.zerohedge.com/news/2019-01-23/uk-bank-crashes-record-low-af…
"ANZ's latest disclosure shows, at September 30, it had $76.168 billion of residential mortgages, $15.761 billion of risk weighted exposure and a minimum total capital requirement against these home loans of $1.261 billion. ANZ's risk weight on its housing lending was 19%.
The bank does hold more than its minimum capital requirement. At September 30 ANZ required minimum total capital of $4.487 billion to cover its total credit risk exposure, not just that to housing. However, the bank actually held total capital of $11.857 billion. In Part 3 of this series we'll look at regulatory capital ratios and the composition of bank capital.
In the meantime many bank customers may be surprised to learn that ANZ is technically able, under current bank regulatory capital rules, to hold just $1.261 billion of capital against $76 billion of home loans -
https://www.interest.co.nz/banking/97697/against-backdrop-rbnzs-bank-ca…
For me this raises a couple of questions; capital backing for loan is a measure to protect the bank against the failure of the holder of that loan to be able to service the loan. This article seems to be about a significant drop in the share price based on perception, as no mention is made as to how many of those loans made by the bank were non-performing. this is surely about the banks business and specifically their lending practices and how they measure risk surely? It is interesting to note that they have also moved their mortgage portfolio to 100% risk weighting too. This suggests to me that there are other underlying issues that are not openly being discussed.
In Canada, the central bank has been mirroring the Federal Reserve at an even more cautious pace. It has been raising its benchmark overnight rate since July 2017. Starting from 50 bps, the last “hike” back in October pushed it up to all of 1.75%. Is 125 bps to blame for what you see below:
https://www.alhambrapartners.com/2019/01/23/canadas-fallacy-contributio…
Interesting...Lower interest rates, asset bubbles blown up, and average folk having lower amounts of disposable income with which to consume and power the economic engine (as a result and cost of asset bubbles).
And yes, those who were around earlier and able to get into the assets at a cheaper price of course see no better course for the future than to keep lowering interest rates.
Sen Elizabeth Warren proposes wealth tax; 2% on assets over $50 million, and 3% on assets over $1 billion. Mandatory annual audits and a one-time penalty if you renounce your citizenship.
https://www.washingtonpost.com/business/2019/01/24/elizabeth-warren-pro…
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