Stocks rise on earnings and shutdown back-off; Canada assess non-bank stability; Japan welcomes immigrants; China stimulates; Aussie power policy failure; UST 10yr 2.76%; oil rises and gold jumps; NZ$1 = 68.4 USc; TWI-5 = 72.5

Here's our summary of key events overnight that affect New Zealand, with news the Americans are kicking the can on their shutdown issues.

Wall Street is ending the week unchanged from where it started, but erasing the losses it took in-between. The S&P500 is up +0.8% in late trade, boosted by some recent good corporate earnings reports, but more on expectations. Next week Alphabet (Google) and Apple are among some bellwether companies reporting. And there are direct signs the US Administration is softening its position significantly on shutdown issues. This comes as passenger processing at more airports slows markedly, and thousands of unpaid IRS workers stay at home. Now a three-week funding extension has been agreed, without anything for the border wall.

In Canada, they are weighing whether to subject private lenders to the same mortgage stress-test rules faced by banks to prevent housing markets from being destabilised. This has suddenly become an important consideration in Australia too, on the impending release of the Hayne Report. That is likely to degrade banks from supplying mortgage finance for some time and during that readjustment period non-bank mortgage funders are expected to rush in to fill the gap. In fact, they have already started doing that. In Canada, tighter bank regulation has opened the door to opportunities for non-banks and those alternatives are now becoming significant players, large enough for regulators to worry about financial system stability.

In Japan, Tokyo inflation data for December came in higher than analysts were expecting - at +1.1% vs expectations of +0.9%.

And Japan is getting to welcome immigrants, people they need to run their economy and maintain their high standard of living (-9% lower than New Zealand). The world's fourth largest economy has doubled the number of immigrants living there in the past five years to more than 1.4 mln. It is a change few thought Japan would actually embrace.

Slower growth in China at the end of 2018 has prompted Beijing to announce a series of growth-boosting measures to avert the risk of a sharper slowdown. These include hundreds of large infrastructure projects, cuts in income taxes and government fees, looser guidelines for local governments to issue much more debt for their own projects, and a cut in bank reserve requirements. Most of these measures have been building from late 2018.

And in an intriguing tidbit, China has [accidentally?] released details of how it sees income classifications. In the footnotes of a recent report on how Chinese people spend their time, their official statistics agency says it considers people with incomes of under 2,000 yuan (NZ$435) per month to be “low-income,” while those earning between 2,000 and 5,000 yuan each month are “middle-income.” People making 5,000-10,000 yuan (NZ$1,100 to NZ$2,150) count as “relatively high” earners, while everyone whose pay amounts to more than 10,000 yuan (NZ$2,150 per month or NZ$26,000 per year) is a “high-income” person.

In Germany, business sentiment slipped yet again and this time by more than expected.

In Australia, the reliance on forcing major industries to close to meet load-shedding requirements during extreme demand has exposed their broken energy policy. Some states have used virtue politics to undermine baseload requirements without building adequate replacement. And these deficiencies are spilling over into load pressures on other states. Only Western Australia, which is delinked from their electricity network, is immune. It is a situation that may take years to fix, and is likely to weigh on growth and jobs. Ignoring climate change planning and policy is having a direct impact on them, maybe making parts of their economy uninsurable. Adaption requires planning at a national level.

Wholesale swap rates are slightly lower than this time last week, especially at the long end. The two year is down -1 bp but not quite at its all-time low (of 1.87%). The five year is down -3 bps on the week while the ten year is down -5 bps over the same timeframe. The UST 10yr yield has bounced back from yesterday's sharp drop to be just on 2.76% but a small fall for the week. Their 2-10 curve is back under +16 bps. The Australian Govt. 10yr yield is at 2.22% and a chunky -11 bps weekly drop. The China Govt. 10yr yield is firmer at 3.16%, and the New Zealand Govt. 10yr yield is at 2.34% and almost unchanged for the week.

Gold has shifted strongly higher today, up +US$19 to US$1,297/oz. That is also a good +1.1% gain for the week.

The VIX volatility index is little-changed this week and is now at 18. The average over the past year has been 17, so this level is now not that unusual given that 'uncertainty' was a feature of 2018. The average for 2017 was only 11 however. The Fear & Greed index we follow has moved further away from 'fear' and is now over to the 'greed' side.

US oil prices have moved a little higher are now just on US$53.50/bbl while the Brent benchmark is just on US$61.50/bbl. Both are small gains overnight but are similar to the levels of a week ago. The US rig count rose by +9 or +1% this week. US crude oil and petrol stocks are unusually high, but the upward pressure is coming from the uncertainty in Venezuela,

The Kiwi dollar starts today up strongly from yesterday at 68.4 USc but which is almost a +¾c gain overnight and takes it to its highest level of 2019. On the cross rates we are little changed at 95.3 AUc, and at 60 euro cents, also a 2019 high. That pushes the TWI-5 up to 72.5 and a +1.1% gain for the week.

Bitcoin has changed very little this week and is holding at US$3,554. It seems that it costs more the US$4,000 to mine the crypto, removing supply additions. 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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37 Comments

Japan opening up, will lure away from nz. . Double whammy after yesterday's immigration news. .
No wonder kiwibank dropped.

Japan will appeal to a fairly limited number of people due to the language and job opportunities. The English speaking countries will still have greater drawing power for the foreseeable future I would think.

The immigration news still shows extraordinarily high immigration numbers. Remember, not that long ago, we had negative immigration.

That's strange because according to this list Japan ranks higher than New Zealand in the preferred destination for migrants.

https://www.weforum.org/agenda/2017/11/these-are-the-countries-migrants-...

New Zealand ranks between Russia and China - oh dear.

NZ Population = 4.8 Million
Estimated # of adult migrants preferring NZ = 7 million

Japan Population = 128 million
Estimated # of adults migrants preferring Japan = 12 million

And what is your point - you could look at it terms of size of the country as well - population density - doesn't alter the fact that NZ is not as popular as people would like to make out - in fact Russia is a more preferred destination. Considering Russia would be considered autocratic that's a bit of punch in the nose for NZ. People's preference may be based on attributes which New Zealand doesn't have.....

Your comment was kind of ridiculous Badrobot. We're talking about quality migrants really, who have the commitment, the skills and the means to make the move, not some idle wish list like, oh Japan sounds nice , with cherry blossoms and all that, sigh.

How is it ridiculous - what criteria do people use to determine what is a desirable country to migrate to. You are making an assumption about the quality of the migrants. So any wish list is now irrelevant - but you have relied on such lists in the past to try and prove your point - sorry I just don't believe anything you say.

Japan is not opening the floodgates to immigrants. They are just letting in some low wage labour on a five year visa. No family allowed and some Japanese language skills are required. Basically a bit of slave labour for them. Useful for cleaning up radioactive waste etc. Mostly from Vietnam, China and South Korea.

It is in no way comparable to NZ for a family seeking to emigrate and enter the English speaking world.

How do you know it is not comparable - from the article

The largest share of Japan's workers from overseas -- more than 430,000, or 30% of the total -- ply their trade in manufacturing. Other sectors, such as retail as well as food and beverage service, contributed about 14% to 17% of the total.

"A foreign worker law that takes effect in April lets the country formally accept blue-collar workers from abroad and give them a pathway to permanent residency. This likely will prompt even more foreigners to choose Japan as an employment destination."

So it is not only "cleaning up radioactive waste" - it is far broader than that. Is that any different from the people NZ is letting in?

Your argument is weak and as usual is based on opinion with nothing really substantive to support your argument.

I know it is not comparable from doing some further reading. The conclusion I have come to is that being a foreign blue collar worker in Japan is a kind of living hell. Most are exploited. If you go mad from the pressure and unpaid overtime and do something illegal you will end up in a tiny cell, forbidden to talk, lean against the wall, look up from your meal or sleep on your stomach.

While the Japanese work culture is well documented - if any immigrant has the option of returning home - the locals do not. You paint a bleak picture because it lends to your argument - could also be called confirmation bias. Yet in NZ there have been many reported cases of immigrants / seasonal workers being exploited - so NZ is not quite as safe as you make out (how many landlords and been caught out not following the rules , how many employers).

In general Japan has lower wages and a far higher level of exploitation. On balance any of the English speaking Commonwealth countries are a far better bet for a prospective immigrant. But it doesn't work like that as places are limited everywhere. Many will have to choose a less desirable destination like Japan.

But the link I provided above says twice as many people prefer Japan over NZ.. Others prefer UAE or South Africa - why when you consider the issues in those country's. My argument is other attributes (jobs, prospects etc) that NZ can't provide attract people to those country's rather than the English speaking Commonwealth countries.

Well, a lot of those "potential" migrants are not very clever. Best that they don't want to come here. I'd say cultural, racial, lingual and other differences influence preferences more than anything else. Who would want to permanently migrate to China, South Africa or Brazil? China only really allows ethnic Chinese. Those living north of SA will choose SA for various reasons. South Americans and Portuguese will consider Brazil. Those that choose these places are probably just being realistic about their chances.

All of the English speaking countries are in the top 17 destinations, 7 out of 17. The size of the countries is obviously influencing the numbers too.

I really don't think you can compare NZ & Japan as a destination for emigration. Either you want an underpopulated, english speaking destination with a clean green image, or you want a vastly overpopulated, Japanese speaking, high paying destination.

hmm, I would question whether NZ is really much cleaner and greener than Japan. For a start I have never seen cleaner urban environment than Tokyo Japan and more committed community recycling. Here's an article from NZ Geographic questioning our 100% pure claims:

"Our forest cover is now 28–32 per cent, depending on the measure. If we look at similar-sized countries, it’s clear we stand out. Japan, a country with 337 people per square kilometre, is 70 per cent forested."

https://www.nzgeo.com/stories/32-pure/

I think Japan is a pretty amazing place in many ways. I can see why immigrants would be attracted. Good public services, good social wage and very safe place to live. The language is damn hard though!

I agree with you cs, that's why I said "a clean, green, IMAGE"

PP2F,

When you say “no wonder Kiwibank dropped”,can you explain that? It’s not quoted anywhere.

Regarding the bitcoin difficulty above, these are Q4 figures. Since then the difficulty of mining has reduced by 15%, bringing it into profit (and if price falls it will adjust again etc) That and the difficult varies substantially depending on access to cheap electricity etc.

Wouldn't get too excited about Japan's gdp per capita being lower than NZ's. Their income taxes are much lower (apart from high wage earners), their gst lower, their house prices lower (apart from Tokyo), their interest rates much lower, and most consumer goods also much cheaper. Apart from Tokyo ( and even that's not bad relative to Auckland), your money goes much further therej.

It has its problems - sexism, hikikomori hermits etc - but in my opinion the Japanese have created a society that gives people a good deal of security. Hence we don't see out of control populism in Japan.

Actually at 850k a new house in Tokyo is similar or even cheaper than Auckland

Not to mention the government is giving away houses for free

I just wish Dump would stop trying to make America so great, and focus on the important issues like removing the sanctions from Iran who wants to build a peaceful nuclear weapons in compliance with the jihad culture. Also he needs to put more sanctions on The Democratic Republic of Korea who are arrogantly planning to get rid of their nuclear technology!

"In 1997, Milton had warned:

“As the economy revives, however, interest rates would start to rise. That is the standard pattern and explains why it is so misleading to judge monetary policy by interest rates.”

That is what was happening in the fifties and it was unequivocally a good thing. Prosperity brings with it an abundance of benefits, among them expanded choices for monetary opportunity. Why invest in cash or safe, liquid instruments when the whole world is your oyster? You don’t; yields on safety rise not to take away the punchbowl but to reflect this incredibly favorable condition.

What if interest rates instead fail to rise as they have over the last eleven years? Their determination is therefore obvious and unequivocal."
https://www.realclearmarkets.com/articles/2019/01/25/global_economy_move...

"European banks would rather swap government bonds (and other assets) to the ECB picking up pennies on the transactions because it is predictable and tolerable, all the while holding trillions in bank reserve assets “paying” out negative rates, than they would lend into the European economy even a little. The risks are way too high, perceived liquidity risks primarily, and the returns far too low (no booming economy no matter what Draghi has said).

Persistently negative money rates are an enormously bad signal; there is no stimulus indicated here, and the last thing anyone should associate this stuff with is money printing. It’s all a third-rate magic trick designed purposefully to get you (you as in Europeans) to believe that something positive had happened. Because it is so complex and (purposefully) convoluted, you shouldn’t ask any questions about exactly what this positive thing was, so just take Draghi’s word for it. Politicians and the financial press do."
https://www.alhambrapartners.com/2019/01/25/the-basis-behind-the-forming...

Ah, yes the Europeans are just so good at creating magical delusions of a wonderful future if you will only listen your betters and do what you are told, er, do what they advise. Whispered aside "Darn I nearly let the stupid vulgar sods know the plan there".

The vulgar masses may already have figured it out, the gilets jaunes are a good example:
They live in a 'peripheral France', characterised by weak economic growth, high unemployment and high anxiety." This is the famous "squeezed middle", the "just about managing", to quote Theresa May, and the yellow vests movement is their rebellion.

Amorphous is the word so often used to describe the yellow vests. They have no one leader and don't conform to any particular stereotype of society. What can be said is that they are predominantly white, lower-middle class and rural.

That's reflected in their choice of symbol. French drivers are, by law, obliged to carry a hi-vis jacket in case the driver ever has to get out of the car on the roadside. The yellow vests come from areas of France where public transport is lacking and driving is an unavoidable reality of life. The trigger for the protests, a planned increase in fuel tax, was the final straw.

The defining image of the yellow vests, far from the massed ranks on the Champs-Elysées, is men and women bundled up against the winter and stood at rural roundabouts. The defining act has been the forcing open of motorway toll booths (although some were simply firebombed) andthe dispensing of free journeys to motorists.

The fuel tax was part of Mr Macron's efforts to tackle climate change and his broader aim to restore France's prestige in the world's multilateral forums, from the EU to the UN. But as one yellow vest put it last month: "We are talking about cost of living and Macron is talking ecology. ... [Macron's] solution for people who can't afford food by the end of the month is to buy solar panels and electric cars."
Speed cameras, too, have become victims of the yellow vests. A symbol of the onerous costs placed on motorists, more than 60 per cent of France's traffic radars have been vandalised, hundreds have been entirely destroyed.

https://www.telegraph.co.uk/news/2019/01/25/yes-yellow-vests-disparate-d...

they want to pay them more but the 'money' isn't there.

I very much doubt that Japan will be letting in many immigrants as we do. The article linked to talks about foreign workers. Entry requirements will be stringent and God help you if you mess up and get put in prison there. They are very unforgiving and harsh toward their prisoners, especially foreign ones.

Also with an apparently lower standard of living than NZ it doesn't seem that great for low wage workers. I imagine it would be a rather difficult place to settle down. Fun for young Western people though.

Ignoramus

What is ignorant about my comment Fritzy?
Google up Japanese prison conditions and you will often see the words "draconian" and "brutal". Their system has garnered numerous condemnations from multiple human rights groups. This aint Sweden no siree.

The way the visa's work is that you can get a 5+5year visa, then you have to go. There is no pathway to residency or citizenship.

Read the article

"A foreign worker law that takes effect in April lets the country formally accept blue-collar workers from abroad and give them a pathway to permanent residency. This likely will prompt even more foreigners to choose Japan as an employment destination."

DP, dodgy motel Internet! I'm checking out Christchurch tonight.

I recommend a stroll on the beach early morning. #80 bus, disembark sea end of Beach Road, bliss awaits.

Probably one of Yvils. :P

All is well in hell.