US inflation lower; real wages higher; mortgage market slows; China services deficit swells; EU points money laundering finger; world equities rise; UST 10yr 2.70%; oil and gold up; NZ$1 = 68.2 USc; TWI-5 = 72.8

US inflation lower; real wages higher; mortgage market slows; China services deficit swells; EU points money laundering finger; world equities rise; UST 10yr 2.70%; oil and gold up; NZ$1 = 68.2 USc; TWI-5 = 72.8

Here's our summary of key events overnight that affect New Zealand, with news the EU has expanded its list of money laundering countries.

But first in the US, January data on inflation out overnight shows it running at +1.6% pa. That is the smallest annual increase since the June 2017 year. However, falling petrol prices (-10.1%) had a lot to do with the result; the US CPI without food and energy is up +2.2%, the same rate as for the previous two months.

With this data, they have been able to work out the rise in US 'real' weekly earnings and they grew by +1.9% after inflation, higher than the +1.4% gain in the December year.

But even that good news isn't helping the US mortgage market. The latest data reveals that mortgage applications fell at the rate of -3.7%, a faster decline, and -5% lower than the same period a year ago.

Perhaps sentiment is being knocked around by surprises most families are getting with much smaller tax refunds under the Trump tax settings than expected.

In China, their debt market got rattled again yesterday with another large company in technical default over a bond payment. In the end they came up with the payment a day late, but the stress is showing and expanding.

And China's sudden massive appetite for international travel is showing up in a fast-rising services deficit. In 2018 their overall services deficit exceeded -US$250 bln. In part to control this ballooning deficit, China is cracking down on 'illegal' currency traders.

The EU has snubbed Saudi Arabia by adding it to its blacklist of havens for money-laundering and terrorist financing, joining the likes of Iran, Syria and North Korea. The list of 23 jurisdictions, which also includes Panama, Puerto Rico and Samoa, updates an earlier, shorter list. Eight of the countries are in the Commonwealth, four are American territories. Notably, none are EU members or EU neighbours even though the Dutch-sandwich, for example, is one of the most famous corporate tax-dodging (tax laundering) strategies.

Meanwhile, EU industrial production is withering.

In Australia, they have noticed the RBNZ governor Adrian Orr's defense of its 'more capital' requirement for banks. Eyebrows have gone up when he suggested banks were on a "free ride" where "returns can be privatised and losses can be socialised".

In world equity markets, the positive sentiment carries on with expectations the US shutdown impasse is resolved and the President will sign up, and the hope that the positive talk in the US-China trade talks have some substance. On these expectations, the S&P500 is up +0.3% in early afternoon trade. This follows European equity markets who were up about +0.5% overnight. Yesterday Shanghai closed up +1.8%, Hong Kong was up +1.2% and Tokyo was up +1.3%. (Australia actually dipped -0.1%, while the NZX50 was up +0.6%.)

The UST 10yr yield is firmer at 2.70% and up another +1 bp today. Their 2-10 curve is just on +17 bps. The Australian Govt. 10yr yield is at 2.16% and up +3 bps. The China Govt. 10yr yield is unchanged at 3.09%, while the New Zealand Govt. 10yr yield is up sharply, up +7 bps at 2.21%.

Gold is up +US$3 to US$1,312/oz.

US oil prices are up again today to just over US$54/bbl while the Brent benchmark is just on US$63.50/bbl. Saudi Arabia is planning more output cuts. But the crude price rise today has been capped by reports of much larger US inventories.

The Kiwi dollar will start today sharply higher after yesterday's MPS inspired jump, now at 68.2 USc. On the cross rates we are even higher at 95.8 AUc, and at 60.4 euro cents. That pushes the TWI-5 back up to 72.8 which is where it was over a week ago.

Bitcoin is virtually unchanged at US$3,574. 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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18 Comments

12
up

“In Australia, they have noticed the RBNZ governor Adrian Orr's defense of its 'more capital' requirement for banks. Eyebrows have gone up when he suggested banks were on a "free ride" where "returns can be privatised and losses can be socialised".”
Raised eyebrows in what way? Most likely thinking that no one was meant to say that out loud.

My thoughts exactly. But then, that's the aim of anyone in a capitalist system. It's just that the socialised debt at macro level adds up to a planet we can't live on, and an overabundance of our species at the expense of all others (except the one we cultivate to eat).

Hmmm, that’s more crony capitalism. Agree though on debt being unsustainable.

One persons debt is another persons asset. It will probably end in pain for the lender as much as the borrower and quite likely war or famine but isn't that what you want to reduce the load on the planet?

Actually only a % of one person's debt is another person's asset due to the joys of fractional reserve banking. Adrian Orr just wants to increase that %.

You forget the asset loaned against. Yes asset prices fluctuate but show me a 100 year period where they have declined in modern history.

Not sure that 100 years and modern history is compatible but have a look here:
https://hotelivory.wordpress.com/2010/08/29/a-very-long-view-on-house-pr...

Great article. We don’t look at inflation adjusted prices over long periods enough. Most people have based their thinking off post 70’s house prices.

Yes. I'm intrigued but left dangling. Was that paragraph missing a hyperlink?

https://www.resilience.org/stories/2019-02-13/offshore-finance-how-capit...

"Consequently, no single state can meaningfully control contemporary offshore finance since the introduction of regulation in one place will result in capital moving elsewhere".

As good a justification as any to kick the legs out from under the banks, and other MNCs operating in NZ.

The capital is probably moving elsewhere , and apparently it started it's move from Auckland North Shore .
New REINZ report data
MEDIAN PRICE VOLUME SOLD
Jan-19 Dec-18 Jan-18 Jan-19 Dec-18 Jan-18
North Shore City -6.1% -13.2% -30.0% -32.1%

Median and HPI both down sharply for North shore. So its not just a change in the mix of properties being sold, prices are actually dropping.

Auckland City is still stubborn , but not for long I think

Pragmatist,

Curious to know what is the source to the HPI data that you monitor? Do you have a link?

It is the question nobody ever asks. As soon as contraction happens, the whole thing switches. Central bankers turn their attention, and move the public’s, toward fighting the thing, making sure it is as shallow and short as may be necessary. Officials pay total focus to getting out of it without ever having to answer for how they got into it.

There are two parts to every recession, it does have an end but also a beginning.

https://www.alhambrapartners.com/2019/02/13/despite-six-years-triple-dip...

PDK,

I think you would enjoy reading The Finance Curse, How Global Finance is Making is all Poorer,by Nicholas Shaxson. He is an expert on tax havens and I have read his earlier book on that subject,Treasure Islands.