US equities rally despite a raft of poor data; Canada house sales up; Bill Gates wants capital gains taxes; China lending rises sharply; UST 10yr 2.66%; oil holds and gold up; NZ$1 = 68.6 USc; TWI-5 = 73.2

Here's our summary of key events over the weekend that affect New Zealand, with news that the US risk rally rolls on, despite some worrying economic data.

First however, we should note that this is a holiday weekend in the US. And they need time to absorb the poor retail data released at the end of last week.

Compounding that, American manufacturing fell sharply in January according the US Fed's tracking, led by the biggest drop in vehicle production in a decade. This does seem to indicate a downward momentum shift in their manufacturing sector as year-on-year gains are now being eroded.

But optimism that a US-China trade deal is making progress has weighed against that data and Wall Street posted gains.

A lot is riding on those talks. Those gains came despite data showing the S&P500’s first-quarter earnings per share to dropped -0.3% year-on-year. That’s a big drop from the +8.2% rise expected as recently as October and would mark the first contraction in American corporate earnings in three years.

Still, not everything in the US is going south. The mortgage delinquency rate fell to an 18 year low. And their foreclosure rate fell again as well - they now have their lowest foreclosure inventory since 1996.

Consumer economic sentiment rose in a relief rally in early February as American households absorbed the end of the government shutdown and the Federal Reserve’s decision to pause its rate increases. But that sentiment reading is hard to reconcile  with the sharp drop in retail sales we reported on Friday.

Across the northern border, Canada's existing home sales rose +3.6% in January from the previous month but remained -4% below levels posted one year ago. And the national average sale price fell by -5.5% year-on-year in January.

The idea of wealth and capital gains taxes has a new ally - Bill Gates - who said the US deficit problem can only be fixed by raising taxes on the rich.

In China, banks are lending aggressively in response to Beijing's encouragement. Lending expanded three times as fast in January than December, rising a remarkable NZ$1 tln in the month (the TSF increase). The Chinese certainly know how to turn on the taps when commanded. And they need to as the number of jobless is starting to rise.

Meanwhile, Chinese consumer inflation rose +1.7% which is a slowing rate and undershooting analyst estimates. Producer price inflation evaporated altogether in January, which is remarkable considering it was rising at about +5% pa just eight months ago. It is a direct reflection of the loss of pricing power by their factory sector.

Wall Street ended last week on an upbeat note on the trade talk expectations and despite the declines in earnings-per-share data. In fact, the S&P500 is up +10.7% for far in 2019, and since the beginning of 2018 it is up +3.8%. The past year may have featured much more than the usual volatility, but 2019 is at a net gain. In China, Shanghai shares are doing ok in 2019, up +8.8% although since the start of 2018 that is still a +19% fall. The ASX200 on the same basis is posting a +9.1% 2019 gain, but is unchanged from the start of 2018. For comparison the NZX is looking good on these benchmarks, up +5.9% so far in 2019 and up +10.1% since the start of 2018. Much better than local residential real estate, it must be said.

In Australia, ratings agencies Fitch and S&P have been weighing in on their banking sector risks. Fitch cut NAB's rating outlook to 'Negative', while S&P said that Hayne is not the banking sector's greatest risk, falling house prices are. They pointed out that relentless public talk about house prices fuels sentiment, including by buyers and sellers, and the lower price expectation is now firmly embedded in their housing markets. That is raising risks for banks.

The UST 10yr yield is back at 2.66%. But their 2-10 curve has slipped below -15 bps. The Australian Govt. 10yr yield is unchanged at 2.13%. The China Govt. 10yr yield is still at 3.09%, while the New Zealand Govt. 10yr yield will open today at 2.23%.

Gold is up another +US$3 at US$1,321/oz.

US oil prices are up to just on US$55.50/bbl while the Brent benchmark is just under US$66.50/bbl.

The Kiwi dollar is starting the week firm at 68.6 USc. On the cross rates we are also holding higher at 96.1 AUc, and up at 60.8 euro cents. That pushes the TWI-5 up over 73.2 which is a two month high.

Bitcoin is virtually unchanged at US$3,581. 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 ».

Daily exchange rates

Select chart tabs »
The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

11 Comments

" US-China trade deal is making progress ...A lot is riding on those talks."
Yes. But not in a 'let's sort this out' kind of way. The USA has this one last chance to assert it's dominance over a threatening China. That it has so far produced:
" Lending expanded three times as fast in January than December, rising a remarkable NZ$1 tln in the month ...The Chinese certainly know how to turn on the taps when commanded."
tells us two things:
(1) Trump is winning the arguments and will have wasted all the effort expended so far if he takes his foot of China's throat at this stage of the game and (2) the ultimate treat that we all face; the USA and us, is "The Chinese certainly know how to turn on the taps when commanded". That they can 'command' and be 'obeyed' (or else) show what 'we' are actually combatting in this dispute.
Do we want to be dominated by a Command Economy and Society? Because that's what China is, and wants to make The World. What we have may have a myriad of faults, but it's better than what could be.

Will The Trade Talks 'fail'? I hope so!

bill gates, i read differently
what he has said is just by taxing income at a high rate for super rich people wont work as they will move it around like chess pieces to get the best rate and lower there tax payment
instead all the taxes need to be complimentary income and work together , capital gains etc so no matter of smart accountancy work is done you will pay your share
and it was in response to a democrat that is lining up for the us presidential run who has suggested taxing super rich people 70% of there income

Aussie property auction clearance rates way better than Auckland
Weekend auction clearance rates:
- Sydney (APM): 56%
- Melbourne (REIV): 56%
- Brisbane (APM): 38%
- Canberra (APM): 46%
- Adelaide (APM): 69%

"There is a need for caution, however. This improvement this week…. could also just reflect a seasonal bounce that market observers identify early in the new year and may not last. Sales volumes are also down. …”

https://www.afr.com/real-estate/huge-sentiment-shift-sydney-melbourne-au...

ALVY SINGER: This guy goes to a psychiatrist and says, “Doc, my brother’s crazy; he thinks he’s a chicken.” And the doctor says, “Well, why don’t you turn him in?” The guy says, “I would, but I need the eggs.” Well, I guess that’s pretty much how I feel about relationships; y’know, they’re totally irrational, and crazy, and absurd … but, I guess we keep going through it because most of us … need the eggs.
https://www.epsilontheory.com/but-we-need-the-eggs/?utm_campaign=website...

In "Serious Blow" To US, Britain Concludes Huawei Is "Manageable Risk" To 5G Rollout
https://www.zerohedge.com/news/2019-02-17/serious-blow-us-britain-conclu...

Could New Zealand take a neutral stance, much like Switzerland? As it stands, NZ has clearly sided with the US and against China by banning Huawei

Just saw this elsewhere. UK is clearly compromised - or is this part of Brexit?

interestingly, are we already starting to see the fallout. https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12204613

Its a good thing isn'y it (the chinese student numbers down bit).. I though t we had a teacher shortage and wanted to reduce immigration.. this aids both of those goals.

They are placing the blame on changes to NCEA being reported in China. I suspect it may be the way our universities have sunk down the international reputation ladder.

Were they ever high enough to matter in the first place?