Eyes on US Fed minutes; ECB ponders new QE; Glencore does about-face on coal; US imports from China boom; Japan trade deficit swells; UST 10yr 2.64%; oil and gold rise; NZ$1 = 68.8 USc; TWI-5 = 73.1

Eyes on US Fed minutes; ECB ponders new QE; Glencore does about-face on coal; US imports from China boom; Japan trade deficit swells; UST 10yr 2.64%; oil and gold rise; NZ$1 = 68.8 USc; TWI-5 = 73.1

Here's our summary of key events overnight that affect New Zealand, with news trade expectations are still dominating market sentiment.

Update: However, in the US the release of the US Fed minutes shows a central bank happy with where it sits domestically, but wary of international risks, and wary of the impact the rising US Federal budget deficit is having. The "unusually flat yeild curve" gets special mention. They say they will be 'patient' and will maintain their "balance sheet" moves that drain its reservoir of stimulus funding. And all this means any rate hike in 2019 from them is now less likely.

Across the Atlantic, markets are coming to believe that the ECB may be on the brink of restarting its QE (money printing) program to bolster a weakening European economy.

And in the UK, more parliamentarians have quit to sit on the cross benches, this time including a small group from the ruling Conservative Party, taking the total defectors to 11 so far. This new splinter bolsters the chance of the UK remaining in the EU in some form after March. But the situation is still a mess. The EU has said it won't revise the core divorce situation, but it might add some parallel side agreements.

And Swiss company Glencore, a famously aggressive miner and commodities trader has been convinced to stop new investment in coal. Glencore has a major presence in Australia. Apparently 'ethical investor' pressure has brought about what is a stunning about-face.

The US-China trade talks are on-going and the US, which has long criticised China for manipulating its exchange rate, now insists the Chinese manipulate it to be stable with the US dollar. And as the March 1 tariff deadline approaches, the US President has suggested that he will back away from imposing them. Meanwhile, China-to-US trade is booming with US West Coast import ports running at full capacity as goods flow in. China is certainly taking advantage (or is that American importers) while the US policy positions remain unresolved.

In Japan, their trade deficit in January rose sharply as exports fell more than -8% on lower demand from China. This is their biggest monthly deficit in more than five years.

In Australia, Q4-2018 data out yesterday for wage growth shows it rising a subdued +2.3% in the year, but it was still the largest annual increase in four years. (New Zealand weekly earnings growth was recorded at +5.1% in the year to December while average hourly wage rates rose +3.1%.)

The UST 10yr yield is little-changed at 2.64%. But their 2-10 curve has firmed to +16 bps. The Aussie Govt 10yr is down another -2 bp at 2.10%, the China Govt 10yr is up +2 bps at 3.15%, while the NZ Govt 10 yr is unchanged at 2.26%.

Gold is up again today by another +US$6 to US$1,345/oz. That puts the cumulative gain at +US$34 since the weekend, or +2.6%.

US oil prices are also higher, now just on US$57.50/bbl while the Brent benchmark is up to just over US$67/bbl.

The Kiwi dollar is hovering at 68.8 USc. On the cross rates we are marginally lower at 95.8 AUc, and similar at 60.5 euro cents. That puts the TWI-5 softer at 73.1.

Bitcoin is unchanged at US$3,927. This rate is charted in the exchange rate set below.

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17 Comments

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interesting for what it says about the car industry
https://www.spiked-online.com/2019/02/19/remainers-are-lying-about-honda/

Interesting isn't it. The EU is an advanced state of decline. They are obviously aware of this:
Across the Atlantic, markets are coming to believe that the ECB may be on the brink of restarting its QE (money printing) program to bolster a weakening European economy.

China too, seems to be hitting a brick wall:
In Japan, their trade deficit in January rose sharply as exports fell more than -8% on lower demand from China.

Car sales are declining in China. Exports of machine tools from Japan are declining, presumably because China has stopped buying them. I think China is turning Japanese, ie heading into a long period of stagnation while it sorts out the problems created internally by its rapid industrialisation and debt fueled mercantilist policy of the last 30 years.

Germany, the economic heart of the EU, is also hitting a brick wall as their car industry collapses. They bet on diesel, not electric, and their mercantilist export oriented economic model has bankrupted the whole of the Eurozone. The Eurozone will probably fall apart, all the signs are there.

This is exactly like a replay of the end of the 1980s, when the USSR fell apart because of its internal problems; and Japan stopped taking over the world and went into a slow, 30 year decline while it sorted out its internal problems.

We live in interesting times and NZ is a good place to live.

MMT/Sectoral Balance view of German economy and its role in the Eurozone.
http://bilbo.economicoutlook.net/blog/?p=41578

If only NZ was in such a state of decline, what an advanced economy we would have

In other news:
Home Sales in Turkey dropped -24.8% year-over-year in JAN and Chinese Auto Sales crashed to -15.8% year-over-year in DEC.

Why that news site really sets the standard for impartiality.

Forced End of “Ponzi-Like Leverage” & “Fraudulent Lending” Turns Australia’s House Price Bubble into “Property Bloodbath”

https://wolfstreet.com/2019/02/20/forced-end-of-ponzi-like-leverage-frau...

we learnt nothing from the GFC, banks carried on pushing as much debt as they could to grow profits,
and now talk of EU QE restarting because it will crumble without more debt to hold up the mountain

Can I add to AJ's post and suggest that it is an essential read for all of those that have a curious interest in property.

I found this comment interesting, as it seems the opposite position in our main cities: "Rent slowdown: The annual growth in nominal rents is very low and negative in real terms. Sydney is particularly affected given that nominal dwelling rent growth is falling by -3% annually and more so in real terms. With current construction rates delivering a considerable flow of new houses and units, nominal rents will continue to decline into the near future, harming the balance sheets of investors, especially those who are heavily negatively-geared [investors with rental properties that have negative cashflows whose only hoped-for benefits are capital gains and full tax deductibility of losses]."

https://www.stuff.co.nz/business/property/109312066/aucklands-static-ren...

"In Auckland, meanwhile, rents have stalled for the eighth consecutive month at $550 a week, although they are still 3.8 per cent higher than a year ago."

You were saying?

Morning David I have a question about the Auction Results page. There doesn't appear to be any results from Barfoot & Thompson for some considerable time - I think I've got a gap in my life without the weekly updates. But i do see that the results page now features stuff from Christchurch too, which i don't remember seeing last year. Are Barfoot's still sharing the data with you?

https://www.interest.co.nz/property/residential-auction-results

Tax working group's report out today. Oh boy, here we go.

https://www.theguardian.com/science/video/2019/jan/25/i-want-you-to-pani...

That's why Glencore - the young are (rightly) pissed.

Compare that to the odd dinosaur hereabouts. Sigh.

Westpac have just made a big call over in Australia.