The OECD cuts growth forecasts; US jobs growth slows, trade deficit swells; Canada holds rates; China debt risk rises; Singapore ship traffic jams; UST 10yr 2.69%; oil stable and gold up; NZ$1 = 67.7 USc; TWI-5 = 72.5

The OECD cuts growth forecasts; US jobs growth slows, trade deficit swells; Canada holds rates; China debt risk rises; Singapore ship traffic jams; UST 10yr 2.69%; oil stable and gold up; NZ$1 = 67.7 USc; TWI-5 = 72.5

Here's our summary of key events overnight that affect New Zealand, with news officials are watching slimmer economic data, but ship movements suggest things may be turning up again.

First, the OECD has cut its global growth forecasts from +3.6% in 2018 to +3.3% in 2019 on concerns over trade and consumer spending. It says the global economy will slow this year as confidence wanes and trade battles bite. Europe, a big part of the OECD, is the main culprit.

In the US, the ADP employment report is out today with a much tamer result than last month. Analysts were expecting another +190,000 new jobs in February after January's unusual +300,000. But there has been a small undershoot with this actual level coming in at +183,000. (Recall that the non-farm payroll actually came in at +304,000 in January and analysts are now expecting +185,000 when the data is released on Saturday.)

The American trade deficit in both goods and services surged +12.5% to -US$621 bln and a 10-year high in 2018. However that is only -3.0% of GDP although up from -2.8% in 2018. The politically sensitive shortfall with China also hit a record peak of -US419 bln (up +12%) for the year, despite the imposition of tariffs on many of their goods in an effort to shrink the gap. The US ran surpluses with many other counties, including Australia (+US$15 bln) and New Zealand (+US$0.9 bln).

Wall Street is sharply lower (-0.7%) in afternoon trade today. This follows European markets that were slightly weaker yesterday, and Asian markets that were mixed with Tokyo (-0.6%) lower but Shanghai (+1.6%) sharply higher - again.

Canada reported a smaller merchandise trade deficit in 2018, down to -1.2% of GDP from -1.5% in 2017.

Meanwhile, the Bank of Canada left its policy rate unchanged at 1.75% and cast doubt on its previous plans to tighten rates. Economic growth has slowed in Canada.

In China, Premier Li said the country faces a "graver and more complicated environment" with risks that "are greater in number and size." Spending on the military is being increased +7.5%. And tougher new economic policies now mean that investors can no longer rely on either Beijing or China's local governments to bail out state-owned companies that have trouble paying their debts. We can expect more of these defaults. It is intentional policy. But this comes as China loads up local authority enterprises with more debt. A sharp re-rating of these risks is imminent as this bond issuance rises.

However, an interesting indicator of the real health of world trade is the number of ships passing through the Singapore Strait. Apparently, this has swelled recently so much that there are regular traffic jams of ships in the area. The Baltic Dry index, while still low, has risen +10% over the past month.

The UST 10yr yield is down at 2.69%. Their 2-10 curve is now at +17 bps while their negative 1-5 curve has returned. The Aussie Govt 10yr has slumped -9 bps to 2.07%, the China Govt 10yr is down -1 bp to 3.22%, while the NZ Govt 10 yr is down -2 bps to 2.18%. Local swap rates also fell yesterday.

Gold turned and is up today, up by +US$4 to US$1,287/oz.

US oil prices are little-changed today at US$56/bbl while the Brent benchmark is just over US$65.50/bbl.

The Kiwi dollar is at 67.7 USc and a little lower from yesterday. On the cross rates we higher at 96.4 AUc after the Aussie GDP fail. Against the euro we are little-changed at 59.9 euro cents. The TWI-5 is now at 72.5.

Bitcoin is marginally firmer at US$3,844. 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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Highlight new comments in the last hr(s).

Oil majors pile into shale. Poor OPEC. "Shale returns are the highest in our portfolio,” he said. “Returns on our shale investments are north of 30 per cent, at low oil prices. There’s nothing we can invest in that delivers higher rates of return. ...Exxon also expects to be able to be profitable in the Permian Basin even at lower oil prices, saying it can earn an average return of more than 10 per cent there even with crude at $35 a barrel."
https://www.ft.com/content/5229d8aa-3f4f-11e9-9bee-efab61506f44

So why the need for a tout?

Commenters were so concerned that shale wasn't paying the other day I just wanted to do the decent thing and put their mind at ease. Some punters are so worried about stuff it good to cross shale fail off the list and put it on the same list as population bomb, acid rain, global cooling, MMR autism , Y2k, runaway global warming, desertification, peak oil, peak gas etc.

30% IRR’s at the project level (pre tax and G&A) are hurdle rates for upstream energy investments due to high costs of capital and risk. Noone invests in shale at 10% IRR’s -its below their WACC.

I'm sure if oil gets back to $35 then more innovation will kick in. 10 Year oil futures are around $50 at the mo.

Plenty of Bdust in the shale business. Art Berman is the lead man in this area..

"Shale gas producers have been making exaggerated claims about low-cost supply for so long that markets now believe them. Sell-side analysts routinely gush about sub-$3 break-even prices despite corporate income statements and balance sheets that show otherwise. Marcellus leaders Cabot, Range and Antero spent an average of $1.43 for every dollar they earned in 2016; Chesapeake had negative earnings for the year—it couldn’t even pay for operating expenses out of revenues before capital expenditures and other costs"...

https://oilprice.com/Energy/Natural-Gas/The-Shale-Gas-Revolution-Is-A-Me...

China has changed the world we live in. My banking friends tell me China has been bailing the West out for 30 years Im not so sure it has been so one sided but certainly hit jobs in the West.
So whats our world look like with China going less global, perhaps a China first policy like USA first. Perhaps it's always been China first. Perhaps it's the end of cheap Toasters and Weedeaters?
This is my last post from Snider, it's been pointed out that i'm becoming a bit obsessive. However my banker mate in the UK tells me he is a close as us mere mortals will get to the truth So hopefully many of you will keep following his posts.

'It doesn’t matter that each country indicated above uses a different local currency for itself, and therefore what it inherently has available for its trade partners. The reason is why a global reserve currency exists in the first place – to intermediate different regimes. No one in Germany needs to find South Korean won to buy from the Koreans. They could use euros and in some cases they do. Primarily, there are eurodollars in the middle.

If it is more difficult and expensive to come up with eurodollars, that isn’t just a problem for Korea selling to Germany it is a problem for the entire global system almost all at once. And as trade goes, marginal economic growth follows. Globalization in reverse, the very idea of it more and more unpopular.'

https://www.alhambrapartners.com/2019/03/05/the-real-reason-why-stop-go-...

And with that, Im off chasing Tuna for the day.

Tight lines AJ ;)

I was wondering if interest.co should put you on the payroll :-P My view is that Snider is the best out there, well the best regularly writing about it. So I appreciate your posts, and Snider's links in particular. They do come through the Macrovoices summary, but well after you post the links. It becomes too much to read all of his links as he has a heavy writing style, but you can get the gist of the topic with a skim read as charts and topics often overlap from prior articles. I link others to Snider.

Keep the good work going, it is good to be forewarned. I am picking the second half of this year is where it will get really interesting.

Baltic dry index is down nearly 70% since July 2018, despite a 10% uptick recently, and wouldn't really even class it as that. Dec/Jan showed a big slump