US household net worth falls; ECB restarts stimulus; Beijing worried about local authority debt levels; claims China's economy is overstated; air cargo volumes retreat; UST 10yr 2.65%; oil up and gold down; NZ$1 = 67.7 USc; TWI-5 = 72.6

Here's our summary of key events overnight that affect New Zealand, with news that the size of the Chinese economy may be less than we thought.

But first in the US, data released by the Fed this morning shows a surprising fall in household net worth in the December quarter of 2018. A volatile stock market trimmed levels more than expected. This comes after an earlier survey showed that Americans stopped taking on more debt as they started to feel the pressure.

Also feel pressure was the ECB who unexpectedly changed tack on its tightening plan overnight, pushing out the timing of its first post-crisis rate hike until 2020 at the earliest and offering banks a new round of cheap stimulus loans to help revive the slowing euro zone economy that they say is lasting longer and is deeper than earlier thought.

Speaking of stimulus, Beijing continues to be surprised and concerned about the level of local authority debt levels. Some local governments have continued to illegally borrow money off-the-books through local government financing vehicles. This hidden local government debt amounted to around NZ$9 tln as of end of 2018, and the interest payments alone could reach more than NZ$130 bln in 2019.

Worse, a new study claims that China as significantly overstated the size of its economy and its growth rate. The "forensic review" suggests the current nominal size of the Chinese economy is about -18% lower than the officially claimed level at the end of 2018.

Wall Street is -0.5% lower so far today following similar falls in Europe (-0.6%) overnight as risk aversion takes hold on the poor data releases and ECB change of heart. Yesterday, markets fell heavily in Hong Kong (-0.9%) and Tokyo (-0.7%), although closed even in Shanghai (+0.1%).

Air cargo volumes begin 2019 on a weak note, with volumes -1.8% lower than their level of January 2018.This is third consecutive month of negative year-on-year growth, and is the slowest pace in three years. In fact, international volumes are falling faster, down -3% year-on-year with Asia/Pacific international volumes down a worrying -4.8%.

Going the other way is passenger air travel. This rose +6.5% in January compared with the same month a year ago. This was the fastest growth in six months. And in the Asia/Pacific region it is up +7.1%, also a rise in the expansion.

In Australia, they recorded a massive +AU$4.5 bln surplus in goods and services in January month, a record high for any month for them. Markets were still reeling from the earlier GDP fail so aren't actually giving them any credit for this yet. Maybe weakish retail sales in January are undermining this good news.

The UST 10yr yield is down at 2.65%. Their 2-10 curve is now at +17 bps while their negative 1-5 curve has returned with a vengeance and is now -10 bps. The Aussie Govt 10yr is down another -2 bps to 2.05%, the China Govt 10yr is down -3 bps to 3.19%, while the NZ Govt 10 yr is also down -3 bps to 2.15%. Local swap rates also fell and flattened yesterday.

Gold down by -US$2 to US$1,285/oz.

US oil prices are firmer today at US$56.50/bbl while the Brent benchmark is over US$65.50/bbl.

The Kiwi dollar is at 67.7 USc and unchanged from this time yesterday. On the cross rates we little-changed at 96.3 AUc and against the euro we are firmer at 60.4 euro cents. That puts the TWI-5 at 72.6.

Bitcoin is marginally firmer at US$3,877. 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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9 Comments

Espiner failed in interviewing Boult this morning.

Levy 30-40 years hence? How are they coming?

Eurozone: so everyone is still on life support ZIRP?

up
13

"that they say is lasting longer and is deeper than earlier thought'
dont they mean it is fueled by debt, and when you take away the debt there is no growth at all

"the ECB who unexpectedly changed tack on its tightening plan overnight, pushing out the timing of its first post-crisis rate hike until 2020 at the earliest..."

This is fine...

Prof Richard Werner
In my book Princes of the Yen I warned in 2003 that the ECB was going to copy the BoJ, create bank credit driven property bubbles, banking crises, vast unemployment and then kill small banks via endless low interest policy, causing a prolonged slump

Japanification of Eurozone is new buzz in fin mkts. 'W/ inflation unlikely to reach the ECB target for another 3yrs, the reality is sinking in that euro area is moving one step close to Japanification,' SG says. 'The eurozone's Japanification means 'lower for longer,' ING says.

On YouTube Princes of the Yen: Central Bank Truth Documentary

https://www.youtube.com/watch?v=p5Ac7ap_MAY

There can only be 2 reasons for the EU to stimulate .

1) There is a recession on the way
2) The demon called deflation is eating away at EU economies.

Unfortunately, stimulus in a deflationary environment may not work in attaining the outcome desired

Reconsidering Monetary Policy: An Empirical Examination of the Relationship Between Interest Rates and Nominal GDP Growth in the U.S., U.K., Germany and Japan

https://www.sciencedirect.com/science/article/pii/S0921800916307510

'It was hard not to come away depressed after watching European Central Bank President Mario Draghi’s Thursday press conference, during which he basically admitted that policy makers are unable to reverse the rapid weakening in the global economy.'

https://www.bloomberg.com/opinion/articles/2019-03-07/central-banks-don-...