Australian election surprise; India votes; US tariff back-track with allies; China digs in; China house prices rise; UST 10yr 2.39%; oil and gold down; NZ$1 = 65.5 USc; TWI-5 = 70.3

Australian election surprise; India votes; US tariff back-track with allies; China digs in; China house prices rise; UST 10yr 2.39%; oil and gold down; NZ$1 = 65.5 USc; TWI-5 = 70.3

Here's our summary of key events over the weekend that affect New Zealand, with news election results are dominating our news.

The Australian election result defied the polling earlier in last week and will have some interesting consequences. Firstly, the incumbent centre-right won, extending its term. One important reason was coal mining in Queensland. Pro-coal forces hurt the climate-sensitive opposition and this huge mine will now almost certainly go into production, shipping vast amounts of thermal (low quality) coal to India. Secondly, the independent magnate who spent $60 mln trying to 'buy' a Senate seat lost. And thirdly, the hard-right icon of the Liberal Party, former prime minister Tony Abbott, pointedly lost his seat to an independent candidate and is now out of Parliament. Another infamous candidate, Fraser Anning, was also dumped. Exit polling suggests that a crucial part of the electorate didn't actually make up its mind until they had the voting papers in their hand.

More of the same is likely in Australia. This is not a reforming Government. Banks are unlikely to face further sanctions. The big June tax cut will happen, giving an almost immediate fiscal stimulus. Eyes will be on the Aussie dollar when it opens this week in a few hours.

​And in India, exit polls suggest that incumbent right-wing nationalist prime minister Modi will win a second term​.

In Washington, the US has lifted tariffs on steel and aluminium products from Canada, and is expected to do the same for Mexico. These tariffs were imposed by Washington just last month on grounds of 'national security', highlighting the silly gamesmanship behind them.

And Washington is also 'delaying' tariffs on cars which were aimed at allies Japan and the EU, in a back-track that may allow it to concentrate on the failing China trade talks.

Meanwhile, China has canceled some large pork orders with the US, adding pressure to American farming interests which are already reeling from the loss of some major grain markets. The rising US dollar won't be helping them either. China will need alternate sources of meat protein.

China is digging in, now saying more trade talks with the Americans will only happen if they are 'meaningful'.

A senior China politburo member has said the trade war could slice as much as -1% from China's growth this year. He indicated this was an acceptable price to pay for a long-term winning position.

One US policy that has bi-partisan support in Washington is its push-back on Chinese tech and its perceived capacity to be a security issue. The recent ban on Huawei is the icon example. But in Europe, they don't see the threat in technical terms and are pushing ahead and allowing Huawei to win 5G infrastructure contracts there. It is a direct snub to Washington.

Meanwhile, Chinese house buyers are bidding up local prices again, especially in their main cities. They are up as much as +20% in some in a year, up +10% to +15% in many others. Beijing is cooler, up just +3.5%, but recall, there is a clamp on Beijing's population and it is being administered to fall.

The UST 10yr yield was marginally lower on Friday to 2.39%, but that is -7 bps lower in the week. Recall it fell -7 bps in the previous week too. Their 2-10 curve is now at +19 bps but their negative 1-5 curve is at -16 bps. So far there has been no assault on the UST yields from China as part of their retaliation. The Aussie Govt 10yr is at 1.64% and down -10 bps over the week. The China Govt 10yr is down -3 bps in the week to 3.28%, while the NZ Govt 10 yr is down -3 bps this week, now at 1.82%.

Gold was down -US$10 on Friday to US$1,276/oz.

US oil prices are soft today, now just under US$62.50/bbl while the Brent benchmark is just under US$72/bbl.

The Kiwi dollar is lower against a rising greenback this morning at 65.5 USc and that it its lowest level since November 2018. On the cross rates we little changed at 95.1 AUc although the Aussie dollar may firm when it opens this morning on the election result.. Against the euro we are similar at 58.4 euro cents. That all makes the TWI-5 slightly lower at 70.3.

Bitcoin is on a roller-coaster. After falling to US$7,034, it rose to over US$8,300, then back down to US$7,234, and now it is back up to US$7,986. It is a wild market with schizophrenic price signals, pure crazy speculation..This rate is charted in the exchange rate set below.

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Re, the Aussie election. I don't think it was a "Surprise" to the majority of Australians. I just think the pollsters just got it wrong again.

Yes, and Aussie thermal coal is not low quality. Low quality is lignite, like what Germany burns. Aussie thermal coal is in high demand in China and India precisely because it is less polluting and more efficient than the local stuff they are using. So Aussie coal actually saves real lives compared with the alternative.

The bitcoin roller coaster is not as crazy as some think. We have the 'halvening' (block rewards reduce by 50%) in around 1 year - e.g. supply halves. That always causes large price increases (usually a year in advance) and the market is trying to price that in. Litecoin has its halvening in only August and had similar behaviour around December or so - up 400%

Nothing to do with capital flight from China, then?

Probably contributing a bit, but I think that the whole "China moving into bitcoin" is exaggerated. Only takes $100 million injection to push the price up $1000, so it there was a mass exodus from china into bitcoin we'd be at ATH already

Must be a contagious world event caused by the collapse of global trade due to a shortage of G-SIB banks supplying the necessary balance sheet capacity to finance such cross border endeavours.

There is recorded capital flight from the US according to recent TIC data releases - it's just ignored by the MSM.

According to TIC, over the last six months including the latest data for March 2019, the official sector has disposed of about $121 billion in reported assets. As you can see above, that’s a monumental effort. And it’s still nowhere near enough, as the bank data indicates.

If the eurodollar market isn’t supplying eurodollars and central banks can’t meet all the dollar needs, then the only option left to an overseas bank synthetically short eurodollar funding is for them to sell their own US$ assets of whatever variety. Classic firesale stuff.

Normally, the foreign private sector on net is buying hundreds of billions in any 6-month period. In the 6 months up to and including January 2018, for example, private foreign parties had purchased, on net, $264 billion in reported US$ assets.

Over the last six months ending with March 2019, they’ve purchased, on net, just $11 billion. In just the past four, meaning going back into December 2018, private foreign parties have sold, on net, nearly $100 billion. It’s a quarter-trillion turnaround from last January.

The dollar short meets the dollar shortage. Global economy rushes toward global recession.


Nothing to do with capital flight from China, then?

Not capital flight, but possibly Chinese fiat being removed from the system. A lot of the trade in crypto is fake but the market is definitely being driven by 1%ers (from the old world) and institutional moves. It's not simply the dreamers, nerds, and wackos such as myself anymore (I'm only a bit player).

Anyway, the NZX50 (via the FNZ proxy) is up over 15% YTD, but that never makes the news in any meaningful way and casues any gasps. Furthermore, AUD and NZD are showing a continuous 2-year decline against JPY (usually a sign of "global" risk aversion), but nobody bats and eyelid.

The economic liberal and socially conservative ruling party in India came into power with a pre-election commitment to build infrastructure and reduce bureaucracy from the business landscape. Since 2014, India has jumped an impressive 57 places to land at rank 77 on the Ease of Doing Business Index.
The party has contributed 80% of the US$355b in the country's infrastructure investment over the last 5 years to support growing needs for power, transport, education, public hygiene etc.

Looks like Tony Abbott will have to pay for his own onions to eat now.

I was reading a CNBC article this morning of a farmer supporting Trump. That farmer had switched from soy to pork. With the news of pork orders being cancelled this is going to be interesting. How much pressure can Trump take heading into the next election?

We should all hope that this tariff war breaks him and angers his Red Base against him to the extent that Bernie, Warren or another Democrat wins the Presidential election and adds some sanity back into American capitalism. I know a 4-8 year-long presidency without the support of the Senate won't be nearly enough to reverse decades of lower class dismemberment in the US but the greed-fueled relentless growth needs to stop.

Google have pulled huawei's android license. That is going to make it hard for them to sell smartphones too.

Hmmm... the private sector turns out to be the state sector after all?

But that assumes (the most Dangerous word...) that WaWey has not already reverse-engineered a Chindroid.....

Please research
The UK are not allowing Huawei to have access to the “core” internet traffic lines
The UK are merely accepting the ridiculously cheap prices Huawei had offered for parts of the 5G network
The US know this & China is actually furious that they are not getting access to the core trunk lines of the UK system which was the whole objective of the CCP to filter all internet traffic Now they’re stuck supplying 5G for peanuts at a loss to China with no gain


Should have book Facebook shares instead of Bitcoin. At least then I wouldn't have experienced a roller coaster ride. Oh wait...

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