US jobs growth beats estimate; China inflation moderates; China trade jumps; Japan growth higher; German imports up; automation stress; UST 10yr yield at 2.38%; oil up, gold drops; NZ$1 = 68.4 US¢, TWI-5 = 71.6

Here's my summary of the key events over the weekend that affect New Zealand with news that jobs, growth and trade are all expanding.

American employment grew at a healthy clip in November with +228,000 new jobs created. And for the first time on record, new jobs have been created in 86 straight months. Pay is rising too, +2.5% and far faster than inflation. Employers are now reporting wage cost pressure is their number one cost concern. The US Fed is all but certain to raise interest rates at its meeting on Thursday and has signaled it will do so three times in 2018 as well. But if inflation starts to pick up, they could be forced to act more quickly, with unpredictable effects on financial markets and the economy. And don't forget, their naive tax cuts will deliver fiscal stimulus right at a time they actually don't need it, but accentuating the inflationary pressure. That mis-timing will cost them (and us?) later when the cycle inevitably turns down.

China reported its consumer price inflation which rose +1.7% in the year to November, and its producer price inflation which rose +5.8% over the same period.

China also reported very strong export and import trade data for November. Imports were up +17.7% and exports jumped +12.3% from the same month a year ago. These gains come as the pace of world trade rises, but the size of the gains has surprised many analysts.

Also surprising analysts was the revision higher in Japan of their Q3 growth rate. It was +2.5% pa and that nearly matched the surprisingly strong +2.6% of the second quarter. Japan has been expanding far more vigorously recently that we have come to expect over the past few decades. The one worry though is that this growth is powered by business investment and not private consumption.

Not all the weekend data was positive. Germany reported higher October imports and lower exports and a smaller trade surplus. Actually, I suppose this is positive for Germany's trade partners.

Back in China, the world's largest automated container terminal started its final trials over the weekend. This is a key area where the robotisation of jobs will hit home. In fact, contract extension talks in the US for waterfront workers have hit a nasty snag over the issue with union negotiators walking out over it. The stress will extend worldwide as high-paying manual jobs disappear to automation. But the last to change will be the biggest loser.

In Australia, China has reacted with some fury over being accused on interfering in its politics, elections and some MPs. China is not used to being called out for its shameless influence peddling and has reacted angrily at being caught. The Aussie PM is holding firm. China has been courting politicians of like-minded persuasions aggressively. In fact, the President of the New Zealand Labour Party was at a Beijing conference earlier this month and issued a very fawning embrace, one that the Chinese appreciated enough to include in their news reviews of the 'conference'. New Zealand political parties on either side of the political spectrum have shown vulnerability to China's 'soft power'. It might work for us economically but I have my doubts about the long-term consequences. Winston Peters is showing similar vulnerability to Moscow.

In New York, the UST 10yr yield is now at 2.38%.

The price of crude oil is up slightly higher, now just under US$57.50 / barrel, while the Brent benchmark is just under US$63.50.

The price of gold is down another -US$6 at its new lower level of US$1,246 oz, a five month low.

The Kiwi dollar is basically unchanged and now at 68.4 US¢. And on the cross rates we are similar at 91.1 AU¢, and against the euro at 58.1 euro cents. That puts the TWI-5 just up a tick at 71.6.

Bitcoin lost almost a fifth of its value in 10 hours over the weekend, having surged more than +40% in the previous 2 days. (See the bitcoin tab in currency chart below.) This is raising fears the market may be heading for a price collapse. Today it is at US$15,419 and at one point got down to US$13,161. Remember, this is an 'item' (?) that traded at US$17,134 at its peak at 3pm on Friday (NZT). It has only just occurred to me that the about-to-be-launched bitcoin futures trading opens up the opportunity to short this market. That actually might have a restraining influence.

If you want to catch up with all the changes on Friday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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13 Comments

China, via Michael West - " a mob of Chinese gangsters attempted to stage a heist against the formidable Macquarie Bank. Macquarie’s leasing business in China was defrauded for millions of dollars by a gang of Chinese hucksters but when the cunning MacBankers worked out that they had been fleeced, they proceeded to fleece the gangsters back, even harder."

https://www.michaelwest.com.au/swindling-the-chinese-gangsters-a-very-ma...

BAU?

To the relief of the banks and investors, the Basel III rule book was “watered down” sufficiently that the announcement that the deadlock had been broken led to a spike in European bank stocks on Friday morning. The sticking point holding back the clarification of Basel III for nearly a year had been how to adjust capital requirements for the risk of assets like mortgages. In particular, how far the banks’ models for calculating risk could diverge from more conservative assumptions – known as the “standardized approach” - used by regulators. Under the compromise deal, dubbed Basel IV, banks’ total risk-weighted assets cannot be less than 72.5% of the amount calculated in the standardized approach. Read more

Meaning, presumably, that if the standard weighting is 25% then the big banks can get away with 18.125%. So, that implies the Aussie banks need to have capital equivalent to at least 18% of 10% or 1.8% of the money they lend out as mortgages. What a whitewash. Bankers rule.

The Standard risk weight for residential mortgage loans that are not 90 days past due is 35% in New Zealand. Read more page 45 (45 of 107)

Phew, that's all right then. I was worried there, but 72.5% x 35% = 25.375%, so every $100,000 the Aussie banks lend out has backing of at least $2,537.50. Oh, wait a minute, that's actually 2.5%. That can't be right, can it? Er, can it?

It's correct in what they should have. In NZ we have about 2.54% and Australia has 1.98% based on figures provided earlier in the year. They are way below where they should be.

I've laughed at bitcoin traders using 90% margin for their trading. The Australian banks are far more ridiculous than bitcoin traders.

American employment grew at a healthy clip in November with +228,000 new jobs created. And for the first time on record, new jobs have been created in 86 straight months. Pay is rising too, +2.5% and far faster than inflation. Employers are now reporting wage cost pressure is their number one cost concern.

Hmmmmmm.....

This is how you get the newest generation of American adults yearning in greater numbers for something vastly different, a radical political change if for no other reason than the establishment here continuing to say that everything is good when by every reasonable standard it isn’t even close! The “robust” labor market even of the past few years isn’t nearly enough to draw in those still sitting on the sidelines struggling however they do (parents’ basements) to just get along, leaving the economy instead it’s “missing” 16.3 million; a number that in a truly robust economy would be falling not rising.. Read more

(At the risk of repetition! http://ggc-mauldin-images.s3.amazonaws.com/uploads/pdf/171209_TFTF.pdf )

The growth in wages is also decelerating....real wage growth for the year ending November 2015 was 2.8%, while for the year ending November 2016 it was just 1%. The savings rate is now the lowest in 10 years. The velocity of money is still slowing, which means that businesses have to do everything they can to hold down costs, and one of those things is to rein in wages.

David, I'm not sure you are entirely correct when you say:
Germany reported higher October imports and lower exports and a smaller trade surplus. Actually, I suppose this is positive for Germany's trade partners

The point is this, the current account surplus that Germany, China and Japan jointly run creates a double entry requirement for a capital flow the other way. So if Germany runs a smaller trade surplus it implies less upward pressure on the kiwi dollar, regardless of whether we deal directly with Germany at all. Michael Pettis is the man, it would be great to have some of his wisdom on your most excellent site.

Any substance to the idea that the US and the Saudis are trying to get the oil price up, do you think? There was a suggestion that he who would be named deliberately stirred up the Jerusalem issue with this in mind.

Winston Peters is showing similar vulnerability to Moscow.

Maybe he has no choice but to accept the inevitable.

In describing the national security challenges Trump has inherited from previous administrations during the forum Saturday, the White House National Security Council (NSC) leader said:

Revisionist powers — Russia and China — are subverting the post-World II political, economic, and security orders to advance their own interests at our expense and at the expense of our allies. Read more

Isn't McMaster just another warmonger banging the drum for more military spending? I mean, he almost tries to blame Iran for creating ISIS, whereas it seems more likely they were a product of Saudi/US secret warfare plans gone wrong (unless the objective was to create widespread chaos). Surely ISIS was largely a creation of Al Queda, which in turn was a creation of the Mujahadeen.

Indeed - but possibly outgunned.

"In short, providing the military power called for by the United States' ambitious national security strategy, which has never been easy, has recently become considerably more challenging," the report reads. "The coincidence of this new reality with a period of constrained defense budgets has led to a situation in which it is now far from clear that our military forces are adequate for the tasks being placed before them."

"Put more starkly, assessments in this report will show that US forces could, under plausible assumptions, lose the next war they are called upon to fight, despite the United States outspending China military forces by a ratio of 2.7:1 and Russia by 6:1," the document continues. "The nation needs to do better than this." Read more

http://tass.com/defense/980090