US retail strong; China tweaks rates; ECB stays loose, raises growth forecasts; Canada household debt jumps; HNA in talks with banks; UST 10yr yield at 2.35%; oil unchanged, gold up; NZ$1 = 69.9 US¢, TWI-5 = 72.8

Here's my summary of the key events overnight that affect New Zealand with news that official rates have been under review around the world.

Yesterday's Fed hike was supported today by stronger than expected retails sales data - and prior months have been revised higher too.

Following the US Fed rate hike, the Chinese central bank also raised rates, but their move was marginal and highly selective. Their rises were just +5 bps, and pointedly they did not move the benchmark interest rates that banks charge on loans to retail and corporate borrowers. China is fearful that such a tightening would over-signal at a time of the year in China when market forces naturally tighten. Very high corporate debt levels mean the Chinese economy is very vulnerable to interest rate rises, and interest rate declines are very simulatory.

However, as others tighten, the Europeans hang loose. The ECB left rates unchanged today - no surprise; it left all its monetary policy positions unchanged with the full QE settings. But it did raise its growth forecast for the EU to +2.4% in 2017 (up from +2.2%), and by +2.3% in 2018 (up from +1.8%). The latest EU PMI surveys are very expansionary, in fact at 7 year highs.

Also finding the going better is Japan's manufacturers; their flash December PMI is at a 4 year high. And Japan is about to push through a large corporate tax cut - apparently on the basis that this will alllow companies to pay higher wages.

Canadians have woken to hear that their household debt levels have been revised higher. The latest data shows them at 171.1% of household disposable income at at September and a record high. Before it was revised up, the June level was 167.8%. The equivalent New Zealand level is 167.5% as at September and a reduction from June.

Excessive debt is not only an issue for households, it is also a corporate problem, especially in China. HNA Group, known for its splashy overseas acquisitions over the past two years or so, is trying to defuse market concerns over its debt pile and liquidity. The Chinese conglomerate said in a statement on Thursday that it had met with representatives from eight policy and commercial banks to discuss the company’s credit facilities for 2018.

And we should note that China's war on smog is having an unexpected impact on its agricultural sector. The drive to clean up their air has seen fertiliser plants close and that has sharply raised the price of fertiliser and reduced its use. Demand for imported alternatives are rising, as will be demand to replace lower rural production.

In New York, the UST 10yr yield is marginally softer at 2.35%.

The price of crude oil is little changed today, now just over US$56.50 / barrel, while the Brent benchmark is down to just over US$62.50

The price of gold is up another +US$8 to US$1,253 oz.

The Kiwi dollar is also little changed at 69.9 US¢. And on the cross rates we are holding up too at 91.1 AU¢, and against the euro at 59.3 euro cents. That puts the TWI-5 at 72.8.

Bitcoin is now at US$16,690 and up +4% from this time yesterday.

If you want to catch up with all the changes yesterday, 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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12 Comments

The Japanese are hopeful - reduced taxes will more likely mean increased profits for shareholders.

They are very reluctant to increase worker pay. We can hold out hope but it's unlikely to change anything.

Time to tax corporations?

The Bank of England is putting the United Kingdom on alert. Should the UK keep borrowing money, as Corbyn's Labor Party has advocated, there will be a “Venezuela-style” economic collapse that will devastate normal citizens.

A senior Bank official has warned that the UK’s economy would be unlikely to survive borrowing any more cash. Richard Sharp, a member of the Bank’s Financial Stability Committee, claimed an extra £1trillion had already been borrowed since the 2008 financial crisis, and any more could see the economy collapse in the same quick manner that Venezuela’s did. Read more

Unelected officials need to reflect the mandate they have not been granted. Furthermore, central bankers failure to comprehend the mechanics of CPI type inflation in all likelihood extends to government fiscal policy.

I don't know what is worse, bitcoin news, or your Santa hat David.

maybe both equal ?

Dc, to balance the Opinion Ledger, I think you look simply Superb in that there 'at.

Thanks for wearing the Santa hat David, it made me srtart the day with a good laugh. (not laughing at you, though, it's just funny)

Great hat and demenour..
Perhaps 2018 could bring a stetson if oil prices are up or a sombrero if china is just hohum..
Anyway, hope you all survive christmas dinner with your families still intact...

andrewj - in case you haven't come across it yet in today's news;

Report slams Mackenzie tenure review
https://www.newsroom.co.nz/2017/12/12/67822/report-slams-mackenzie-tenur...

Nice hat David.

Remember where you read this first !

Grant Robertson is missing a trick ............. he could solve much of his budget constraint issues by doing one simple thing .

In the 2017 / 18 tax year there has must be a section in the Tax return with the following question :-

Did you hold , trade , buy , sell or exchange any form of crypto-currency (such as BITCOIN ) during the previous tax year ?

If YES .. then answer the following question

How many
Opening amount
closing balance
gain in the period
etc, etc

Tax at 33% should be paid in REAL DOLLARS on any gains on Bitcoins traded within 2 years of acquisition ( we call it the Brighline test) .