Here's our summary of key events overnight that affect New Zealand, with news the world's giant services sector is expanding steadily.
Firstly in the US, employers stepped up hiring in December and layoffs fell sharply, pointing to continuing labour market strength that will likely keep the US central bank course to increase interest rates in March. Today's data comes ahead of tomorrow's official non-farm payroll report and all eyes will be on the impact on wage gains.
But the latest assessment of the giant American services sector was not so upbeat. It showed a slower expansion in business activity in December and business confidence slipped to a 15-month low. This was despite and upturn in new orders which is staying a relatively strong aspect.
But markets are looking past this: the Dow is up over the 25,000 index level for the first time, a gain of 0.6% on the day. The wider S&P500 index is up +0.5%.
The global state of the services sector is better than in the US. The EU and China are recording faster expansions, and Japan's factory sector has come in at nearly a four year high.
In China, a review of corporate bond risk shows a heightened expectation of defaults with developers and construction firms the most vulnerable. Chinese builders face a record US$31 bln of onshore and offshore bond maturities this year, which may more than double if put options are exercised. Fundraising curbs have hurt their ability to sell bonds in the domestic market, with onshore note issuance plummeting -67% in 2017 as Beijing tightens is control and oversight of the sector.
In Vancouver, regulations there to try and quell runaway housing prices are having perverse impacts. Sales volumes are much lower for houses and prices are softening - but not collapsing. However, the apartment ("condo") market is booming with sharp rises in prices for these more affordable units. Those regulations have shifted the game in an unexpected way. Average apartment (condo and townhouse) prices are up +25.9% in a year and are now over C$650,000 for the first time.
The UST 10yr yield is unchanged at 2.45% today. In China, the equivalent 10yr sovereign bond is yielding 3.94% (+2 bps) while the equivalent NZ 10yr sovereign bond is yielding 2.77% (unchanged).
Oil prices are up again in the US today with the WTI benchmark now just under US$62 a barrel, while the Brent benchmark is just under US$68. The rise is to its highest since May 2015 and driven by concern about supply risks from the unrest in Iran, the effect of OPEC-led output cuts, and short-term demand-boosting cold weather in the US. But if the US Administration gets its way, vast new areas will be opened up for oil exploration there.
Gold is up another +US$3 to US$1,318/oz.
This morning the Kiwi dollar is up ½c from this time yesterday at just on 71.5 USc, and on the cross rates it is at 91 AUc, and against the euro it's also higher at 59.3 euro cents. That puts the TWI-5 at 73.7.
Bitcoin has had a minor net slippage in the past 24 hours and is now at US$14,823 although at one point is was US$500 higher.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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10 Comments
But if the US Administration gets its way, vast new areas will be opened up for oil exploration there.
Just for a laugh:
2018 is the year that fragilities in the shale oil industry challenge the narrative of the “miracle.” The industry hasn’t made a net red-cent since it ramped up ten years ago. It’s been running on debt, a lot of it junk financing (high-yield, high-risk, covenant-lite). The producers have been fracking and pumping all-out for several years to maximize their cash flow to service their loans. But these shale wells deplete by 80 percent on average after the first three years, and have to be replaced by expensive new wells, which require ever more debt financing. The truth is that shale oil and other “unconventional” oils just don’t pencil out economically. Their success in recent years was part-and-parcel with the central bank credit flood. As that credit flow gets choked down in 2018, oil companies will go out of business at an impressive rate. If the price of oil goes up to $80-a-barrel, as a result, it will be very damaging to what remains of the US economy of real stuff. Read more
That might have been true at $45 per barrel but isn’t shale very profitable at $60+ per barrel? Also aren’t there new developments in shale tech that have further increased what they can get from wells? If OPEC has pushed the price up with scarcity that hole will be filled by shale. I’ve read China is about to get into it in a big way and surely other countries will follow suit. I expect the price to decline back towards $50 over the next year or so. Also, long term, the surge in electric cars isn’t going to be good for oil. Electric cars will really start to take over market share between 2020-2022z
Best explanation I have yet heard for bitcoin being in bubble territory.
Citing the 17th Century Dutch financial bubble in tulip bulbs, Varoufakis sees bitcoin’s current valuation as, “the perfect tulip bubble.” His explanation is simple. “Just take a look at two graphs. Graph one is a time-series of the dollar price of bitcoin, which has been growing exponentially. Graph two is the number of transactions and the quantity of goods and services that are sold and purchased by bitcoins.” The juxtaposition between these two graphs, suggests that the price of bitcoin is grossly inflated relative to its actual use. This leaves Varoufakis to conclude that, “without a shadow of a doubt, this valuation is the perfect bubble.”
https://www.yanisvaroufakis.eu/2017/12/25/bitcoin-blockchain-and-the-fu…
In Vancouver, regulations there to try and quell runaway housing prices are having perverse impacts. Sales volumes are much lower for houses and prices are softening - but not collapsing. However, the apartment ("condo") market is booming with sharp rises in prices for these more affordable units. Those regulations have shifted the game in an unexpected way. Average apartment (condo and townhouse) prices are up +25.9% in a year and are now over C$650,000 for the first time.
The Ardern administration better take note and not mess with the market. Small adjustments, yes. Lurch to the left, NO
Bitcoin freeze by banks over the ditch... old news now but still.
Stephen.. I found alot of that article to be a bit of a nonsense.. eg.
To figure this out, we need to go beyond the formulaic textbook trinity of unit of account, store of value and means of exchange, and understand money as a social institution. Modern money is a special-purpose credit note that operates on two levels, neither of which cryptocurrencies can match by design.
First, credit money solves liquidity issues in a complex economy by means of a business called banking. Second, being a social institution, money both expresses and contains conflicts between warring parties within the capitalist system. Modern credit money works ultimately because it watches over a capitalist peace.
The reality is that credit money is the CAUSE of Liquidity issues.. (this is inherent in a debt based fiat money system)
Going on about money as a "social institution".... simply takes one down the garden path of confusion... in my view.
In my view, an economy with a fixed money supply, would have ongoing benign deflation..( which is the natural result of gains in productivity/innovation).
If we had a fixed money supply, the natural outcome would be the opposite of what we have now.
ie. we would reintroduce the 5 cent piece, the 2 cent piece, the 1 cent piece.
ie. the money supply would adapt by increasing the quantity of smaller denominations of currency.
A fixed money supply balances saving, consumption and investment, and the cost of money (%rate), would reflect this balance/imbalance.
the beauty of crytocurrency is that it can do this already ( fractionate)... Bitcoins smallest unit is 0.00000001 bitcoin.
ALSO... with a fixed money supply, you might find that Capital formation might rely more on equity raising rather than debt... I think this would be a good thing..
I'm very much in favour of a fixed money supply. If there was a need to increase the money supply the only equitable way would be to distribute the new money , equally, to all citizens. ( otherwise new money simply becomes a "tax", a redistribution of wealth )
just my view....as I run out the door.
I can see the possibilities of crytocurrences becoming " money"... ie. unit of account, store of value, medium of exchange).
ALSO.. it seems to have its own , built in payments system.. and I can conceive the possibility of it being a payment system that connects everyone, just like the internet.. It could easily become a global currency..??
I bought some new trading software yday, and one of the payment methods offered was bitcoin..
Crytocurrenises may be the "uber", the "Airbnb" of money and transactions..????
Problem is.... Govts will not allow their money systems to be usurped.
Maybe Govts of the future will embrace cryptocurrencies..??
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