Here's our summary of key events overnight that affect New Zealand, with news all eyes have been on the American labour market overnight.
The US payrolls data reported a gain of +201,000 jobs in August, right on expectations. Impressively, wage data showed a +2.9% year-on-year rise and that is an improvement that wasn't expected. It was the largest rise since 2009. But there are some other signs worth noting. Prior month gains were revised down by a sizable -50,000 jobs. Their participation rate slipped (when most thought it would be rising), and new manufacturing jobs actually fell in August when a big gain was expected.
Actually, that lower participation rate was significant. Because of it, the total civilian workforce in employment actually fell from 156.0 mln to 155.5 mln. The headline 'gain' of +201,000 jobs comes from 'establishment' data surveys. The measurement of labour force employment comes from a separate 'household' data survey. This surveying difference will come out in the wash over time, but it is not necessarily obvious which way yet.
However, on the headline data (and especially the wage gain item), expectations of another Fed rate hike rose. The US dollar rose. Benchmark bond rates rose. But none of this is stopping Wall Street posting a small retreat on the day.
In Canada, the headline jobs report was very negative, showing a loss of -52,000 jobs following two months of strong increases. But it might not be as bad as it first looks - all the losses were of part-time position. Full time employment actually grew by +40,000 jobs. Still, the result was not expected, and they too saw a fall in their participation rate - even if it sits quite a lot higher than the US level. Separately, a central bank official has said that Canada's economy can tolerate more interest rate hikes.
In Mexico, their August inflation rate edged up to +4.9% from +4.8% in July. It seems more official interest rate hikes are on the way there too.
In Europe, the final measure for their Q2 GDP growth was pegged back a little to +2.1%.
China released data on its foreign currency reserves, not more closely watched given the trade war they are in with the United States. Those reserves slipped a little more than expected, but are still comfortably above US$3.1 tln.
And speaking of the trade war, the US President today threatened to impose new tariffs on US$267 bln of Chinese exports to the US. Apparently, these are in addition to the $200 bln that the US is preparing but not yet imposed. So far only $50 bln of tariffs have actually been put in place. Although this latest threat may just be more bluster, it does seem as though chances of a negotiated resolution is fading. It is this news that is keeping Wall Street in lower territory. China may respond with matching 'export rebates'.
In Australia, their unique superannuation industry has been caught with a rort. Funds have been automatically classing customers as smokers, resulting in higher insurance premiums when they upsell life insurance with superannuation membership. About 70% of all life insurance in Australia is sold this way.
The UST 10yr is higher today at 2.94% following the US payroll data. Their 2-10 curve is little changed however at just under +24 bps. The Aussie Govt 10yr is at 2.57% (up +2 bps overnight), the China Govt 10yr is at 3.65% and unchanged, while the NZ Govt 10 yr is at 2.55%, down -1 bp. New Zealand swap rates have edged lower with the 2 year now at 1.97%.
The VIX has moved higher again this week reflecting rising volatility and is currently at 14.8. Both political and economic risks are unsettling markets. The average index level over the past year of 12. The Fear & Greed index has moved back to a neutral position, giving up all its 'greed' positioning of the past month.
Gold is marginally weaker from yesterday and is now just on US$1,196/oz in New York, down -US$2.
US oil prices are unchanged today from yesterday and now just under US$68/bbl. The Brent benchmark is now just under US$77/bbl. The US rig count is unchanged this week.
The Kiwi dollar is ending the week -¾c lower than at this time last week at 65.4 USc, this time as the US dollar rises. On the cross rates we are little changed at 92 AUc, and softer at 56.5 euro cents. That puts the TWI-5 at 69.4 and -60 bps lower over the week.
Bitcoin is now at US$6,424 and -8.8% lower for the week.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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13 Comments
Quote of the morning - Barak Obama: "Trump is a symptom, not a cause".
https://www.cnbc.com/2018/09/07/obama-said-trump-is-a-symptom-not-a-cau…
It's a bit rich for Obama to invoke Godwin's law in reference to the Trump administration.
What did his administration do to put right this type of repeated, unnecessary violence/killing by law enforcement with respect to the black population in US cities;
https://www.nytimes.com/2018/09/04/us/laquan-mcdonald-van-dyke.html?act…
Noting the Mayor who presided over the cover up in this Chicago case was;
Laquan’s death changed Chicago, in ways obvious and still to be determined. It laid bare decades of distrust over Chicago police officers’ treatment of black residents and over City Hall’s lack of transparency. It led to policy changes and promises of a revamped Police Department. And it pushed Mr. Emanuel, a Democrat who built a reputation as a master tactician during stints in Congress and on two White House staffs, into a political bind that he endured but never overcame.
Obama has utterly failed to support Kaepernick in his non-violent protest against this type of treatment of black people at the hands of US law enforcement;
https://www.politico.com/story/2016/09/obama-colin-kaepernick-anthem-22…
Obama ought to be on his knee as well - to my mind. Martin Luther King Jr. would have been.
If Trump is a symptom - Obama is the cause.
Kate - that comment comes 24 hrs after someone else denigrated my lifting something from a political blog they happened to have an objection to.
I think we need to separate truths where they appear. from the origin - and the 'symptom/cause' was a truth.
The problem of 'race' usually relates to fights over bits of the paddock - including energy. The black population of the US were imported forcibly, to be energy applied to agriculture. A better energy source came along, the Civil War was the interface and the more compact energy won. At the time, just won. 50 years later it would have annihilated. But the US is now 'full', and the fight just happens along identifiable lines. Race is a common delineation, once we get bigger than tribal bands. Soon after race comes uniforms, swasticas/roundels, flags... Sneetches on the beaches stuff.
You're right in that Obama represents the establishment, ex-Clinton and including McCain. It has spent the last 50 years disenfranchising 'others'.
The rise of Trump has parallels to the rise of Hitler - 'Laws' aside - and we'd do well to note the trend. The fact that the regime which Obama represents is as off-the-pace as the regime Chamberlain represented, is an interesting adjunct. Obama is not the cause, a long-evolving cultural ethos is the cause. But he could have done better.
What is most interesting about the US payrolls data is not the gain in August but the large revision downwards for June and July.
Interesting short article here:
https://www.businessinsider.com.au/jobs-report-is-revised-at-least-7-ti…
about how big revisions are the norm.
One very interesting observation is how payroll revisions react according to what part of the economic cycle the US is in:
“As a general rule of thumb, payroll revisions tend to be upward during economic recoveries/expansions and downward during economic recessions,” added LaVorgna. “Since the economy grows much more often than it declines, revisions on balance are positive.”
So maybe, if we are looking at the recent direction of the US economy, we should be paying less attention to the payroll figure for the last month, and much more attention to the direction and amplitude of the revisions of the previous two months?
everyone needs to start getting heads around the shadow banking/ eurodollar system.
After the WWII the banks in the USA were regulated by the FED however offshore London and Europe were not. The USA banks set up branches in Europe and used assets in the USA as collateral to lend.
Listen to the last 5 minutes on the ‘city’
https://www.youtube.com/watch?v=EC0G7pY4wRE
This became the Eurodollar, but it’s not a Euro or a dollar it’s just a lot of IOU’s. As Milton Friedman said “a Eurodollar is created with a book keepers pen”. All the big banks got in on the deal.http://www.alhambrapartners.com/2018/08/08/august-9-2018-debut-of-eurod…
So if you wanted to purchase cars from Japan, rather than having to find and buy US$ and then sell those to buy Yen, the bank just wrote an IOU, a ledger liability to a bank in Japan who monetised the deal and paid Toyota, the bank in NZ had a liability to the Japanese bank, this is the Eurodollar market.
These liabilities ended up having lots of extra features added. Currency swaps in case the NZ dollar fell, credit default swaps as insurance, interest rate swaps-the time value of the loan using LIBOR. (London inter bank overnight rate)
This shadow banking system is huge, quad-trillions and it was all reward with no risk, that’s as long as you trust the I in the IOU.
In 1998 with the collapse of LTCM it got a little interesting https://en.wikipedia.org/wiki/Long-Term_Capital_Management
Then the dot-com bubble, finally in 2008 trust was lost, Lehman bros was bankrutped, Bear Sterns and the rest of the gang showed the flaws in the system. https://en.wikipedia.org/wiki/Bear_Stearns
Its an unregulated market, know one knows it’s true size, no one knows who’s got the ‘old maid’. It’s the liquidity in our modern world, and it’s gone from all reward to all risk. It has been incredibly profitable. It’s greased the wheels of the world we live in, out side of central bank regulation. Central banks sometimes used it and were happy to provide liquidity after 2008 to stop the system imploding, but how much will it take?
“Ted, according to Wikipedia, gets its “T” from U.S. Treasury bills and the “ed” comes from Euro Dollar. Even on this simple basis, it's confusing since “Euro Dollars” were originally European bank deposits denominated in U.S. dollars, and I'm pretty sure that has nothing to do with the Ted spread”
https://www.forbes.com/sites/bobmcteer/2014/05/20/the-ted-spread/#61f9d…
Listen to TED When He Speaks, and Even When He's Silent
https://www.realclearmarkets.com/articles/2018/09/07/listen_to_ted_when…
It’s A Dollar-based Boom Shortage More Than Anything
http://www.alhambrapartners.com/2018/09/06/its-a-dollar-based-boom-shor…
https://ftalphaville.ft.com/2018/08/23/1535008174000/Global-liquidity-i…
Thanks Andrew. Enjoy your posts.
Saw this article today which is a good background to where this all started. Eurodollars are where the bodies are burried and heaven help us when it all unravels.
Hi Andrewj, where in the world are you now - a possible rally for you! Bet they'll be a great bunch of people to meet!
https://actionnetwork.org/events/rally-banks-got-bailed-out-we-got-sold…
Hi Kate, I'm here in HB, spent all winter here, hasn't been the most fun I've ever had. My wife got 3 months work in AKL and we have children at Uni in Wellington so felt we should hang about.
I must say, I always thought I had a reasonable income to support myself and family but money really doesn't go far here, so it has been an interesting experience. My rates/insurance/food/gas/ electricity etc seem ridiculous compared to living elsewhere, almost anywhere else. It's amazing how much further money goes even in the UK. So this winter I have stuck it out so to speak, lots of reading and too much time on here but I must say I could see how one could get depressed on you own in the country, when you get used to doing stuff all the time, partly because you can afford to.
This time last year we were in Spain and it was cheap, flights form the UK were £35 and accomodation was cheap and easy. In the UK you can get anywhere on a discount carrier and have a look about without breaking the bank, I find here even a Ferry trip to the South Island is prohibitive. California is much cheaper and everyone, well everyone with a half decent job appears to be able to afford a good life and Trump's tax cuts have helped, some friends have done very nicely investing in new hooch startups.
My wife was amazed how poor her co-workers were in AKL compared to where she last worked, which was southeast London last winter, she was amazed at peoples living conditions and how many fellow workers were struggling but she's in a business were zero hour contracts are the norm.
I have friends all over the world but I'm fairly disconnected from the local community here, my children have all left, my parents have now departed, in a way time has come for us to sever our ties and move on. We are thinking of moving to Wellington for a bit, either way next winter definitely won't be here, although we have a dog who loves the farm especially now we have lots of rabbits about, I see horses still running about the place and I do enjoy watching the trees grow and the seasons change on the farm, although it's a slow process.
My friends in the USA have been having an interesting debate over where the country is going, a bit like in the UK/France they all think hostilities will begin in 10-15 years.
That rally does look interesting, once people personally get to feel the hurt of the bank bailout, the real cost of the GFC in a recession, times will get even more interesting. I have heard of Paul Mason before and was going to watch this clip of him speaking in the UK https://www.youtube.com/watch?v=H_ByVlBU1ZQ
I am following Ben Hunt more
https://www.epsilontheory.com/things-fall-apart-part-2/
We should catch up sometime, Im down your way more often these days and that goes for any other readers on the site too. I hope you watched some of my recent posts with Richard Werner on banking?
Required weekend reading: China's neo-colonial ambitions for the South Pacific. Power, y'all will recall, comes outta the barrel of a Gun.....
Those Chinese officers and leaders were born in a very different time, the next generation will have a very different view on life, we just need to get past this lot and their view on the world, deeply influenced by history and hardship.
I read the book 10 words on China, I was amazed at the China he grew up in and the China of his children, talk about different worlds.
https://www.mauldineconomics.com/frontlinethoughts/chinas-command-innov…
https://www.amazon.com/China-Ten-Words-Yu-Hua/dp/0307739791/ref=sr_1_1?…
How do we have stories like this about wage pressures and gas prices at up to $2.50 but the reserve bank thinks interest rates might need to go down? I get that the economy isn’t booming but there are a lot of signs of inflation. The exchange rate drop will surely flow through. The $7 butter I bought today was definitely on the high side.
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