Here's our summary of key events overnight that affect New Zealand, with news markets are ignoring the deepening standoff between the US and China on trade.
But first, there was another dairy auction overnight where 39,143 tonnes were sold into a falling market. That volume was +15% higher than the same auction a year ago but prices came in -15% lower on that basis. Compared with the previous auction, prices were -1.3% lower in USD terms, -1.75% lower in NZD terms. The key WMP price was -1.8% lower. This overall result was not as tough as the derivatives market was signaling, but it isn't positive either, and will put downward pressure on farm gate milk payout prices. It is now eight consecutive auctions where we have not had an increase and it is starting to mount up, building to a -19% fall in that time. In NZD, that decrease is less at -10% reflecting the declining Kiwi dollar.
The Americans have pulled the trigger on another US$200 bln of tariffs on imports from China, making these goods more expensive for their consumers (whether they end up buying them from a Chinese supplier, or a local American one). These new taxes will become effective on Monday, September 24, 2018.
China's retaliation hit US$60 bln on trade, and they have limited options to go higher by tariffing US goods. But they could tariff their exports to the US, hitting them in key consumer places that would hurt and for which the US has few practical alternatives - at least for a couple of years. Rare earth metals don't appear on the US tariffs and are another key card for China. It is likely that key US policy advisers views that "China is out of bullets" is just wishful and shallow thinking. And their expectation that a deal in the future is coming is equally wishful now.
Equity markets in China seem unfazed by the US actions, rising an impressive +1.8% in Shanghai after the American announcement. Today, even Wall Street is up, but a more modest +0.7%.
And in China, their African Swine Fever outbreak is widening. The seriousness for China is growing.
In a new report, Moody's is saying that global car sales will be stable in the year ahead, and this is despite rising tariffs on cars between the US and China. They see much smaller growth in China (+2%), but growth none-the-less, and they see declines in the US (-1.5%). They see small growth in both the EU and Japan, big growth in India, and surprisingly, growth in other emerging markets as well.
In Ireland, Apple has paid the Irish government almost NZ$20 bln, money that the EU ruled the tech giant owed due to illegal tax breaks. In return the Irish Government is supporting Apple in their appeal of the EU tax case.
In Canada, household debt growth is slowing sharply. In fact, it's at a 20 year low. Canadians are apparently repairing their personal balance sheets, all together and quite quickly. But there are concerns that this new effort may slow their economic growth.
In Australia, their largest bank has said it is pulling back on making property loans for self managed Super funds, a move that will worry the real estate industry.
And at their Financial Services Royal Commission, a leading insurer has admitted it misled more than 2 mln customers about its travel insurance product. Allianz travel insurance is sold in New Zealand under a number of brands.
The UST 10yr is up today at now just on 3.05% and actually a three month high. One thing markets do see from the US:China trade escalation is higher US inflation, and therefor higher Fed rates, sooner. Their 2-10 curve is wider at +25 bps. The Aussie Govt 10yr is at 2.66% (up +3 bps), the China Govt 10yr is at 3.67% and up +1 bp, while the NZ Govt 10 yr is at 2.63%, up +2 bps.
Gold is down -US$4 today at US$1,197/oz in New York.
US oil prices are up today and under US$70/bbl. The Brent benchmark is now under US$79/bbl.
The Kiwi dollar is starting today unchanged at 65.8 USc with no reaction to the dairy auction. On the cross rates we are marginally softer at 91.3 AUc, and unchanged at 56.4 euro cents. That puts the TWI-5 at 69.6.
Bitcoin is little changed at US$6,324. This price is tracked in the currency charts below. The New York Attorney General has issued a report saying crypto markets are very vulnerable to manipulation.
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20 Comments
The Chinese stock market 1.8% rose yesterday. I was extremely surprised by this. Could the CCP be buying into it to make things appear to be OK?
Personally, I am enjoying seeing how these tariffs play out. I think the USA has the upper hand. Especially if other countries who have had intellectual property stolen join in.
Chinese Money Math
http://www.alhambrapartners.com/2018/09/18/chinese-money-math/
Fascinating. A glimpse through the smoke. Central bankers, including China, keep fiddling with a machinery that is a complex system. The nature of complex systems is that is impossible to predict the result of an action, even if you understand all the relationships (which is highly doubtful in this case).
Apparently the brilliant physicist Poincare proved with his Three Body Problem in 1889:
https://en.wikipedia.org/wiki/Three-body_problem
Why do you think the brilliant, highly experienced bankers at Lehman, Bear Stearns et al went bust? It is not just us that can't understand or predict how money works. So things that often work sometimes don't.
The three body problem is not that it is impossible to predict a solution (a prediction is always possible), it is that tiny variances in the initial conditions lead to wide variances in the answer. So to correctly predict, you need perfect information.
This is the often misquoted butterfly effect. The butterfly does not cause the tornado but rather a small variation on inputs lead to a massive variance on output in non-linear systems.
But it goes one step further because it has to; for every “dollar” FX asset that doesn’t appear as a consequence of these global deflationary squeezes, something has to happen on the liability side
There is that pesky double entry book keeping rearing its head again.
Lumber is still going south
https://finviz.com/futures_charts.ashx?p=d1&t=LB
But only in the US. Not according to this >
https://www.interest.co.nz/rural/logs
USA does not have the upper hand in this trade war with China. Remember China is Communist and are not elected every few years by its people, unlike USA. They can wait for the next USA election and hope Trump is out of office. No problem to China.
Also they cannot be seen loosing face, the rest of the world is watching, Hopefully the USA and China can make a deal where both sides can win
All the MSM representation of this assumes all was just peachy and equitable in the first instance and makes this out to be a Trump declared war against an otherwise reasonable and seemingly innocent party. The admission of longstanding IP theft, industrial espionage, dumping, currency manipulation, quality issues, corruption and human rights abuses clearly has no place in their narrative. This did not start with Trump, this is the retaliation which was long overdue.
I agree Kate
As the dollar rises the CNY devalues which makes everything they import more expensive and everything they export cheaper.
Its a no lose situation for the US, China should head to the negotiating table, as China matured their blatant abuse of IP Rights was always going to be called out.
Westpac NZ consumer confidence out and, as expected by most on this website, the results aren't promising.
Consumer confidence down 5.1 points to 103.5 in September.
- This comes despite the Government’s Families package, which was initiated in July. This has presumably been outweighed by other concerns, such as rising petrol prices and cooling housing markets.
- These results present a challenge to our expectation that the economy will regain some momentum in the short term on the back of Government spending.
https://www.westpac.co.nz/assets/Business/Economic-Updates/2018/Bulleti…
It is not really news. The Westpac one is a quarterly survey. But we get monthly surveys from ANZ-RoyMorgan which have been telling the same story, only sooner.
https://www.interest.co.nz/charts/confidence/consumer-confidence
China has been ripping everyone off for decades and we've finally got someone with some balls to call them out. They are mean and nasty and as been said here already, have acquired trillions of dollars worth of IP over the last 40 years by hiding behind developing economy status. From a Chinese perspective it has been a very successful period. Finally, however, we are waking up to the fact that these trillions of dollars have moved a bit further west than we anticipated, right across the pacific in fact, and that, whoops, our people are not as rich as we thought, especially down-market. If the globalists think this is a success then they shooting. If you want to know why inequality is up in our society, then look no further than the rise of the millions of poor people out of poverty in China. It staggers me that anyone can think this is an acceptable situation for us. Go Trump. Thump them hard. And charge retrospectively for the IP. That should cover the Us Govt bonds.
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