Equities recover on strong US jobs report; US & China to restart trade talks; Canada and German jobs data good; China cuts reserve ratio hard; UST 10yr 2.67%; oil firms, gold down; NZ$1 = 67.4 USc; TWI-5 = 71.7

Equities recover on strong US jobs report; US & China to restart trade talks; Canada and German jobs data good; China cuts reserve ratio hard; UST 10yr 2.67%; oil firms, gold down; NZ$1 = 67.4 USc; TWI-5 = 71.7

Here's our summary of key events over the holiday that affect New Zealand, with news markets have whipsawed higher today.

Yesterday, the S&P ended up down a significant -2.5% but today things are much brighter with that index recovering all the prior day's loss plus a little more for good measure. Talk about volatility! The S&P500 is up more than +3.5% in mid-day trade.

Firstly, US December payrolls came in quite strong, up 312,000 in the month with some positive revisions higher for the two previous months. The outcome beat market expectations of +180,000 handily. Their participation rate stayed at a low 61.2% and their unemployment rate rose slightly to 3.9%. Average hourly earnings rose +3.2% and slightly more than expected. All up, this is a positive jobs survey.

Also helping is that one regional Fed official is now suggesting the next rate move may be lower, and in the meantime the Fed should sit on the sidelines. Jay Powell sort of echoed those comments later but played them down after the strong jobs report.

And it has been confirmed that China and the United States will hold vice ministerial level trade talks in Beijing on Monday and Tuesday, as the two countries face pressure to end a trade war that is hurting the world's two top economies and roiling global financial markets.

Canada also reported jobs data overnight and that was mildly positive, coming in at about expectation. Their jobless rate remained at an all-time low.

And staying with the patter, German annual unemployment figures for 2018 fell to record lows, though the number of job seekers increased from November to December of last year.

Also unexpectedly positive is data for China's services sector. The Caixin services PMI rose to 53.9 and in solidly expansionary territory in December. (The US equivalent dipped, but is interestingly at about the same level as the Chinese one.)

China has cut its reserve ratio requiremnet for banks by -100 bps, as part of their credit loosening to tackle a slowing economy. That is expected to add more than US$200 bln of juice. (China has also beefed up its armed forces readiness.)

In Europe, American officials have had two Credit Suisse bankers arrested on massive fraud charges and are seeking their deportation.

The UST 10yr yield had dived earlier to just 2.55% but has since recovered and is now at 2.67% is a mirror of the equity volatility. Their 2-10 curve however is higher at +17 bps. The Australian Govt. 10yr is up very strongly, gaining +15 bps to 2.34%. The China Govt. 10yr is only -1 bp lower at 3.18% today, while the New Zealand Govt. 10yr has recovered +4 bps to 2.36%.

Oddly, the VIX is down to 22 while the Fear & Greed index we follow has lost a little of its 'fear' although it is still at 'extreme' levels - just not so much.

In light of all this changed sentiment, gold has lost -US$7 today and is now at US$1,284.

US oil prices are a firmer at just on US$48/bbl while the Brent benchmark is just on US$57/bbl. Rising US inventories haven't dampened the price mood.

The Kiwi dollar starts today firmer against the greenback at 67.4 USc, a ½c rise. On the cross rates we are at 94.9 AUc, and at 59.2 euro cents. That puts the TWI-5 at 71.7 and a good recovery.

Bitcoin is virtually unchanged today at US$3,768. This rate is charted in the exchange rate set below.

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

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26 Comments

Speaking of banks and where interest rates are headed - up isn't the answer!

"Ms Klein, who bought her apartment about nine years ago, said: "The bank basically told me it was going to happen ( being forced out of Interest-Only onto P&I , early) and there was nothing I could do about it. I had been a loyal customer for more than 40 years and they basically told me that was 'too bad'. I am too small for them to matter."

https://www.afr.com/real-estate/property-borrowers-brace-for-300b-intere...

You should have quoted the paragraph before that:

Julie Klein, 64, who is paying off an apartment in Kew, a leafy inner-Melbourne suburb, said her lender demanded she switch to principal-and-interest after she lost her job because of health problems.

This puts a whole different perspective on it don't you think? Doesn't look that great for the bank. Why do they always choose these odd examples? The bank should indeed make Klein pay principal as it looks like she is intending to never pay the property off. It's a little bit different with landlords who often have a bit of churn with properties and pay off principal in lump sums.

Regardless of which examples one chooses, my point was to emphasise that banks, can and do, make 'changes' to the affairs of borrowers at their will. It could be argued, that yes, it says that in the documentation, so what's the problem? The problem is that in years gone past, loans were not marketed in that way to their clients - whoever they were and many; most, don't know.

Commentators on here will know what I am about to write, but a chap down the street wanted to lighten up his portfolio before Christmas; he did. Today he finds out that the liquidity he freed up on the property he bought in the early '90s ( well in the money!) is going to be applied against other loan he has outstanding. Net return to him? Nil! Now that's not what he wanted or expected. But it's in the documentation; well known to anyone who knows The System, but many ( like this chap) don't. And it's not until they run up against The Contract Laws, that they find out.

My experience has been that interest only loans are for no more than five years although if you asked nicely and said "pretty please" you could often get it extended if you were in a good financial position.

With your case above the bank would regard the entire portfolio of properties as securing the loans and the large amount of equity on the one property that was sold would have a dramatic impact on their calculations. He probably should have discussed things with the bank, who are are essentially his business partners, before making such a decision. I'm not surprised they took it all, it was their money after all.

priceless

bw This is predictable banking behaviour in a higher risk, higher volatility climate. It would be extremely irresponsible for NZ banks to keep lending as loosely as they were a few years ago when the economic climate has soured as much as it has. Tightened credit conditions are with us till the next up turn, I would guess.

Imagine if you loaned money to a business partner to buy two more properties with the condition that an existing property with high equity is also security for the loan then a few years later he sells the high equity property and pockets the money. That would make you feel a little exposed would it not? If he didn't discuss this first you wouldn't have much sympathy when you enforced the fine print of the contract. You would want the two remaining properties to have the highest equity possible ensuring that they are as liquid as possible and that would be achieved by reducing their mortgages with the profit from the sale.

nice speculation, who knows the facts, could like there was time/timing factor too..

Sounds like no respect for ponzi capital.
by the bank :)

My fx account took a decent blow this week, tough way to start the year.. Losses were booked as stops triggered on AUD/NZD. It could have been worse , much worse, for some it could not have been better.. The fact that the AUD ends at a week high amusing. (if only the Chinese had come thru earlier ) All happened while out on a walk .
The size and frequency of movements in multiple asset classes or platforms suggests these gyrations are going to continue, great for trading not for confidence.

Interested - where did you get stopped?

There is a much smarter way of actively managing FX

If you got tipped out on Thursday night there was a reason for that
You will notice it recovered almost immediately

I'm interested to hear your rationale iconoclast!

Thirty years in the business. You wont find this IP published on the internet. You could try a broker. They wont know. You could try a currency cowboy. Probably wont tell you. My post was to indicate the information is there if you want to track it down. I have publshed my email address on here twice over 7 years. Wont post it again. Should you really wish to know you can track me down. I know, if I was cowpat I would

Hi Cowpat, interested to know what you're using for your fx exposure (broker etc..)
Thanks

SailorRob. I maintain two trading accounts with TD and IG . I mainly trade shares and fx. I still hold shares purchased in 1997, but are comfortable using leverage and much shorter time frames. The fx accounts hold a minimum of 500k, and although I trade a number of fx pairs, I rarely have more than 3 open positions at any time and are conservative in equity used. On January 3, I had 4 positions open, the largest being long AUD/NZD, stop loss just under 1.03. It is a rare occasion that I will be simply 'stopped out'.This trade was open on IG , and traded from around 1.045 when I went for a walk to just under 0.95 (. Iconoclasts understanding of what happens in moments like these is somewhat lacking.) Suffice to say all AUD/NZD were closed at 1.297 slightly below the stop. Fortunately the other positions which remained open on my return ,were closed and offset about 65 percent of the loss. The last time the AUD/NZD pair moved so quickly appears to have been October 2008. The last time such a large movement on a daily basis let alone a minute was October 10 2008. If I use history as a guide, the AUD/NZD trade may yet reward me.

Gosh, chart three is "really, really" interesting.

Apple got it started downhill and the ISM pushed it off the cliff. The tech giant’s CEO admitted the global economy is in a world of trouble, EM’s and China first. Tim Cook said his company did not “foresee” how bad it was getting and how quickly, if only because his company was taking its cues from Jay Powell rather than the shadows.
https://www.alhambrapartners.com/2019/01/04/if-youve-lost-the-ism/

We seem to have reached a bit of a peak with electronic technology. I find it hard to get excited about new things and am actually looking for things to buy. My computer systems at home all have Windows 10 and solid state disks. I'm connected to fibre. I have three printers and a nice scanner. Lots of kit lies around unused, two MS surfaces, perfectly good but now just paperweights.

I have recently updated my home wireless setup with a Unifi device which I highly recommend. Ditch the home router wireless and buy something professional for around 2-300 dollars, it's well worth it. You get a nice controller program where you can monitor signal and radio level and change the channels to get optimal performance.

If anyone has any suggestions about what to buy that is particularly worthwhile I would be interested in knowing about it. Cloud services and Office subscriptions are cool too.

I've been running a separate UniFi AP and router for about 10 months - is good , much better then the 2Wire I had before when on DSL (now on fibre) Are you running the controller on a desktop or via UniFi cloud key? If you haven't consider Chromecast - I use both video and audio (which is connected to my stereo). Using Spotify I can listen to a huge range of music and explore to my hearts content. If you haven't update the firmware on your AP (and router if it is able).

I'm running the controller on a PC. I have three PCs on my desk so I don't really need the cloud key although it looks kind of cool. Good advice about keeping things up to date.

I once had Chromecast although it never worked for me reliably. It was possibly a bit too beta at that stage. I have gotten used to watching things on a small window and rarely even go full screen on a PC so the big TVs are hardly used by me.

One major cultural change I have noticed is that the lounge where the main TV resides is rarely used. We all have a multitude of our own displays. The lounge is now a waste of space really and could, perhaps, be re-purposed. Has anyone else experienced this? The main family room is the dining room.

Carmageddon for GM, Ford & Toyota: 3rd Down-Year in a Row. Industry Sales Below 2015. Hyundai-Kia Drop 11% in 2 Years. BMW & Mercedes-Benz Fizzle
https://wolfstreet.com/2019/01/04/carmageddon-for-gm-ford-toyota-3rd-dow...

Interesting video - does explain why the Chinese act the way they do but I don't think it is just confined to the Chinese - I think it is a world wide problem.

How does this guy keep publishing on YouTube? Wouldn’t the Chinese Govt or police put him away?

yep, he's been kicked out lives in CA now.

It would appear Mr Powell has moved quickly to confirm reports of the death of the “Fed put” have been greatly exaggerated.