Fed speakers sound caution but minutes do not; Canada holds but cuts forecasts; EU jobless rate falls; World Bank downgrades China; UST 10yr 2.72%; oil and gold up; NZ$1 = 68 USc; TWI-5 = 71.9

Here's our summary of key events over the holiday that affect New Zealand, with news of a more gloomy mood for international trade.

Fed speakers are out today adding to the idea that rate hikes from them may be slower in coming that previously indicated. All are saying they will follow the data - and markets take that as meaning hiking may be done for a while, although 2019 may still bring two rises.

The Federal Reserve's release of its December meeting minutes makes no mention of 'caution' about 2019 rate rises.

Meanwhile, the latest US MBA mortgage approvals data shows them rebounding +23% from one week earlier, making them +4% higher than a year ago. The same survey reported that their 30-year fixed-rate mortgage declined -10 basis points to 4.74%, the lowest since April 2018, and other loan types saw rate decreases of between -9 and -20 basis points.

There is still no official data being released due to the US Federal Government shutdown and the latest to be missed is the US trade balance for November. The talks in Beijing have wrapped up this stage with both sides talking up the prospects for an agreement, but both are still far apart. The US's self-imposed deadline is March 1 and it is unlikely anything will be resolved before then - and many expect extensions after that.

The Bank of Canada announced it is keeping its key policy interest rate unchanged at 1.75% in the face of a new, grimmer forecast that shows Canada’s economy is slowing down fast. It is taking a hit from lower oil prices, weaker housing activity, the US-China trade clash, and the decelerating global economy.

But Canadian housing starts came in better than expected today. A dip was expected, but it wasn't as sharp as most analysts forecast.

None of this is phasing markets. The S&P500 is up +0.4% on Wall Street today. This follows EU markets that were up a similar amount, and Shanghai which was up +0.7%. Hong Kong starred, up a startling +2.3% while Tokyo was up an otherwise impressive +1.1%. Both Australia and New Zealand equity markets ended up more than +1% as well. It has been a good start to 2019 for equity prices but you have to say it all seems based on the expectation of a successful US-China trade deal, one where the US winds back its tarrifs.

In Europe there was something of a (rare) data surprise in their employment numbers. The expectation was that the overall jobless rate would rise to 8.1% from 8.0% in November in the euro area. But it actually fell to 7.9%. In the wider 28 state-EU the rate is 6.7% now with ten countries with rates below 5%. The EU has a workforce of 209 mln with 192 mln employed. (For reference, the US has a workforce of 163 mln with 157 mln employed.)

Yesterday we reported that growth has evaporated from the international air cargo market with volumes in November unchanged from a year ago - and that volumes in the Asia/Pacific region fell -2.4% on that basis. Today we got data on air travel data and that show continuing expansion, even if at a slowing level. International travel grew an impressive +6.6% in November from the same month a year ago, domestic travel a little less. In fact, in Australia, domestic travel contracted -0.7% and the only market reported with such a retreat.

As a point of interest, the Economist Intelligence Unit has reported that there are only 20 "full democracies" in the world, and that Australia and New Zealand are the only two in Asia. New Zealand is ranked #4 by them, Australia #9. Interestingly, the USA is ranked #25 in a big group of "flawed democracies" and that group also includes India at #41. (Russia #144 and China #130 are in the "authoritarian" category.)

But Chinese state control can't always suppress discontent. One senior academic has warned of the perils of "a great shift" in a long speech. It has since been censored, but not before the video (and translation) were recorded.

The World Bank has lowered its growth forecast for China to +6.2% and has released a fairly gloomy assessment of what is in store for 2019. Consumer confidence in China is also taking a hit.

The UST 10yr yield is at 2.72% and continuing the firming trend. Their 2-10 curve however is little higher at +16 bps. The Australian Govt. 10yr yield has retreated again, back to 2.33%, down -4 bps. The China Govt. 10yr yield is -2 bps lower again at 3.13%, while the New Zealand Govt. 10yr yield is holding at 2.42%.

Gold is up +US$5 to US$1,290.

US oil prices have jumped today and are now just over US$52/bbl while the Brent benchmark is just over US$61/bbl. Both are more than a +US$2 rise in 24 hours.

The Kiwi dollar starts today firmer against the greenback at 68 USc, a rise of +¾c since this time yesterday. On the cross rates we are firmer too at 94.7 AUc, and at 58.9 euro cents. That puts the TWI-5 up to 71.9.

Bitcoin is still just below US$4,000 at US$3,990. 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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20 Comments

Only "20 full democracies"? This just goes to show the efforts taken to control the masses! And the US is a "flawed democracy"! It says a lot for propaganda! That is almost certain to get a reaction. No mention of the UK or some of the other European countries. Any chance of getting the list published here?

Sort of looks like an opportunity for the United Nations, but then true democracies are in the minority and with politicians track records for protecting their power and privilege, there won't be a change any time soon.

Quote from the comments in your link ""China has a border and she protects it. China has a culture she doesn’t piss away on globalism. China invests in scientific accomplishment and just landed on the dark side of the moon. The USA can’t even build a replacement for the shuttle. ""

But this one is even better:
"Here is more reason for thinking that China is behind the West. It can make only little tiny seven-namometer–well, whatever those things are. But you can bet America can make much >>bigger ones<<."

Global Insurance losses in 2018 continue to track downwards as a % of GDP.
Overall losses as % of global GDP are well below the 1990-2017 average (0.19% vs 0.28%)
https://pbs.twimg.com/media/DwZg7vSXQAES7qJ.png

Weather/Climate losses are slightly below 1990-2017 average (0.18% vs 0.22%)
https://pbs.twimg.com/media/DwZhWhjXcAAmv3l.png

Thanks for posting this a great reality check for many.

you dont think monetary stimulus has inflated GDP by chance?
Because they are also down as a % of the potato flowering in my garden and im wondering which is more meaningful

Plenty of meaningful data out there - just won't be reported in Stuff. "...the first year in the modern record with no violent tornadoes touching down in the United States. Violent tornadoes are the strongest on a 0 to 5 scale, or those ranked EF4 or EF5.

...In simple terms, there have been downtrends in violent tornado numbers both across the entire modern period, and when looking at just the period since Doppler radar was fully implemented across the country in the mid-1990s. A 15-year average as high as 13.7 in the mid-1970s will drop to 5.9 next year."

https://www.washingtonpost.com/resizer/yPKeoQbfq8fxsdCin112C_Np0Jc=/1248...

https://www.washingtonpost.com/weather/2018/12/26/will-be-first-year-wit...

fair enough - just dont think GDP is a good base as the comparison - designed to make everyone comfortable that (financial) risk is decreasing
Its in the same vein that economists salivate at a the economic "growth" from a natural disaster ... ignoring the lost of embedded energy

I think GDP is a better measure than looking at $ figure damage. It’s more proportionate. The $ figure graphs are often used to push the case that storms and weather events are getting stronger when in reality it’s more effected by inflation and increasing wealth. GDP comparison is better in my mind, can anyone think of a fairer representation?

Cannot fathom why climate change evangelists (BTW I am one) frequently push the argument that global warming means more dramatic weather events. That is simply unproven. On one hand there is a rational causality:warmer environment means more energy in the atmosphere means storms being more energetic. But on the other hand big storms are more common in really cold places like the Antarctic ocean not the hotter but well-named Pacific.
To make the case for climate change look for measures of climate such as average sea temperature, average annual temperature at various locations decade by decade, etc but please leave out weather events; they just confuse the issue.

Great comment Lapun. I think so much of the push back comes from the more hysterical proponents of climate change. Using incorrect or misleading info to push an agenda followed with language like “deniers” etc creates unnecessary opponents. Both sides need to clean up their act on this, maybe we could get somewhere then.

The linked 68 year times series isn't a weather event. OHC and inter glacial warming rates are no different today than when we had a fraction of the industrialisation pre-WW2. " Our reconstruction, which agrees with
other estimates for the well-observed period, demonstrates that the ocean absorbed as much heat during 1921–1946 as during 1990–2015." And that was all without Obama and Jacinda healing the planet.
https://www.pnas.org/content/pnas/early/2019/01/04/1808838115.full.pdf

Interesting. From that article "accurate estimates of past ocean heat content change" are vital. The trouble is we have rather patchy records for the temperature of the sea surface. They have little idea of how the oceans transfer heat from top to the depths. If ice sheets melt they give a thin layer of slightly colder fresher water which can produce misleading data when most temperature readings are at the surface. Measuring average sea temperature is both very difficult and any differences are very very small when you use the Kelvin temperature scale.

How will home ownership rates improve if they are continuously falling when employment and participation rates are historically high, mortgage and OCR rates historically low and trending down, migration and therefore a pool of potential first home buyers high,yet well outnumbered by investors . What happens further down the track.

Home ownership rates will improve when population decreases, so… not any time soon

Epic Flip Flop; From Surefire Inflation to ‘Muted’ in Three Weeks
https://www.alhambrapartners.com/2019/01/09/epic-flip-flop-from-surefire...

Has anyone else been getting ads where John Key is supposedly extolling a Bitcoin trading platform? https://thom-finance.com

the guy knows Ponzis pay .... up front at least