Resignations & shutdowns grip the US; US data weak; markets drop; mood in EU and China dulls; junk bond yields jump; UST 10yr 2.79%; oil down and gold up; NZ$1 = 67.2 USc; TWI-5 = 71.9

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Here’s our summary of key events over the weekend that affect New Zealand, with news of sagging economic data in the major economies of the world.

The seemingly endless wave of resignations and firings at the centre of American power is growing. Now it emerges the American President is trying to find a way to fire Federal Reserve Chairman Jay Powell as his frustration with the central bank chief intensified following last week’s interest-rate hike and months of stock-market losses. Trump wants the Government debt juice to never end, even in the good times.

But the equity markets are falling based on the data, which is continuing to weaken in the US. The political incoherence isn’t helping either. The Christmas eve sink into a Federal Government shutdown that could last into the New Year is emblematic of where Trump has driven the American economy.

First, durable goods order growth in November has come in far smaller that expected. (And October data was revised lower). The October weakness (-4.3%) was expected (+1.6%) to be partly reversed on November but the gain was completely underwhelming (+0.8%). Worse, the small gain expected (+0.2%) in capital goods orders turned out to be a decrease (-0.6%). A key regional factory index came in low (and a two year low), a down-trend that has been building since May this year.

Also not helping was that the final measure of US Q3-2018 GDP came in lower than the prior estimates.

Further, data for personal income growth in November was weak at +0.2% and well below expectations. Personal expenditure growth also undershot (+0.3% and half the level of the prior month). Perhaps ‘good news’ is that PCE inflation, the Fed’s preferred measure, was lower at +1.8%.

And the pace of American car sales is set to slow for the sixth straight month in December despite aggressive discounts from manufacturers. That November personal spending data may not hold even at its weak level.

Markets ended last week on Wall Street down yet again, this time by another chunky -2.1%. That followed European markets that closed generally flat. They followed Tokyo which was also down -1.1%, Hong Kong that was up +0.5%, and Shanghai which was down -0.8%. (Australia ended down -0.7% and the NZX50 was -1.0% lower.)

Consumers’ mood is little changed in the US, but is souring in the EU.

The mood isn’t much better in China where their top leadership has been huddling to respond to their downturn. Their central bank has promised “more liquidity” as though more debt can solve a debt-induced problem. And in a Trump-echo, they plan “more tax cuts”.

In Sydney, the weather has dumped an expensive surprise on the city. Less than 24 hours after hailstorms pounded Sydney and the central coast, it is already the most expensive catastrophe for insurance companies this year, as thousands of motorists rush to deal with smashed windows and battered cars before Christmas. The cost is expected to exceed NZ$150 mln.

The UST 10yr yield ended last week at 2.79% and a -9 bps fall for the week. Their 2-10 curve rose to just over +15 bps. The Aussie Govt 10yr is at 2.38% (and down -7 bps for the week), the China Govt 10yr is at 3.36% and down only -1 bp for the week, while the NZ Govt 10 yr is at 2.42%, also down -9 bps the week. New Zealand swap rates ended the week much lower and weaker from where we started and the curve flattened with the 2-10 curve ending at +68 bps and its flattest in more than two years.

On Wall Street, the yield spread on junk bonds widened sharply at the end of last week, the biggest jump in more than seven years. As recently as the beginning of November, high-yield investors were holding on to a slight gain for 2018. Now the spread has leaped, their value is down more than -2%, on track for the first annual loss since 2015. And investors are avoiding any new junk bond issues – December is shaping up to be the first month in 10 years with none. Big junk bond borrowers like Elon Musk and Graeme Hart will need to be very wary of this new attitude.

In Australia, regulator ASIC has commenced civil proceedings in Federal Court against Port Philip Publishing and its CEO. It says they “breached various consumer protection provisions of the ASIC Act and Corporations Act, that PPP breached its AFSL obligations, and that [CEO] Sayce breached his duties as a director of PPP. In addition to declarations and financial penalties, ASIC seeks corrective advertising orders, injunctions and disqualification orders against Sayce.” This relates to New Zealand because the same company, via a local incorporation, is the publisher of Money Morning, a recent financial; email marketing enterprise. Sayce and PPP say they will defend the Australian case.

It looks like New Zealand retail sales will be up about +5% in 2018 compared with 2017.

Gold is up and will start the week at US$1,256, a strong +US$19/oz gain over the week.

US oil prices are softer at just on US$45.50/bbl. The Brent benchmark is now just on US$53.50/bbl. Falling demand may drive it lower yet. The US rig count is still holding at its 200 week high despite these very low prices, and has in fact inched higher this week. But markets won’t like an act of State piracy carried out overnight by the Venezuelans. Also we should keep an eye on energy prices from the renewables sector as low crude prices will undermine viability.

The Kiwi dollar starts the very short and thin trading session today a full -1c lower at 67.2 USc. On the cross rates we are at 95.5 AUc, and at 59.1 euro cents. That puts the TWI-5 at down to 71.9.

Bitcoin is now at US$3,982 and a -2% slip back from yesterday but is an impressive +24% gain for the week off its 15 month lows.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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Source: CoinDesk

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