Stocks drop and retail struggles in US; Canada CPI rises; Italy financial stability waivers; Shanghai stocks tank; Hayne hearings become bar fight; UST 10yr 3.05%; oil plunges and gold holds; NZ$1 = 67.8 USc; TWI-5 = 72.3

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Here’s our summary of key events overnight that affect New Zealand, with news the oil price is plunging.

But first, Wall Street is in limited holiday mode today, it being their Thanksgiving holiday weekend in the US. However, it is down -0.7% in early afternoon trade. All eyes are on retailers and signals of Black Friday trading and early indications are for deep in-store discounts to lure buyers away from online platforms, so sales may rise but profitability may be a big problem. Certainly Wall Street is worried about that. Plus the oil price plunge.

Not helping is the latest US PMI data, with both factory and services expansions slowing and at 3 month lows. EU PMIs are sinking faster, dragged down by Germany.

In Canada, consumer price inflation jumped unexpectedly in October, up +2.4%, and above the expected +2.2% rise. But because the jump was largely from petrol prices that were up +12%, and oil prices have fallen sharply since then, this result probably won’t change the track the Bank of Canada was on for monetary policy.

Canadian retail sales rose +2.0% in real terms in September from a year ago, after removing the impact of price changes. (Online sales were up +17%.)

The Italian central bank is warning of rising risks for financial stability in the country in its latest financial stability report. It is pointing to fast rising yields on debt which will cost billions in interest payments. And it is not only banks they are worried about; they are pointing to special risks to their insurance sector.

A new stumbling block for a Brexit deal has emerged. The Spanish have said they will veto the deal unless it deals with their Gibraltar issues. The EU was expected to sign off on the interim deal this weekend, and then it was to be up to the London parliament. But will it get that far?

China is also facing some serious pushback in its Belt & Road strategy. Based on mushrooming debt for the China-linking projects in Pakistan, public reaction is turning negative even as Karachi is cosying up closer to China. But as they do in Pakistan, things have turned violent with attacks at the Chinese consulate. China is not happy.

Also not happy are Chinese investors. The Shanghai stock exchange fell -2.5% yesterday in yet another sharp fall. Since the start of 2018 this market is down -23%.

In Australia, the Hayne Royal Commission has descended into an all-out bar fight. Banks, insurers, regulators, brokers, aggrieved customers, the covering journalists, and even the Commission itself are all fighting each other in increasingly aggressive and partisan ways. It is an unseemly and unedifying way to sort out the public policy issues involved. One casualty is funding for their housing markets; the growing credit crunch is a direct result of the confusion about what the new rules will be and how the law will second-guess what is going on now. Lending is only happening now in the most conservative manner.

The UST 10yr yield is ending the week at under 3.05% and a net dip of -2 bps for the week. Their 2-10 curve has also slipped -3 bps to be at +23 bps. The Aussie Govt 10yr is at 2.64% (down -2 bps overnight and down -4 bps over the week), the China Govt 10yr is at 3.42% and up +2 bps overnight and up +5 bps for the week, while the NZ Govt 10 yr is at 2.70%, unchanged overnight and down -4 bps over the week. New Zealand swap rates fell this week down -5 to -7 bps except for the one year which was little changed.

The VIX has risen slightly to over 21 this week. And it is still above its average over the past year of 15. And the Fear & Greed index has gotten more extreme on the fear side in the past few days.

Gold is little changed at US$1,222/oz.

US oil prices are very weak again today and at new low levels at just on US$51/bbl. That is a -$US5.50/bbl weekly change. The Brent benchmark is now just over US$59/bbl and a -US$6.50 plunge. Oddly, the US rig count is still holding at its 200 week high despite these low prices. Industry insights suggest that US frackers will remain cash positive all the way down to US$40/bbl and will keep pumping until then. In fact, there is more North American domestic production than can actually be transported to markets right now. Saudi Arabia is mulling sharp production cutbacks.

The Kiwi dollar is ending the week lower at 67.8 USc, which is a whole -1c down from this time last week. We have now settled back to where we were at the beginning of the previous week. On the cross rates we are unchanged at 93.7 AUc, and marginally softer at 59.8 euro cents. That settles the TWI-5 at back to 72.3 and off its recent highs.

Bitcoin is now at US$4,240 which is a massive loss of -US$1,316 for the week and a crash of -24% in just seven days. The risks are all to the downside. So far, US$700 bln has been ‘lost’ in this rout. 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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NZD

End of day UTC
Source: CoinDesk

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