US household debt rises but safe; US factory production stalls; Fed view seen as dovish; Mexico and Indonesia raise rates; China faces US debt stress; UST 10yr 3.07%; oil holds and gold up; NZ$1 = 68.8 USc; TWI-5 = 73.1

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Here’s our summary of key events overnight that affect New Zealand, with news a China dollar-debt crisis may have been sneaking up on us.

But first in the US, household indebtedness rose again in the September quarter, and across almost all types of borrowing. That is now almost 5 years of continuous rises, following almost five years of straight reductions. But at US $13.5 tln, this is now only +6.5% higher than the last peak ten years ago. Interestingly, mortgage debt is still -4.3% lower than in 2008. However other types of personal debt have climbed to more than +45% above its 2008 level to just under US$4 tln. But of course their economy has grown substantially in the past ten years, so household debt as a percentage of GDP has actually shrunk from 87% then to 66% today. (Equivalent New Zealand household debt levels are 76% on the same basis in 2018.)

US industrial production growth stalled in October but the result is probably better than it first appears. Car production was lower so that means there is strength in the rest of the American factory sector. Canadian factory sales edged higher in data released overnight.

Comments that were interpreted as dovish from the newly appointed vice-chairman of the US Fed saw the greenback fall and US benchmark interest rate yields fall. He said interest rates are at near ‘neutral’ levels which traders are interpreting as meaning the Fed may be near-done raising its policy rate. The next Fed review is on December 20, NZT.

Mexico however has moved again already. Today they raised their policy rate by +25 bps to 8.0%. They cited their new government’s spending and stimulus programs that have driven down the value of the peso and raised the rate of inflation sharply. Mexican inflation is now at +5% and these new fiscal policies are expected to push it a lot higher.

And Indonesia has also raised its policy rate in a surprise move, upping it to 6.0%.

China holds about US$1+ tln of US Treasury securities and has about US$3 tln in foreign exchange reserves. All very impressive until you realise that it’s private sector (mainly) owes about US$3 tln in US dollar-denominated debt. A falling yuan exchange rate to the US dollar, or a rise in US benchmark interest rate will hurt. Both at the same time would hurt even more. Analysts are now worrying about a dollar debt crisis in China.

The UST 10yr yield is ending the week at 3.07% and a net dip of -12 bps for the week. Their 2-10 curve is still at +26 bps however. The Aussie Govt 10yr is at 2.69% (down -6 bps over the week), the China Govt 10yr is at 3.37% and down -13 bps for the week, while the NZ Govt 10 yr is at 2.74% and down -8 bps over the week. New Zealand swap curve flattened this week with falling rates at the long end but little change at the short end. Local demand from our mortgage market may have kept it from slipping.

The VIX has risen slightly to over 19 this week. And it is still above its average over the past year of 15. And the Fear & Greed index has remained at the extreme end of the ‘fear’ side but has gotten a little less extreme in the past few days.

Gold is up +US$10 overnight to US$1,223/oz.

US oil prices are stable today at their new lower levels at just on US$56.50/bbl. That is a -$US3.50/bbl weekly change. The Brent benchmark is now over US$66.50/bbl also a pullback from this time last week. Oddly, the US rig count is still holding high this week despite these low prices.

The Kiwi dollar is ending the week +1½ c stronger again at 68.8 USc. These gains are accumulating; in three weeks the NZD has gained +10% against the USD. On the cross rates we are also firmer at 93.8 AUc, and stronger at 60.3 euro cents. That puts the TWI-5 at back up to 73.1 ending the week at its highest level since June.

Bitcoin is now at US$5,556 and unchanged from where we left it yesterday. 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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