90 seconds at 9 am: Massive fund flows arriving

US housing markets surge; Japan's trade in surplus; China targets jobs, and fugitives; Aust swamped in offshore funds; gold falls sharply; NZ$1 = 76.7 US¢, TWI = 81.6

23rd Apr 15, 7:26am by David Chaston

Here's my summary of the key issues from overnight that affect New Zealand, with news of massive fund flows heading our way.

But first, the American housing market is showing signs of renewed vigour. They surged to their highest level in 18 months in March and above expectations as more homes came on the market, and a sign of strength in their housing ahead of their spring selling season.

American mortgage applications also rose more than expected as week last week.

Japan has posted its first trade surplus in three years in data out overnight. This was helped by lower prices for imported oil and stronger exports to the United States in March, and were encouraging signs for the Japanese economy.

In China, and hard on the heels of the important reserve ratio cut and the call for banks to lend more and roll over loans, their State Council has brought in new measures to add jobs to ease the growing employment pressures.

Also from China, they published a list of their 100 'most wanted' economic fugitives yesterday - and that list said eleven of them were likely to be in New Zealand.

In Australia, gigantic international fund manager Blackrock has said the RBA is likely to cut its policy rate by much further to 1.25%. They are experiencing an "absolutely massive" flow of funds from Japan and Europe to Australia seeking yield. That and the fast-stalling resources sector is behind their reasoning for the expected rate cuts. No doubt some of that 'massive' flow is spilling over to New Zealand.

The UST 10yr benchmark yield is again higher today at 1.96%.

The US oil price has remains at about US$56/barrel, while Brent crude is at US$63/barrel in trading earlier today. But oil markets are unsettled as the latest data shows US crude stocks are still growing and at a faster pace than markets were expecting, despite the drop off in drilling and rig counts.

The gold price recorded a big drop-off in New York today of US$17/oz and now trades at US$1,186/oz.

The New Zealand dollar starts today at about the same as it was this time yesterday at 76.7 US¢, lower at 98.7 AU¢, and higher at 71.5 euro cents. The TWI is still very high at 81.6.

If you want to catch up with all the local changes yesterday, we have an update here.

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

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16 Comments

by Andrewj | 23rd Apr 15, 9:37am 1429738633

Every day there are new confirmations of the mania. Last night, for instance, the Shanghai stock market closed up another 2.4%, meaning that it is now 114% above its level of just 9 months ago!
And what has transpired in the land of red capitalism during that parabolic move? Why everything has gone virtually straight south because the most fantastic credit bubble in recorded history is beginning to burst. That is, notwithstanding Wall Street’s sell side propaganda, China’s vaunted $10 trillion GDP is not capitalist GDP in any familiar or meaningful sense; nor is it the product of organic market-based economic growth.

Instead, it is “constructed GDP” which has been fabricated out of centrally issued and allocated fiat credit. Over the past two decades the People’s Printing Press of China issued virtually unlimited bank reserves in the process of buying up dollars to peg the RMB exchange rate in support of its national policy of export mercantilism. This, in turn, has enabled China’s total public and private credit outstanding to soar from $2 trillion at the turn of the century to $28 trillion today.

http://davidstockmanscontracorner.com/its-a-mania-behold-the-red-chips-…

by Roger Witherspoon | 23rd Apr 15, 10:10am 1429740630

Yes, it's a funny thing, the Federal Reserve run interest rates too low for 20 years (Greenspan, Bernanke, Yellen) and those clever Chinese and Germans run massive surpluses gutting industry elsewhere. Very clever of the Chinese and Germans.

The BIS (very clever people the BIS) on how they did it:
http://www.bis.org/publ/work424.pdf
Presumably none of our bunch of plodders have read it.

by Stephen Hulme | 23rd Apr 15, 10:47am 1429742837

Yes indeed - it's a signal to follow the money:

Magellan Financial Group Ltd. boosted cash to about 14 percent of its A$7.5 billion ($5.8 billion) global equity fund as of early April and may increase it further this year amid distortions in markets stemming from a looming change in U.S. monetary policy, said Douglass, its chief executive officer. He’s concerned investors are mispricing risk and that stock and bond prices are too high. Read more

by Stephen L | 23rd Apr 15, 11:41am 1429746097

Roger, Very interesting link, thanks. I have often thought the underlying cause of the GFC wasn't the subprime loans in the US, but the funders of those loans. Who was reckless enough to loan money to millions of people who had no chance of ever paying it back? At the top of the list were the Germans, who had these unimaginably huge surpluses that had to find a home somewhere, with at least a pretense of some asset safety and a yield of sorts. And yet 8 years later the Germans, and Chinese, and Japanese and Swiss still have huge surpluses looking for a home.
Now where can we find some safeish assets for sale? New Zealand looks pretty good, and is politically naive enough to sell us all their assets. Let's go there.
So even when over the last few years our terms of trade were the best they had been since the 1960s, we still ran large deficits. Now dairy prices have collapsed, the currency still goes higher.
Our reported current account deficit has not been as disastrous as I would expect, but I am frankly sceptical of our statistical reporting. Exports as a percentage of GDP were admitted by Steven Joyce to be overstated on Easter Thursday as we all went on holiday. That suggests to me the current account could well be much worse than previously acknowledged.
Politically the economy is now based on eating our houses; and it's too hard for the Nats to turn that model around. Do something about it, and suddenly the rockstar emperor will have no clothes.

by Roger Witherspoon | 23rd Apr 15, 1:10pm 1429751419

Yes, I seem to remember a Michael Lewis article about Germany and he went into details about the merchant bankers in the US saying things like " Don't worry, some stupid banker in Dusseldorf will buy this shit" - referring to sub-prime mortgage repackaged as AAA debt.

I think NZ is having rings run around it and the politicians and bureaucrats are completely unaware of it. There is a Buffet quote about if you don't know who the patsy is when playing poker, then you are the patsy. Our guys do not even realise they are playing ultra high stakes poker. One day we will run out of other people's farms and houses to sell.

by Roger Witherspoon | 23rd Apr 15, 10:11am 1429740691

Double post, sorry.

by Didge | 23rd Apr 15, 10:14am 1429740897

http://www.stuff.co.nz/business/67975887/property-solutions-singapore-d…

by Stephen L | 23rd Apr 15, 12:00pm 1429747241

David and team,
on the off chance you are not aware of it, your site is loading very slowly, and regularly crashing. I don't think it's just my computer, as other sites are loading perfectly well.
Am using Chrome if that is important to know.

by KH | 23rd Apr 15, 12:07pm 1429747628

Agreed. Ultra slow. but had not crashes here Two of the four screens I regularly use chop the page off half way down. Best wishes to DC and team in debugging your new site. It's a nightmare I know.

by two otherguys | 23rd Apr 15, 12:07pm 1429747679

Yeah DC, you took your feedback link down too soon

by two otherguys | 23rd Apr 15, 12:14pm 1429748056

Web-Site not backwardly compatible with Windows XP running IE8

by steven | 23rd Apr 15, 1:27pm 1429752447

Well there is a surprise. An obsolete operating system and web browser. This boots off your CDrom with no hard drive needed or changes, http://www.ubuntu.com/download/desktop

by David Chaston | 23rd Apr 15, 12:20pm 1429748437

Yes, it is very frustrating today. We have infrastructure gremlins everywhere today and both our tech gurus are earning their keep at the moment. I am sure it is something to do with our new CMS as the loads build and the new system 'learns' its cacheing habits and works with our other databases. But these dark arts are more than I can follow. Apologies to everyone who is affected. Our journalists are probably affected the most as they build their stories. It's not good I know. But when running properly the new system is very much faster, and we are seeing that in longer engagement and more traffic, even in these early days (and despite the gremlins). We are persevering and I hope our readers don't all wander off !

by Roger Witherspoon | 23rd Apr 15, 1:11pm 1429751476

Phew, I thought you might have upset someone who had unleashed their hackers upon you. Keep up the good work.

by steven | 23rd Apr 15, 1:39pm 1429753151

varnish cache in front of Drupal.....

PS the changes are worthwhile so far.

by David Chaston | 23rd Apr 15, 1:43pm 1429753407

Thanks. Yes, It could have been a problem with varnish cacheing.