G20 to tackle tax shifting; US retail sales disappoint; US consumer sentiment rises; China raises margin limits, UST 10yr yield 2.27%; oil price slips; NZ$1 = 65.4 US¢, TWI-5 = 71

Here’s my summary of the key events over the weekend that affect New Zealand, with news all eyes will be on market openings this morning following the Paris terror attacks.

And the New Zealand markets will be the first to open, worldwide. There is an air of nervousness about what will unfold. But few strategists expect a prolonged economic impact or change in prevailing market directions.

But first, there is a G20 meeting in Turkey today and tomorrow and there is a push to close international corporate-tax loopholes, something that is expected to spur competition for lower rates. The changes are aimed at blocking companies from shifting profits among jurisdictions to avoid taxation.

In the US over the weekend, retail sales data for October was disappointing, but it was something of an odd result in that the car companies reported record sales but this official survey reports car sales lower than the prior month. A companion survey shows that inventories continue to rise and rise in the US. That trend will need to reverse at some point, although the unadjusted data shows this is a ‘retail’ sector issue only.

Inflation numbers from the US on Wednesday could be the provide the final trigger in the Fed’s plan to raise interest rates on December 17. The recent strong non-farm payrolls report firmed up expectations for a hike especially as it showed wages rising +2.5%, and if general prices are shown to be rising as well, the die will be cast.

US consumer sentiment is rising, according to the latest influential UofM survey. Two trends dominated the early November data: consumers anticipated somewhat larger income increases during the year ahead as well as expected a somewhat lower inflation rate. This meant that consumers held the most favorable inflation-adjusted income expectations since 2007.

China has moved to contain leveraged trading on its stock market, cutting by half the amount of borrowed money investors can use to buy shares. Margin requirements will be raised to 100% from 50% starting on November 23, the Shanghai and Shenzhen authorities said in statements after local exchanges closed on Friday.

In New York, the UST 10yr yield benchmark gave up more of the gains it made earlier in the week, now at 2.27%. And that was before the France attacks. It is likely to fall sharply tomorrow when Wall Street opens in a strong risk-aversion mood. Today’s New Zealand swap markets may give a first inkling into what may happen in Frankfurt, London and New York.

The US benchmark oil price has slipped lower again in the end of trading last week, now just over US$41/barrel, while the Brent benchmark is at US$44/barrel. The oil glut is now more than 3 bln barrels. And oddly, drillers put rigs back to work in US oil fields after more than two months of pulling back.

The gold price is also lower at US$1,081/oz but may get a boost when the London gold market opens tonight. Copper hit its lowest price since July 2009.

The New Zealand dollar starts the week at 65.4 US¢, at 91.7 AU¢, and at 60.7 euro cents. The TWI-5 is at 71. But given the shocking events in Paris on Saturday, it is very unclear how markets will react. Will we benefit as a ‘safe haven’? or be marked down with the pull-back from commodities? But the betting is our currency will come under general pressure.

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

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

Daily exchange rates

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