Global trends positive; stock markets rise strongly; trade with China strong; interest rates low & stable; risk chases alternative assets; UST 10yr yield 2.41%; oil and gold up; NZ$1 = 70.9 USc; TWI-5 = 73.2

Here’s our summary of key events overnight that affect New Zealand, with the final news roundup for 2017.

It’s been a year of growth and development worldwide, one that has unusually seen gains in almost every region. Incomes are up, inflation is low, trade is booming, and global income inequality has eased significantly. Poverty has been pushed back almost everywhere; in fact there are the fewest number of people in extreme poverty since 1990, and almost 1 mln less in general poverty over the past year. The gains, however have been uneven, and the overall decline in poverty levels is through major development advances in China and India.

That is not to ignore problems. The West is struggling with inequality perceptions, but that does not include either New Zealand or Australia where Gini scores remain stable at about .33 as they have done for decades.

New Zealand has greatly benefited from these global trade and demographic trends. Our economic position is strong, by any measure.

On Wall Street, losses in technology and financial stocks weighed on the last trading day of 2017, in what has been a banner year for American shares. The S&P 500 is up +19% over the course of the year.

But that is tame compared to the +36% gains for Hong Kong stocks. In contrast, mainland Chinese markets Shanghai and Shenzen equities didn’t make double-digit gains.

The NZX50 rose +22% in the year and just shy of the all-time record in Wednesday. The ASX was only up +7%.

In China, the Shanghai port has broken it’s own world record for container handling. It processed a massive 40 mln TEU’s in 2017. (Auckland can handle 1.7 mln TEUs, Tauranga over 1 mln in a year.)

The UST 10yr yield has fallen slightly to 2.41% today (-2 bps). In China, the equivalent 10yr sovereign bond is yielding 3.92% (+1 bp) while the equivalent NZ 10yr sovereign bond is yielding 2.75% (+3 bps).

The UST 10 year yield started the year at 2.45%, so the change in the past twelve months is minimal. Over that time it reached a high of 2.62% in March and a low of 2.05% in September. How the US Fed reacts to the new US fiscal stimulus will be the key for 2018.

Fixed income investors couldn’t make the returns they once did on falling yields (rising bond prices), so they turned to alternative assets. Securitisations of US car loans hit US$70 bln in 2017, a post-financial crisis high according to S&P. In fact there has been a glut of issuance of asset backed securities this year, not only for car loans, but other leveraged loans, and credit cards as well. Yield can only be found with much higher risk.

But the last day of the year is an expensive one for some Chinese borrowers.

Oil prices are higher in the US today with the WTI benchmark at just under US$60.50 a barrel, while the Brent benchmark is just under US$67. These are recent highs and reinforce the fact that our pump prices, already at two year highs, are about to go even higher. Remember, crude oil started the year at US$54/bbl, so it has risen +12% in 2017.

Gold is up another +US$10 to US$1,303/oz. That is a gain of +5% in just the last 15 days. It is also a gain of +12.4% since the start of 2017. (But is was a little less in NZD, up +11.7%.) This is gold’s best year since 2010.

This morning the Kiwi dollar is little changed at just on 70.9 USc, and on the cross rates it is at 90.9 AUc, and against the euro it’s at 59 euro cents. That puts the TWI-5 still at 73.2 and the Kiwi dollar ends the year +2.4% higher than where it started.

Bitcoin has stopped falling in the past day or so and now at US$14,567, a +4.2% rise on the day. The annual gain for bitcoin is a head-shaking +US$13,600 – it was under US$1,000 at the start of 2017.

Have a happy, safe New Year everyone.

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

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