US tax reform has markets sceptical; HNA struggles to raise money; US productivity jumps; global air travel sags; Chinese pay most for infant formula; UST 10yr yield at 2.35%; oil up and gold unchanged; NZ$1 = 69.2 US¢, TWI-5 = 72.4

Here’s my summary of the key events overnight that affect New Zealand with news HNA is under some rising stress in debt markets.

But first, on Wall Street today, the S&P500 index is lower as investors assess the long-awaited tax-cut proposals unveiled by Republicans amid deep skepticism around the passing of the bill. Consumers will lose their mortgage interest deduction, companies will get a big tax break. In fact, if passed, companies will pay the lowest share of US federal taxes in 17 years, and individuals will pay the greatest share ever. In the 1960s when the US was truly ‘great’, individuals paid a 35% share and companies paid a 20% share. What is proposed is is 42% and 10% respectively.

And staying on Wall Street, HNA Group tapped the short-term debt markets for the second time in a week, having to pay 8.875% interest on a new US$300 mln bond issue that matures in a year. That is nearly 3% more than what the same company agreed to pay on debt it sold in May, which had a 6% coupon. Markets are marking up the risk in this company dramatically, one that is also trying to close a deal with ANZ to buy UDC, and also probably with borrowed money.

Earlier, data released shows American worker productivity increased by +3.0% pa in the September quarter, its fastest pace in three years. But the trend remained moderate, suggesting that the recent uptick in economic growth was unlikely to be sustained.

Global air travel rose +5.7% in the year to September, but was down noticeably in the US due to the impact of hurricanes there. However in the Asia/Pacific region it grew +8.7%, the fastest in any global region. But interestingly, Australian domestic air travel actually fell -1.2% in the same period. 

We should also note that Air New Zealand was won the global Airline of the Year award for 2018. Again.

In China, a new study shows that their consumers pay the most of any global market for infant formula. Pricing is at such a level, it probably can’t be sustained. Any fallback will affect the New Zealand dairy industry. We may be affected by a fallback, but New Zealand brands are not the major ones there.

And as expected, the English central bank upped its policy rate by +25 bps to 0.50% overnight. It’s their first rise in 10 years.

In New York, the UST 10yr yield is lower today at 2.35%. Across the Pacific, Chinese Govt bond yields are holding with their 10 yr now now at 3.89% – and their 5 year is now now at 3.93%, both up +1 bp.

The price of crude oil is fractionally higher today, now just under US$54.50 / barrel, while the Brent benchmark is just over US$60.50. China announced it will raise the price of petrol there, its ninth rise this year. .

The price of gold is unchanged at US$1,274 oz.

The Kiwi dollar is a little higher this morning. We are now at just over 69.2 US¢. And on the cross rates we are at 89.7 AU¢, and against the euro at 59.4 euro cents. That puts the TWI-5 index just on 72.4.

And finally we should note tulip-mania continues in bitcoin markets with the price up to US$6.943 and yet another new record high. A little earlier, it broke through US$7,000. The local benchmark of NZ$10,000 is also breached. We are witnessing an economic history lesson here.

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

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

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