Debt up, activity weakens

Kia ora,
and welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news of slower economic activity and higher debt.
Firstly, the final American 2018/2019 budget deficit result has been finally released, and it is a whopper. The final deficit was -US$984 bln, and -US$206 worse than for the previous year, a +26% increase. That takes the annual deficit up to 4.8% of US GDP. It is unprecedented to be this high in "good times" and leaves only dangerous options when the current expansion ends. If the October monthly deficit comes in at -US$116 bln, which seems likely, that will push the US Federal deficit over $1 tln. And that will take the Federal debt to external creditors up to just under US$17 tln. When it matters to markets, it will really matter. They are in a policy box with a non-recession deficit level at 5% of GDP.
Later this week, the US Federal Reserve will meet to review rates and there is an expectation of another -25 bps rate cut there, taking it down to 1.75% to bolster their economy in the face of its slowdown.
In Australia, it appears that house auctions and house sales this weekend have been unusually strong, led by first home buyers. Those with big deposits are creating something of a buying frenzy. Helping is the Australian Federal Government who released a scheme to allow buyers to have only 5% deposit, although there were some serious limits that mean FHBs will get pushed to the outskirts and margins to qualify.
In China, profitability at industrial firms shrank for the eighth straight month in September. Factory revenues were up +4.3% year-on-year but costs were up +4.8%, leading to a -3.8% drop in profitability.
In the US, the car union workers approved a new contract, and the GM manufacturing facilities are about to re-open. But now the unions will be trying to get other manufacturers to adopt the gains they won at GM. Ford is next.
 
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Here are some brief economic updates from over the weekend in case you missed them on Saturday.
First, American consumer sentiment was little-changed in the latest survey. But it is still lower than this time last year.
And Moodys is pointing out that some large securitised sub-prime car loans are turning bad at an alarming rate, so fast that fraud is suspected. And we are not talking about a small portfolio; this is an infection in a single US$26 bln book where delinquencies are up to 15% of it.
On the trade negotiation front, the US and China are close to finalising some sections of a trade agreement after a phone call between top negotiators, the Americans claim. This comment has raised hopes that a deal will eventuate. But it does seem a flimsy basis on which to buy stocks.
In China, another large private industrial company has defaulted on bond interest payments, reinforcing debt stress fears. Chinese companies defaulted on a total of ¥80 bln of onshore bonds in the first nine months of the year, 36% more than for all of 2018.
And the Chinese central bank has added a total of NZ$125 bln to China's banking liquidity last week (NZ$125 bln, supposedly to cover the liquidity stress of their tax season. But you can't help but wonder if more is involved in this juice.
A pair of German confidence surveys, one by IFO, the other GfK, found little improvement in their negative sentiment, but at least things didn't get worse. Both however continue to show German business and consumers under stress.
Russia has cut its benchmark interest rate to 6.5%, a full -50 bps cut that reinforces official fears of a quickly slowing economy - one that was growing very weakly in the first place.
And Indonesia has also cut its benchmark interest rate for the fourth month in a row to the lowest level in 17 months, also saying it needs to do something to protect economic growth amid rising risks. It is down -25 bps to 5.0%.
In the EU, diplomats have agreed to another extension to the Brexit deadline but won't set a date for it as the UK prime minister continues to try to force an early December election. The EU wants to keep up the pressure in an attempt to force the English to make up their mind - on anything related to Brexit.
The UST 10yr yield is at 1.80%, and +5 bps higher that this time last week. 
Gold is up +US$1 overnight to US$1,504/oz.
US oil prices are a little firmer at just over US$56.50/bbl. The Brent benchmark is just on US$62/bbl.
The Kiwi dollar is still at 63.5 USc. On the cross rates we are softish at 93 AUc. Against the euro we are unchanged overnight at 57.3 euro cents. That puts the TWI-5 at just on 68.6 and little different from where it was at this time last week.
Bitcoin has built on its strong rise on Saturday and is again sharply higher this morning at US$9,675, another gain of +12% overnight on top of Saturday's +15% jump and a +30% jump since Thursday.
You can find links to the articles mentioned today in our show notes.
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