Macro Afternoon

Not a positive way to finish the week here in Asia with a broad selloff due to the slowdown in Chinese economic data, with the Aussie and Kiwi falling alongside all the Yen crosses. As markets position for next week’s FOMC meeting, where expectations are for another rate rise, it’s caution across the board due to Trump’s trade war (and added volatility due to his possible incarceration!)

The Shanghai Composite is currently down about 0.5% to 2620 points, still above the previous support level at 2600 points and navigating the poor trifecta of economic prints well.  The Hang Seng Index however has slumped, down 1.5% to 26137 points, unable to maintain itself above the high moving average on the daily chart, dashing any hopes of what could be the start of a recovery:

US and Eurostoxx futures are retreating going into the London open, with the four hourly S&P 500 futures chart falling back to the weekly long downtrend as trailing ATR resistance at the 2700 point level proves far too hard to beat this week:

Japanese stocks put in the worst results in the region with the Nikkei 225 falling 1.8% to 21415 points taking it back to the previous lows and terminal support levels. The USDJPY pair retreated only slightly after peaking last night, back now at the 113.40 level as it still looks to get back to its previous two weekly high above 113.80 or so:

The ASX200 is off about 1% in a correlated act, falling to 5602 points, barely clinging on above terminal support at 5600 points, wiping out any chance of its nascent recovery. The Aussie dollar fell on the Chinese trifecta of economic releases, falling straight through the 72 handle after slowly building this week to form a classical V-shaped bottom pattern on the four hourly chart:

The economic calendar finishes the week with US retail sales figures for November, following by a slew of preliminary services and manufacturing PMI prints for December.

Comments

    • Some of the States may find themselves in the same position. Not unlike Greece. Or Newfoundland in 1934 (https://en.wikipedia.org/wiki/Newfoundland_Commission_of_Government).

      Canberra will demand its pound of flesh in return, possibly through the referral of sweeping constitutional powers to the central Government.

      This may be the end of federalism in Australia.

      And that will only make the problem worse!

      It will strengthen the rent-seeking blocs of Sydney and Melbourne at the expense of those regions which enjoy a comparative advantage.

      • The Traveling Wilbur

        Yep. Which is why the NT (etc.) should give some serious thought to taking a bailout from a company like Google or Samsung instead. They will get absolutely reamed by Canberra, permanently. At least with say a free land or change-of-the-flag deal with say Google, that could be done on a lease / fixed term basis (like Hong Kong). I.e. just temporary.

        Some of the things I can think of, like no Tax for Tesla for 50 years, would be a win win anyway for NT. And Google’s, let’s be honest, always wanted its own flag.

      • The Northern Territory only has devolved government by virtue of federal legislation. (https://en.wikipedia.org/wiki/Government_of_the_Northern_Territory)

        It’s the States which might find themselves forced to (effectively) vote themselves out of existence. They would continue as vestigial organisations with no more power than a local council, other than the right to vote No in any referendum and the right to a minimal number of members in the House of Representatives. (This assumes the Senate is emasculated using manner-and-form legislation. But in a crisis who knows what might happen.)

      • Yes … yes … TTW … the neoliberal corporatists would be great examples of Greeks baring gifts ….

      • “comparative advantage” ….. would Ricardo please pick up the courtesy white phone … some pirates would have a word with him …

      • I say put the Blackfellas in charge (you know the original custodians of the land) they will stop the fracking and raping of the Environment.

        At least they knew how to live in harmony with their natural surroundings. Probably better financial managers too! Bailouts are just can kicking. Better to go bankrupt have short term pain and long term gain.

      • Hay Gav … severe corrections destroy productive capital and have a nasty propensity to consolidate it for the elites … just saying …

        Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown

        Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown
        by Philip Mirowski

        At the onset of the Great Recession, as house prices sank and joblessness soared, many commentators concluded that the economic convictions behind the disaster would now be consigned to history. Yet in the harsh light of a new day, attacks against government intervention and the global drive for austerity are as strong as ever. Never Let a Serious Crisis Go to Waste is the definitive account of the wreckage of what passes for economic thought, and how neoliberal ideas were used to solve the very crisis they had created. Now updated with a new afterword, Philip Mirowski’s sharp and witty work provides a roadmap for those looking to escape today’s misguided economic dogma.

        https://www.goodreads.com/book/show/16284953-never-let-a-serious-crisis-go-to-waste

        Albeit I hear with enough ideological tomato sauce its still palatable to some ….

      • Morris…

        I thought someone like yourself would be aware of the limited utility of the economic law [tm] of comparative advantage, especially considering its use by date and all …

  1. Widespread mortgage fraud by Zenik Finance, loans issued by big four banks
    https://www.afr.com/real-estate/widespread-mortgage-fraud-by-zenik-finance-loans-issued-by-big-four-banks-20181206-h18ueb
    [Sydney-based mortgage broker Zenik Finance Solution, which made nearly $1 billion in home loans for the big four banks and Macquarie Bank, has engaged in “widespread and systemic mortgage fraud” for years while the corporate watchdog ASIC watched on, a court has found.

    Zenik brokers made fraudulent mortgage applications using fake bank statements and signatures, fictitious jobs and fabricated payslips and letters of employment.

    It highlights the seriousness of the inflation of income in applications for home loans, a potential sub-prime crisis trigger which has not been fully investigated by the banking royal commission, analysts LF Economics say.

    Mr David said while the US’s subprime loans – the cause of the crisis in 2007 – were mainly teaser-rate loans, Australia’s subprime loans were in the form of “low-doc interest-only loans” such as Zenik loans.

    While Zenik loans suffered few arrears, Mr David said that didn’t preclude them from being subprime and a greater ramification is how the supply of sub-prime credit market inflated the housing market.

    “If verifying income was not such a big issue, why are banks doing it now, and why is it that house prices are tanking at the same time?” Mr David said.

    “This goes to show that there’s excess debt pumped into the market.”]

      • The Traveling Wilbur

        Never happen – wouldn’t be allowed. FIRB would be right on to that at the merest suspicion of illegal foreign buying.

        The government would hardly have allowed an illegal practice like that to be the cause of the hugely inflated prices that are only just starting to unwind properly now.

        And if that were true (just to hypothesize for a minute to show you what a silly idea that really is) then surely those with a compliance role would have had to know it was going on and allowed it to continue unchecked anyway. And if that were true, given the 100s of billions of dollars of effect that this would be responsible for in terms of Australia’s economy, there would be clear grounds under at least two acts relating to the conduct of public servants to dismiss them from their posts *and* pursue issues involving fines and/or imprisonment as well.

        See you silly goose? Nothing to see here.

      • @TravellingWilbour
        I cannot quite tell if you are joking or not.
        If not, read the article. It specifically notes that buyers were international and local Chinese.

      • The Traveling Wilbur

        @Gramus, @JohnR
        No I wasn’t (serious) and yes it was JohnR! Thanks!

        @JohnR
        Cheers, and thank you, and I am.

      • Gav…

        Burn baby … burn[????] ….

        Look I’m not folly if someone wants to self immolate because their suffering is so overwhelming, but, please don’t lump everyone else in just to satisfy some going postal urge ….

        Look in antiquity such individuals used to get in a canoe and paddle off … seemed to work out for all concerned ….

      • Yet its nothingburger or has everyone been self medicating with ketamine again so history is removed e.g. the American experience would have been a S&L level recession had it not been for the mercenary shorts – shoots ones self in the head on the expectation of a huge reward for making a notional bet – wheeeee I win – ?????

        Now per my link above about some taking advantage of fear to strengthen their hold on power, wellie whats a homo economicus flexian to do ….

      • [At the top of the boom, PIA and Zenik were focused on foreign buyers, churning out about 4000 loan applications between 2013 and 2015 for Chinese borrowers based both in Australia and overseas. The total value of those loans, which averaged $500,000 each, is thought to be about $1 billion but the fraud that has now been detailed in court escaped the attention of the Hayne inquiry.

        It is not clear how many of those 4000 loans were based on false documents but in one case, ANZ declined some 70 loan applications from Zenik for one single development because they were found to be fraudulent.

        In an ANZ review of Zenik loans in 2016, 109 out of 120 foreign applications were suspected to be fraudulent and two-thirds of local applications were also fraudulent.]

        FMD

        They can kill off these broker parasites by killing off trailing commissions.

  2. China’s rich rush to shelter $US1 trillion from new taxes
    https://www.afr.com/news/world/asia/chinas-rich-rush-to-shelter-us1-trillion-from-new-taxes-20181214-h193xe
    [Hong Kong | Wealthy Chinese are rushing to shelter assets and income in overseas trusts before new tax rules go into effect next month, including provisions that target offshore holdings.

    The Bank of Singapore has seen a 35 per cent surge in Chinese clients interested in offshore trusts since the second half of 2018, according to Woon Shiu Lee, head of wealth planning at the bank. The rate of inquiries leading to the establishment of a trust, which offers “tax-planning opportunities” by giving ownership to third-party trustees, has doubled since August, he said.

    The reforms, which take effect on January 1, are meant to reduce the tax burden on lower-and middle-income people by making the rich pay more. They are also feeding into business for consultants, private bankers and lawyers who specialise in setting up trusts that put ownership of overseas assets at arm’s-length from a tax perspective.]

    • ChristopherJMEMBER

      Thank you, rj2k. One too many tweets, and about Julie Bishop too…
      Canberra is a brutish, nasty place. Couldn’t wait to fly out for good

    • Puree de merde! No one does civil disobedience like the French. I wonder if they’d be available once they’ve finished — a few buildings around Canberra could do with a re-rendering.

  3. President Xi Jinping’s Next Moves Dictate China’s Economic Future – Bloomberg

    https://www.bloomberg.com/news/features/2018-12-15/president-xi-jinping-s-next-moves-dictate-china-s-economic-future

    China’s Economy Slows Sharply, in Challenge for Xi Jinping – The New York Times

    https://www.nytimes.com/2018/12/14/business/china-economy-xi-jinping.html

    China’s economy losing steam, East Asia News & Top Stories – The Straits Times

    https://www.straitstimes.com/asia/east-asia/chinas-economy-losing-steam