Here's my summary of the key events over the weekend that affect New Zealand, with news of an embarrassing stalemate in Australia.
But first. it is a public holiday weekend in the US, their 4th July weekend and Americans are expected to travel in record numbers aided by low petrol prices and encouraged by growing optimism about their prospects. But their influential markets will be closed until Wednesday our time.
On Friday their time, US Treasuries dipped to historic lows as bond investors made strong gains. At one point, the benchmark 10 year Treasury hit 1.4% and below the previous low point in July 2012 before closing just on 1.45% as they broke for the holiday. Fear about the European situation is the root cause.
And equity investors also ended the week on Wall Street up strongly. The S&P500 was up just below the all-time high that was reached this time last year.
Globally, the manufacturing sector stagnated in June, neither expanding nor contracting. Only a handful of countries registered a solid improvement in operating performance during June, most of which were in the euro area. The US recorded good expansion, along with Russia, Mexico, India, Taiwan, South Korea, Indonesia and Vietnam. The two largest Asian manufacturing nations – China and Japan – both reported contractions in June. Operating conditions also deteriorated in France, Brazil, Malaysia and Turkey. China said its large SOE manufacturing sector also treaded water although it had access to 'credit' (debt) that the private sector didn't. But it reported its services sector perked up somewhat.
In Australia, their Coalition government’s gamble on early elections appears to have backfired, with the results still too close to call and the conservatives struggling to secure enough seats in Parliament to form a government outright. They went to the polls to try and end a stalemate and have ended up in a tighter one. This won't materially affect New Zealand except that it might put downward pressure on the Aussie currency, driving the cross-rate for us higher. Uncertainty in Australia just rose another notch. This election is yet another where the professionals and other insiders misread the electorate mood. Tony Abbott had won an extra 25 seats in the two elections he led while Malcolm Turnbull seems to have lost most of them. Abbott may be back. Sadly, back also is Pauline Hanson.
The RBA does its monthly review of its benchmark interest rate again tomorrow. Before the election, most economists were of the view that their 1.75% rate would stay on hold. Who knows now?
In New York, the benchmark UST 10yr yield dipped then recovered to finish at 1.45%. Credit risk premiums continue their retrenchment including for Australasian investment grade corporate debt. The world's largest pension fund ("the Whale") made a loss of US$43 bln in the June quarter after a shift to more equity investment.
The US benchmark oil price will start the week a little higher, now just over US$49/barrel and the Brent benchmark is just over US$50/barrel.
The gold price has jumped US$29 to US$1,344/oz.
The NZ dollar starts the week higher as well, at 71.8 US¢, at 95.7 AU¢, and at 64.4 euro cents. The TWI-5 index is at 75.3. Watch out for the NZD-AUD rate today as a canary for their political cliffhanger.
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 ».
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16 Comments
The deflationary impact of CNY devaluation is expected to affect us both with similar intensities, according to Morgan Stanley. View graphic detail and associated commentary.
The winner of the relative Tasman currency pair race to the bottom should be entertaining, especially so, since we may wish to develop an individual trade relationship with what remains of post Brexit UK.
The UK's problem remains their double deficit. The chronic budget and the current account deficits. The last time the UK ran a surplus on the current account was the year Italy won the World Cup in Spain and the top scorer was Paolo Rossi. you guessed it — 1982.
The UK also has the lowest productivity of the G7 countries together with Japan. Yes, the UK needs a lower GBP... Read more
You gotta laugh a little.
Amid the carnage in financial markets that followed Britain’s shock decision to quit the European Union, one gauge of market stress remained conspicuously stable: the London interbank offered rate.
In the days that followed last week’s historic vote, one-week sterling Libor, a measure of how much it costs banks to borrow from one another, actually fell 1 basis point, or 1 one-hundredth of a percent. Read more
Hmmmmm.
The reasons why banks don’t trade in the o/n FF market apply to all other unsecured
segments of the interbank money market, including the eurodollar market. Whatever the
volume of o/n eurodollar transactions there are no interbank trades there. Not one penny.
And that opens up an existential can of worms for the concept of “IBOR” in general.
[emphasis mine]
IBOR stands for interbank offered rates and submissions are based on the hypothetical
question of “where you think you could get unsecured funding from other banks”.
From other banks… at a time when unsecured interbank markets have already faded as a
part of the ecosystem. LIBOR curves today (to the extent that submissions reflect actual
trades) are based exclusively on customer-to-bank and not interbank trades. Read more
The Aussie election. Another example of the public getting sick of the spin and contempt from the political and financial elite. Having said that it seems that the various labour parties around the world are afflicted by this also. Thank goodness the public are finally waking up.
What % of British muslims aged 18-29 believe suicide bombings against civilians can be justified? Do watch this very unsettling video about how widespread radical islam is, by a very brave moderate muslim lady:
https://www.youtube.com/watch?v=pSPvnFDDQHk
Things are far from rosy in the US at the moment, with numerous pockets of severe drought emerging:
'For the 7-day period ending June 28, despite pockets of locally heavy rain (which led to catastrophic flooding in parts of West Virginia), above-normal temperatures and below-normal rainfall caused dryness and drought to expand or intensify across portions of the central and eastern U.S. Nationally, the percent of soil moisture rated poor to very poor climbed 5 points over last week to 31 percent (as of June 26, according to USDA-NASS), which was 14 percentage points higher than last year at the same time.'
http://droughtmonitor.unl.edu/
We should also note that the shale oil boom that was supposedly going to be America's saviour is in deep trouble, with production falling dramatically, which will have dire repercussions in the near future:
https://srsroccoreport.com/why-the-collapse-of-the-u-s-economic-financi…
"The latest data may reignite concerns about the global glut of grains. Corn inventories as of June 1 rose to the most for the date since 1988 and topped analyst expectations. A rebound for crop prices in recent months prompted farmers to plant more across the board, with soybean and wheat sowings also coming in bigger than the March estimate.
“The acreage number for corn is a big surprise to the trade,” Brian Hoops, president of Midwest Market Solutions in Springfield, Missouri, said in a telephone interview. “Crop ratings are very high. We don’t have this drought that was promised.”
http://www.agweb.com/mobile/article/us-farmers-surprise-with-bigger-cor…
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