China falsely accuses NZ of FMD risk; US data wavers, Japan data improves; China data weak bringing surprise rate cut; UST 10yr 2.79%; gold and oil drop; NZ$1 = 63.7 USc; TWI-5 = 72.1

Here's our summary of key economic events overnight that affect New Zealand, with news signals from the world's second largest economy aren't positive with data that is causing alarm both inside and outside the country.

Their reactions are also bringing over-reactions.

In a dramatic online posting, Chinese media have unofficially announced that New Zealand and Australian beef imports are to be blocked from entering the country, including Hong Hong, effective immediately. It doesn't seem to include dairy products. Apparently our products bring a risk of foot & mouth disease, presumably because we are close to Indonesia which has the disease. Or, it is a convenient excuse by Chinese wolf-warriors to beat us up until we toe the Beijing line on political issues. In any event, the FMD aspect is plainly false so that aspect will blow over quickly. But the message has been sent.

The negative news isn't only that. There was also some sharply negative data out of the booming US economy. The New York Fed's regional factory survey delivered a huge negative surprise, falling very sharply. New orders and shipments plunged, and unfilled orders declined. No-one saw this coming. A small slip was expected taking their expansion to a more modest level. But the actual report records a dramatic contraction in the region.

Meanwhile, sentiment in the American home building industry turned negative in August, but this really isn't much of a surprise given what is going on in their overall housing markets - and the global retreat in housing markets generally.

After stagnating in the March quarter, the Japanese economy picked up to be +2.2% higher in the June quarter from a year ago, and Q1 was revised higher too. This confirms a string of better data we have been noting for a few months now. But the expansion, while welcomed, wasn't quite as strong as analysts were expecting. Exports helped. Even so, Japan can now claim its economy is now larger than pre-pandemic. It's been a slow recovery for them, and the IMF last month downgraded Japan's growth forecast for the full 2022 to +1.7% from the April projection of +2.4%.

But the big data movements came from China where retail sales data for July disappointed. They came in up +2.7% from the year-ago level, lower than the June gain, and much lower than the +5% expected. It is a bad miss. Industrial production came in weaker too, although not by quite as much. It was up +3.8%. Both sets of data confirm China isn't going to get anywhere near its target of "about 5½% growth" in 2022. Independent analysts will be downgrading prospects on this data. And it isn't an especially good look for President Xi ahead of his appointment to the top job for life.

China's electricity production rose +4.5% in July from a year earlier. "Thermal power" (coal fired) was up +5.3%. Energy production rising faster than output isn't a good look for productivity either.

And house prices in China in July fell more than expected from June, now down -0.9% year-on-year. That's their third straight month of retreat. Forty of their seventy largest cities posted month-on-month declines for new housing. 51 of these 70 posted declines for resales. These official data changes not were especially large, but the consistency of these tiny movements doesn't really gel with individual market reports of stress and retreat.

After this data was released, the People's Bank of China said in an unexpected announcement it was cutting the interest rate on a ¥400 bln one-year, medium-term lending facility loans to some banks by -10 basis points to 2.75% from 2.85%. It is their first rate cut in seven months.

This Chinese data is important for Australia who will be watching nervously. Fears are that Chinese construction could stumble badly as developers’ funding dries up. The key commodities the Aussies will be watching are copper and iron ore of course. 

Indonesia posted an outsized trade surplus in July of +US$4.2 bln for the month, boosted by strong coal and palm oil exports from year-ago levels. FMD hasn't affected them so far.

The UST 10yr yield starts today at 2.79% and down -5 bps from this time yesterday. The UST 2-10 rate curve is more marginally inverted today, now at -42 bps and their 1-5 curve is also fractionally more inverted at -31 bps. Their 30 day-10yr curve is now at +60 bps and flatter from this time yesterday. The Australian ten year bond is down -11 bps at 3.29%. The China Govt ten year bond is down -7 bps at 2.68%. And the New Zealand Govt ten year will start today up at 3.47% and down -5 bps from yesterday's levels. Don't forget we have a full RBNZ MPS tomorrow, certain to deliver another +50 bps rise.

Wall Street is higher today, although not by much with the S&P500 gaining +0.3% in later Monday trade. Overnight European gained about +0.2%. Yesterday, Tokyo rose +1.1%. Hong Kong fell -0.7%, and Shanghai closed with a minor slip. The ASX200 ended its Monday session up +0.5% and that was matched by the NZX50.

The price of gold will open today at US$1778/oz which is down -US$26/oz from this time yesterday.

And oil prices start today down -US$3 at just under US$88.50/bbl in the US, while the international Brent price is now just over US$94/bbl. These are back to week-ago levels.

The Kiwi dollar will open today at 63.7USc which is more than -¾c lower than this time yesterday as the greenback makes a bit of a comeback. Against the Australian dollar we are holding at 90.6 AUc. Against the euro we have slipped marginally to 62.7 euro cents. That all means our TWI-5 starts today at 72.1, and down -60 bps.

The bitcoin price is down a mere -0.6% from this time yesterday at US$24,109. Volatility over the past 24 hours has been moderate at just over +/-2.7%.

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