Here's our summary of key economic events overnight that affect New Zealand with news equity markets are under severe pressure today, in 'extreme fear' mode. And that is despite the current economic activity signals being relatively sanguine.
First in the US, the widely watched ISM service sector PMI bounced back to expansion in July with a better reading than was expected. The new order component expanded. The companion S&P/Markit services PMI told a similar story featuring rising output.
The US Fed's Loan Officers Survey for July noted that while credit standards were little-changed for consumers, demand was weaker especially for real estate loans. For businesses, banks tightened credit standards overall but demand for loans was holding positive and little-changed. This survey is not picking up any special sign of credit stress, for either borrowers or banks.
The Caixin services PMI suggests the Chinese service sector picked up the pace of its tepid expansion, coming in better than expected and better than the official measure.
In Japan it was the same. Japan's service economy returned to growth during July, following the slight dip recorded in June. Gains in both total activity and new business were solid amid improved customer numbers and demand conditions
In India, business confidence rose in their services sector and it maintained its rapid expansion. But inflation pressures from this high demand are now showing through and a warning flag that they may not be able to keep up the pace.
And in other big economies, like Brazil, their service sectors are also expanding at a positive clip. There are others like this, but you get the picture.
But in Australia, their services sector is easing back, no longer expanding. New order levels fell. And of course it will be a sharp contraction in New Zealand when we get the July services PMIs.
Later this afternoon the RBA will release the results of its monetary policy meeting today. A rate hike, talked about until recently, seems to be off the table now. A cut also seems unlikely as well. In fact markets aren't actually pricing in a rate cut there until November. That is in contrast to New Zealand where a full -25 bps cut is priced in for next week's RBNZ MPS - and another three cuts by the end of this year. That is a sharp repricing by markets in just one day.
The UST 10yr yield is now at just on 3.77% and down -2 bps from yesterday. The key 2-10 yield curve inversion is deeper at -15 bps. Their 1-5 curve is holding at -75 bps. But their 3 mth-10yr curve inversion is staying deeper at -157 bps. The Australian 10 year bond yield starts today at just on 3.89% and down -16 bps ahead of today's RBA review. The China 10 year bond rate is staying down at 2.12% and still their all-time low. The NZ Government 10 year bond rate is now just on 4.19% and down -7 bps.
Wall Street has started its week with the S&P500 down -3.2%. Overnight European markets were down about -1.8%, bookended by London's -2.0% drop and Paris' -1.4% fall. Yesterday Tokyo fell an amazing -12.4%. Hong Kong was down -1.5%, Shanghai down the same but Singapore fell -4.1%. The ASX200 fell its own very sharp -3.7% and its worst day since the pandemic, but the NZX50 got away relatively lightly with 'only' a -1.5% retreat in Monday trade.
We do need to remember it is 'silly season' in most markets with relatively light summer trading. Changes get magnified when volumes are light and many people are 'at the beach'. However, the sharp rise in fear has drawn in unusually heavy trading volumes now.
And in Japan, their central bank is copping the blame because of its recent rate hike, triggering a sharp rise in the value of the yen. All it's done though is fall back to year-ago levels. (You do have to wonder if cashed up investors like Warren Buffet will be buying up big during this Japanese market meltdown.)
The price of gold will start today down -US$39 from yesterday at US$2404/oz.
Oil prices are -US$1 lower at just over US$72.50/bbl in the US while the international Brent price is just under US$76.50/bbl.
The Kiwi dollar starts today down -10 bps from this time yesterday at just on 59.3 USc. Against the Aussie we are down -20 bps at 91.3 AUc. Against the euro we are down -80 bps at 54.2 euro cents. That all means our TWI-5 starts today at 68 and down -60 bps. A sharply rising Yen had influence on this too.
The bitcoin price starts today at US$54,584 and down another extreme -6.2% from where we left it yesterday. That is a -US$3,600 drop in a day. Volatility over the past 24 hours has been ultra-extreme, at +/- 10.4%.
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