Here's our summary of key economic events overnight that affect New Zealand with news China's tit-for-tat retaliation against the EU might move dairy prices in New Zealand's favour - for a while at least.
But first up today, we need to note that the American labour market expansion wasn't as strong as originally reported. They have revised their data down for the year to March. Previously the data showed a strong +3.775 mln expansion in new jobs that year to 158.0 mln people employed. Now they say it rose +2.957 mln to 157.2 mln. So a +1.9% expansion rather than the +2.4% expansion. Still very healthy but not as strong as originally reported.
The US Fed minutes for their July meeting were released earlier today and they showed some policymakers saw “a plausible case” for cutting rates by 25 bps at that meeting, though they ultimately held off. This bolsters the view that the Fed is about to cut in September, but something well priced in to financial markets. The gold price seems to be the main elements showing gains.
After the prior week's strong gain, there was an equally sharp fall in new mortgage applications in the US last week, down -10% from that prior week. This came even though mortgage interest rates slipped again to 6.5% for the benchmark 30-year fixed loan. That level is its lowest since May 2023.
Also falling are yields on new US Treasury bond issues. Today the very well supported UST 20yr bond auction delivered a median yield of 4.10%, compared to the 4.41% yield at the equivalent event a month ago. These falling yields are turbocharging investor gains.
Across the Pacific, China has set in motion some trade tariff retaliation on the EU after Brussels called out a set of subsidies by Beijing for cars and pork products, and called out its human rights failings. China is targeting the EU dairy products, most of which come from Germany, France, the Netherlands and Ireland. EU dairy exports to China were valued at €1.7 bln last year, far less than New Zealand's trade. EU exports of dairy products have been easing lower recently, as has NZ's trade, mainly because of the rise of the local Chinese dairy industry. It isn't clear that this move will have any impact on dairy prices in the short term.
There is probably a year to go before the Chinese actually apply their retaliation. But there could well be informal blocking at the border - just as we saw against Australian barley and wine, before the formal clamps went on. The Chinese move against the EU will effectively work as a warning to New Zealand to toe China's line.
High debt levels are forcing China's giant high-speed rail operator to sharply raise prices to contain a squeeze flowing from its NZ$1.4 tln debt built up when China's infrastructure stimulus programs were in full swing. Now users will have to pay for that - even though they are facing a broad economic slowdown again.
The UST 10yr yield is now at just on 3.78% and down -5 bps from this time yesterday. The key 2-10 yield curve inversion is slightly shallower at -15 bps. Their 1-5 curve inversion is little-changed at -77 bps. But their 3 mth-10yr curve inversion is now at -155 bps and a deeper inversion. The Australian 10 year bond yield starts today at 3.92% and down -4 bps. The China 10 year bond rate is back up +3 bps at 2.16%. Beijing is struggling to keep it from falling. The NZ Government 10 year bond rate is now just on 4.20% and down -4 bps.
Wall Street is slightly firmer with the S&P500 up +0.3% in its Wednesday trade. Overnight European markets were also up, by about +0.5%, except London which was largely unchanged. Yesterday Tokyo closed its Wednesday session down -0.3%. But Hong Kong was down -0.7% and Shanghai down -0.4%. Singapore was up a mere +0.1%. The ASX ended its Wednesday session up +0.2%, but the NZX50 fell -0.4%.
The price of gold will start today down -US$2 from yesterday at US$2509/oz.
Oil prices are down -US$1.50 at just on US$71.50/bbl in the US while the international Brent price is now just over US$75.50/bbl.
The Kiwi dollar starts today up almost another +20 bps from yesterday at 61.6 USc. Against the Aussie we are up +20 bps too at 91.4 AUc. Against the euro we are still at 55.3 euro cents. That all means our TWI-5 starts today at 69.4 and up +10 bps from yesterday.
The bitcoin price starts today at US$59,898 and up +1.8% from this time yesterday in its recent yoyo pattern. Volatility over the past 24 hours has been modest at just under +/- 1.2%.
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