Here's our summary of key economic events overnight that affect New Zealand with news a Chinese bond bubble is a significant threat to regional Chinese banks.
But first up in the US, durable goods orders surged by +9.9% in July from the prior month, rebounding and more from a -6.9% decline in June and exceeding market expectations of a +5% increase. It was the largest rise since May 2020, mainly driven by a surge in transportation equipment orders. Excluding defense, new orders increased 10.4%. Pre-pandemic, it is the largest single monthly jump since 2010. But a lot of this is just making up for tepid rises in prior months. Year on year these July orders are up +3.0%
So yes, it is a good result, but not quite as spectacular as the month-on-month gain suggests.
It is not even either. The Texas oil patch reported yet another slip in their factory activity, extending the weakness in Lone Star factories to 27 straight months. But a 'bright spot' (less negative spot?) was that the shrinkage in new orders eased sharply.
The Germans are also feeling a pinch in their business sector. Their Ifo Business Climate indicator eased to its lowest level since February, driven by increased pessimism among companies for their current situation. Both the factory and service sectors are suffering. Although it wasn't as sharp a retreat as was anticipated, the surveyers said "The German economy is increasingly entering a crisis". That might be overstating it in a Germanic way, but it still isn't good.
Overnight, the EU had two bond auctions, both moderately well supported. The May 2028 bond went for an average yield of 2.56% and down from 2.94% at the prior equivalent event 12 weeks ago, and the April 2034 bond went for 2.84% and down from 3.07% at the prior equivalent event eight weeks ago.
In China, worries about a bubble in bond valuations is worrying their central bank. We have been reporting very low Chinese Government bond yields for some time. Lower yields boost the price of these 'safe' benchmark bonds, attracting hot money and driving the yields lower / the prices higher. Among the investors are big regional banks. The worry is that if this bubble bursts, those investors stand to lose so much their bank will fail - a bit like SVB. And there are conflict-of-interest problems in their bond markets too.
Back in the US a new trend is worth following. Their affordable home sector, one backed by Federal support, is facing a crisis. Not because of land or construction costs, but the cost of insurance which is rising far faster than owners or occupiers can afford. It also undermines the lenders who support the sector.
The UST 10yr yield is still at just on 3.81% and up a minor +1 bps from yesterday. The key 2-10 yield curve inversion is still at -11 bps. Their 1-5 curve inversion is unchanged at -75 bps. And their 3 mth-10yr curve inversion is also little-changed at -152 bps. The Australian 10 year bond yield starts today at 3.92% and unchanged from yesterday. The China 10 year bond rate is still at 2.16%. The NZ Government 10 year bond rate is now at 4.20% and down -3 bps from yesterday.
Wall Street has started its week down -0.3% on the S&P500. Overnight European markets were mixed between London's +0.5% rise and Frankfurt's -0.1% fall. Yesterday Tokyo ended its Monday session down -0.7%. Kong Kong ended up +1.1%. Shanghai ended virtually unchanged. Singapore was up +0.2%. The ASX200 was up +0.8%, and the NZX50 ended its Monday session up +0.5%.
The price of gold will start today up +US$6 from yesterday at US$2518/oz. We make that an all-time record high although it has been slightly higher intra-day.
Oil prices are up +US$2 at under US$77/bbl in the US while the international Brent price is now just over US$80/bbl. Supply risk is driving today's rises, largely based on domestic security issues in Libya.
The Kiwi dollar starts today down -20 bps from yesterday at 62.1 USc. Against the Aussie we are marginally softer at 91.6 AUc. Against the euro we are also marginally softer at 55.6 euro cents. That all means our TWI-5 starts today at 69.6 and down -30 bps.
The bitcoin price starts today at US$63,854 and down -0.5% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.5%.
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