Here's our summary of key economic events overnight that affect New Zealand, with news markets have turned cautious, unsure of what to make of the set of 'tariff letters'.
In Washington, because they couldn't complete tariff deals in the "90 deals in 90 days" to July 9, they have moved the 'deadline' to August 1. The shambles extends. And the capricious tariff letters are starting to be issued, first to Japan and South Korea at 25%, and then a bunch of developing countries including Malaysia (25%) and South Africa (30%).
Essentially, the US is pushing countries into China's orbit, and creating conditions where many will shy away from buying US goods due to the bald insult. US businesses are likely to suffer, not only from financial market reactions, but also on the demand front. Other governments' trust in the US is in free-fall.
Separately, we can also report that the NY Fed's Global Supply Chain Pressure index was neutral in June, back to its long run 'normal level'. That amounts to an easing of the May pressure as the rush to beat the tariff-taxes faded.
Across the Pacific, China said its foreign exchange reserves rose by +US$32 bln to US$3.317 tln in June and that is the highest level they have had in nearly ten years (December 2015).
Singapore's foreign exchange reserves stayed very high in June, even if they did dip marginally from their record high level in May.
In the EU, they report retail sales by volume (inflation adjusted) and it slipped in May from April. But it stayed higher than year-ago levels although by less than +1%.
Meanwhile, Germany reported its May industrial production turned up and by much more than expected. Although to be fair, it is in a bit of an overall yoyo pattern. Still, on a volume basis it too is +1.0% higher than year ago levels.
So overall, even though some of it is over a month old, this set of second tier data, from the US, to Asia, to Europe isn't painting a picture of special stress.
How the Australian central bank see it will be revealed later today when the RBA issues its decision on its cash rate target. Market pricing has only two-thirds of a -25 bps cut priced in although most economists think it will happen, and take their policy rate down from 3.85% to 3.60%. That will flow through to homeowner's household budgets quickly because most have variable rate deals.
However it its far from certain this will give the Aussie domestic economy the boost a rate cut should deliver. It almost certainly will juice up house prices, which are already rising in anticipation. But existing borrowers seem to have decided en masse that the cash gains from lower rates will be used to pay down debt rather than be spent in generating more economic activity, which is why the RBA is cutting. To get that effect, the central bank may have to cut again later in the year. There are reviews in August, September, November and December yet to come, so plenty of opportunities for more cuts.
The UST 10yr yield is now at 4.39%, and up +6 bps from yesterday. The key 2-10 yield curve is steeper at +50 bps. Their 1-5 curve is inverted by -14 bps and little-changed again. And their 3 mth-10yr curve is flatter, now +7 bps positive. The Australian 10 year bond yield starts today at 4.24% and up +5 bps from yesterday. The China 10 year bond rate is still at 1.64%. The NZ Government 10 year bond rate starts today at just over 4.52%, down a bit less than -2 bps.
Wall Street has started it week down -1.0% on the S&P500 on the risk-off mood from the tariff-letter flurry. Overnight European markets were very mixed between Frankfurt's strong +1.2% rise and London's -0.4% fall. Tokyo ended its Monday session down -0.6%, Hong Kong was down -0.1%, but Shanghai was unchanged. Singapore rose +0.5%. The ASX200 ended its Monday session down -0.2%, whereas the NZX50 was little-changed.
The price of gold will start today at US$3,332/oz, and down -US$4 from yesterday.
American oil prices are up +US$1 at just under US$67.50/bbl while the international Brent price is now just over US$69/bbl.
The Kiwi dollar is now just on 60 USc, down an outsized -60 bps from yesterday. Against the Aussie we are down -10 bps at 92.4 AUc. Against the euro we are down -20 bps at 51.3 euro cents. That all means our TWI-5 starts today at just under 67.7 and -30 bps lower from yesterday at this time.
The bitcoin price starts today at US$107,923 and down -0.9% from this time yesterday. Volatility over the past 24 hours has remained low at just on +/-0.8%.
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5 Comments
I mentioned the rumors a few weeks ago, now in mainstream news like AFR, Xi's allies in the Military have been purged relentlessly.
The fading power of Xi Jinping
In a system built on secrecy, no one knows the reality behind the scenes, but there are signs China’s leader could be in political trouble.
Changing of the guard?
The question will be what comes next - more moderate or more militant? Very important in an unstable world.
For every good reason every dictator fears their military. History has had very few successful coup d’etats that weren’t backed by the majority of the military. Always something of a problem to have a military, and especially one such as the gigantic Chinese armed force, all dressed up with nowhere to go. Stalin had exactly that problem, hence the extreme purging of the ranks which ultimately could have cost him his job when the Germans subsequently launched Barbarossa. It’s moments like these that a dictator will attempt to quell problems at home by the distraction of creating problems abroad to solve.
But removing competent leaders from the military has a significant cost, if you then want that military to win conflicts abroad.
China's military has long been acknowledged as having significant political clout, and control of a significant level of resources, so arguably, and has been argued as such, China's leadership reigns at the pleasure of the military leadership. Fraught tensions as they need to tread carefully, never knowing who is a friend and ally, or a political aspirant and potential threat, no matter where you sit.
But if China is politically distracted internally, perhaps the world or at least our region can breathe a little easier for a while?
Aye there is almost certainly a “watch this space” element emerging. Except of course, it is a very big and complex space to watch.
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