Eyes on EU-US tariff deal; US durable goods orders lame; China struggles with overcapacity; EU sentiment improves; Australia gets many roundtables; UST 10yr at 4.39%; gold lower, oil soft; NZ$1 = 60.1 USc; TWI-5 = 67.7

Here's our summary of key economic events overnight that affect New Zealand, with news the hope that a US-EU tariff deal could be close are rising as Trump and EU supremo Von der Leyen will meet in Scotland soon. But a Canada-US deal now looks remote with Canada saying it won't accept a bad deal. The EU too seems ready to walk away from a bad, one-sided deal. The Trump August 1 'deadline' is now only six days away.

On the economic activity front, as expected US durable goods orders fell back in June after the July spike. But away from the aircraft and defense sectors it was pretty ho-hum. New orders rose just +0.1%. Non-defense non-aircraft orders for capital goods fell when a rise was anticipated.

In China, the impact of central control and subsidies has been in stark focus in their electricity sector. The end of subsidies caused huge distortions on photovoltaic cell demand. Solar PV installed in may had 93GW capacity. In June, just 14GW. When subsidies end, the overcapacity exposed is enormous. But they are trying to wean themselves off overcapacity in many sectors. The government has now sent out "inspection teams" into a number of provinces to ensure the cutbacks they need in coal production are in fact happening. But these types of actions are causing their own distortions. Prices for steel, for coal, and for other sectors facing overcapacity cutbacks are actually rising, and quite fast. No-one wants to be the sacrificial enterprise to meet national goals when the consequence will be higher prices as a result. 'Toxic competition' is being seen as a national curse.

In Europe, the ECB's survey of professional forecasters shows they don't expect much change in the coming year with things constrained by trade questions. They see inflation easing slightly, mainly due to the tariff effects, GDP growth slightly stronger in the short term.

The Ifo Business Climate Index for Germany edged up in July from June, to the highest level since May 2024. But the report was still full of cautious sentiment.

In Russia, and as expected, they cut their policy rate by -200 bps to 18%. They signaled another cut is likely in 2025. They see disinflation on the rise, and household consumption lower. Part of that is due to the size of the diaspora of working aged men trying to avoid the attempted invasion of Ukraine.

In Australia, "roundtables" to discuss economic and productivity challenges are all the rage. There is an official Productivity Roundtable due to kick off in mid August in Canberra. But ministers, even opposition MPs, are organising a cascading series of mini-roundtables leading up to the big Canberra set piece. One interesting one happened yesterday where some of Australia's top economists and tax experts were in a "tax reform roundtable", hosted by Independent MP for Wentworth Allegra Spender. A highlight was that there was a call for Australia reduce its dependence on wage taxes and rebalance the system to help younger people. That would mean higher capital gains taxes, and higher taxes on trusts. Both - capital gains, and trust tax shelters - are apparently causing huge distortions. The result is that young wage workers are picking up the tab for the wealthy, the data shows.

The UST 10yr yield is now at 4.39%, down -2 bps from yesterday at this time, down -3 bps for the week. The key 2-10 yield curve is holding at +48 bps. Their 1-5 curve is still inverted at -16 bps. And their 3 mth-10yr curve is less steep at just +5 bps positive. The Australian 10 year bond yield starts today at 4.36% and unchanged from yesterday, little-changed for the week. The China 10 year bond rate is firm again at 1.74%, up +1 bp to be up +7 bps for the week. The NZ Government 10 year bond rate starts today at just on 4.64% and up +3 bps from yesterday, and back where it was at the start of the week.

Wall Street was up +0.4% in Friday trade on the S&P500 and a new record high after rising +1.4% for the week. Corporate earnings reports on Wall Street have been strong. Overnight European markets were mixed in a +/-0.2% range. Yesterday Tokyo ended down -0.9% but that capped a strong +3.5% weekly gain. Hong Kong was down -1.1% on Friday for a +1.6% weekly rise. Shanghai dipped -0.3% in Friday for a +1.4% weekly advance. Singapore was down -0.3% on Friday for a +1.3% seven-day rise. The ASX200 ended down -0.5% for a -1.0% weekly fall. And the NZX50 rose +0.4% to be -0.2% lower for the week largely mirroring the FPH -0.5% fall.

The Fear & Greed index has moved just out of the 'extreme greed' zone where it was a week ago.

The price of gold will start today at US$3,338/oz, down -US$31 from yesterday. That is a net -US$13 lower than a week ago. Trump's failed ambush of Fed boss Powell seems to have lessened financial market risk.

American oil prices are marginally softer at just over US$65/bbl but the international Brent price is still at just under US$68.50/bbl. A week ago these prices were US$67.50 and US$69.50/bbl respectively. More supply from Venezuela kept a lid on prices in this sector, and low prices say the rig count in North America fall again. These are now down -8% from a year ago in the US, down -14% in Canada.

The Kiwi dollar is now at 60.1 USc and down -30 bps from yesterday but up +½c from a week ago. Against the Aussie we are unchanged at 91.6 AUc. Against the euro we have dipped -10 bps at 51.2 euro cents. That all means our TWI-5 starts today at just on 67.7, down -10 bps from yesterday but up +20 bps from a week ago.

The bitcoin price starts today at US$116,448 and down -2.3% from this time yesterday. In fact, it is at its lowest in two weeks now. Volatility over the past 24 hours has been modest at just on +/-1.9%.

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