Here's our summary of key economic events overnight that affect New Zealand, with news talks are underway in Stockholm between the US and China over a trade/tariff deal. Prospects are not high.
And the recent EU-US deal has the makings of unravelling. Both France and Germany are unhappy about the outcome, made worse by the US claiming verbally pharmaceuticals have been excluded when the EU negotiators said they were not excluded from the 15% written deal.
The big casualty in all of these deals, including the Japanese one, is trust in the US. Smartarse public commenting by the US president - even some of his advisers - means the deals struck are unlikely to be respected by the US or trusted by the others. The result isn't "a deal", it is a fluid mess.
New Zealand's situation in all this will be a footnote, probably sometime on Saturday.
In the US, the Dallas Fed's factory survey improved sharply in July, but this was all about higher production. New orders are still contracting, even if at a slower rate. Elevated input price pressures continued in July. Improved sentiment is driving the raised output even in the absence of a pickup in new orders.
There were two US Treasury bond auctions earlier today. The 2 year Note was well supported, but investors required a 3.87% median yield, up from 3.73% at the prior equivalent event a month ago. The slightly less popular five year Note had investors winning a 3.92% median yield, up from 3.82% at the prior equivalent event, also a month ago. In the perspective of the past year, these yield levels are average in both cases.
Financial market eyes are now turning to Thursday's (NZT) US Federal Reserve meeting and decisions. Despite the overt Whitehouse pressure, financial market pricing shows virtually no-one is pricing in a rate cut.
In Canada, wholesale sales came in better than expected, up +0.7% in June from May when a -0.2% retreat was anticipated. But despite that good recent gain, they will still be lower than in June 2024.
Across the Pacific, from 2022 to 2024, Taiwanese consumer confidence rose. But since October 2024 it has been falling. However the July survey rose, the first break in the recent down-trend. It wasn't a big move from June, but they will take it.
In China, they are taking something they don't want. Foreign direct investment recorded another net outflow in June, and a worse one than the highly unusual April net outflow. The reasonable start to 2025 is being undone faster now. In the six months to June they have had a net inflow of US$42.3 bln. In 2024 they had more than that in just the first three months and even that was much weaker than in 2023 (US$98 bln) or 2022 (US$112 bln). Fleeing investors isn't a good look for China.
Indian industrial production expanded a rather weak +1.5% in June from a year ago, held back by surprisingly weak mining (coal) production. In their factories however, the story is much better with manufacturing production up +3.9% from a year ago, a better rise than in May although less than the +4.5% expected.
The UST 10yr yield is now at 4.42%, up +3 bps from yesterday. The key 2-10 yield curve is holding at +49 bps. Their 1-5 curve is still inverted at -13 bps. And their 3 mth-10yr curve is still at just +7 bps positive. The Australian 10 year bond yield starts today at 4.35% and down -1 bp from yesterday. The China 10 year bond rate is holding firm again at 1.74%. The NZ Government 10 year bond rate starts today at just under 4.61% and down -3 bps.
Wall Street has started its week very little-changed from Friday's record high close. It is down just -0.1% in Monday trade. Overnight European markets were mixed and lower, most down -0.4% although Frankfurt was downa full -1.0%. Tokyo was down a bit more, dropping by -1.1%. However Hong Kong rose +0.7% and Shanghai firmed a minor +0.1%. Singapore dropped -0.5%. The ASX200 rose +0.4% on Monday. And the NZX50 matched that rise.
The price of gold will start today at US$3,309/oz, down -US$27 from yesterday.
American oil prices have risen +US$1.50 at just on US$66.50/bbl with the international Brent price is now at just under US$70/bbl.
The Kiwi dollar is now at 59.7 USc and down -½c from yesterday and back to where it was a week ago. Against the Aussie we are unchanged at 91.6 AUc. Against the euro we are up +30 bps at 51.5 euro cents. That all means our TWI-5 starts today at just on 67.6, down -10 bps from yesterday.
The bitcoin price starts today at US$117,664 and down -1.3% from this time yesterday. Volatility over the past 24 hours has remained low at just on +/-0.9%.
Daily exchange rates
Select chart tabs
The easiest place to stay up with event risk is by following our Economic Calendar here ».
14 Comments
Good morning everyone, I hope you all make tons of Money today $$$
Nope. I'm in healthcare.
Smartarse public commenting by the US president - even some of his advisers - means the deals struck are unlikely to be respected by the US or trusted by the others. The result isn't "a deal", it is a fluid mess.
I hope you're not planning a trip to the USA anytime soon DC, you could end up spending a very long time at immigration. (I would too)
What have smartarses done to deserve such association ?
I've got a little sign on my office wall that is a picture of Tweety bird who is saying "if you're going to be a smart ass - first you have to be smart, otherwise you're just an Ass!"
I'm sure that will fit into MAGA somehow - Make Asses Great Again?
Damn there goes my ESTA approval!
😂
Imagine the mess at the tariff office implementing this fluidity.
'Fraud' by 'mistake' must be huge.
Still laughing at what South Park did. Solid left hook!
These articles repeatedly taking shots at the US and Trump are so out of line and show a complete lack of understanding of what the US is doing to enhance its own position. The world needs the US economy, not the other way round. The US markets clearly see the strength of the US position even if international moaners refuse to see it.
The USA is within it's rights to do as it pleases. The rest of the world does not have to fall in line with the demands of the USA and both sides need each other (the USA is in its trade deficit position due to outsourcing its own manufacturing to cheaper countries - Americans are not interested in taking on those low paid jobs so there is no point in trying to change things back).
The current President of the USA is a boorish oaf who lies about his path to wealth, business successes, past associations, past decisions as President and engages in unjustified character assassinations of others (here's one just now: Watch: Trump says London mayor a ‘nasty person’ in front of British PM, who counters ‘he’s a friend of mine’ | Stuff)
Actions by governments have consequences that can be immediate (or short term) but more often aren't apparent until many years later. The US markets will be reacting to those short term consequences and not the long term disasters that await. We will have to wait 5-10 years to see the true effects of the current administration's actions but learned contributors on this site are already warning us of what is to come (both staff and commenters).
"The world needs the US economy, not the other way round."
Seriously, Macca???
I have lived on this planet for more than 70 years and there is not a single one passed by where the US has not been involved in one or more wars in that time.
I did a tally up yesterday of wars and potential flashpoints that the US is either directly involved in* or deliberately destabilising the region - it came to 20 hotspots, involving 34 countries in an arc that virtually surrounded Russia and China.
*(Often with the help of the UK, MI6, and of course Israel as well)1The Baltics and Scandinavia - including Norway/Finland/Estonia/Latvia/Lithuania
2 Poland
3 Ukraine
4 Romania/Moldova/Transnistria
5 The Black Sea
6 Turkey – led by the 'Sultan of Swing' and dully installed Western compradors
7 Syria – head-choppers duly installed
8 Lebanon – both Syria and Lebanon duly being carved up like a side of beef
9 Israel/Palestine - GENOCIDE
10 Armenia/Azerbaijan
11 Iran
12 Pakistan/India
13 Myanmar
14 Thailand/Cambodia
15 China/TaiwanPlus the African branch...
16 Somalia
17 Nigeria
18 Sahel region (Mali/Burkina-Faso/Niger)
19 The Democratic Republic of Congo
20 Lake Chad Basin
"Smartarse public commenting by the US president - even some of his advisers - means the deals struck are unlikely to be respected by the US or trusted by the others. The result isn't "a deal", it is a fluid mess."
Too true, David.
This morning, I looked at the 20 countries with the largest 10-year aggregate goods and services trade deficits - they ranged from China ($3.142 trillion) down to Sweden ($62.5 billion).
Only three of the top 20 on the list - Mexico (#3 at $1.124 trillion), Canada (# 8 at $433 billion), and South Korea (#9 at $36 billion) have formally signed FTAs (Formal Trade Agreements) with the US, and even these have all manner of ongoing challenges that are going to be very difficult to resolve.
The entire policy is utterly incoherent because successive US govts jealously try to protect their currency's global reserve status - this, by definition, involves running deficits - this is the Triffin Paradox that has been well documented for more than half a century, and yet these fools don't seem to have got that memo.
Essentially, for the present global financial system to function, the US reserve currency is facilitated by these trade deficits. It is these trade deficits which provide the US dollars for that share of global trade.
To the degree that the rest of the world uses the US dollar, this is the extra demand component. Most of the lesser reserve currencies are not used in 3rd party cross-border trades.
This structural dollar demand overvalues it in the context of trade, which makes US imports much cheaper, but also puts pressure on many exporters in being able to compete in the international marketplace.
Current estimated figures for context...
(i) There are $7.4 trillion in foreign-held US Treasuries.
(ii) The BIS estimates $65 trillion in off-balance-sheet dollar debt (FX swaps, forwards, etc.) for non-U.S. banks and non-banks as of mid-2022.
(iii) Combined Estimate: Adding recorded and unrecorded debt, the total dollar-denominated debt outside the U.S. likely exceeds $95–100 trillion as of recent years, with $65 trillion from FX-related instruments alone and additional tens of trillions from government, corporate, and banking sector obligations.
(iv) 64% of global debt (including both corporate and sovereign) was denominated in U.S. dollars in 2024.
(v) A 2025 Reuters report indicates a decline in non-U.S. sovereign dollar bond issuance, down 19% to $86.2 billion in early 2025, as countries like Brazil and India shift to local currency or alternative currency debt to avoid U.S. yield and currency volatility risks.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
THE DEBT TRAP VORTEX
The growing multi-decade deficit problem needs to be addressed, and the problem is that it is mainly the financial economy, not the productive economy, that has always benefited from the wealth transfer effect - consequently, it is that sector that holds the vast majority of political lobby sway.
The system worked post WW2 when the US economy was a monumental ~40% of global GDP, and had the largest manufacturing base as well - an economy of that dominance was able to sustain this reserve currency status.
The wheels began to fall off largely from US trade deficits, spending on foreign aid, military, particularly on the Vietnam war, and with France insisting on redemption of their accumulated dollars leading up to when Nixon took the US dollar off the gold standard in 1971 - that was the day that the delta between the financial and productive economy began widening.
Under the Bretton Woods system, foreign governments could redeem U.S. dollars for gold at a fixed rate of $35 per ounce. In 1965, Charles de Gaulle announced France’s intent to redeem dollar reserves for gold - by 1966, non-US central banks held $14 billion in dollars while U.S. gold reserves were $13.2 billion, with only $3.2 billion available for foreign redemptions due to domestic reserve requirements.
THE UNCOMFORTABLE TRUTH - and hence the heightened attack on BRICS
The system no longer works because at a mere 33% of China's annual PGDP (Productive GDP) - and a very small fraction of global PGDP, America's productive economy can no longer warrant continued budget deficits, nor is it able to fund its growing mountain of public debt.
This, worked out as a percentage of PGDP, is in the region of 700% which by definition means the Federal economy is technically insolvent.
The problem for the US is that as the buyers of U$ treasuries realise the true extent of the US insolvency they will demand much larger yields as they price in risk, not just on their invested capital, but in currency volatility/losses as well - remember that the Trump Admin has specifically stated that they intend to devalue the US dollar by up to 30% from the starting base.
TWIN PARADOXES
This is not just about the Triffin Paradox, where no country should ever strive to have an overwhelming reserve currency status - this is about a Trump 47 Admin policy paradox too.
Trade deficits and reserve currency status are joined at the hip - period - if they eliminate the trade deficits, that, by definition, erodes their reserve currency status as well.
Stephen Miran's so-called Mar-a-Lago Accord (the paper) is a proposed economic and trade initiative - the blueprint for restructuring global trade and monetary relations that Admin #47 appears to be following.
Its core goal is to devalue the dollar while at the same time preserving its role as the world reserve currency, a careful balancing act intended to avoid the contradictions described in the Triffin paradox - good luck with that.
This history of the 'success' of modern accords doesn't read well. Neither does the Trump Admin's contradictory spin - apparently they genuinely believe that tariffs will raise the revenue they need to make room for the tax cuts they crave. By this reasoning, tariffs cannot be just a negotiating bludgeon - they would have to become a permanent fixture.
Paraphrased from Wiki -
"The plan seeks to reduce the United States' trade deficit, restore domestic manufacturing, and realign international economic relationships. It proposes to achieve these aims through the use of tariffs, currency and capital measures, and trade agreements tied to national security.
Drawing inspiration from the 1944 Bretton Woods Agreement and the 1985 Plaza Accord, the Mar a Lago Accord envisions a similarly large-scale realignment of global trade and currency systems."
SOME OF THE BLEEDINGLY OBVIOUS PITFALLS
#1 In 1944, the US economy held huge sway - it no longer does, as pointed out above, and particularly when calculated in terms of PGDP.
#2 The G7 1985 Plaza Accord was much easier to broker, as the 5 signatories (France/West Germany/Japan/UK/US) were all friendly allies sharing the common goal to depreciate the US dollar in relation to all of these key currencies by intervening in currency markets.
Even though there was this consensus, it only lasted until 1987 when it was replaced by the Louvre Accord - a G6 agreement signed in France and designed to halt the continued decline of the dollar caused by the previous US Plaza Accord.
The so-called Mar-a-lago Accord is a completely different kettle of fish - basically, it's a plan to threaten/budgeon 180 countries and territories, with exemptions only for countries due to previously existing tariffs, and with lighter tariffs for NATO members like Poland, Lithuania, Latvia, and Estonia because of US/NATO defence posturing against Russia.
In all, within the Mar-a-Lago Accord's tariff plan, ~180 countries are affected by baseline or sectoral tariffs like steel, aluminium and autos. It seems that the Trump Admin has grossly overestimated their hand in what has essentially become a global trade war.
Trump's aggressive Cosa Nostra-style shake-down tactic seems to have been aimed at bringing lots of countries to the table to "kiss his ass" - it hasn't worked out too well, especially in terms of the countries with the highest trade surpluses - now who would have thunk?
Regard
Col
So the US$ being the reserve currency only continues due to voluntary cooperation by most countries? There is no international law binding it as the reserve currency, and Nixon kicking the gold standard into touch essentially nullified any prior agreements or treaties surely?
So the simplest way today to put America back into place is to kill the external demand for the US$?
I would suggest that the best option is for an international bank, one not governed or influenced by national politics, establishes a currency with a set (or managed) exchange rate (not sure how that could be achieved) for international trade?
The biggest thing about what is happening in the US today that astounds me is that those at the top don't seem to understand that the world's economy is the way it is because that's largely how America built it through influence, coercion or bullying. They don't seem to realise the impacts of their actions on other countries, that no one will ever trust America again. that their economy might be important is one thing, but trust is another, so to many extents they've lowered their reputation to that of China, whose economy is important to the world but no one trusts the government. It all reminds me of the Tweety comment i cited.
"I would suggest that the best option is for an international bank, one not governed or influenced by national politics, establishes a currency with a set (or managed) exchange rate (not sure how that could be achieved) for international trade?"
I believe that the evolution of a new global financial architecture is much more advanced than most of us realise, Murray.
My hypothesis is that this is a major event because the replacement global financial structure will be built on a foundation of BRICS-centric hard-backed currencies, and not just backed with gold and other PMs, but probably an entire range (~20) of other durable commodities as well.
Humanity may well discover that the world is best not to have any overwhelmingly strong national currency that plays this dual role, in essence it could be deemed a 3-way role, if you include the fact that reserve currencies always end up becoming default currencies.
History proves that this is not a good idea, and not just from the effect of the Triffin Paradox, but the very fact that the incumbent nation invariably develops enough bad habits to eventually destroy the productive economy. China is painfully aware of this trap, and will not go down this pathway. The Triffin Paradox will always presents huge challenges for the incumbent nation in terms of running a successful and sustainable industrial capitalist model.
Historically, a reserve currency lasted longer when the world ran on sound money, with a currency like the proverbial silver 'Pieces of Eight' which demonstrated that it could enjoy practically ZERO loss in purchasing power and remained the de-facto global reserve currency for around 300 years. It was eventually replaced by a variety of national currencies and the gold standard in the 19th century.
As technologies improve, this should always lead to deflation - this is the logical progression. It is the natural way of the world, as technology makes it cheaper and easier to produce goods and services. Plus, if a currency is hard-backed, this removes the financial casino habit and also the concentration of wealth in the pockets of the financial dynasties.
This, in turn, encourages a savings culture where societal wealth can then be leveraged to provide more capital in a cooperative setting, with no 3rd party profit-takers involved.
Capital and liquidity can be made available for local entrepreneurial activity, business working capital, affordable home loans, etc - this all comes about with local oversight and the return of moral hazard as a safeguard for avoiding toxic loans and wasted investment in boondoggles.
As I have mentioned before, all currencies effectively became fiat in 1971, and the average all-time historical lifespan of fiat currencies is a dismal 35 years - this means that they are all 19 years overdue to self-destruct.
Furthermore, this financial architecture (post 1971) is even more disastrous since currencies are no longer based on sound money principles - by definition, the entire system becomes a giant Ponzi scheme - one that is guaranteed to collapse.
Recently, there has been some extensive work done in bringing to our attention the revelation that China's PGDP (Productive GDP) is in the region of 300% larger than that of the USA. I think many of us suspected that the reality was somewhere in this region, but we never had anything like the resources required to crunch the numbers.
China, meanwhile, without fanfare, appears to already be quietly backing its currency with gold, and this has largely sailed under the radar of the ostrich-imitating West.
As soon as the financial world wakes up that the new global financial architecture will be based on hard-backed currencies, that will be the end of fiat currencies, sovereign bonds based on fiat, the US dollar, and also its standing as the preferred reserve and default currency to hold.
Germany and Italy's (over 1900 tons) repatriation of their US vaulted gold reserves will be the beginning of a procession of demands, and they will not be able to make these deliveries, which will create further uncertainty and flight to safety within global markets.
On June 26, the Shanghai Gold Exchange made an announcement that new gold transactions are accessible in Hong Kong in their new gold storage vault, which is complementary to these contracts - the statement was...
"In order to further enhance the opening up of the gold market to the outside world... it will enhance product offerings, and optimise delivery services..."
What this allows members and customers to do is to carry out physical delivery business at the designated warehouses in Hong Kong in accordance with guidelines from the Shanghai Gold Exchange.
They are also offering from June 26 on, until the end of the settlement date of the storage fee in December of 2025, that the storage fees, entry fees, and exit fees of the designated transactions, warehouses of international members, and international customers in Hong Kong, will be exempted.
Why is this important and why is this, in essence, telling us that the yuan is now gold-backed?
The yuan is now a gold redeemable currency - you can have gold delivery, you can store it in a vault in Hong Kong, if you want, or you can have it delivered anywhere in the world.
The gold will be redeemable at market price, and so this is a highly encouraging market development - you can invest your yuan surpluses in gold.
For now, there is no real need for discussions on a BRICS trade only settlement instrument - this is not to say that in the future that won't happen, but this is China taking a step in opening up its capital market.
The argument would be that a whole raft of nations could say... "well we have all this yuan and we don't want to hold it, we want to buy gold, and China would have to ensure that that gold was available". The implication is that anyone in the future who has a surplus of yuan will be able to exchange it for gold.
Why does this also internationalise the yuan?
The yuan, along with the U$ dollar, has been devaluing relative to gold. Choosing to hold gold-backed currency versus a fiat-backed currency is a far more attractive option - the international community should see this full convertability as a great opportunity, and so they might hold it in preference.
If the yuan is fully convertible, then it IS indeed backed by gold.
Furthermore, the bonfire is already ablaze - I don't see any way of putting the fire out, especially now that every entity in the world has been given multiple reasons to get the hell out of US paper (read credit).
China bailed out the US and much of the potential global meltdown in the 2008 GFC by purchasing ~$2 trillion worth of US debt and allowing them to instigate a $700 billion TARP (Troubled Asset Relief Program) for bank bailouts and market stabilisation.
Not all of this was paid out, but the message was clear - except for the sacrificial lamb Lehman Brothers, the TBTF banks could pretty much operate however they liked and still get bailed out.
To help mitigate some of the global effects of the GFC, China also passed a domestic stimulus package of almost $600 billion, which helped with demand in markets.
Seventeen years on, China is taking a very dim view of this repeat behaviour, and being on the receiving end of blatantly bigoted insults from Trump and his feckless Treasury Secretary Bessent hasn't helped one bit.
In China, bankers who committed crimes of the nature that some of the TBTF U$ banks CEOs committed, would have been put to death, not rewarded with huge multi-billion dollar bonuses.
One final point - I have found an easy way to reduce my heavy reading load - the moment a commentator or analyst blathers the Western refrain of the "US as being the leading economy in the world", I'm gone. If this simple truth still escapes their notice, then I have zero interest in anything else they have to say.
Watch this space
Col
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.