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%.
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11 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).
"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) There are ~$7.4 trillion in foreign-held U.S. Treasuries.
(v) 64% of global debt (including both corporate and sovereign) was denominated in U.S. dollars in 2024.
(vi) 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
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