Financial markets dive on latest Trump brain explosion; US federal layoffs start; Canada jobs jump; Japan politics gets messy; China fragile; UST 10yr at 4.06%; gold & silver fall back, oil dives; NZ$1 = 57.2 USc; TWI-5 = 65.1

Here's our summary of key economic events overnight that affect New Zealand, with news we may be seeing a "burn it all" tantrum from the White House.

Overnight in a bewildering social media post, Trump threatened to hike tariffs on Chinese exports and cancel a meeting with Chinese President Xi in South Korea later this month. The broadside sent markets into a sharp retreat. He was reacting to the Chinese expanding its rare-earth export controls. He said "no way that China should be allowed to hold the world ‘captive’", blind to what he is trying to do with his own unilateral tariffs.

Just when market optimists thought that the US and China had a chance of making up, Trump has exposed his weakness - his lack of self-awareness and childish inability to understand the double standards he seeks.

Markets have reacted badly to the tiff, seeing it as a flare-up in trade wars that will hurt the global economy. Equities fell sharply, bond yields went into risk-aversion mode, and the USD became less competitive. Commodity prices fell.

Meanwhile, the US Federal Reserve balance sheet is now at US$6.59 tln, down more than -US$450 bln from this time last year, down -US$2.3 tln since the peak in early 2022, and taking it back to the May 202 level as the pandemic recovery effort started ramping up. Fast up, slow down

The US Federal Government September deficit result due out overnight has been delayed, another data victim of their shutdown. It might be a while - mass firings of federal workers has begun.

The University of Michigan consumer sentiment index for the US came in little-changed in October, preliminary readings showed. That leaves it -22% lower than at the same time yesterday.

In Canada, they reported a surprisingly strong jobs report for September with a gain of more than +60,000 jobs in the month, embellished because full-time job gains exceeded +106,000. This is far better than the overall +5000 gain expected. Of course, we didn't get an American jobs report for September because of the shutdown that affects their statistics system, but if the ADP Employment Report is any guide, Canada likely grew its workforce more than the US, which is a rare occurrence given that the US workforce is more than eight times larger than Canada's.

In Japan, the elevation of "Iron Lady" Sanae Takaichi to lead the LDP seems to have stumbled at the first hurdle. The LDP's main coalition partner has refused to work with her. Japanese politics could be extending its revolving door government style.

Yesterday we noted official data about the Chinese Golden Week holiday and the record-breaking internal travel. But it seems that those that did get out and enjoy the break were pretty conscious of the risks that lie ahead and a mood of frugality was a feature of their spending. So much so that average spending took a surprising dip in this eight-day holiday compared to last years seven-day break. Spending rose at about half the rate that activity rose, putting their penchant for price wars in the spotlight. Activity masked weakness in this period.

In Australia, business is in a hesitant spot too. Data out yesterday for August shows monthly business turnover fell -2.2% (seasonally adjusted) and this fall was the largest since April 2023 with drops across nine industries this month. Manufacturing was down -5.8%, tech was down -3.7%, and mining was down -1.9%.

At testimony at at Australian Senate hearing yesterday, the RBA Governor talked up Australia's economic prospects, but also noted that unemployments is likely to rise from here, and that higher household inflation is quite possible if they retain strong household income growth and weak productivity. Higher policy interest rates are likely if this persists.

The UST 10yr yield is now at 4.05% and down -7 bps from yesterday but down -9 bps for the week. The key 2-10 yield curve is now at +54 bps. Their 1-5 curve is positive by +4 bps. But their 3 mth-10yr curve is now -3 bps inverted. The China 10 year bond rate is holding at 1.85%. The Australian 10 year bond yield starts today at 4.29%, down -7 bps overnight, down -5 bps from a week ago. The NZ Government 10 year bond rate starts today at just on 4.16%, down -2 bps from Friday but down -8 bps from a week ago.

Wall Street is in a sharpish reversal in Friday trade with the S&P500 down -2.3% from yesterday, down -2.2% for the week. Despite that, US equity prices are still trading at a record premium over their forward EPS. Overnight, European markets were all about -1.5% lower. Yesterday Tokyo closed down -1.0% to be +3.1% higher for the week. Hong Kong closed down -1.7% and down -3.4% for the week. Shanghai closed down -0.9%. Singapore ended its session down -0.3%. The ASX200 ended its Friday down -0.1% for a net -0.6% retreat for the week. And the NZX also ended down -0.8% on Friday for a -0.4% dip for its week.

The Fear & Greed index has switched firmly into the 'fear' zone, from the 'greed' end of 'neutral'..

The price of gold will start today at US$3988/oz, up +US$8 from yesterday and up +US$100 from a week ago. Silver is up +US$1 and just on US$50/oz, a weekly gain of +US$2.

American oil prices are down a sharp -US$2.50 at just on US$59/bbl, down -US$2 from a week ago, with the international Brent price now just under US$63.

The Kiwi dollar is at just over 57.2 USc, down -20 bps from yesterday and down -110 bps from a week ago. Against the Aussie we are up +50 bps at 88.2 AUc. Against the euro we are down -40 bps at 49.3 euro cents. That all means our TWI-5 starts today at just over 65.1, up +10 bps from yesterday and down -40 bps for the week. Also, see this.

The bitcoin price starts today at US$117,805and down -2.4% from this time yesterday. It is down -4.2% from this time last week. Volatility over the past 24 hours has been modest at just under +/- 2%.

The easiest place to stay up with event risk is by following our Economic Calendar here ».