Breakfast briefing: The US leaks momentum on inflation threats

Economy / news

US data mixed although durable goods orders positive; Meta concedes child harm, to pay large penalty; China rolls out support financing; Australia inflation falls less than expected; UST 10yr at 4.67%; gold dips and oil firm; NZ$1 = 59.4 USc

27th Aug 26, 7:22am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news of more data that suggests the US economy is not regaining any momentum, and may be about to be tested by record high diesel prices.

US mortgage application levels dipped again last week from the prior week, mainly due to much lower refinancing levels as the high (6.78%) mortgage interest rates stay firm at these levels and a one year high.

Meanwhile US PCE inflation stayed up in July at 3.7% when it was expected to show a small dip. The month-on-month rise was much more than expected. Personal spending rose +5.8% while personal disposable incomes were up +4.2%.from a year ago. So the squeeze continues, and although masked by inflation, many households will be feeling it. And US diesel prices are now at record highs.

US GDP Q2-2026 second estimate came in at a modest +1.5%, and unchanged from its first estimate. Marginally stronger consumer spending was offset by weaker investment and more imports.

The US July durable goods order report came in positively, up +12.9% from the same month a year ago. But without aircraft or defense, it was up +8.7%. Capital goods orders on the same basis were up +13.5%, probably reflecting data center activity.

US crude oil stocks were little-changed last week, a bit less than the modest rise expected. Diesel stocks have hit record lows.

Meanwhile, Meta has agreed to an US$18 bln penalty to be paid over the next decade to resolve claims it designed its social media platforms to addict children. It will change the way it interacts with children. Four of the states who brought the court claim - California, Colorado, Kentucky and New Jersey - were expected to seek substantial civil penalties as well.

In China, they have opened applications for an ¥800 bln policy-based financing tool for local government projects to shore up its slowing economic growth. But there are questions about how much impact this will have in 2026.

Singaporean industrial production extended its very positive run in July, up +5.8% from the same month a year ago and gains similar to most months in 2026.

In Australia, inflation fell in July as expected but not by as much as expected. Their June 3.8% rate fell to 3.5% in July but still well above the expected 3.2% rate assumed by financial markets. That gave the AUD a bounce, likely on the basis that the RBA's tolerance for still-high inflation may be about to get tested. The next RBA rate review is on September 29 however, and the August CPI data won't actually be known by then (September 30) - by the markets, at least. The RBA's inflation target is "between 2 and 3 percent", but it has been over 3% consistently every month for more than a year now.

Global wheat prices are up sharply again today, and to new post-pandemic highs, as Black Sea shipments from both Russia and Ukraine have essentially stopped and prospects for resumption look grim.

The UST 10yr yield is now just on 4.67%, up +3 bps from yesterday at this time. The 30 year yield is at 5.19%, up +1 bp. The key 2-10 yield curve is now at +44 bps (unchanged). Their 1-5 curve is now at +37 bps (+2 bps) and the 3 mth-10yr curve is at +97 bps (+3 bps). The China 10 year bond rate is up +1 bp at 1.69%. The Japanese 10 year bond yield is now at 2.89%, unchanged. The Australian 10 year bond yield starts today at 5.05%, up +7 bps from yesterday. The NZ Government 10 year bond rate is now at 4.71%, also down -4 bps.

Wall Street is little-changed on the S&P500 (+0.1%), while the Nasdaq up a similar +0.1%. European markets started mixed between London's -0.1% rise and Paris's +0.3%. Yesterday Tokyo ended up +0.6%. Hong Kong was also up +0.6% as was Shanghai. Singapore dipped -0.2%. The ASX200 ended its Wednesday session down -0.4%. The NZX50 ended up +0.1%.

The price of gold is now at US$4603/oz, down -US$45 from yesterday at this time. Silver has fallen -US$1 to just over US$68/oz.

Oil prices are up +50 USc from yesterday at just over US$82.50/bbl in the US, while the international Brent price is unchanged at US$88.50/bbl. Hormuz transits have inched up with six ships exiting over the past 24 hours (1 dark with transponders off) and eleven entering for new loads (0 dark), all Iran linked. The Red Sea activity is still low at about 20 each way at the Yemen chokepoint.

The Kiwi dollar is down -30 bps from yesterday at just over 59.4 USc. Against the Aussie we are down -50 bps at 82.9 AUc. Against the euro we are down -20 bps at 51 euro cents. That all means our TWI-5 starts today at just under 62.9, down -30 bps from this time yesterday.

The bitcoin price starts today at US$78,459 and down -0.5% from yesterday at this time. Volatility over the past 24 hours has remained modest at just on +/-1.1%.

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15 Comments

by Colin Maxwell | 27th Aug 26, 7:55am 1787774115

A very comprehensive account of what this bunch of obscene mafia-like crooks are up to.

https://theleahfiles.substack.com/p/the-currency-killer-scott-bessent

Blimey, anyone would think that the Trump Admin was hell-bent on destroying the U$ bond market, their economy, the USD, and by extension their reserve currency status – all in one foul swoop – a sort of trifecta of massive own goals!

Come to think of it, kind of like the sort of steps one would take if you wanted to a create a civil uprising, so that you could declare martial law, suspend the greenback, and move Main Street on to a programmable CBDC…. oh, I almost forgot…. AND try to stay on in the big old house on Pennsylvania Ave.

by murray86 | 27th Aug 26, 7:59am 1787774359

And that last paragraph is likely just what they're trying to do! The question is can and/or will they be stopped?

by Foxglove | 27th Aug 26, 8:18am 1787775486

BTO - “you ain’t seen nothing yet.” Trump’s reputation internationally has already disposed of itself and now domestically, in all likelihood, he is going to be lame ducked. You might wonder if he just might not then just toss his toys out the window and jump after them. Either way the prospects just keep worsening.

by Time Lord | 27th Aug 26, 9:37am 1787780278

All by design. It’s clear that the USA’s biggest enemy is actually itself (Washington).

Trump has purposely been installed as the destroyer channelling the Apollyon spirit. It is no coincidence that he has an all encompassing mural covering the ceiling of his Trump Towers penthouse displaying Apollyon emerging from the clouds.

Because Apollyon is the spirit of destruction - he is putting the truth in plain sight

by Colin Maxwell | 27th Aug 26, 8:41am 1787776894

And then there are the Hormuz Letter reports that would make anyone giddy reading them...

(i) 19 hours ago - Russian officials have breifed Iran that the CIA Director Radcliffe's Moscow visit delivered a message with the US asking Moscow to press Iran into opening the SOH, warning that Russian entities would otherwise face designations under Operation Economic Outcast.
Russia declined, and told Iran that the threatened measures were of limited consequence, according to two senior Iranian sources with knowledge of the briefing.
The message also warned Russian banks, traders and shipping entities tied to Iranian oil, gold and aviation will be sanctioned under the operation unless Moscow moves to close those channels.

(ii) 21 hours ago - Canada is adopting Iran's playbook, declaring it is "preparing to ride out Donald trump's term," seeing "little chance of resuming talks with the US before the midterms," per Bloomberg.
PM Carney says "We will support these businesses for as long as it takes, in other words, beyond the life of this U.S. administration."

(iii) 26 August - The US has proposed cancelling the new "Operation Economic Outcast," lifting all sanctions, and ending the US blockade in exchange for Iran opening the Strait of Hormuz and stopping all attacks by its proxies, per Al Arabiya citing a senior source on a new separate offer conveyed by Pakistan.

Iran's conditions, however, remain unchanged: $300 billion in US compensation, complete lifting of all US sanctions, release of all Iranian frozen assets ($100-123 billion), end of the US naval blockade, US troop withdrawal from the entire region, and a comprehensive regional ceasefire including in Lebanon and Gaza.

(iii) China directly rejects the idea that China would change its behaviors and interactions with Iran to comply with Trump's demands in Bessent's new "Operation Economic Outcast" campaign, saying "China's cooperation with Iran is conducted within the framework of international law, thus should not be disrupted. China is closely following the developments, and will do everything necessary to firmly safeguard its rights and interests," per China’s MFA spokesperson Lin Jian.

China declares it "has made clear on many occasions its firm opposition to illicit unilateral sanctions that have no basis in international law. Economic warfare and maximum pressure provide no solution. China will do everything necessary to firmly safeguard its rights and interests."

((iv) August 26th - Canada announces new retaliatory tariffs on $20 billion worth of US goods, directly matching Trump’s tariffs dollar-for-dollar.

The new tariffs hit US steel, aluminum, furniture, clothing, electronics, seafood and more, effective September 8.

(v) August 25th - Iran says all of its trading partners have privately told Iran they will ignore Trump's and Bessent's "Operation Economic Outcast," per Iran's Ghalibaf and a senior Iranian source in Tehran familiar with the matter.

"Iran's trading partners, both in the media and through messages sent to us, have made it clear that they don't take these statements into account anywhere," Ghalibaf said.

"Americans know that no one buys their bombast; the United States is not in an economic position to further restrict its relations with other countries."

(vi) August 25th - Iran reframes Trump's and Bessent's announced "Operation Economic Outcast" as "solely based on a design by his media team, aimed at increasing psychological pressure on the Iranian people" and "these media operations usually occur on the eve of the reopening of financial markets, with the aim of controlling energy prices," a high-ranking Iranian source told Tasnim.

Iran says "Each time, after controlling energy prices, these campaigns end with Trump's statements such as 'I am giving Iran time,' or 'Regional countries have intervened to prevent this,' or 'We have achieved all our goals,' and notably, immediately afterward, the line of negotiation with Iran is raised in media outlets close to Trump."

Iran adds "in practice, the United States has done everything it can against the Iranian people, from initial and secondary sanctions to naval blockades, and more," so "nothing new will happen in the field."

(v) August 25th - BREAKING: US Treasury Secretary Bessent announces a "major financial institution" is expected to be sanctioned this week over Iran.

The institution is likely to be Chinese, either one of the two unnamed large Chinese banks that received formal US Treasury warning letters back in April 2026, or the Industrial and Commercial Bank of China (ICBC), the world's largest bank by assets.

China already warned today "we are monitoring US threats to impose sanctions on Iran and will do what is necessary to protect our rights and interests"

(vi) August 25th - US Treasury Secretary Bessent announces any country that helps Iran will be removed from the US dollar system, any country that supports Iran in any form globally including China should now be prepared to face US sanctions, and countries that "stick with Iran will be isolated alongside them," as Trump is now making phone calls to world leaders to cut economic ties with Iran.

Bessent adds that the new US economic campaign targeting Iran has been officially dubbed "Operation Economic Outcast," with the US enforcing a "zero leakage" approach to Iran sanctions.

(vii) Iran directly rejects the Trump-backed peace deal proposal conveyed via Pakistan to Iran a few hours ago, and also rejects restarting negotiations with the US, per Press TV.

Iran's Ghalibaf says "the obligations of the parties in the MoU are clear, and it was America that broke them," coming today after Pakistan's Army Chief Field Marshal Asim Munir visited Tehran to relay the Trump administration's proposal for Iran to return to negotiations.

(viii) August 25th - The US now has just 41 days of crude oil inventory left, the lowest level in half a century.

Iran says "it will soon squeeze much harder."

(ix) August 25th - Canada threatens to cut off all electricity and critical minerals to the US, including high-grade nickel and uranium, if the Canada-US trade war worsens, per AP.

Ontario Premier Doug Ford says "I'll cut them off… You won’t get a grain of sand out of Ontario," adding "What would they do without the high-grade nickel?"

Ontario Premier Doug Ford says "everything is on the table" including power to 1.5 million American homes and high-grade nickel/uranium, after Trump announced new 50% tariffs on Canadian autos, parts and steel starting next year and 50% tariffs on $20 billion worth of Canadian goods Saturday.

(x) August 25th - China directly responds to US Treasury Secretary Bessent's secondary sanctions threat, saying "we are monitoring US threats to impose sanctions on Iran and will do what is necessary to protect our rights and interests" and "sanctions and pressure tactics do not help in resolving issues," per China’s MFA spokesperson Lin Jian.

This comes as Bessent yesterday threatened "any nation that serves as a financial artery of a withering regime should expect to share in its isolation" and any country that keeps doing business with Iran will become a "global pariah."

Bessent will announce the full details during a press conference later today at 2 p.m. ET.

by powerdownkiwi | 27th Aug 26, 8:50am 1787777403

'removed from the USD system' isn't a threat, it's a relief.

What I'd like to see, is a responsible journalist asking whether Kiwisaver (and ACC investments, et al) will survive the morph?

It would be a pity indeed if we stayed hanging onto the same parachute as a 40-trillion-ton weight - we cannot avoid the impact but it would be less if dissociated.

by Colin Maxwell | 27th Aug 26, 9:20am 1787779238

Good points, PDK.

The Technological Trap:

The traditional economic assumption that growth-oriented equities can simply pass rising inflation costs onto consumers completely breaks down when applied to modern US megacap tech.

Growth and aggressive KiwiSaver funds are heavily concentrated in global indices like the S&P 500 and Nasdaq, which are dominated by a handful of massive hyperscalers. These companies are currently exposed to severe structural vulnerabilities that cannot be inflated away.

Hyperscale data centers require staggering amounts of baseload electricity, meaning that in an environment of US grid constraints, skyrocketing energy costs will rapidly eat into profit margins. Furthermore, high-tech hardware relies on incredibly complex, globalized supply chains.

Escalating trade frictions and shipping delays create massive bottlenecks for critical components, halting the technological momentum that aggressive fiscal policies aim to accelerate.

When this supply chain fragility is combined with hundreds of billions of dollars in AI capital expenditure that has yet to generate proportional, revenue-generating commercial applications, the risk of a historic capital destruction event becomes acute.

The Reshoring Illusion

The thesis that the United States can easily rebuild its domestic industrial base to escape a debt-doom-loop runs into immediate economic friction. Reviving a manufacturing sector requires affordable energy, cheap capital, and competitive labor costs, all of which are severely compromised especially in an increasingly stagflationary environment.

Because the US economy operates on an inherently structurally high cost base, forcing production back onshore through aggressive tariffs and subsidies creates an inefficient, uncompetitive industrial sector.

For international investors, including KiwiSaver managers holding global equities, the corporate profit margins of the past decade are unlikely to return. Instead of a temporary market dip followed by a swift recovery, a systemic failure of these concentrated tech and industrial bets points toward a prolonged era of permanently impaired equity valuations.

Strategic Realignment for NZ Investors

When the foundational growth drivers of the global economy face these structural headwinds, relying on a generic, passive "buy and hold" equity strategy would appear to harbour substantial systemic risk.

Most low-cost growth funds are passively managed, meaning they automatically purchase the largest companies by market cap. If global indices are heavily weighted in overpriced tech firms, a passive KiwiSaver fund will blindly ride that concentration downward during a market re-rating.

Perhaps investors should seek out KiwiSaver providers that actively underweight US tech giants and focus instead on free-cash-flow resilient businesses, local infrastructure, or tangible, real-world assets.

Shifting away from US-centric equities and toward defensive, cash-generative sectors like global agriculture and essential utilities could provide a necessary buffer when speculative bubbles burst.

by Palmtree08 | 27th Aug 26, 9:52am 1787781153

It's appalling that funds are syphoned out of workers accounts every week and whisked off to support this planetary parasite that is Wall Street.

And we've got idiot politicians actually campaigning on increasing the flow of hard earned and environmentally sacrificed NZ wealth. These people are traitors to NZs future!

by Colin Maxwell | 27th Aug 26, 10:05am 1787781908

Prof Pape at 6:00

https://www.youtube.com/watch?v=QwZgox4_cP0

"There is too much bluster here, and that's why Scott Bessent, wouldn't even mention the word China... and somebody asked him, 'why aren't you being tough', and he said, 'well I don't want to blow up the world financial system'...

...he literally said those words - and so think about it, here we have got the Secretary of the Treasury rolling out a plan, and he says, 'oh, and by the way, if I execute the plan, we all go down with it' - I don't understand - that's not a plan for victory in my book - maybe you can help me to understand Washington?"

by KKNZ2025 | 27th Aug 26, 11:02am 1787785329

the Cold War nuclear option: MAD = Mutually Assured Destruction. Never was an acronym more apt

by bulls hit | 27th Aug 26, 10:52am 1787784738

Shocking, but predictable when the commander in chief has immunity to do whatever he likes while president, and can preemptively pardon his associates

by Foxglove | 27th Aug 26, 12:23pm 1787790183

Aye, that is just too easily overlooked and worse still, it is not so much the legal definition of the immunity but Trump’s opinion of it concerning its application to himself. For he knows damn well even if he has that wrong, it will never catch up with him in his lifetime.

by Kate | 27th Aug 26, 12:52pm 1787791947

A long post but worth a read from The Other 98% FB page:

If I were president and I wanted to tank the dollar and get rich off it, here is exactly what I would do.
I would hire a Treasury Secretary who already made $3.5 billion crashing another country's currency. I would put my guy in charge of the agency that approves bank charters. I would install a crypto czar with $200M in crypto holdings and give him an ethics waiver so nobody could challenge it.
Then I would sign an executive order banning the government from ever creating a digital dollar so there was no competition.
Then I would have my family launch their own private digital dollar. My family takes 75% of net profits. I would grow it to $4.6 billion in circulation and route a $2 billion Abu Dhabi sovereign fund deal through it to prove it works.
Then I would get Congress to pass a law requiring every stablecoin in the country to hold short-term Treasury bills. Now every dollar of my digital currency is a forced buyer of government debt. Brookings projects $2.3 trillion in captive demand by 2030.
Then I would have my OCC guy grant my family's company a federal bank charter. Now I can issue my digital dollar with federal authority.
Then I would have my Treasury Secretary weaken the actual dollar. Bond buybacks that suppress yields but tank the currency. Build a $950 billion war chest for more. Let the debt hit $40 trillion. Dollar index drops to 99. Gold goes to highest point ever.
Then I would kill the Corporate Transparency Act and delete the FinCEN beneficial ownership database. That was the one law that required every shell company in America to report who actually owns it. Without it, nobody can trace who is buying my stablecoin, who is routing money through it, or where the profits land.
Then I would let the loop run. Weaker dollar drives demand for "stable" digital alternatives. The law I passed forces those alternatives to buy T-bills. That funds the government's debt. My family takes profit on every transaction. Foreign central banks walking away from Treasuries get replaced by legally mandated stablecoin reserves my family controls.
Then I would use sanctions to start cutting countries off from the dollar system entirely. And when those countries need a new way to transact in dollars, the only federally chartered private digital dollar in existence is mine. They can buy it through shell companies nobody can trace because I deleted the ownership database.
I just built a toll booth on the global financial system. I take a cut every time someone uses the dollar. And I made it so nobody can see who is paying.
And every single step I just described has already happened.
So what does that mean for you and I?
The reason the United States can borrow at low rates and keep your mortgage and your car payment and your import prices stable is because foreign central banks hold trillions in dollar reserves. That system has always been public. The benefit went to everyone. Lower borrowing costs, cheaper goods , and the single biggest economic advantage any country has ever had.
What I just described is the privatization of that function. The entity buying the debt is no longer a central bank acting in the public interest. It is a private company taking 75% of net profits for one family. The reserve function used to generate a public benefit. Now it generates a private fee.
Your purchasing power shrinks every time the dollar weakens. Your 401k buys less in real terms. Everything you import costs more. And every time the dollar drops, demand for the private digital alternative goes up. The one the president's family owns. The one that by law must buy government debt.
You absorb the cost of a weakening dollar. His family collects the profit. That is the trade.
The enforcement mechanism to stop a sitting president from doing this? There isn't one. Former White House ethics lawyer Richard Painter says it would be a violation for literally any other federal employee, but not the president.
Nobody voted for this. No one was asked. There was no debate. There is no enforcement mechanism. There is no one investigating it. The Senate tried and it was blocked.
This is the largest conflict of interest in American history happening in broad daylight while everyone argues about something else.
@leahfiles See less

by slowlearner | 27th Aug 26, 9:22am 1787779367

Coming to NZ: Drain the swamp. The consequence for the CE of MBIE was a very strong “please don’t tell easily discovered porkies as that will cause us to look stupid “.

Luckily MBIE doesn’t do anything important as a Government ministry. I hear in fact that there is a subtle plan in place where they intend to promote only the most incompetent to leadership, so eventually everyone will agree to disband the whole thing.

But it’s good to know that say when I have some issue with compliance with AML, all I need to do is say sorry, that there will be no other consequences.

The rot runs deep.

by bulls hit | 27th Aug 26, 10:53am 1787784806

"The US July durable goods order report came in positively, up +12.9% from the same month a year ago. But without aircraft or defense, it was up +8.7%."

Kind of oxymoronic to include defense in the 'durable' goods category