Global PMI's fall, US construction spending down; Japan posts some good data; equities falling; eyes on RBA expecting rate cut; UST 10yr droops to 2.07%; oil slumps and gold leaps; NZ$1 = 66 USc; TWI-5 = 70.7

Global PMI's fall, US construction spending down; Japan posts some good data; equities falling; eyes on RBA expecting rate cut; UST 10yr droops to 2.07%; oil slumps and gold leaps; NZ$1 = 66 USc; TWI-5 = 70.7

Here's our summary of key events over the weekend that affect New Zealand, with news an expected cut in the RBA rate today will push their policy rate below its inflation rate.

But first, factory data is weak worldwide. May factory PMIs are out and for the US, they record a slowdown, not severe but a slowing all the same. The Markit version dropped to its lowest reading since September 2009 and signaled a factory stall, while the ISM version, one that is more closely watched there, also fell but still recorded a modest expansion. Tariff-induced rising prices were noted as a concern by factory managers.

US construction spending for April is showing flat, no-growth data from March, but is -1.2% down from April 2018.

In something of a surprise, the private sector Chinese PMI, one that focuses on the level of company below the SOEs, came in marginally better in May than April. It was a small improvement in overall operating conditions, but it is still an expansion, something the official (SOE-dominated) PMI doesn't show. Total new work rose at a faster pace, supported by a renewed increase in export sales.

Japan's PMI has stalled. But it not all negative there however. Japanese corporate capital spending jumped, growing at a very health rate of almost +7% when a contraction was expected. And this is on top of the more than +5% rise in April. And car sales in Japan were up +5% in May.

EU PMIs are contracting.

There are also two PMI series operating in Australia with both showing weak expansions. The AIG one reported a slip in May, the Markit one a tiny rise.

Australian job ads posted their biggest monthly fall in more than nine years in May, and a drop of almost -15% from the same month in 2018. However, a rise since their election was seen as suggesting some potential for recovery.

The global set of factory PMIs don't make great reading, posting their lowest level since October 2012 and slipping into a contraction.

Equity prices were down -1.3% in Australia yesterday as market fears inch closer to home.. Shanghai (-0.3%), Hong Kong (-0.2%) and Tokyo (-0.9) all fell too following Friday's -1.3% fall on Wall Street. Overnight, Europe rose about +0.6% and today Wall Street is down -0.8% in today's session so far.

Over the weekend in India, Q1 2019 data shows their economy grew +5.8%, which is slower than the +6.6% in the previous quarter and slower than the +6.4% growth registered by China in the same period. The US Administration has revoked India's access to preferential trade arrangements with America.

Global airlines slashed a widely watched industry profit forecast by more than -20% as the expanding trade war and oil prices compound worries about an overdue industry slowdown. The cut for Asia/Pacific airlines was -26%.

China is setting up a 'blacklist' of companies and individuals it will sanction if they offend China's stances on trade. Officially, the target is those that "don’t obey market rules, violate contracts and block, cut off supply for non-commercial reasons or severely damage the legitimate interests of Chinese companies", but this new stick will likely concentrate on the last reason. It's the Huawei clause. It will be a sanctioning list easy to get on and hard to get off. It will hold special dangers for companies who trade with both China and the US.

Both Germany and the UK have permitted Huawei to build some non-core aspects of their 5G infrastructure. The US is threatening to withhold intelligence cooperation if they proceed.

In Australia, auction clearance rates rose to over 60% last week and their housing markets seem to be turning up as buyers return in numbers. Their 'winter slowdown' looks like it will be postponed. Aussie home loan activity is picking up in tandem.

Tomorrow, the RBA will conduct its regular monthly benchmark interest rate review and it is widely expected to cut from 1.50% to 1.25%. But a growing chorus of private sector voices are expressing reservations about the wisdom of a cut at this time. And don't forget, inflation is running at 1.3% in Australia, so a cut by the RBA will drop the real policy rate into negative territory.

The UST 10yr yield has taken another substantial fall and is now just under 2.07%. Bond market fear is spreading. However their rate curves are not tightening at this point with the 2-10 curve now at +24 bps and their negative 1-5 curve is at -27 bps. The Aussie Govt 10yr is at 1.50% and up +3 bps overnight. The China Govt 10yr is down -1 bp to 3.29%, while the NZ Govt 10 yr is unchanged at 1.74%.

Gold is up another +US$20 and now at US$1,325/oz.

US oil prices are still down and now under US$53/bbl, and that is a -10% fall in a week on top of last week's -5% drop. The Brent benchmark is now under US$61/bbl.

The Kiwi dollar opens this week much firmer as it starts to gain a reputation as something of a safe-haven. It is now at 66 USc which is a rise of more than +½c overnight. On the cross rates we are firmer too at 94.5 AUc. Against the euro we are at 58.6 euro cents. That lifts the TWI-5 to 70.7.

Bitcoin has fallen -2.2% overnight to US$8,485. Bitcoin is charted in the exchange rate set below.

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

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.....and Deutsche Bank shares were marked 1.66% lower in afternoon trading in Frankfurt Monday to change hands at €5.94 each, after hitting an all-time low of €5.80 that extended the stock's 52-week decline to just under 49%.

Db down from $149 in 2007 to $6.73 today. How the once mighty Germany Bank has fallen.

I don't think that means what you think it means..

Nymad - Please explain

Have a look at the number of issued shares.

Hussman
The problem is that if interest rates are low because growth is also low, lower interest rates don’t justify any increase in valuation multiples at all. Normal valuation multiples would already be enough to produce lower future equity returns, via the slower growth of future fundamentals. If investors instead bid valuation multiples up anyway, subsequent returns are penalized twice, and can be driven to negative levels for years to come. That’s what investors have done here.
https://www.hussmanfunds.com/comment/mc190603/

From that article: the concluding para:

As I observed in January 2008, in a piece titled “Minding the Hinges of Pandoras Box”, I wrote, “I am emphatic that investors should evaluate their risk exposures and tolerances now, in order to allow for substantial further market weakness. Market conditions presently feature a Pandora’s Box of rich valuations, vulnerable profit margins, rising default risk, rapidly deteriorating market internals, failing support levels, and accumulating evidence of oncoming recession.” Until we observe an improvement in leading economic measures and a shift toward uniformly favorable market internals, my advice today is exactly the same.

Exactly - 'Caveat emptor' - professional advice is often contradictory at best.

In its projections for this year, 2019, JP Morgan’s strategists were not truly dissuaded.

Given a Fed that continues to tighten against the backdrop of increasing Treasury supply, J.P. Morgan forecasts 10-year yields will rise to 2.95% by the second quarter of 2019 and to 3.2% by the end of the year.

Incredibly, these projections were put together on December 20, 2018. Powell had just recently reiterated his strong economy view, the one requiring more rate hikes, the Fed pause still only whispers at that point. Curve collapse was a triviality, apparently, in the face of central bank backbone. Link

JP Morgan’s Jamie Dimon Warns Again On UST’s Even Though JPM Appears To Have Been Huge Buyers of UST’s Link

Is this the beginning of the end for growth? Damn, I hope so.

Yep, it's gone over a cliff: https://fred.stlouisfed.org/series/T10Y3M
U.S. in recession by the end of 2020.

Mr Woodford blocks withdrawals from his little fund in the UK. Purplebricks was just one of his bad ideas of the last few years. Their founder sold out out yesterday as well.

https://www.zerohedge.com/news/2019-06-03/it-begins-multi-billion-hedge-...

Exports-at-all-costs for economic growth comes home to roost.

https://wolfstreet.com/2019/06/03/us-cleanest-dirty-shirt-among-manufact...