Here's our summary of key events overnight that affect New Zealand, with news investors see economic weakness likely to result in the usual rate-cut responses, and avoiding structural solutions.
US job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to their labour market. In turn, that will put pressure on the Federal Reserve to cut interest rates this year. (Their next meeting is on June 20, NZT.) The new jobs added in May were only +75,000 and well below the sliding expectation of +175,000 and well below the +224,000 that were added in April. In fact, this April expansion involved a heavy revision downwards (falling by -39,000) and there was a downward revision for March as well.
The disappointment was not only for new jobs; average weekly earnings rose +3.1% pa and while still a healthy annual increase, there was virtually no contribution from the May data.
Updated data from the US Federal Reserve shows consumer credit rising again after a declining trend. It jumped +5.2% in April and a five month high. Borrowing to spend is now increasingly in favour. But it is not clear yet whether it is a stress sign or an optimism sign. After today's jobs data, it could well be the former.
Optimism is clearer north of the border. The Canadians reported strong jobs growth well above their modest expectations. This build on excellent April jobs growth. Their jobless rate dipped sharply although it is still relatively high at 5.3%. Adding to the glow is that wages rose +2.6% and that too was better than anticipated.
In Germany, their central bank has turned gloomy. The bank is now predicting growth of just +0.6% for this year, compared with a forecast of +1.6% it made in December. Actually, it predicts a small decline in economic activity in the current quarter, though it expects growth to bounce back somewhat next year to +1.2%.
American grain production is expected to be sharply reduced as wet weather roils their planting seasons. Russia is also expecting sharp declines as widespread dryness affects them significantly. And Australian production will be down sharply for the same reason. The FAO is worried. Global food prices are up. In particular dairy prices are at a five year high, they say.
Remember, this is a holiday weekend in China and markets were closed yesterday.
Ironically, all this economic weakness is pushing up equity markets. And dropping benchmark bond yields. That is because investors think the US Fed will be forced to cut rates soon. Today the S&P500 is ending the week up +1.1% on the day and that is a +4.5% gain for the week. European markets were up a similar amount on Friday for a similar reason - the expectations of a Fed 'put'.
Expectations of more rate cuts in Australia are doing the same there - juicing up equity markets and sharply reducing bond yields.
The UST 10yr yield has sunk further today, now just on 2.08%. That means another weekly fall of -5 bps on top of the -19 bps drop the previous week. Their 2-10 curve is now at +23 bps but their negative 1-5 curve is tighter at -14 bps. The Aussie Govt 10yr is at 1.46% and down just -1 bp over the week. The China Govt 10yr is down -4 bps in the week to 3.26%, while the NZ Govt 10 yr is down just -1 bps this week, now at 1.73%.
Gold is up further and now just on US$1,340/oz. That means it has risen +US$35 in a week.
The VIX volatility index is at 16 and right on its average over the past year. The Fear & Greed index we follow is further on the 'fear' side.
US oil prices are up +US$1 today but that only takes them back to just above where they were this time last week. They are now just on US$54/bbl. The Brent benchmark is now at US$63/bbl and a net -US$2 weekly fall. The US rig count is lower this week and that takes it down to a level last seen in February.
The Kiwi dollar is up against a falling greenback this morning at 66.7 USc and that is actually its highest since the end of April. On the cross rates we are firmer at 95.2 AUc. Against the euro we are similar at 58.9 euro cents. That all pushes the TWI-5 up +1.3% for the week to 71.3. The Chinese are still holding their informal yuan peg to the US dollar.
Bitcoin has had a another volatile week rising as high as US$8,809 and falling as low as US$7,460 for a +/-9% range. Today it is at US$8,115 and a -3.5% fall since this time last week. The bitcoin rate 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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3 Comments
Good weekend reading here:
https://www.theautomaticearth.com/2019/06/debt-rattle-june-7-2019/
particularly this doozy:
https://www.marketwatch.com/amp/story/guid/3587196c-878c-11e9-b5bc-b448…
"For reasons that are not clear, the Bank of Japan has cut interest rates into negative territory and bought an enormous amount of assets but hasn’t been successful in generating very much inflation, he said".
Oh they're clear alright. Just not to an economist.
"The idea that interest rates might fall to zero again is not an academic exercise. Many economists, and certainly, financial markets, now think the central bank will begin to cut rates later this year to try to avoid a recession".
Note the accurate word 'Try'.
When will central bankers understand that QE is an asset swap and does not induce the kind of spending needed to stimulate demand. You'd think the experience of Japan would be enough to encourage a rethink. Central bankers can go on and on about how they will "definitely create inflation" but they have no means of doing so. Fiscal policy on the other hand....
The demand side is missing especially in the rich countries. The emerging markets are too unstable to sustain demand on their own & the poor countries... well, they're still poor. The demand downside is actually good really, for the planet anyway. Sure, it pisses off economists & central bankers & those politicians who understand that sort of stuff, but you should be pleased Kate. A gradual slowdown could lead to a change of attitude towards big energy for a start. And, it could be easier to manage the changeover on the downside.
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