US & Mexico agree, tariff threat lifted; China & US to meet at G20; US jobs growth weak; Beijing goes hard-line on tech; markets expecting Fed to cut; UST 10yr yield at 2.08%; oil and gold up; NZ$1 = 66.6 USc; TWI-5 = 71.3

US & Mexico agree, tariff threat lifted; China & US to meet at G20; US jobs growth weak; Beijing goes hard-line on tech; markets expecting Fed to cut; UST 10yr yield at 2.08%; oil and gold up; NZ$1 = 66.6 USc; TWI-5 = 71.3

Here's our summary of key events over the weekend that affect New Zealand, with news all of a sudden there seems to more optimism on the trade front even if current data is weakening.

First, The US Administration has declared victory in its efforts to pressure Mexico to curb border crossings by refugees, doing so by threatening tariffs. That threat has now been withdrawn. (Officials from both countries say the 'solution' was an agreement made months ago, but rejected then by the President.) When they open, markets are expected to cheer the agreement, even though it may not be all that is claimed.

A former head of the WTO said that this style of negotiating is a "win for hostage taking" by the "strong over the weak".

But the presidents of China and the US will meet in Japan at the G20 summit on June 30, it has been announced. This meeting will be one of equals, however. A deal there too would remove a "major" risk to global growth, the head of the IMF said.

In the 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%, 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 builds 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 Hong Kong, "more than 1 million" people turned up for a protest aimed at China's push to ease extradition rules, which would allow Hong Kongers to be shipped off to the mainland detention if they offend China.

And in Beijing, China has warned the tech giants operating there of dire consequences if they cut sales or pull production from China by respecting the US's tech sanctions. This will be tough on most big US tech companies and Samsung as well. They also clamped export controls on sensitive Chinese tech.

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%.

Ironically, all this economic weakness is pushing up equity markets. And dropping benchmark bond yields. This is because investors think the US Fed will be forced to cut rates soon. The S&P500 ended last week up +4.5%. European markets were up a similar amount 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, 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.

US oil prices are up too. They are now just on US$54/bbl. The Brent benchmark is now at US$63/bbl.

The Kiwi dollar is up against a falling greenback this morning at 66.6 USc and that is actually its highest since the end of April. On the cross rates we are firmer at 95.3 AUc. Against the euro we are similar at 58.8 euro cents. That all pushes the TWI-5 up +1½% for the week to 71.3.

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$7,658 and a -12% fall since this time last week. The bitcoin rate is charted in the exchange rate set below.

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What can the US do if asking nicely simply doesn't work? It would be wrong to not use strength when strength is available and a wrong is being committed. Seems like a sensible law of nature to me. It's not like asking for tribute or anything.

The whole dire situation we see south of the US border is because strength hasn't been applied in the service of good.

Yes the strength you mention is working so well in Iraq, Afghanistan, Libya...(shall I continue)?

..except trumpy was shooting blanks - he was forced to back down due to the damage it would do to US business/economy. But the flock will chalk it up as a win for the greatest president the wold has ever seen.

If Trump wanted to apply strength in the service of good, he'd be sending more aid to the countries supplying their 'problem' immigrants rather than cutting aid. Do something to make their lives in their own countries better and they are less likely to leave.

How many billions of debt funded US taxpayer money would you suggest?

We could start with the ~$20 billion that Trump wants for the border wall - imagine if that had an ongoing legacy of improving their part of the world rather than a wall cutting them off. It could actually pay dividends by improving surrounding economies, rather than requiring ongoing maintenance.

Aid never works the way it is intended, look at the $50 Billion Obama gave to Iran...

I don't really want to get dragged into this, suffice to say 'strength in the service of good' seems inappropriate to describe what Trump is up to with their immigration policy. 'Strength in the service of good' would look more like the Marshall Plan than a border wall and tarriff threats announced on Twitter.

When I wrote 'strength in the service of good' I had more in mind the history and actions of the countries south of the border. They have their own people fleeing in the hundreds of thousands because of their own failure to apply strength in the service of good.

Quite a bit of strength was tied up with the Marshall Plan. The Marshall Plan had little benefit for Germany as far more was taken than given back and was more to help the Allies like the UK and France who had already looted Germany. Germany was controlled by military occupation and the real threat of annihilation or the implementation of the Morgenthau Plan. The UK and France were modern industrialised nations with comparably minor war damage and they got the lion's share.

Heh. So jaw-jaw is Indeed betta than war-war.....

Germany's financial system is the one to watch right now. Anything going wrong there will spread everywhere.

A growth in jobs being a cause of stress? Huh?

The number of jobs being added is a cause of stress. The US economy needs to create roughly 100k jobs per month to keep up with its working-age population.