Here's our summary of key events overnight that affect New Zealand, with news US rate cut expectations are rising, but equities no longer think this is good for them.
The American inflation rate as measured by their CPI came in below expectations, up +1.8% in the year to May and an important undershoot from the +2.0% April level. This muted result probably strengthens the case for a rate cut by the Fed. But whether that will come in June or later is an open question.
The US Federal budget deficit swelled even further in May, topping -US$207 bln just for the month and reaching a massive -US$985 bln in the year to May. That is up +40% from the same period last year and the worst result since the heart of the GFC. With just four months to go in this budget year, it will almost certainly well exceed -US$1 tln. Overall they now owe US$16.2 tln or 77% of annual GDP. That is up +5% on a year.
In Germany, more signs of a rush to buy sovereign bonds. German government bonds sold at a record low yield overnight. They sold 10-year Bunds – debt paper which will pay out in 10 years time – with a yield of minus -0.24%. It means investors holding them until they mature will lose money.
China also released inflation data yesterday. The headline number was up +2.7% in the year to May and a 15 month high, but the core result, without food and energy was a more modest +1.6% and a three year low. The headline rate includes the effects of soaring fruit prices, plus the market impacts of the African Swine Fever virus. These are very real for everyday living.
Chinese banks extended ¥1.2 trillion yuan (NZ$260 bln) in net new yuan loans in May, up from April but well short of expectations. So far, bankers are not helping Beijing and their call for more private sector stimulus.
In Hong Kong, hundreds of police fired tear gas and rubber bullets to beat back protesters, as demonstrations against China’s encroachment on the city’s legal autonomy degenerated into running battles in the middle of their financial hub. Coverage of the troubles is blocked in China.
These troubles are affecting business confidence in Hong Kong and their equity markets dropped -1.7% yesterday after days of volatile trading. Shanghai equities fell -0.6% yesterday. Following on, European markets were down by about -0.4%. Today, Wall Street is also lower, currently down -0.3% in late trade.
In Australia, their prudential regulator wants to require banks to hold more capital (much more) to cover for when they write higher risk loans. But it is typical Aussie-style regulation; adding to their prescriptive approach. These rules weighed bank shares. ANZ was down -1.1% yesterday, CBA was down -0.9%, NAB was down -0.8% and Westpac was down -0.9%. Overall the ASX200 ended flat on the day.
The UST 10yr yield is drifting lower again and now just on 2.13%. But their 2-10 curve is little-changed at +24 bps and their negative 1-5 curve is now at -16 bps. The Aussie Govt 10yr is at 1.43% and down -3 bps. The China Govt 10yr is up +1 bp to 3.30%, while the NZ Govt 10 yr is down -2 bps, now at 1.74%.
Gold is up +US$6 today, now just on US$1,333/oz.
US oil prices have fallen very sharply today, down about -US$2.50/bbl. They are now just under US$51/bbl. The Brent benchmark is under US$60/bbl. Higher US inventories and weakening global demand have driven the reassessment.
The Kiwi dollar is little-changed this morning and is now at 65.8 USc. On the cross rates we are firmer at 94.9 AUc. Against the euro we are at 58.2 euro cents. That leaves the TWI-5 unchanged at 70.5.
Bitcoin is firmer today, now at US$8,145 and up +3.1% since this time yesterday. 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 ».