India hits US with tariff rises; Hong Kong in huge protest; China retail rises; China taxes fall; US retail up, sentiment down; Aussie house auctions rise; UST 10yr yield at 2.08%; oil and gold unchanged; NZ$1 = 64.9 USc; TWI-5 = 69.9

India hits US with tariff rises; Hong Kong in huge protest; China retail rises; China taxes fall; US retail up, sentiment down; Aussie house auctions rise; UST 10yr yield at 2.08%; oil and gold unchanged; NZ$1 = 64.9 USc; TWI-5 = 69.9

Here's our summary of key events over the weekend that affect New Zealand, with news dominated by people power in Hong Kong.

But first, the trade war is opening a new front. India imposed higher retaliatory tariffs on 28 American products including agricultural products, following the American withdrawal of a key tariff status for India.

The US now has started tariff battles with six major economies: China, Japan, Canada , Mexico, the EU and now India. And all have retaliated.

In Hong Kong overnight there were more huge protests, and there are shaking the Hong Kong government. This time "nearly 2 million people" turned out yesterday, almost double last weekend's protest. The Government apologised for the way it had handled the proposed law and withdrawn it.

And it triggered Hong Kong business flight. The wealthy were reported to be moving personal wealth offshore the rendition law progressed. All eyes will now be on Beijing's response and until that is clear, money flight may continue.

In China, their retail sales also grew more than expected, up +8.6% in May from the same month a year ago. But that came as industrial production rose just +5.0% over the same period - a 17 year low - and less than the +5.4% gain expected.

And taxes are not flowing into the Central government's coffers as fast these days. In fact, fiscal revenue is in decline. Some of that is because of tax cuts and year on year, tax revenue is down -7% in May. But more concerning, their GST revenues were down an eye-catching -20% in May, the weakest level in 20 years.

In the US, data out over the weekend was mixed, but dominated by good retail sales in May that were +3.2% higher than the same month a year ago. That data was also revised higher for the prior month, suggesting a pick-up in consumer spending that eased fears their economy was slowing down in the second quarter.

But American business inventories are climbing, up +5.3% from May 2018.

And consumer sentiment dipped, down more than -2% in a month and now actually lower than this time last year. "Tariffs as well as slowing gains in employment" were cited as the underlying reasons for the pullback. But with today's upbeat retail data, we seem to have a spending boost despite growing concerns. Perhaps some of that higher spending is to pay for tariffs?

Deep inside American businesses, things may not be so rosy. A business conditions index compiled by Morgan Stanley dropped by the most on record to the lowest since 2008. Indicators from services to manufacturing and hiring all cooled, dragging the headline index to "13", far below the "33" threshold consistent with positive real economic growth. And tariffs look like they will hasten the downsizing of bricks-and-mortar retail.

American agriculture is doing it tough too with both tariffs and weather problems.

The Russian central bank has cut its benchmark interest rate by -25 bps to 7.5%.

In Argentina, their electricity network collapsed over the weekend, leaving tens of millions without power and infecting neighboring countries.

In Australia, residential auction success rates have jumped to over 65% for the first time in a year. Last week's good results follow a holiday-affected set of good results, but this one after clear air from the holiday and the RBA rate cut. There does seem to be a clear turn up in the Australian house market.

But in rural Australia, the extending drought will mean that in some key areas winter crops are just not being planted.

The UST 10yr yield is at 2.08% and almost the same as at this time last week. Their 2-10 curve is now at +24 bps but their negative 1-5 curve is wider at -18 bps. The Aussie Govt 10yr is under pressure at 1.37% and an -11 bps fall over the week. The China Govt 10yr has risen +2 bps over the week to 3.28%, while the NZ Govt 10 yr is down -6 bps this week, now at 1.67%.

Gold is unchanged US$1,341/oz.

US oil prices are little-changed overnight. They are now just on US$52.50/bbl. The Brent benchmark is now at US$62.

The Kiwi dollar is out of favour this morning at 64.9 USc and that is actually back near its lowest level since October 2018. On the cross rates we are also softer at 94.5 AUc. Against the euro we are at 57.8 euro cents but that is down -1c in a week. That all pushes the TWI-5 down to 69.9.

Bitcoin has been volatile overnight and is currently much higher to start this week. It is now at US$9,054 and +14% higher than its low point in the past seven days. The bitcoin rate is charted in the exchange rate set below.

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Maybe the lower dollar is related to the latest PMI released end of last week, was a limp 50.2%. Interest rates to fall 1 or 2 more times. Manufacturing well below 50% and inventory rising. Being forward looking this will decrease GDP in Q 2-4.
Labour economy at work now, hit business with stupid laws and incentivise people to sit on their backsides more.
Like 2007 NZ in recession before the rest of the world?

it always slows this time of year, most dairy farms are dried off waiting on calving so milk powder production (our biggest export) falls dramatically.
lambing happens in spring so meat production drops
not to mention logging slows during the wet season, then you have picking season does not happen until early summer for most crops
we are still a produce/animal based manufacturing country and lost most other manufacturing overseas years ago to cheaper producers when we took there protections away

Good spin, not true though, lowest since 2012, the above you mentioned has happened before, dry summers etc. When the present bunch on numpties were in opposition we kept hearing about a manufacturing crisis when PMI was north of 55, just playing politics. Well we have this crisis now because this bunch of numpties are in power.

On the weekend I was talking to a couple of people running businesses supplying the construction trade, one NI the other SI, and asked them how their trends were. 'We've slowed down quite bit' one said , the other (he is more diversified and reasonably large by NZ standards) 'you can definitely feel the slowdown coming'.

were these the same people that responded to the ANZ survey??

Intentions vs reality seems very different.. as the survey has been painting a tragic story for the last year, while the actual contents/completion rates are at their highest for decades

PMI is forward looking, more reliable than CEO opinions.

I've heard from a colleague up in Auckland that some of the sub division contractors are feeling the pinch, the work has been drying up, they'd normally have 3 - 4 times the amount of jobs on the go and subsequently have that many employees on the books.

It's definitely slowing especially in the pre-construction phases. Construction will fall in time.

The collapse of mezzanine finance was a big part of the problems in 2007. I think you are exaggerating the govt's role

GDP figures out on Thursday. Annual growth will hold up for this quarter due to the good 0.9% July 2018 figure, even if it only comes in at ~0.5% as anticipated, but will quickly sink to <2% after that (has been 1.8% annualised for last half year). http://gdplive.net/Dashboard#map

We've depended on unsustainable house price rises, high levels of immigration, depressing of wage growth, and trivial increases in productivity for the last decade...and suddenly the fact this unsustainable model is starting to show how unsustainable it really is can only be a symptom of the last year? Nonsense.

We're not doing well economically because of the above, because we've been overtaxing the product of labour and undertaxing income from free rides, thus discouraging productive investment that could actually drive real GDP growth. We incentivise people to sit on their backsides and get income from land value increases rather than building businesses, and we've used immigration for a decade to prop things up.

The flight from Hong Kong has been going on for a long time. No one tells the Chinese Communist Party that they are leaving for good. People I know in Taiwan have noticed the influx of people.

The costs of austerity imposed by budget busting France are equally cruel, but without msm coverage - Link

"But American business inventories are climbing, up +5.3% from May 2018." Is this because items are not selling so stock inventories rise? Doesn't mean an increase in production, but may lead to a drop?

Reuters' report from Friday evening:
A trade war between the United States and China has also contributed to the inventory glut as businesses stocked up in a bid to get ahead of the tariff fight.
Businesses are building up inventory as a hedge against tariff uncertainty.

Motor vehicle inventories surged 0.8% in April instead of advancing 0.6% as previously reported.
Back in April, President Trump's threat to slap tariffs on Mexican imports was still looming; so it is natural for automotive importers and distributors to load up stock well in advance.

In other words:
India increases tariffs on US apples, a boost for NZ?
China slowing, will the canny Chinese buy gold as they can't get their money out of the country? Another boost for NZ exports?
Hong Kong capital flight, but where to? The USD and Gold seem likely, gold is a NZ export.
Aussie picking up? More money for NZ winter tourism?
US hit by longer winters (has the warming cycle turned?) so lower wheat and corn crop, good for NZ producers?
Aussie hit by drought, good for NZ grain farmers?

The world may be falling apart, but it's all looking good here. It was Galbraith who pointed out that farming is a very difficult business. You only make money when you have a good crop and everyone else has a bad one. We are a food and natural resource exporting country, so disaster elsewhere is good for us.

I think our rural economy will be just fine. Our urban economy is going to struggle.

Only if NZ continues to own the farms rather than selling them off to foreign state players with a long-term interest in food security.

Hi David, is this worth sharing on Interest.co.nz?
http://www.stuff.co.nz/business/property/113453987/house-prices-nationwi...

Interesting article from FT archives but worth a read. An analysis on what's really driving house prices in the UK up while productivity and wages around the country have barely moved.

In the early 1980s, business lending equated to around 40 per cent of GDP on average in advanced economies, while mortgage lending was around 25 per cent. By the time of the financial crisis, mortgage lending had grown to 75 per cent of GDP while business lending had only grown slightly, to 45 per cent.

https://ftalphaville.ft.com/2018/10/15/1539577800000/No--the-housing-cri...

Bitcoin breaks 9k! Where are all the nay-sayers and doom merchants who were mocking me when I was buying below 4k? That is a nice 150% return. Here is a fun fact, if you bought bitcoin on a random month in the last 10 years, you would be in profit provided that you didn't invest in just 3 months. In other words, anyone dollar cost averaging is doing just great.

I'm happy for you.

Good luck with that. Though you might want to Google "Bitcoin and money laundering" then perhaps you'll realize why crypto currencies are so volatile.

Just make sure you are paying your taxes on time, Wolf. The IRD sees crypto as property purchased with the aim to dispose of it (like Gold).

Well here is the funny thing. The bitcoin markets dramatically recovered on 2 April - i.e. into the new tax year. So the hilarious thing is I am in a tax LOSS for the last tax year even though I'm in mad profit. So I'll be claiming a cash tax refund, which I will use to invest in more bitcoin - once we get a nice savage dip.

But doesn't the IRD treat Cryptocurrency as "property"? How can you be in a Tax LOSS? Cryptocurrency is only taxable on the sale.

Crypto to crypto trades also trigger tax. So if you had say $100 of bitcoin, then it is worth $10, then you sell for $10 of ethereum that is now a tax loss locked in at -$90. Even if Ethereum is worth $1000 the next day it won't matter as you haven't recognised those gains yet

Crypto currency transactions are 99% speculative 'greater fool' trades, 1% commerce/buying stuff (actual figures, not hyperbole). Unless that changes they are nothing more than a modern Tulip bulb mania.

No
Because when the existing currencies crash and the electricity goes down and the internet lights are out, my foresight to grab some bitcoins will see me through the exciting new era

especially if you had the foresight to print off a paper representation...

If this happens and it is some kind of zombie apolapyse, I don't think a bar of gold or fletcher shares are going to help you

If this happens and it is some kind of zombie apolapyse, I don't think a bar of gold or fletcher shares are going to help you

There is an interesting graph comparing the tulip mania to bitcoin. Tulips lasted about 1 year, bitcoin lasted 10 (at least). And price way bitcoin has gone up an order of magnitude more than tulips ever did. Now for somebody in a country like Argentina where their own currency is diving it doesn't really matter - to them bitcoin with its mathematical scarcity is a great store of value.

https://www.theguardian.com/world/2019/jun/16/millions-across-south-amer...

yup, I'd be very confident. The joke is that Kiwisaver isn't any more guaranteed than bitcoin.... they're all bets on the future. And the future can't underwrite them all.