Here's our summary of key events over the weekend that affect New Zealand, with news equity markets are at or near their highs but the rest of us are looking at some very average underlying economic data. And this is a week during which Chinese President Xi and American President Trump will take centre stage.
But first in the US, the Federal Reserve has stress tested their 18 largest banks, institutions that hold roughly 70% of all American bank assets. That includes all the most well-known brands, as well as Deutsche Bank and HSBC, both of whom would suffer the most under these tests. But they all passed the "severe recession" scenario. That is obviously good, but it also opens the door to large dividend payouts and share buyback schemes now they have been declared safe enough.
But the productive economy isn't as strong. The early June PMI surveys for the US came in quite weak. The factory PMI is now at almost a ten year low and this sector's expansion is dead in the water (index = 50.1). The service sector is at a three-year low and its reliable expansion is buckling now. New order growth is weak and weakening.
Meanwhile data for American existing home sales turned up in May and by more than was expected. But year-on-year they are still lower and by -1.1%. But higher short-term demand is pushing up prices and year-on-year they are up +4.8%. Still, mortgage rates are falling. The average Amorican housing interest rate for a 30-year, conventional, fixed-rate mortgage decreased to 4.07% in May, down from 4.14% in April. The average rate in all of 2018 was 4.54%.
Canada has reported very weak retail sales growth in April, and far below what was expected. In fact, if it wasn't for higher petrol prices, food and booze, they would have reported a decline.
In the trade war, the US has blacklisted more Chinese tech companies.
In China, banking stress is widening to another set of institutions. One member of the 'home team' (Bank of Beijing) has stepped in to rescue another (Citic Guoan Group).
In Japan, their factory PMI edged lower and further into contraction. They are having their fastest drop in new orders since June 2016.
Later this week, the G20 will meet in Japan. But it might be one of the last such meetings because the Americans are likely to try and hijack the agenda as part of their trade war with China. US leadership is no longer respected at these types of summits.
In Europe, the pace of eurozone economic growth as measured by their PMIs remained subdued in June but actually edged up for a second successive month to reach a seven-month high. Growth was driven by an expanding service sector, which helped offset an ongoing manufacturing downturn. The eurozone's services sector is now expanding faster than the American one. Optimism about the future meanwhile dipped lower, running at its lowest since late-2014, suggesting growth will remain weak in coming months.
Last week ended with the S&P500 making a run at a record, all-time high. But it slipped in the final session and ended Friday lower. But for the whole week, it booked a +2.1% gain. Since the start of June, the gain is +7.2%. The expectation of renewed stimulus from the US Fed is behind these gains. And markets expect President Trump to make some headway to get the Fed to juice the US economy to aid his re-election prospects.
The Shanghai's equity market closed up +0.5% on Friday, capping a flat weekly performance. Since the start of June, this market is up +3.6%. Chinese stimulus expectations are behind this rise as well. The ASX200 is up +4.0% so far in June, the NZX50 is up +2.0%. When the June KiwiSaver results are revealed, it seems likely that there will be both strong equity gains, plus strong bond price gains (that is, yields fell). The KiwiSaver wealth effect is becoming a 'thing' with almost $60 bln now in these funds.
In Australia, their central bank has been modeling the potential impact on the country if the Chinese economy suffers a sharp setback. It is not great for the 'lucky country', but it not all doom-and-gloom either.
The UST 10yr yield is starting the week at 2.06% and where it was seven days ago. In between, it fell below 2% but the recovery was strong in the final session last week. Their 2-10 curve is now at +29 bps an their negative 1-5 curve is narrower at -15 bps. The Aussie Govt 10yr is at 1.28% and an -10 bps fall over the week. The China Govt 10yr is down -3 bps over the week to 3.25%, while the NZ Govt 10 yr is down -13 bps this week, now at 1.54%.
Gold rose strongly last week, especially at the end and is now at US$1,399. That is a gain of +4.2% in a week, and takes it to a six year high.
US oil prices are a little firmer, mainly because a major US refinery is closed due to a fire. It is so bad, that facility may never reopen. Prices are now just over US$57.50/bbl. The Brent benchmark is now at US$65.
The Kiwi dollar is up almost +1c from this time last week and now at 65.9 USc. On the cross rates we are also firmer at 95.3 AUc. Against the euro we are similar to last week at 57.9 euro cents. That all pushes the TWI-5 up to just under 70.5.
Bitcoin has surged on up over US$10,000. This morning it is at US$10,739, up more than +18% in a week. In fact it is now just over NZ$16,000 for the first time in eighteen months. The international anti-money laundering organisation sees cryptos increasingly used to launder the proceeds of crime and is moving to rein in the risks. Now exchanges and custodians will have to carry out detailed checks on customers and report suspicious transactions. "Know-Your-Customer" rules that apply to banks will now apply to cryptos and their transactions. And the global central banking institution, the BIS, says politicians need to quickly coordinate regulatory responses to new risks from technology companies like Facebook moving into finance. 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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