US trade threats against China set aside; slump in global factory activity; China worries about rising house prices; Australia gets new banking code; UST 10yr yield at 2.01%; oil and gold down; NZ$1 = 67.2 USc; TWI-5 = 71.7

Here's our summary of key events over the weekend that affect New Zealand, with news the Americans have backed away from hard-line trade actions for now, agreeing to "more talks".

On the sidelines of the Osaka G20 meeting, the United States and China agreed to restart trade talks after the Americans offered concessions including no new tariffs and an easing of restrictions on tech company Huawei. The Americans think the Chinese will now buy more US farm goods. If they do, the price will turn out to be interesting. The Americans get to keep the tariffs already in place not realising that they are essentially a tax on themselves. China has persuaded the United States to return to the bargaining table without agreeing to any of the changes that the Trump administration has previously said were essential and not negotiable, but which Beijing regarded as an affront. More talks in the future, more tensions due in the future.  An identical playbook to the last G20 summit in Argentina.

There is an expectation that there will be something of a relief rally in equity markets when they resume later today. The US dollar may rise. We'll see.

But in something of an interesting counter signal, Apple said it is shifting the production of the only model it makes in the US, the Macbook Pro, to China. And most Americans, and by a substantial margin, doubt the Administration's tariff strategy, although it is a highly partisan issue.

The Australians signaled that they will be throwing their weight behind the TPP and the RCEP. The RCEP includes China and India, although the TPP doesn't, but it does include Japan. Neither include the US.

The inflation measure the US Fed watches closely, core PCE (personal consumption expenditure) came in for May at 1.6%, unchanged from April. Analysts had expected a minor dip, but that didn't happen. In any event, it is still below the Fed's target and it isn't moving.

Another closely watched index is the Chicago Purchasing Managers survey and that fell into contraction in June for the first time since January 2017. This is just another in the set of regional factory surveys showing American manufacturing is either without any growth or is in contraction. The most telling aspect is that new orders are falling.

These pullbacks haven't yet flowed through to consumers yet, although the latest sentiment survey seems to have topped out. And it is those on higher incomes who are reporting the most concern about the future, the surveyors said.

And it is more than just the US; the trade tensions are generating a global slump in factory activity.

China’s factory activity shrank as expected in June, and its expansion of its service sector PMI slowed, also as analysts expected. Both signals emphasised their need for more economic stabilisation stimulus.

In China, the central bank authorities are jawboning banks to be restrained in their mortgage lending, despite recently officially easing lending conditions in many smaller cities. That easing brought a quick rise in prices in May that is obviously worrying them. This latest pullback has seen Chinese mortgage rates rise from 4.9% to about 5.15%.

The EU and a group of South American countries have agreed a large multilateral trade deal, apparently the largest one the EU has ever done. (It took 20 years of negotiation.)

In Switzerland, the Bank of International Settlements has called for all policy hands to the pump to protect a flagging world economy. They say interest rate policies can't do it all. In its Annual Report released overnight, it says the global economy is losing momentum and it is time to address that aggressively with both fiscal and monetary loosening. They are especially concerned about global corporate debt, after “remarkable” growth in leveraged loans, especially in the US. But exactly why they think addressing this with more public debt and lower interest rates is unclear other than that will bolster bank profitability.

In Australia, new RBA data shows that lending to businesses and property buyers grew only marginally in May, while the fall in personal loans got deeper. In fact, Australian housing debt grew just +3.7% in the year to May - the slowest annual growth rate since records started in 1976. The New Zealand data shows ours grew +6.3%.

And staying in Australia, a new banking code of practice comes into force today. Among other things, there will be no more unsolicited offers for higher credit card limits, no more commissions on LMI, and no more attempts to sell insurance with other products customers want.

The S&P500 ended last week up +0.6% on Friday, but over the week it will recorded a small loss of about -0.4%. European markets ended their week much more positively however, up more than +1% on the day. For the week, the DAX was up +0.7%. Asian markets all ended lower on the day, as did the ASX200 (-0.7%). But the NZX50 bucked that trend, up +0.7% on Friday to cap a +1.7% rise for the week. The weekly change in Australia was a drop of -0.5%. For Shanghai, it was a -0.8% drop, for Tokyo it was a +0.2% weekly gain, while for Hong Kong it was a +0.5% rise.

The UST 10yr yield is now at 2.01% even and down -5 bps from the same as at this time last week. Their 2-10 curve is now at +25 bps and their negative 1-5 curve is at -17 bps. The Aussie Govt 10yr is at 1.34% and a +3 bps rise over the week. The China Govt 10yr is up +3 bps over the week to 3.28%, while the NZ Govt 10 yr is up +6 bps this week, now at 1.60%.

Gold is little-changed overnight but up +US$12 in a week and is now at US$1,409.

US oil prices are sharply lower on demand fears and rising shale output. They are now just on US$58.50/bbl, a drop of almost -US$1/bbl at the end of trading last week. The Brent benchmark is down too at US$64.50.

The Kiwi dollar is up +125 bps in the past week against the US dollar. You may recall it rose +105 bps in the prior week. We seem to be in a strong firming phase and back to levels we last saw in April. It is now at 67.2 USc. On the cross rates we are also firmer over the week at 95.7 AUc. Against the euro we are up +121 bps in a week at 59.1 euro cents. That all pushes the TWI-5 up to just on 71.7. We aren't yet at the same type of firming we got in October and November 2018 when we firmed a full +8%, but we might be starting along a similar track.

Bitcoin is lower today even if it is still near its recent highs. It is now at US$11,270, down -6% from where we left it on Saturday. 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 ».