sign up log in
Want to go ad-free? Find out how, here.

Market glow fades as Trump-Xi truce seen as hollow; world factories in contraction; signs of investment chill; Aussie regulation roils banking markets; UST 10yr yield at 2.03%; oil and gold down; NZ$1 = 66.7 USc; TWI-5 = 71.5

Market glow fades as Trump-Xi truce seen as hollow; world factories in contraction; signs of investment chill; Aussie regulation roils banking markets; UST 10yr yield at 2.03%; oil and gold down; NZ$1 = 66.7 USc; TWI-5 = 71.5

Here's our summary of key events overnight that affect New Zealand, with news Australian regulators are forcing a dangerous twist on their mortgage lending. It's irresponsible regulation in the name of "responsible lending".

But first, yesterday in the glow of the trade truce announced in Osaka, equities rallied strongly. It was kicked off by a +2.2% jump in Shanghai and a +2.1% rise in Tokyo. (Hong Kong didn't participate because of the escalating riots there.) That was followed up in Europe with gains of about +1%. Wall Street opened today in a similar mood, up +1% but it has waned as the session has developed, now drizzling away to only a minor net gain there. It is becoming clearer that nothing was actually decided between Trump and Xi and that the Chinese are unlikely to change their positions. Apart from the photo-op we don't seem to be in much of a different place, except for a 90 day reprieve. But the US has given China time to wean itself off US products.

Overnight, two separate PMI series were released in the US, both showing small retreats. Analysts had expected this because of the weakening series of recent surveys from the regional Feds. The closely watched ISM one reported a weakening expansion with a fall in new orders. The other one, which is done to international standards, actually reported a rise in new orders even if it was small, but says the American factory sector is still "near stagnation".

Meanwhile, construction spending in the US is falling. In May, it was down -2.3% from the same month in 2018.

All this fits into a global manufacturing sector that is at its lowest point since October 2012 and in a contraction that has extended for a second month.

Japan is still in a small contraction.

China's private sector PMI is recording factories there also slipping into a contraction, one that was not actually expected at this point. The Caixin PMI is focussed on medium-sized manufacturers. The official State PMI already recorded a contraction; that survey is more dominated by large state owned enterprises.

The EU is deep in a serious factory contraction now, more so than anywhere. Interestingly, the eurozone countries recording expansions are Greece and France. The one with the steepest contraction is Germany. The country with the most sudden change down is the UK.

In Australia there are dueling factory PMI reports for June as well. The Markit one shows it holding with a minor expansion, but the AIG one shows it slipping into contraction by a rather sharp stumble.

The trade retreat, now showing up in all this retreating manufacturing, is now risking an "investment chill" according to the governor of the Richmond Fed.

In Australia, we will get another RBA rate review at the end of today and markets expect another cut taking their OCR to 1.0%. But that will also likely means another sharp drop in rate offers for savers and that may generate a building storm of protest. Observers are saying term deposit rates there are on the way to just 0.5% pa. This happens because of heavy official pressure on banks to pass on the full rate cut to borrowers. Savers pay for that.

And renewed Australian regulator pressure to force banks to verify a mortgage applicant's expenses in the name of 'responsible lending', even when the application comes via a broker, is threatening to force the whole process to grind to a crawl. The unintended consequence is that regulators are now forcing banks to use third party big data intrusion just to meet these obligations. What could possibly go wrong? There will almost certainly be a regulator-induced mortgage recession if they keep going down this path.

The UST 10yr yield is now at 2.03%, up +2 bps from the same time yesterday. Their 2-10 curve is now at +25 bps and their negative 1-5 curve is at -15 bps. The Aussie Govt 10yr is at 1.35% and a +1 bp overnight. The China Govt 10yr is down -2 bps to 3.26%, while the NZ Govt 10 yr is up +1 bp, now at 1.61%.

Gold has tumbled today, down -US$23 overnight to US$1,386/oz.

US oil prices are lower again on demand fears. They are now just under US$58.50/bbl The Brent benchmark is down too at US$64/bbl.

The Kiwi dollar is down slightly against the US dollar and now at 66.7 USc. On the cross rates we are firm at 95.8 AUc. Against the euro we are unchanged at 59.1 euro cents. That shifts the TWI-5 marginally lower to 71.5.

Bitcoin is lower today, down almost -10% from this time yesterday to US$10,125, a drop of nearly -US$1,100 in a day. 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 ».

Daily exchange rates

Select chart tabs

Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
End of day UTC
Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

47 Comments

all pretty bleak news but defying gravity global share markets surge on.....

Up
0

With falling interest rates, other than equities where else can one readily put one's cash?
Bitcoin?

Up
0

I wouldn't be surprised if Bitcoin's value surged again, Hong Kong Police have been firing tear gas have evicted protesters who stormed and ransacked Hong Kong's parliament, according to this very recent article from the BBC: Hong Kong police evict protesters who stormed parliament
https://www.bbc.com/news/world-asia-china-48832910

Up
0

How do you connect protests in Hong Kong with a rise in Bitcoin?

Up
0

It's well known that the majority of Bitcoin investors are from China, mainly because they're using as means to get their capital out of China. Since their capital flight restrictions are preventing them from getting their money out by more standard systems, such as investing in the global property market. This is also why prices are declining at the top end of the global property markets that had previously benefited from Chinese money.
So Bitcoin and other cryptocurrencies have become a bit of a save haven/money mule. The last time when Bitcoin when through a big crash cycle was also due to the Chinese Government shutting down the local Bitcoin exchange sites. There's numerous articles on this topic I suggest you take a look on line.

Up
0

Great story CJ, you have awesome imagination!

Up
0

I guess you're not capable of using a search engine. Here you go: Fear of mainland China control drives Hong Kong protesters to Bitcoin
https://www.fxstreet.com/cryptocurrencies/news/fear-of-mainland-china-c…

Up
0

Property

Up
0

Yvil the one-trick pony.

Here's an idea: how about (government) bonds? They rise in value when interest rates go down.

Up
0

Yeah but I can't influence the return on my government bond. I sure do create value in my properties, you see I like to have control over my investments.

Up
0

P8. How about SKT shares? Smashed down to low levels. That dinosaur that was running it into the ground has gone, and at present price looking like a prime take over target. Then there is the dividend which should be around 9-10%.
Of course subscriber loss could continue at current rates and the business could implode..But hey, gotta put your money somewhere.

Up
0

Sounds great MTP - go for it.
However for me, I may be an old dinosaur but one hopefully with still some years left, but SKT seems to be a dinosaur shortly to become an extinct dinosaur.

Up
0

You could be right, or Amazon could buy them out at $3.50 per share.
I see them becoming a specialist sports streaming co in the future. Forget the other stuff they can't compete with Netflix. People will still pay for sports content.

Up
0

Isn’t that because The Fed have said they will do “What ever it takes” to keep the share markets moving up.....

Up
0

I would have thought that the Fed would be more concerned about the wider economy than just share market investors.
The primary intent of low interest rates is to stimulate the economy through both borrowing for investment/expansion and encouraging greater consumer spending with "cheap money". However it is a indirect consequence that in an environment of plenty or cheap cash, equities and housing benefit.

Up
0

They have to try, because a stock market collapse over there, with 70% of US household wealth tied up in stocks, would wipe out the babyboomers retirement plans.... many of them are relying on stocks to pay the mortgage off at retirement and there is a far lower concentration of wealth in housing (which has been the ATM for leveraged stock trading). It's the same issue that we have but in Oz and NZ, where 1955 birth year is the start of a decade of rising numbers of people hitting retirement age, so OCR cuts will also be part of a 'do everything possible to prop up the housing markets policy', and where our household wealth has a similar concentration to US stock concentration, in the high 60%'s for Oz, a little lower for us. Another cut from the RBA 'Today', as it attempts to try and keep the 'debt for equity' trap baited in Oz, and should keep the patient off life support or a little bit longer.

Up
0

Not quite Joe.
Us babyboom retirees would much prefer to have high interest rates with our money in safe no hassle term deposits - not higher risk equities.

Up
0

You perhaps, but higher interest rates would collapse the housing market and the equity that many are relying on for retirement in both their family homes and leveraged investment properties.

Up
0

Indeed, would be healthier overall for prudent older folks to be getting a decent return on their term deposits. Instead we have zombie companies being propped up and speculators being coddled by central banks.

Up
0

Even retirees shouldn't put all their money in term deposits unless they've saved the bare minimum to live off. On average they can expect 20-30 years of retirement so a good chunk of those savings should be in equities, at least for the first few years then gradually reduce exposure over time.

Up
0

Just a small issue with that 70% claim. The US Fed's Z1 Household Balance Sheet data shows (page 144) that total US household financial assets are US$81,733.2 bln while their exposure to "Corporate equities and mutual fund shares" is US$21,712.4 bln as at the end of 2018. I make that 27%.

That is more than double the level for New Zealand. Our households hold NZ$941 bln in total financial assets, of which $102.8 bln is in "Investment fund shares". That is 11%.

 

Up
0

Those figures sound entirely more reasonable David. Thanks.

Up
0

Spoil sport David.
Don't let facts get in the way baseless slagging off at baby boomers - aka "Those who inherited the world and to be blamed for everything" :)

Up
0

I wonder if that included 401k's?

Up
0

https://www.resilience.org/stories/2019-07-01/war-empire-and-racism-in-…

If you read nothing else today, read that.

Then ask whether the MSM have passed or failed.

Up
0

Rather aggravating article. Maybe because I was born British I dispute the causes although agreeing with some of the conclusions: exponential growth is impossible to sustain and is rapidly leading to ecocide. I also agree that depletion of resources will probably lead to some gruesome wars. The cause was the industrial revolution leading to population growth. Racism was present with other empires: Genghis Khan and Attila killed foreigners, famines occurred long before the British Empire arrived. The author gives the numbers but fails to notice deaths by communist rule far exceeded total war death in the rest of the world. In fact war and other violence have gone down for centuries - just read Stephen Pinker.
Has the guts of a decent article if it could shed the trendy political baggage.

Up
0

Not read 'Enlightenment Now' yet. Found 'The Better Angels of Our Nature' good because it had a smidgen of deductions supported by a vast amount of data. It also agreed with my own experience trying to understand life in PNG: the noble savage always has been a myth - it was capitalism with all its many faults (well it is based on greed and competition) leading to increased trust, greater support for the rule of law and giving motivation to reduce our inherent human racism.

Up
0

Made all the more tragic by the ideologically driven head in the sand approach of too many folk. And unfortunately too many of those won't live to see the fruits of their own selfishness.

Up
0

"(Australia) taking their OCR to 1.0%. But that will also likely means another sharp drop in rate offers for savers"
. . . . and this is from a low base with ANZ Australia term deposit current special 2.35% for 11 months; 12 months 1.93% and 5 years 2.03%.

We are heading in the same direction and the outlook for New Zealanders - such as retirees supplementing super with income from term deposits - is either taking a cut in income and/or looking at riskier alternatives such as equities.
Meanwhile mortgage holders and FHB should be smiling.

Up
0

Why should FHB be smiling in a environment where central banks have OCR at historic lows.

Up
0

Ask the 27,000 FHB who have purchased their home in the past year (RBNZ figure).
Outlook for cost of mortgage looking less than than currently.

Up
0

Printer8 - I'm afraid that you are confusing loans and total household mortgage exposure (amalgamation of loans that form a mortgage).
There have been 27,000 loans made to first home buyers over the last 12 months (RBNZ loan data)... First home buyers have not however made over 36% of the purchases that have occurred in the last year with their 17 or so percent of total new borrowing.

Up
0

REINZ SALES FIGURES - C31 Number of First Home Buyer (Loans)
MAY 2019 - 7263 2760
April 2019 - 5800 2300
Mar 2019 - 6938 2457
Feb 2019 - 5954 2089
Jan 2019 - 4372 1771
Dec 2018 - 5330 2295
Nov 2018 - 7286 2599
Oct 2018 - 6791 2365
Sep 2018 - 5506 2157
Aug 2018 - 6216 2201
July 2018 - 5661 2306
Jun 2018 - 6034 2306
TOTAL - 67197 24740 (36.8%) if number of loans were a true reflection of number of purchases.

Up
0

Perhaps people have a disproportionate amount of money in their kiwisaver that they're using. The statistics on withdrawals from last year is about $770m for first homes. Perhaps there is an even larger number this year.
https://www.kiwisaver.govt.nz/statistics/annual/withdrawals/

Up
0

Dig into the Excel file at it looks like 34,000ppl in the year to jun* 18 withdrew $768mil = avg of $22k each. We can assume the majority of FHB purchases were a couple buying, so 34k / 1.75 gives a ballpark of 19,500 FHB purchases funded (partially) from kiwisaver.

Up
0

Not sure where you are coming from Joe.
Refer RBNZ figures Column U. NUMBER of first home owners from June 2018 to May 2019 total is 27,339 (run your cursor down the column).
There were 27,339 first home buyers who took out mortgages - end of story.
Not sure where or why you are headed with REINZ figures, 36% of purchases etc.

Up
0

Because the biggest expense on their new house is getting cheaper (I thought this was obvious but by the high number of thumbs up on your post, clearly many posters don't understand this)

Up
0

Yvil, serviceability and the size of an originating mortgage(s) are somewhat related. FHB have taken on larger mortgages in the past year. I tried to give you a thumbs up, but could not.

Up
0

Ok, let me simplify it. Lower interest rates = less money paid by FHB now, therefore they have more money in the back pocket. More money in the wallet now is considered a good thing. There's no need to try to make simple things complicated

Up
0

As a retiree I'm simply spending my term deposits. Nobody deserves to live on interest anyway. When I meet St Peter and ask to enter he will not ask me "how much did you leave in term deposit savings?"
My finances would be easier if I knew exactly when I was to die.

Up
0

The Aussie regulators do seem to be going at it. Driving up credit standards and driving down credit growth. Modulating the interest rate to limit the damage. They appear to have a very clear idea of what they want to achieve and how to get there.

The RBNZ seem to be following the same general plan, but choosing different mechanisms to tighten credit.

All very interesting. It seems mortgage credit growth has become the driver of the local economy and the regulators are determined to be in the driving seat.

Several questions arise. Will it work? Do they know what they are doing? My guess, based on their decisiveness, is probably.

Will the political climate work in the same direction or the opposite? Excess capital inflows reduced or encouraged? Excess immigration reduced or encouraged? Tax cuts to stimulate the economy or silly spending on vanity projects? These are important factors and it seems the Aussies will likely choose different options than NZ.

Up
0

Is it a Barfoots day. Will June sales be a decade low. ?

Up
0

“even when the application comes via a broker” – so is this the new gold standard?

Up
0

Walmart is the latest of US corporations to announce its deal with Genpact to offshore accounting and finance operations to cheaper Asian locations. Thousands are slated to lose their jobs as a result of this money grab.

Silicon Valley giants boast lavish office spaces for its skilled staff when in reality the majority of their non-glamorous work is done by contractors on low wages and poor working conditions.

Crony-capitalist America continues to dismantle its lower income classes in the name of competitiveness while politicians pretend China or India are the enemy. I am not sure whose side in the trade war these corporations are on.

Up
0

Good point. In the age of globalisation and companies renouncing their role as participants in society (in fairness, much more common pre-Friedman) what should be the response of populations and their governments? Especially if as in the USA many of their government no longer seem to represent the people but rather the companies who "donate" to them.

Up
0

A lot of US companies are issuing low profit warnings now (in the region of 70%). Two weeks ahead of the release of second quarter data.

Up
0