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 ».
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