China trade surplus swells on even bigger gains vs the US, but industry sees slowdown, China debt jumps; Wall Street at record high; Aussie savers hit; UST 10yr yield at 2.12%; oil holds and gold up; NZ$1 = 67 USc; TWI-5 = 71.7

China trade surplus swells on even bigger gains vs the US, but industry sees slowdown, China debt jumps; Wall Street at record high; Aussie savers hit; UST 10yr yield at 2.12%; oil holds and gold up; NZ$1 = 67 USc; TWI-5 = 71.7

Here's our summary of key events over the weekend that affect New Zealand, with news stresses in China seem to be building, and quite quickly.

Firstly, their trade balance swelled yet again, reaching +US$50 bln with the rest of the world in June. But not in a good way. Their export growth dipped -1.3% pretty much in line with expectations. But their imports fell -7.3% and much more than expected, and compounding the large May decline. In the sensitive trade with the US, China's surplus is growing and growing. In the past six months, China’s exports to the American have fallen just a bit more than -8% year-on-year to just under US$200 bln in total. On the other hand imports from the US dropped almost -30% to $59 bln. The result has been a much wider trade surplus with the Americans of +US$140 bln. On the trade numbers alone, China is the clear winner here, the US farm belt the clear loser.

But those trade numbers also point to an economy that seems to be running out of the steam that trade once drove. At 2 pm today a raft of key economic data will be released including Q2 GDP, retail sales and industrial production and they will set the tone for China over the next month.

And overnight, it became clear that Huawei is hurting more than they are letting on. Giant US contract manufacturer, Flextronics, which makes Huawei mobile phones in Changsha, in Hunan province in central China, has all but shut down a key plant that is central to Huawei's new product launches. It is also laying off staff in the US.

Of course, Beijing is not sitting idly by as these pressures build. They are making sure debt funding is available and new yuan loans for June were up +13%, probably at double the rate of their economic growth. China's answer to stress always seems to be 'more debt'.

And staying in China, international credit ratings agencies can now rate domestic Chinese securities, all part of China's "opening up". But the first S&P rating is raising some eyebrows. It is for the leasing division of State-owned bank ICBC, and S&P China gave it a AAA rating. The raised eyebrow is because S&P Global had previously rated the same Chinese company's debt as "A". True, that was five years ago, but the difference is getting attention. Are higher ratings the cost of these international agencies getting permission to operate there?

One place being hit particularly hard by the trade war is Singapore. Q2-2019 economic activity has fallen, down -3.4% and way below analyst expectations. It is a substantial shift from the +3.8% growth in the first quarter. In the region however, Singapore might be a bit of an outlier; not all ASEAN or South Asian economies are shifting like this, not yet, at least.

In the US, Wall Street ended last week on a high, a record high, with the S&P500 pushing up over the 3000 index level. Investors are preparing for a good earnings season, and the Powell Congressional testimony has most investors thinking a rate cut at the end of the month is now locked in.

Meanwhile, American producer prices rose only modestly for the second straight month in June as an acceleration in the cost of services (up +2.5%) was offset by cheaper energy (down -7.1%). Those falling oil prices mean overall producer inflation gained their least in nearly 2½ years at +1.7%.

In Australia, it is becoming ever clearer that savers pay the price for low policy rates. Both ANZ and NAB cut term deposit rates significantly on Friday as public officials press banks to pass on most of the benefits of the rate cuts to borrowers. NAB now offers a one year term deposit at 1.75% pa; ANZ offers that for 1.85% now. TD rates starting with a "1" or even a "0" are the future.

Aussie retirees will be somewhat protected however. That recent Morrison Government budget allocated $600 mln to higher pensions, over 4 years or about $1000 each per year, by rolling back part of their means test thresholds.

The UST 10yr yield will open this week at 2.12%. That means it managed to hold on to a +8 bps rise as a result of the stronger US payrolls result. Their 2-10 curve is noticeably steeper, now at +27 bps and their negative 1-5 curve is a lot flatter at -10 bps. There have been strong recoveries in other sovereign bond yields as well. The Aussie Govt 10yr is at 1.44%, up +2 bps. The China Govt 10yr is up a marginal +1 bp to 3.19%, while the NZ Govt 10 yr is now at 1.65%, a +9 bps gain.

Gold was up +US$17 last week to US$1,416/oz.

US oil prices are little-changed today. They are now just over US$60/bbl. The Brent benchmark is also little changed at US$66.50.

The Kiwi dollar is stronger yet again today and just touching 67 USc with another good rise on Friday. On the cross rates we are also firmer over the week at 95.3 AUc. Against the euro we are up at 59.4 euro cents. That all pushes the TWI-5 up to just on 71.7 where we firmed to, after the last RBNZ OCR review.

Bitcoin is on the slide again today, now at US$10,394 and down more than -US$1,000 in the past 24 hours. Over the past week the feature has been substantial volatility of +/- 10%. But the highs were for nought; we are now at the low for the past week. 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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I wouldn't be surprised if under the radar, the Chinese public are being told not to buy American products if they can help it.

Teehee:
Are higher ratings the cost of these international agencies getting permission to operate there?

Someone might ask if these same rating agencies had difficulty providing the same politically required ratings to the Most Favoured Institutions in the US.

Wasn't there something about Hong Kong auditors not being allowed to audit mainland companies? Presumably they have been brought to heel by now.

Are domestic US banks filling a global ~USD 600Bn funding shortfall via their global foreign subsidiaries?

Graphic evidence here and here