China data vulnerable; NY Fed clarifies; US sentiment flattens at high level; US debt ceiling stress again; Aussie housing market picks up; UST 10yr yield at 2.06%; oil & gold up; NZ$1 = 67.6 USc; TWI-5 = 72.5

China data vulnerable; NY Fed clarifies; US sentiment flattens at high level; US debt ceiling stress again; Aussie housing market picks up; UST 10yr yield at 2.06%; oil & gold up; NZ$1 = 67.6 USc; TWI-5 = 72.5

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Here's our summary of key events over the weekend that affect New Zealand, with news we are watching data weaken comprehensively in China.

The canary is the tin price. It fell more than -6% last week to settle at US$17,700/tonne. That is the largest drop since September 2011 and the reason for the drop is sharply reduced Chinese demand.

Next, Chinese banks sold a net NZ$28 bln of foreign exchange in June, the biggest one-month net sale in two years, as the trade war pressure builds. And yet another in a growing list of companies in the Middle Kingdom is having trouble meeting its debt obligations as they fall due.

China is now actively working to keep foreign companies from leaving the country, dangling special benefits so that the advantages of staying outweigh the heavy tariffs imposed by the Americans. More than 50 global companies have announced or are considering plans to move production out of China. And not just foreign companies. Chinese manufacturers are also part of the planned exodus.

And to reinforce the point, it turns out that Vietnam's port throughput now exceeds that for Hong Kong, a major China trade gateway. Vietnam is a major winner from the trade war.

In New York, the key Fed branch that watches over Wall Street has taken the very unusual step of 'clarifying' its governor's comments. From a speech on Friday, markets took it that John Williams, a voting Fed member, was signaling a -50 bps rate cut at the next meeting. But not so, a misinterpretation, now says the bank. Markets now expect a -25 bps cut instead.

In the closely-watched University of Michigan survey of consumer sentiment, it has come in only marginally firmer this month. But it did undershoot analyst expectations somewhat.

And the US is back in debt ceiling talks as the authorised limit will be reached in early September and right in the middle of a Congressional break. This time the Democrats hold more of the cards.

Canada retail sales for May were disappointing, continuing a weak trend. Although this the first time in four months they have declined, they are now up less than +1% year-on-year.

In Europe, data from France bucked the trend with industrial output up strongly in May, indicating the euro area’s second-largest economy is performing much better than most. It was up +4% year on year, one of the best outcomes in the euro bloc.

In Australia, just as banks start easing mortgage rules following back-tracks by their regulator, house sales show signs of a good pick-up. Auction clearance rates hit 64%, the highest in a year. And the signs are 'positive' for auction activity this weekend.

The UST 10yr yield is now at 2.06%. Their 2-10 curve is slightly flatter, now at +24 bps and their negative 1-5 curve is a little steeper at -13 bps. The Aussie Govt 10yr is at 1.36%, down -6 bps for the week. The China Govt 10yr is down -2 bps for the week to 3.17%, while the NZ Govt 10 yr is now at 1.60%, a -5 bps fall on the same basis.

Gold is up overnight to US$1,425/oz and a +US$9 gain for the week.

US oil prices are a little firmer today. They are now just over US$55.50/bbl. The Brent benchmark is also little changed at just over US$62.50. And while tensions in the Middle East do seem to be rising, it is somewhat of a surprise that oil prices aren't following.

The Kiwi dollar is stronger yet again to start the week and just touching 67.6 USc. On the cross rates we are also firmer at 96 AUc. Against the euro we are up at 60.3 euro cents. That pushes the TWI-5 up to just on 72.5.

Bitcoin has been unusually volatile over the past week but is now at US$10,479. For the week it is down more than -10% however. Volatility has been wild however at +/- 15%, generated because of official concerns over Facebook's Libra and much increased regulation and oversight. 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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12 Comments

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Has anyone else noticed that the word DEBT, has been included in almost every article for the last couple of months..

Clearly it's come to a tipping point..

Yes, but I have been reading predictions of recession for the past year and still it seems to hold on the edge of a cliff. Very resilient so far

One is reminded of Adam Smith:

In late 1777, Adam Smith received news of General Burgoyne's defeat at Saratoga, promising calamity for Britain's war effort in America. His correspondent expressed deep concern that the nation was ruined. "There is a great deal of ruin in a nation", was the great economist's calm reply.

.

IMHO, this current crop of 'issues' is not so much a teetering on the edge, a la Road Runner and Wile E Coyote, as exposing the truly great depth of inventory in terms of systems, resources, goodwill and sheer spirit in the West.

OK, Pollyanna time, but I've just watched NZ win the Netball World Cup. So y'all may forgive my optimism.

There's been a bit of hustling too, media-wise.

https://www.rnz.co.nz/programmes/two-cents-worth/story/2018702058/is-gro...

This isn't a matter of 'the waterways getting better' (which they aren't; you have to swallow skewed data to state that) it's a matter of draw-down and quality-reduction and demand growth within a bounded system. The hide-behind is always 'opinion' but RNZ should be doing a lot better than that.

There’s been predictions of a recession for well over a year now (mine included). It comes down to banks and Govs vs gravity. They can stave off a recession for much longer than most anticipated but it will eventually catch up with them. Nothing any major country has done world wide has lowered the risks of a recession, only deferred it.

The problem with ever increasing debt to GDP is that you get to a point where there is no capacity to lend more without significant risk.

At that point the lenders want more return for the increased risk, meaning more trouble servicing debt and increased defaults, this is where investors retreat to safe havens (or safer anyway).

We are getting to that point now where all this debt is unable to produce growth, so everyone is dropping their rates in the hope of stimulating the markets, of course it wont work because if businesses cant thrive in a 4% environment they are unlikely to thrive in a 2% environment. So the next step will be QE over again and we will see how that ends....

The problem is the middle and lower classes are skint and their debt is loaded to near capacity

Off topic, but just thought I'd try to reach out to people early this morning: Anyone know of any good online resources / blogs / books on the ins and outs of starting up and running a business in NZ?

Jock, great to see a post that uses this site in a positive way. Sorry I cannot help you directly, if you know someone personally who has started his business and has been successful with it for at least 5 years, don't be shy, ask them directly, they will feel flattered and they will be very likely to help you more than you expect.

Haha, thanks Yvil. I have someone in mind whom I will definitely approach.
Judging by the rest of the silence here it seems like there are few resources out there for new kiwi business owners to get the facts on tax obligations, reporting obligations, GST, director's responsibility, imputation credits, sales and marketing etc.

You put the most important parts last on your list. Unless you sales the rest are a waste of energy. The single biggest thing you need to do is validate your business or idea in the market. 5% of your startup budget should be used to validate, and if it doesn't then try something else. Worry about the rest once this task is done. If your product is service is something new, then the technology adoption curve applies and marketing is very different.

Jock Silver, try Breakthrough Business Solutions, they have a great online coarse with all the resources for startup businesses.