US durable goods orders show zero yearly growth; US GDPNow estimate cut; German factories suffering; ECB prepares more QE; RBA defends inflation targeting; UST 10yr yield at 2.08%; oil up & gold down; NZ$1 = 66.6 USc; TWI-5 = 71.8

US durable goods orders show zero yearly growth; US GDPNow estimate cut; German factories suffering; ECB prepares more QE; RBA defends inflation targeting; UST 10yr yield at 2.08%; oil up & gold down; NZ$1 = 66.6 USc; TWI-5 = 71.8

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Here's our summary of key events overnight that affect New Zealand, with news key economic indicators are pointing lower.

In the US, the advance June new orders report for durable goods was up +2.0% from May, but with zero growth from the same month in 2018. There was a further sting in this data because the May data was revised sharply lower. Retail inventories fell, wholesale inventories rose. And the merchandise trade balance deficit came in slightly worse than analysts were expecting (they we expecting to see an improvement by now, but it didn't materialise).

None of this impressed equity markets and today's S&P500 index is down -0.4%. Earnings reports have been missing analysts expectations even though companies have been trying to set them lower anyway.

And now the Atlanta Fed's GDPNow tracker has set their Q2 growth estimate at +1.3% pa, a reduction of -0.3%.

Next week in Shanghai, there will be another face-to-face meeting, this time in Shanghai, to try and patch together a US-China trade agreement. But expectations are low for progress. China seems in no mood to concede anything.

In China, there is more evidence that the yuan is making virtually no progress on the international scene as a payments currency. SWIFT says that 1.28% of transactions in June where yuan denominated. That is virtually the same as the 1.25% in May. And it is miles less than the 45.9% for the US dollar (and rising) and the 32.1% for the euro (and falling).

Shanghai rose +0.5% yesterday while Hong Kong (+0.3%) and Tokyo (+0.2%) also gained.

In Germany, businesses see no recovery ahead and the influential IFO survey of business sentiment there paints an increasingly somber picture in the world's fourth-largest economy and the heart of the eurozone (it's 40% larger than the UK). The downward track is worrying the ECB and in their overnight review of monetary policy, Draghi acknowledged things are getting "worse and worse", especially for the region's factories. It said it is ready to restart a stimulus program.

This gloomy outlook hit the German stock exchange hard, with the DAX down -1.3%. Other European markets didn't react as negatively.

In Australia, their central bank signaled they are prepared to ease policy again if required and said Australians should "expect an extended period of low interest rates." This was something of a surprise to markets who had expected them to declare the end of interest rate targeting. But instead the RBA defended the policy. Savers are facing severe outcomes.

The UST 10yr yield is marginally higher at 2.08%. Their 2-10 curve is at +22 bps and their negative 1-5 curve is now at -14 bps. The Aussie Govt 10yr is down -2 bps at 1.26%. The China Govt 10yr is unchanged at 3.18%, while the NZ Govt 10 yr is down -3 bps at 1.56%.

Gold is down -US$5 overnight to US$1,416/oz.

US oil prices are marginally firmer today. They are now just on US$56/bbl. The Brent benchmark is just on US$63.

The Kiwi dollar is -½c lower today and at 66.6 USc. On the cross rates we are softer at 95.9 AUc. Against the euro we are down to 59.8 euro cents. That takes the top off the TWI-5 to be just under 71.8.

Bitcoin is now higher than this time yesterday but has remained volatile in-between. Right now it is US$9,987 which is +3.4% higher than this time yesterday. Volatility has been 6.4%. 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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21 Comments

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10
up

World economy is sick.. (ZS will not agree)...

More debt is not the answer...

Time to reset the BUBBLE..

Agreed. As explained in the John Maulden series, the great reset is coming.

Cheap money is no longer the answer. There is much pain ahead.

Ahh well it took a lunatic to throw a multiple tariff spanners in the works, for the world to recognize that false economies and relying on free money form overseas is a bad idea. Look on the bright side he (Trump) can't remain in power forever, so you got to have a laugh.

BBC article: Trump's doctored presidential seal leads to firing
https://www.bbc.com/news/world-us-canada-49116539

That is the funniest thing I have seen this week, thanks for sharing. Good on them!

14
up

Each month, USA is receding in economic growth. EU is similarly mired. Japan it is permanent. China is slowing, how much is difficult to tell. Australia approaching recession. Central banks out of ammo. Car sales worldwide collapsing last 18 months, without adequate explanation (except for disposable income being robbed by REAL inflation, which is not mentioned.) Debt and more debt is not cutting it. Less return on each dollar of debt. An alternative to the mantra of "economy=society" plus there is no alternative (to government being servile to banks and top 20%) is needed. Populations in many countries are not getting improvements from globalisation that they were promised. Change is coming in next 2-3 years and it may not be pretty

"" Populations in many countries are not getting improvements from globalisation that they were promised. Change is coming in next 2-3 years and it may not be pretty"" If that is the perception then your conclusion is possible.
I'm guessing I'm older than you but technology has brought me access to my family half a world away (in the 80's my Mum sent aerograms) and to all recorded music but it is globalisation that lets me buy T-shirts for the price of a coffee insead of a days work, flights to Europe for a months pension when they used to cost many months real wages, a cheap hammer for a couple of dollars instead of maybe $50, etc. I get fruit out of season which only the mega-rich used to be able to afford. Globalisation is good for ordinary folk.

Sorry Lapun but that depends on which part of population and country you look at.
Real wages in USA and EU for bottom 65% have not increased since 1973.
You may counter that costs of living have fallen.
But that would not apply to length of duration of mortgage to pay back, nor to home ownership, or ability for inflation to erode debt, which were available in 70s. I am 56 years old. Stuff might be cheaper but it is worse quality in general and uses more resources to make. Globalisation also substantially raises CO2 emissions.

Certainly don't put me in the all is OK camp. Inequality and the major problem of housing are way worse than when I was young. Four years out of Uni I bought a reasonable 3-bed house in London for less than 3 times my salary - I wish my 6 adult kids could do the same.
Fair point I used to be in the top 35%.
The only part of your reply I'd quibble about is stuff of worse quality - I disagree but we would both of us need a very long argument to decide that and also the more resources - generally industry is using less energy to achieve more output.
It is success that has raised CO2 emissions - note how UN targets for alleviating extreme povery have been met way ahead of target. If that success required globalisation so be it but looking at my family relatives in PNG I'm glad they have mobile phones, radios, buses, medecines, etc and they now have a choice about living in the village as per their ancestors or travelling the world. Read Jim Flynn's climate change book - you cannot stop the 3rd world trying to catch up with us.

Yes, this is the paradox.
I know that many things are cheaper for me than they were for my parents and grandparents - clothes, electronic goods, luxuries of all kinds are affordable. But the things that really matter are worse. No job security. No raises. Impossibility of buying a house in the city I was born in (without significant financial assistance from outside). V. hard to run a household on one income, makes child-raising difficult. These things, I believe, are harder. The fact I can easily amass consumer electronics doesn't make up for them.

Everything is primed for Auckland property prices to take off again, so we're told!

The inertia towards war won't change because "unearned" income has a component of tragedy of the commons to it. If you think I am wrong just try to explain to someone that their rent, or interest, is unearned.

In China, there is more evidence that the yuan is making virtually no progress on the international scene as a payments currency. SWIFT says that 1.28% of transactions in June where yuan denominated. That is virtually the same as the 1.25% in May. And it is miles less than the 45.9% for the US dollar (and rising) and the 32.1% for the euro (and falling).

Maybe it's a case of moving to it's own cross border currency settlement systems to avoid the high probability of US sanction disruption - some evidence

The USD didn't organically grow into the global currency; it was when the US steered the Allied forces towards victory through its industrial and economic might, quickly followed by the generous Marshall plan that led to dollarisation of the global economy.

From the looks of it, China is on track with its OBOR initiative and now needs to fund a major military conflict elsewhere to send those yuan-denominated transactions soaring.

The likely answer is that no one - not even the average Chinese citizen - wants the yuan. It is not fully convertible and there is always the risk that the CCP will take it. No one in his or her right mind wants to hold yuan longer than necessary.

"I'm sorry Sir, the ship is sinking, but as a complimentary gesture, the captain would like to offer you an upgrade to the executive suite."

China has it's own international payment system; China International Payments System (CIPS). It's BS that China is not making progress as a payments Currency. Just look at who the ten biggest Banks in the World are.
https://www.businessinsider.com.au/top-10-banks-in-the-world-2019-2019-7...
________________________
Genesis 13:2
2. And Abram was very rich in cattle, in silver, and in gold.

Cattle = Production; Silver = Money; Gold = Purity and Wealth passed through generations.

Chinese banks also have least transparency and worst leverage in world. A tottering pile of toxic debt resting on no one knows what collateral and hoping for State bail outs. Default rate shows this is not coming this time.

Yes it will be interesting to see what happens next. Bloomberg article: For China, Kicking a $9 Trillion Habit Is Tough Work
Shadow-banking activity is picking up, a sign the economy remains overreliant on this opaque funding channel despite Beijing’s efforts.
https://www.bloomberg.com/opinion/articles/2019-06-25/china-s-reliance-o...

I found this after considering your comment. Time will tell i guess.
https://nationalinterest.org/feature/chinas-debt-debacle-68417

David, I wonder if the yield curves could be presented in a table format? Might make it clearer/an easier read?