90 seconds at 9 am: Central banks face weaker data

All eyes on the Fed; US consumer spending modest; US home sales falter; Trump lashes out at China; Japan factories slow; Aussie building consents slump; UST 10yr yield at 2.07%; oil & gold up; NZ$1 = 66.1 USc; TWI-5 = 71.4

31st Jul 19, 7:16am by David Chaston

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Here's our summary of key events overnight that affect New Zealand, with news central banks are facing fast weakening economic data.

All eyes are now on the US Fed. Markets now expect them to cut their policy rate by -25 bps tomorrow. They will be bolstered in that decision by data out today which shows American consumer spending and prices that rose only modestly in June, pointing to slower economic growth and benign inflation. If they do cut, it will be for the first time in a decade.

June home sales faltered in the US, unable to continue the small volume gains in the last few prior months.

But consumer sentiment as measured by the Conference Board survey rebounded strongly.

Meanwhile, the US President has lashed out at China as trade talks resume.

In Japan, industrial production dropped -3.6% in June, the biggest slide since January 2018 and more than double that expected by analysts.

In the EU, their latest business sentiment survey has come in weaker than expected and negative for the first time since 2013.

In Australia, yesterday's released June building consent data came in very weak and weaker than expected. For June 2019 they came in a startling -29% lower than the same month in 2018. For the year to June, the decline was a -19% decline. In anyone's language, this is a painful drop. It is data that caused the Aussie dollar to dip. Now there is talk of "100,000" job losses as a consequence of this and very slow sales in the general housing market.

The UST 10yr yield is now at 2.07% and back up +2 bps slip since this time yesterday. Their 2-10 curve is now at +21 bps and their negative 1-5 curve is at -15 bps. The Aussie Govt 10yr is at 1.21% and unchanged since yesterday. The China Govt 10yr is down -1 bp to 3.20%, while the NZ Govt 10 yr is now at 1.50%, a further -1 bp fall on the same basis.

Gold is now at US$1,430/oz which is a +US$8 rise overnight.

US oil prices are firmer today. They are now just over US$58/bbl. The Brent benchmark is also firm at just over US$65/bbl.

The Kiwi dollar starts today a little softer again, now at 66.1 USc. On the cross rates we are still firm at just on 96.2 AUc. Against the euro we are lower at 59.3 euro cents. That leaves the TWI-5 still at 71.5.

Bitcoin has firmed overnight to US$9,631 up +1.2% since this time yesterday. 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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36 Comments

by Fritz | 31st Jul 19, 7:32am 1564515134

Re: the Aussie building slump, we can't be complacent, I see a similar drop happening here as I have said many times.

by powerdownkiwi | 31st Jul 19, 8:41am 1564519269

There are always limits, if folk were complacently expecting none, then caveat emptor.

Speaking of limited, listen to the Bridges effort on Morning Report.

by theglc | 31st Jul 19, 9:37am 1564522668

I agree with Bridges on the Ihumatao issue, govt should have kept out of it. Fletchers bought the land legally, end of story.

by D581 | 31st Jul 19, 9:46am 1564523212

Stolen land.

by theglc | 31st Jul 19, 10:09am 1564524578

The Environment Court declined to overturn the permission granted to Fletcher Building to build the houses in Māngere.

It had already been through the Waitangi Tribunal, the Māori Land Court and the Environment Court - as well as the normal consenting process.

by HeavyG | 31st Jul 19, 10:19am 1564525184

Who all accept the land was stolen, it's just that their "hands are tied" and they cannot do anything about it. How sad (convenient;)...

by HeavyG | 31st Jul 19, 10:20am 1564525236

That's a minor detail that is easily resolved through legislation, red tape and other BS.

by RickStrauss | 31st Jul 19, 9:31am 1564522302

I wonder if we'll see any effects on labour pricing and availability in the housing sector here, based on what's happening in Australia. E.g. people crossing back looking for work in building because it's not going so well over there.

by Dgm | 31st Jul 19, 9:41am 1564522866

They are already coming over..

Mike greer are building about 15 houses a street from mine, talking to a contractor 3 of the tradies are from aussie

by Advisor | 31st Jul 19, 9:57am 1564523840

That's good news. Since demand for affordable housing is relatively high in the regions, skilled workers crossing the Tasman should help alleviate some of the capacity crunch.
However, the low growth in building consents issued in the region are still a major concern.

by profile | 31st Jul 19, 8:53am 1564520023

Not a bad effort. "India lifted 271 million people out of poverty between 2006 and 2016, recording the fastest reductions in the multidimensional poverty index values during the period with strong improvements in areas such as “assets, cooking fuel, sanitation and nutrition,” a report by the United Nations said."
https://www.thehindu.com/news/national/india-lifted-271-million-people-…

by powerdownkiwi | 31st Jul 19, 9:00am 1564520441

Yawn. You still here? Still being funded? For how long, one wonders?

Your comment reminds me of the last slide the CC apologist Bob Carter used to show. Cute wide-eyed African girl, and asking whether the coal shouldn't be used to raise her 'standard of living'. Both are equally intellectually inept - both I suggest, purposely so on behalf of vested interests.

The obvious question is always: What then? Jared Diamond, Ronald Wright and others, make it quite clear 'what then'. Resources run-down, populations overshot, collapses follow. You got kids, Profile? Grandkids? Think they're going to thank you?

by theglc | 31st Jul 19, 9:39am 1564522784

so its ok for people to starve, be ill and suffer as long as its not you?

by Lapun | 31st Jul 19, 9:40am 1564522825

If you can't rejoice in 271 million people getting better sanitation and more food then you are sad.

All your end of resource stories go back 200 years to Malthus. We have been crying wolf for a long time. But I agree with you the wolf will arrive (eventually some essential irreplaceable resource expire) and our best chance depends on a rapid move towards a declining population. That requires either war or education with social welfare and the latter is far more likely to occur with 271 million people lifted out of dire poverty.
I love my grandchildren more than I can express but not so far that I would prefer 271 million Indian children to seriously suffer for my grandchildren's survival.

by profile | 31st Jul 19, 10:16am 1564525005

Even the tigers are getting a nudge. The things you can do when you pull people out of poverty.
"The Indian tiger population has increased by 30% since 2014, according to encouraging figures released by the Indian Government on Monday. The number of wild tigers has risen to 2,967 from 2,226, largely thanks to a nationwide conservation push.
Indian conservationists estimated the new figures could mean India is home to 70% of the global tiger population, in what Prime Minister Narendra Modi described as a "historic achievement."
https://www.telegraph.co.uk/news/2019/07/29/indian-tiger-population-soa…

by powerdownkiwi | 31st Jul 19, 8:53am 1564520034

https://www.statista.com/chart/10569/number-of-earths-needed-if-the-wor…

https://kunstler.com/clusterfuck-nation/things-to-come/

"The contraction ahead will be brutal, not going nowhere but rather going down hard to a lower and harsher standard of living"

by RickStrauss | 31st Jul 19, 9:36am 1564522589

At the moment we're living with a whole lot of crap we really don't need. We could get rid of 99% of the junk in every $2 store and be no worse off. The same applies to half the junk on AliBaba and the Forty-Thousand IP Thieves.

Will be a rough ride moving to more minimalist lifestyles on a truly wide scale, however. Much prosperity rests on making and selling unneeded junk to each other.

by waymad | 31st Jul 19, 9:54am 1564523640

That's Adam Smith yet again: 'there is a great deal of ruin in a country'. There is indeed much consumer crap we can do without. Equally there is absolutely zero notion centrally about the Inventory that exists in every home, garage, farm, and commercial enterprise (half a million SME's) which constitutes Capital Goods - the stuff one can use to make, extract, transform or otherwise shape raw materials into finished goods. Rather than the Crash that the catastrophistra predict (and, one suspects, that some of the more rabid secretly Desire), it could well be a comfortable descent to the sort of existence most of us thrived on in the 1950's.....

by RickStrauss | 31st Jul 19, 10:11am 1564524669

That's my feeling too, at least as an initial stage (supposing we'll face greater consequences from issues such as climate change over time too...including New Zealand getting more crowded due to pressure to be a lifeboat for other regions).

Life will go back to more what my parents experienced where they were living. But as they said, "We didn't know we were poor. Everyone was poor." Albeit things that mattered (housing) were made more accessible by societal efforts and things that don't matter ($2 shop junk) were not accessible.

by Zachary Smith | 31st Jul 19, 10:44am 1564526640

I'm hoping for something more like one of those Sci-Fi dystopias where we have a combination of Middle-Ages and high-tech. Something like Nausicaa of the Valley of the Wind.

by Balanced Life | 31st Jul 19, 10:34am 1564526087

I agree with you. What we buy is actually literally 50% WASTE. Terrible. Just terrible.

My son brought home five grapefruit the other day and I made seven jars of ginger marmalade. It starts with finding ways that work with you to go zero waste. Recycled jars, free grapefruit (plus sugar) will give half a year of spread. Start with small stuff, it becomes a rewarding habit.

Trademe is great for keeping the flow going of wanted and unwanted things, when you sell you know it's going to somebody who needs it.

by CSE4 | 31st Jul 19, 11:16am 1564528571

Or Facebook marketplace where there's no sale fees. Reduces the friction, and the 'waste' of NZ'ers sending money straight to some Australian (or now British) shareholder.

by Audaxes | 31st Jul 19, 9:33am 1564522404

American consumer spending and prices that rose only modestly in June, pointing to slower economic growth and benign inflation

Hmmm...

The PCE Deflator for June 2019, released today, gained just 1.35% year-over-year. Benchmark revisions have reduced consumer price increases in recent months (while increasing inflation slightly in late 2017 and the middle of 2018).

June’s inflation was nearly as low as February, back to more like 2016 than the inflation hysteria of 2017. This despite “symmetry.”

Here’s why this matters in 2019. Jay Powell and his group of policymakers are telling you that the economy is otherwise strong and that the rate cut(s) tomorrow is just insurance to keep it that way. Link

by theglc | 31st Jul 19, 9:56am 1564523782

summed up by this sentence...

"It is the same “law” of central banking exposed since August 2007: monetary policy isn’t stimulus, it only tells you how bad the economy is performing. The more central bankers feel they have to do, the worse it already is"

For those that think continued rate cuts are going to stimulate the economy back into boom times, you are sadly mistaken, instead it is the ambulance at the bottom of the cliff, trying to put Humpty Dumpty back together again...

by Roger Witherspoon | 31st Jul 19, 10:10am 1564524605

It seems to me that we are at an interesting point in time. The Eurozone and China are falling apart, their exports first economic model having reached its limit. Thus, we have Japan, Euroland and China with massive debt pyramids that can only be held up by sub zero real interest rates and rampant debt creation.

What do people do who live in those places? Get their money out and either:
(a) buy USD assets that have a real monetary yield, or
(b) buy real assets that have value from their physical existence.
The backwash from this downunder has been silly house prices, as houses have real value as well as monetary value.
The good news is that the rising USD caused by (a) means our exporters are more profitable. Thankfully we produce real stuff that cannot be just put together in any factory in any country, the world being saturated with factories making stuff we don't really need.

by Balanced Life | 31st Jul 19, 10:23am 1564525432

The US is planning for a US dollar "Reboot". A massive change in it's monetary policy and will affect the Global Monetary system. A number of other Nations and the IMF are going to be invited to a high profile venue to discuss the "Reboot" to restore confidence in the monetary system. This could all be starting as early as 30th July.

by kane02 | 31st Jul 19, 11:01am 1564527680

last Friday at 5:15pm Scomo lodged a Bill before the Australian parliament to ban cash transactions for amounts greater than $10,000. So far I have not seen any coverage by the mainstream media? Quite extraordinary

by Balanced Life | 31st Jul 19, 1:11pm 1564535481

Surprising. There must be a reason for it. The first thing that came to my mind was: https://www.youtube.com/watch?v=hGZ3DFCPrKs
CCP definition of money laundering is different to everybody elses. China doesn't want people taking money out of China. Australia will see it as a threat that China is trying to take billions out of their economy.

by kane02 | 31st Jul 19, 12:53pm 1564534395

ML was the first thing that can to my mind. Not helped by the fact that $52b washed through the Crown casinos recently (largelt State sanctioned).

The second issue that comes to mind, should the RBA push the button on negative interest rates, and there is talk of -4%+ then there may be a "run on funds" as people look to put cash under the mattress. This is a sure fire way to put a halt to that occurring, especially if under extraordinary measures the Senate reduces the limit to say $5,000 or $2,000, or lower still.

Interesting times

by Balanced Life | 31st Jul 19, 1:11pm 1564535512

Wow! I see, so the IMF have advised AU to go into negative interest rates, so they need to restrict the money flow. https://www.youtube.com/watch?v=770M2s6ZD8Y

by Zachary Smith | 31st Jul 19, 11:09am 1564528182

Is this a canary I see asleep at the bottom of the cage?

Beachside bubble bursting

Interesting there are 16 mortgagee sales. Only the very well off should buy places such as these.

by theglc | 31st Jul 19, 11:27am 1564529257

That came out of the blue...

Is their any other influencing factors, like the sewage and rates debacle at Mangawai???

by ShoreThing | 31st Jul 19, 11:57am 1564531032

We all love to make predictions about the future of the housing market, so what are everyone's predictions for the share markets? I think there is a major correction coming in the next 6 - 9 months personally. All the signs of weakness are there, it's just a matter of which event finally tips us over the edge.

by brisket | 31st Jul 19, 1:21pm 1564536091

I agree. There's a pattern where bad news causes a temporary blip, and is then forgotten about... the market has forgotten how to correct itself. It's as if the fear of failure is making failure a certainty.
If I were betting, I'd say the tipping point will be some very bad news out of China. If the latest revelations about dodgy auditing are the tip of the iceberg, the financial situation there is probably worse than we think.

by Pat.T | 31st Jul 19, 3:33pm 1564544027

With very low interest rates and getting lower for term deposits I think more money will be invested in the sharemarket to chase the dividend yields.
Air NZ 11.15% - Genesis 6.46% - Skellerup 6.3% - Spark 8.3% - TrustPower 11.7%

by sit23 | 31st Jul 19, 9:07pm 1564564037

The version I heard is that Fletchers did a deal with the tribal elders, everybody happy. The rent-a-demo grievance people, with no tribal authority, fronted up, and had a great old time. If the MSM ever prints the truth, they will be mocked severely, and their slight credibility will be even further eroded. one of the few times I agree with Shane "Pork Barrel" Jones!