Trump hits US importers of Chinese goods with new tariffs; Wall Street recoils in horror; US economy data weakens; China PMIs stable; BofE lowers growth forecasts; UST 10yr yield at 1.89%; oil slumps, gold leaps; NZ$1 = 65.6 USc; TWI-5 = 71.1

Trump hits US importers of Chinese goods with new tariffs; Wall Street recoils in horror; US economy data weakens; China PMIs stable; BofE lowers growth forecasts; UST 10yr yield at 1.89%; oil slumps, gold leaps; NZ$1 = 65.6 USc; TWI-5 = 71.1

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Here's our summary of key events overnight that affect New Zealand, with news we are getting an object lesson of the folly of tariffs. The trade war situation is going from bad to worse.

The US President has announced new tariffs on US$300 bln of imports from China. Starting September 1, those extra goods will be hit with a 10% levy. This comes after China placed orders for US soybeans and in the middle of negotiations between officials. But this latest tariff action undermines future orders for US agricultural products and rural prices crashed after the news.

Wall Street also went into reverse on the news; equities are down -1% after being up that much before the announcement. Currency markets have been buffeted (with the Aussie dollar one of the most affected), and bond yields have dived.

Meanwhile in the US economy itself, the closely watched ISM PMI came in lower for July and now barely expanding, when a rise was expected. Another similar survey points out this is the lowest level since 2009.

And US construction activity shrank in the year to June as well as falling from May.

China is likely to react to this US move by restricting American economic activity in its domestic markets. It seems unlikely to buckle in the way that the US hopes. No more orders for US agricultural products are likely.

China's private sector factory Caixin PMI for July has come in slightly better than expected, mirroring the official China factory PMI released a few days ago. It is now at 49.9, essentially neither expanding nor contracting. There are rays of light however; new orders and production output are expanding again.

Japan vehicle sales were up almost +7% in July from the same month a year ago. But that is just a rush to beat a sales tax hike. Overall, Japanese factories are contracting however.

And the eurozone manufacturing sector is now contracting at its fastest pace since 2012.

The Bank of England has cut its forecasts for UK growth over the next two years to just +1.3% and warned that a no-deal Brexit will hit their economy further and trigger a further drop in the value of their currency.

The downturn in the global manufacturing sector has extended into its third consecutive month in July. Production and new order intakes declined further, as conditions in many domestic markets remained soft and international trade volumes continued to contract. These negative trends filtered through to the labour market, resulting in another round of job losses.

The UST 10yr yield has slumped -12 bps so far to be just on 1.89%. Their 2-10 curve is now back wider at +18 bps and their negative 1-5 curve is narrower at -11 bps. The Aussie Govt 10yr is at 1.12% and down -7 bps since yesterday. The China Govt 10yr is down -1 bp to 3.17%, while the NZ Govt 10 yr is now at 1.48%, and up +1 bp on the same basis.

Gold is up sharply making back yesterdays drop and more, up to US$1,442/oz which is a +US$25 surge overnight.

US oil prices fell hard on the tariff news on fears that demand will collapse. They are down more than -US$4 to now just on US$54/bbl. The Brent benchmark is just on US$61/bbl.

The Kiwi dollar starts today unchanged against the greenback at 65.6 USc. On the cross rates however we are much firmer at 96.3 AUc. Against the euro we are unchanged at 59.2 euro cents. That leaves the TWI-5 at 71.1.

Bitcoin is on the sidelines at US$10,112 and up less than +1% 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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26 Comments

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When will markets realise Trump means it re China and currency wars. Even Fed has caved just like did for Nixon. Long dead inflation is coming back friends

you gotta follow the money

Tump is doing what no other president did.. to stand up to the Chinese

Tell that to Truman.

Is it still a bi-partisan approach?

I would have thought the Dems would have condemned these tariffs even if it was just for the sake of it...

This guy could do with a healthy dose of Karl Popper's "The Open Society and its Enemies".

Jay Powell: One and done rate cut.

Bond Market: LOL

https://pbs.twimg.com/media/EA5-4YUWsAIPqLw?format=png&name=small

Gee the trade war is getting really ugly!definitely much more than posturing

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I think it's a bit simplistic to lambast Trump's tariffs. China has been up to all sorts of mischief, and we don't know what's going on behind the scenes.

Well this is definitely one of the more doom and gloomier morning reports...

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The timing of Trumps tweets , suggest that China should announce retaliatory measures sometime late Sunday. With the RBNZ apparently set to cut the OCR next week, (because that is what our Australian banks have requested), should our esteemed committee take a pause.

Need more than moneyless "monetary policy" rate cuts:

What the bond market has been saying for way more than a year is, you better step up to some real liquidity and money – or else. We’ve moved much closer to “or else.” Link

China are already pivoting away from parts of the US market. Both China and the US had a good run but that is changing with no way to avoid irreversible change.

I'm anticipating that a rate cut is highly likely. Despite all the BS things appear to be turning sour in parts of Australia and probably soon to happen here too. The banks are only trickling mortgagee sales onto the market and cutting rates will take the pressure off some, but just to try to manage the default rate. DFA are making an issue of the 1.5% default rate in Australia but it's been at that percentage here for some time, although the March quarter almost hit 2%, and the figures released for June last week show 2.7% ($121m payment deficiencies/$4467m scheduled repayments).

Thanks, good to see some actual data. The central banks seem to thrive on opinion, mainly telling people all is well and they should borrow more. First home buyers will stop buying once they start seeing friends who have saved a deposit, bought a house, and then seen their deposit evaporate.

I have to agree that people need to make careful decisions about house buying (they always should).

Link to the RBNZ statistics if anyone wants to see the actual data.
https://www.rbnz.govt.nz/statistics/c35

"Repayment deficiencies" at all time high since records began in 2014, at NZD 121 million. Funny how that isn't a headline.

https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Statistics/tables/c35...

I saw that too. Drop in the bucket. But still. As the old Chinese saying goes: All it takes is one drop of absinth to start a weekend bender.

I was organising the pantry and found a bottle of red absynthe about 1/3 full. Probably a good weekend to try out an old Chinese saying.

Let the bodies hit the floor :)

China has become what it is now simply by being a leech on the US workforce, economy and inovation. With deliberate intent and the help of the mercenary minority that care not where there profit margin is created, as long as it is the greatest number, they have stolen their current wealth from the US in the guise of "globalism". Of course the profiteers will be crying as their sweets are taken away, as good a tantrum as you will see anywhere from the entitled, greedy and selfish. While seemingly unlikely, it would not surprise me to see Trump in a second term as the realist 99% brigade outvote the emotive haters in their MSM echo chambers.

Hmm who are the real leeches? It takes two to tango. I'd suggest we are all complicit all the way through from the struggling poor, the ignorant middle class and the disingenuous "elite". Some are just more directly responsible than others. But hey, rational self interest, it's gotta be good for ya...

"China has become what it is now simply by being a leech on the US workforce, economy and inovation."

As much as many want to believe that, it just isn't true. China depends less on trade than the US, based on 2019 data. Here is how China, US, Australia, and NZ compare on total trade as a share of their economy. China is the least affected by trade flows, even less than the US. The problem with the US argument is that senior policy people just don't understand how trade works, especially tariffs. US tariffs are a tax on the US importer. You can see this clearly in the current situation: when those tariffs are imposed, the US importers just switch suppliers (Vietnam is the current flavour. It will be somewhere else if the US then tackles Vietnam.) China is much less exposed (per the table) than most Americans believe.

The only losers are the American consumers who pay any tariff extracted. More jobs in American? No. Current jobs growth is now slower than at any time in the past ten years.

Hmm... the reigning imperialist nation is threatened by the emerging imperialist nation - both having gained their position via corporate imperialism - at the same time as the global economic growth juggernaut has sunk into the stinking pile of debt, socioeconomic division and ecosystem destruction. How will all the monopoly money in the world solve this problem?

Meanwhile in little ole NZ we'll simply keep pushing the material growth dogma, keep increasing the price of homes and everything else. Hey at least some of us will be "wealthy" and successful when all the systems have failed around us.

Could be an interesting read for the open minded here
https://en.m.wikipedia.org/wiki/Imperialism,_the_Highest_Stage_of_Capita...

I read the link - it does all sound familiar.

It's a bit of a shame that the communists/socialists of the 20th century were so murderous and rigid in their ideology because they completely undermined any of the palatable aspects of their dogmas.

Maybe if they had been a bit more balanced in their approach we would have a more sustainable economic system now??

Just musing in type really.

I hear ya.

Capitalist/communist/socialist ideologies have all equally been murderous over the centuries. It's a human fault rather than a fault of the system in play. The systems are merely tools, a means to an end, so the real question may be what the end is or the lack of one.

Maybe if capitalism had a different goal in mind we'd have a more sustainable economic system and a more united and harmonious society now too. Maybe if the communists didn't force the issue and just let capitalism play itself out we'd be more open to the possible virtues rather than arguing against the principles of communism.

Again, it's a human issue really and highlights the nature vs nurture debate. Ideally we want to nurture the positive traits in human nature and there are many studies suggesting that our current capitalist, ego centric model is ultimately nurturing the negative traits of human nature.

My theory is we've created a system from a lust for power, greed, selfishness etc (all fear based traits) and now the system not only breeds that fear but preys on it to keep growing. In short, throughout history we've had a minority of narcissistic psychopaths who have manipulated the masses through fear to gain power and control to serve their own interests. Only fear allows one to control the other and we've ended up with larger groups of narcissistic psychopaths in power.

Musings of a madman

Some interesting reads if you want to go down the rabbit hole
https://highexistence.com/original-influences/
https://creativesystemsthinking.wordpress.com/2016/05/28/the-perpetual-c...
https://humanwindow.com/dr-gabor-mate-interview-childhood-trauma-anxiety...