Eyes on central banks; US jobs growth modest; US tariff action aggressive; markets recoil; China retaliates; Japan & Korea enmity grows; UST 10yr yield at 1.84%; oil low, gold leaps; NZ$1 = 65.3 USc; TWI-5 = 70.7

Eyes on central banks; US jobs growth modest; US tariff action aggressive; markets recoil; China retaliates; Japan & Korea enmity grows; UST 10yr yield at 1.84%; oil low, gold leaps; NZ$1 = 65.3 USc; TWI-5 = 70.7

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Here's our summary of key events over the weekend that affect New Zealand, with news markets are in full retreat following the latest set of US tariffs.

But first, this week eyes will be on central banks, especially those in our region. Markets are expecting policy makers in New Zealand, India, the Philippines to each cut rates, while in Australia markets expect them to hold after back-to-back cuts. All these moves are in either response or in preparation for faltering growth. (Holding the line however, is Thailand which will review this week as well but doesn't look like it is ready to lower borrowing costs at all.)

All this comes after US jobs growth came in at a modest +164,000, almost exactly as expected. But there was a sharp sting in this data; June's +224,000 gain was revised down to +193,000, and May's data was revised lower too for a second time. The July result is the fifth lowest monthly increase in the past two years.

Separately, the US announced another 10% tariff on US$300 bln of goods sourced from China. The US is also about to tariff European aircraft.

Wall Street wasn't impressed, especially with the US tariff moves. It was down for a weekly drop of -3.3%. Bond yields keep on dropping too as risk aversion builds quickly over the trade policy misstep.

European markets fell even more. Not only are they facing an unreliable US economy, they have their own slowdown to worry about and the fear of Brexit as well. Most markets were down more than -3% on Friday. Yields fell sharply there too.

In Asia, most markets shed -2.5% in the week, much of it on Friday. For trillion dollar markets, these are huge losses in 'value'.

China is raising the stakes, and the risks, by announcing it will retaliate again against the new US tariffs. And they said they now "won't give an inch" after what they see is the latest insult from the US negotiation style.

One of the great ironies of this trade war is that since the US started it, the trade deficit the US runs with China has gotten progressively worse. New June data is recording a record deficit with China. US exports are falling much faster than US imports.

While all this is going on, Japan and South Korea are in their own trade tussle, rooted in deep cultural enmity. Now each has removed MFN status ("most favoured nation") and that will roil trade between the two neighbours. It is a trade dispute that could get ugly fast. South Korea is launching a stimulus program to counter the expected impacts.

Meanwhile the US is pressing Japan to agree a bilateral trade deal. The TPP will likely get in the way. But the big trade deal involves concessions by Japan on beef (which could hurt New Zealand), in return for concessions by the US on cars and components. Given that Japan has a -US$67 bln annual merchandise trade surplus with the US, the pressure is on.

In Vancouver, Canada, July housing sales have surged as prices there fell. Sales are up +24% year-on-year and prices are down -9% on the same basis. It's enough for the Canadian housing agency to declare that Vancouver housing is no longer highly vulnerable.

Here's an item from dystopian China. They are now saying postcodes and addresses are passé - they now have everyone cataloged so that things like courier deliveries can go to your personal ID and current location. That is not a private sector idea; it is a Beijing idea.

In Australia, it is being reported that BNZ was caught up in a sanctions-breaking payment for Iranian oil. The exposure was in the BNZ London offices. In the end, no offence occurred but internal 'risk' was identified and defused.

The UST 10yr yield is now at 1.84%, an eye-watering decline from this time last week of -23 bps. (It is the largest drop since May 2018 when global markets took fright over Brexit.) Their 2-10 curve is much flatter for the week, now at just +12 bps and their negative 1-5 curve is wider at -20 bps. The Aussie Govt 10yr is at 1.09%, down another -13 bps for the week on top of last week's -14 bps fall. The China Govt 10yr is down -4 bps for the week to 3.14%, while the NZ Govt 10 yr is now at 1.39%, a -15 bps decline on top of last week's -6 bps retreat.

Gold will open the week slightly lower at US$1,440, down -US$2 from Friday but up +US$25 for the week. And China is losing its desire for the yellow metal.

US oil prices are staying low despite a small bounce on Friday. They are now just on US$55.50/bbl. The Brent benchmark is also lower at US$61.50.

The Kiwi dollar starts the week little changed from Friday but is a whole -1c lower than this time last week. It is now at 65.4 USc. On the cross rates we are firmer at over 96.2 AUc. Against the euro we are down to 58.9 euro cents. That sets the TWI-5 back to just on 70.8 and nearly -100 bps lower than this time last week, for the second week in a row. Just two weeks ago the TWI-5 was at 72.5, so that is a -2.5% overall depreciation of the Kiwi dollar.

Bitcoin is now at US$10,914 and up a full +15% from this time last 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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Haha. I can just see it now, you hooning along a motorway and a courier van frantically trying to catch up!

loaded with cash??

It's been evident for sometime that there will not be a trade deal with China. The various Wall Street fund managers and investment banks are typically out of touch with how much is changing.

Could go way further than that, the way things are shaping up. I feel conflict in the air, we just have to work who is on who's side.

Nonetheless, the US is now beating the war drums during "an overseas trip" to Ausrtralia:

SYDNEY (Reuters) - China is destabilizing the Indo-Pacific, U.S. Defense Secretary Mark Esper said on Sunday, charging Beijing with predatory economics, intellectual property theft and “weaponizing the global commons”. Link

What a DGM Monday morning

You're welcome

11
up

Tense times in East Asia. Just amazing how lightweight the NZ media is on all this

The issue in Southern Asia is also turning out to be quite serious... hopefully it doesnt escalate

Another morning, another email from a REA listing recent sales. All of them "Price Undisclosed".

The prices always used to be listed.

Having moved back from Australia, where the realestate com au site that everyone uses has a great 'sold' section with prices on most sales, I realise it's pretty bad here how much agents and the industry hides the price signals.