The S&P500 down -3.4% in late trade; benchmark yields tumble; commodity prices drop; China lets the yuan slide; services data soft; UST 10yr yield at 1.74%; oil sinks, gold leaps; NZ$1 = 65.4 USc; TWI-5 = 70.7

The S&P500 down -3.4% in late trade; benchmark yields tumble; commodity prices drop; China lets the yuan slide; services data soft; UST 10yr yield at 1.74%; oil sinks, gold leaps; NZ$1 = 65.4 USc; TWI-5 = 70.7

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Here's our summary of key events overnight that affect New Zealand, with news of a bloodbath in equity markets worldwide.

In fact, we are witnessing a dangerous sell-off in all financial markets.

Wall Street is down a whopping -3.4% so far today and sinking fast. And that follows Europe being down about -2% overnight. And that followed steep declines in Asia. Shanghai was down -1.6% despite 'home team' support. Hong Kong was also thrashed -2.9%. And Tokyo was not much better, down -1.7%. Yesterday, the ASX200 lost -2% and the NZX50 lost -0.9%. This could well be the start of the Trump Recession. The tax-cut sugar rush has worn off and fast; the hangover starts.

Commodities are falling, with oil down -1.8%, copper down nearly -4%, iron ore dropping -6%. And we have our eyes on dairy prices at the Wednesday auction. Derivatives pricing suggests a small retreat. Gold on the other hand is up more than +1.7%.

Not helping is that benchmark interest rate yields are sharply lower too with the US Treasury 10yr down to 1.74%. The Australian Government 10yr yield fell to just 1.02% and may slip soon under 1% for the first time ever. Remember this is a rate that started 2019 at 2.3%.

Given that this market slump was triggered by US tariff action, most economic data precedes that trigger. But still, in the US, the closely watched ISM services PMI has disappointed for July. It has come in at its weakest level since August 2016. New orders dropped to a three year low.

China is releasing its peg on the yuan. The Americans are fixated on this, but they can hardly be surprised. The 7-to-the-dollar level is now breached. The trade war may now morph into what was always a likely outcome of a tariff war - a currency war. And an own-goal by Washington, given that the US can't really respond as its currency is the benchmark in trade.

China also halted crop buying from the US.

These market earthquakes are probably more than US Fed actions - or any central bank - can weigh against.

In China, their services PMI has come in at a five month low.

And in Australia, a similar survey has also weakened. But globally, the sevices sector was expanding moderately in July. However, that was before the ructions of this week.

Today UST 10yr yield is now at 1.74%, and -10 bps lower in a day. Their 2-10 curve is flatter at just +16 bps and their negative 1-5 curve is much wider at -26 bps. Their often-quoted 3m-10yr curve is now a negative -27 bps. The Aussie Govt 10yr is at 1.02%, down another -7 bps since this time yesterday. The China Govt 10yr is down -7 bps for the week to 3.07%, while the NZ Govt 10 yr is now at 1.33%, a -6 bps decline.

Gold has leapt higher today, up to US$1,467, a +US$27 gain overnight.

US oil prices are falling hard. They are now just on US$54.50/bbl which is a drop of more than -US$1. The Brent benchmark is even lower at US$59.50, a drop of more than -US$2.

The Kiwi dollar starts today firmer than intra-day trading yesterday but back to where it started the week at 65.4 USc. On the cross rates we are firmer at over 96.6 AUc and that is a 19 week high. Against the euro we are softer at 58.4 euro cents. That sets the TWI-5 at just on 70.7 and little-changed overnight.

Bitcoin is now at US$11,810 and another +8% from 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 ».

Daily exchange rates

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NZD
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Source: CoinDesk

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48 Comments

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I believe bitcoin was briefly over 20k nzd when the USD price was 13.8k - that was maybe 5 weeks ago?

Hey lonewolfnz
Why dont you come and join the rest of the pack and fixate on this..
coinfarm.online
It is becoming one of my favourite pastimes
It feels like a skyrocket but once 12.5k resistance has passed the afterburners will ignite and make what is now happening almost sedate in comparison.
Currency wars.... guess who is going to win....the little guy who buys btc before governments hedge their currencies.
Good on you for being a voice in the bitcoin community
President of Property..

Nonsense. It can be regulated out of any practical use overnight (as Trump has hinted). It has the integrity of a casino and it amuses me that this site legitimizes this scam with a chart - it will turn out to be embarrassing. Anyone with some mediocre internet research skills can uncover this ponzi criminal raquet in no time.

"It can be regulated out of any practical use overnight" - really? I dont think so and you sound like a amateur detective. Come back to us with some more "research" before wrting such loony tunes.

Easy. Regulate it to death. One way would be for gummit to consider any funds derived from BT as proceeds of crime. Sure you can still trade BT direct and buy porn with you buddies, but what use is it if you cannot move the value into mainstream and buy substantive assets?

penny dropped yet?

Well ten years and many bitcoin transactions later when do you think your regulation will come into affect?

Oh and who buys porn these days?

..whenever they decide....

We will see how good a "store of value" it is when GFC 2.0 hits.

So far so good..inching up to USD $12k

Apart from the other arguments for and against, do you have concerns about the amount of energy Bitcoin chews up? I don't think this is the crypto we need for the future.

No I dont ..solar power is becoming cheaper by the day..I am more concerned with plastic in the environment.

Hello there. Good news - if you think bitcoin is going to zero come to bitmex and place a leveraged short. I'm actually doing exactly that except with altcoins (which are a better example of a scam going to zero - at least some of them like Tron).

Oh, we thought lonewolfnz had died with kiwibitman80...

...... the beginning of the John Mauldens "Great Reset"

Maybe. Or it could be a short-term correction followed by another big upswing like all the other dips over the last few years.

If consumerism is the victim, bring it on!

I have always wondered why so many of you are comfortable with a lot of debt when entering a global recession. My bets are paid-for real estate, REIT's, crypto & precious metals. Bring it on.

Cryptos?
To buy what exactly?
You clearly dont see that its keeping commodity prices up thats the issue.
If producers are insolvent, good luck with your crypto.

I've heard that people have these "Crypto Debit Cards" that allow them to make purchases, therefore they claim Cryptos have good liquidity.

So what happens if they go to make a purchase and their card declines? Is there a local branch they can pop into, a customer center they can phone or a regulatory/oversight body they can elevate their problems to?

The card issuer I would guess.

Correct. For example, with a TenX card the issuer is Visa.

The point is to never sell your cryptos or metals (or land). Burrish!

Wall Street is down a whopping -3.4% so far today and sinking fast.

Was the Plunge Protection Team dismissed prematurely? Read more

We may be entering an extended period where stocks are eventually on sale and gold is up, up,up. Bitcoin could fluctuate either way. As for the NZ housing market, here are your outside forces adding to the bursting of the bubble.

What about these other asset classes being dragged down effects the NZ housing market?

A declining housing market will seriously impact the sharemarket if overseas forces don’t, especially the banks and anything related to construction, but it could come later after it’s very obvious what’s happening with the housing market. If the US stock market tanks before that, and a US recession, it’ll be earlier. Those are my thoughts anyway.

Bit of a dramatic title.

Trade wars lead to currency wars which lead to shooting wars.

I was surprised when gold went over 60NZD/g early this year. Now it's over 72NZD/g. That's an all time high! Exceeding the 2011 peak.

All time high was NZ$2307 /Oz in Nov 2011. We are not far off that at 2242, especially with the weak $NZ, but still some to go. Significant gains for gold in US$ Terms as well. Part of my current investment thesis is that it’ll go on a bull run over the next few years. Already over 20% up in the past year, it could double after languishing for years. Gold ETFs are now going in the opposite direction the the S&P500.

dang, I was off by a fraction. It seems that goldprice.org doesn't quite resolve that 2011 high. What's your data source out of curiosity.

I was going by goldprice.org. Perhaps a temporary glitch. In any case, all time highs not far off. It's already been reached recently in Australian dollars.

Cripes!!!!

The problem is that if interest rates are low because growth is also low, then no valuation premium is “justified” at all. In that situation, rich valuations merely add insult to injury. Notably, our estimates for future S&P 500 market returns do not reflect any downward adjustment for lower growth rates, so my sense is that they may actually be a bit optimistic. Still, at the end of July, our estimate of prospective 12-year total returns for a conventional asset mix invested 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills, reached the lowest level in history except for the single week of the August 1929 market top.

Moreover,

Our view is that no form of investment risk is always worth taking without regard to valuations, fundamentals, economic conditions, or market action. The strategy of buying and holding index funds for the long run is essentially a strategy that says that market risk is always worth taking. Yet the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..

The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal.Link

Investors really need to avoid the traps that central banks lay when they cut interest rates in the vain hope of rescuing bank asset values.

> our estimate of prospective 12-year total returns for a conventional asset mix invested 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills, reached the lowest level in history

Chart below is slow by four months, but sounds about right:
https://financial-charts.effingapp.com/

Mind your Manors!!!

oh well, the golden suburbs are feeling the negligence...

The market recovery from the Dec/Jan correction was a bull trap. This one's going all the way down boys!

BTC up 7% today
coin360.com
President of Property

This is what "managed retreat" looks like - do nothing until there's no longer a need to do anything;

https://www.tvnz.co.nz/one-news/new-zealand/massive-swells-could-breach-...

Despite todays dip The dow is still up 56% from where it was 5 years ago.

In a world where growth is stubbornly around 2% this still represents a huge bubble

So a stock market and a housing bubble ? The volatility in the stock market has the potential to be much higher and faster than the housing market. Thats a big fall in just one day, imagine if it took a slide for a couple of weeks.

True, the stock market is much more nimble than the property market. What plays out over weeks and months in the stock market will take years and decades to play out in the housing market. Liquid vs illiquid markets.

Many thanks for including the swap rate charts David, much appreciated

Interesting sidebar on Brexit under BoJo...from the goldbugs - cui bono - ymmv - future results may differ from predictions - don't get between a mother bear and her cubs - don't run with scissors - don't try to catch falling knives.....

I am not sure it will be a "Trump" recession , the risk has been there since the GFC and QE , it was always lurking out there like lions hiding in the grass near a waterhole , and crocs in the water .

Trump was the idiot who came along and upset the balance , sending everything into a maelstrom

Trump is just moving to act in Americas interests... everything else was already baked in