US PPI lame, mortgage rates fall; Canada jobless rate rises; China's food prices jump, factory prices in deflation; Japan impresses; iron ore down further; UST 10yr 1.74%; oil up and gold down; NZ$1 = 64.7 USc; TWI-5 = 69.8

US PPI lame, mortgage rates fall; Canada jobless rate rises; China's food prices jump, factory prices in deflation; Japan impresses; iron ore down further; UST 10yr 1.74%; oil up and gold down; NZ$1 = 64.7 USc; TWI-5 = 69.8

Here's our summary of key events overnight that affect New Zealand, with news the trade-induced slowdown is being felt everywhere now.

Today, the S&P500 equity index is down -0.6% in late trade after the US President said he was not ready to make a deal with China, adding to fears that the stand-off would aggravate the global economic slowdown.

(Just how extreme the US Administration has become was highlighted overnight by a senior economic official saying the Wall Street Journal is like a communist newspaper.)

American producer prices rose lamely in July, the weakest rise in over three years. Clearly, demand is not putting pressures on prices yet.

And mortgage rates in the US have tumbled to their lowest level in nearly three years. But analysts say they are unlikely to be low enough to provide much of a lift to their sluggish home-sales market.

In Canada, employment was little changed for the third consecutive month in July. The unemployment rate rose however to 5.7% as more people searched for work. Compared to the same month a year ago, employment was up by +353,000 (+1.9%), driven by gains in full-time work (+326,000 or +2.2%). Over the same period, hours worked increased by 0.7%. But compared to June 2019 most of these metrics recorded a "disappointing" slip-back.

And staying in Canada, the value of building permits issued declined by almost -4% in June, largely due to a decrease in the value of multi-family and multi-unit permits.

China's consumer inflation rose in July to +2.8%, the highest in eighteen months. The rise is largely due to higher food prices with both port and fruit prices shooting up sharply.

Their producer price inflation was lame however, in fact worse than the US's effort, falling -0.3% in July from the same month a year ago. That is the first sign of factory deflation in more than three years.

We have extensively covered the US:China trade war, and mentioned the new Japan-Korea trade tensions and the developing India-China tussle. But there are others worth adding to the list. Indonesia and the EU are at loggerheads over Indonesia's support of palm oil and deforestation to grow that industry. Among other retaliations, Indonesia says it will add between +8% and +18% tariffs to EU dairy products. And the EU is likely to do battle with Brazil soon too over Brazil's Amazon deforestation policies.

Japan's June quarter GDP growth came in much better than expected even if it was lower than in the first quarter. They grew at a rate of +2.8% in the first quarter and +1.8% in the second quarter, whereas most analysts thought they would be lucky to get any growth in the second quarter. The yen rose on the data. Growth came from a stronger export sector than was anticipated.

In Hong Kong, their main airport is preparing for days of chaos following calls for protesters to occupy the giant facility over the weekend. And China is punishing Cathay Pacific because many of its staff support the protesters.

In the UK, their economy shrank for the first time in more than six years and the drop was significantly different to almost all forecasts including the official ones.

The drop in the iron ore price, which yesterday we noted exceeds -20% in the past four weeks, is accellerating. It fell another -4% overnight.

The UST 10yr yield is now at 1.74%, a decline from this time last week of -10 bps on top of the -23 bps fall the previous week. Their 2-10 curve is much flatter for the week, now at just +10 bps and their negative 1-5 curve is wider at -23 bps. The Aussie Govt 10yr is at 0.97%, down another -12 bps for the week on top of last week's -13 bps fall and the prior week's -14 bps fall. The China Govt 10yr is down -10 bps for the week to 3.04%, while the NZ Govt 10 yr is now at 1.11%, a -28 bps decline on top of last week's -15 bps retreat. These are all huge moves.

Gold is slightly lower today than yesterday, down -US$10 to US$1,496/oz, but is up +US$53 for the week, or a gain of +3.7%.

The VIX volatility index is still over 18 and holding its higher level, now above its average over the past year of 16. The Fear & Greed index we follow is still firmly on the 'fear' side.

US oil prices are up +US$2 today but are still lower than this time last week. They are now just on US$54.50/bbl. The Brent benchmark is also lower for the week at US$58.50. And the US rig count is lower again this week and at its lowest level since late 2017. Meanwhile, the IEA has cut its forecast for oil demand, saying the world economy outlook looks 'fragile' amid economic slowdowns and US-China trade war risks

The Kiwi dollar is little softer again today, now down to 64.7 USc. That is a -½c fall for the week and that is probably less than what you might have expected given we have had a -50 bps OCR cut in that time. On the cross rates we are down a whole -1c for the week at 95.2 AUc. Against the euro we are down to 57.7 euro cents. That sets the TWI-5 back to just on 69.8 and a third week in a row where we have dropped nearly -100 bps. Just three weeks ago the TWI-5 was at 72.5, so that is now a -3.7% overall depreciation.

Bitcoin is now at US$11,802 and while that is little changed from where we left it last night, it is up almost +13% for the 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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I can't wait for negative interest rates, Im going to borrow millions for a huge house and the bank is going to pay me thousands to live in it like a king.

You won't need millions, million dollar houses will go for just a few hundred $K.

That's an interesting thing to consider though. If banks were to lend at negative interest rates, then surely there'd be the incentive for banks to not lend as much (reduce overheads) which will have a downward pressure on house prices. Unless the RBNZ implements a reverse Capital Adequacy Ratio where the bank must lend a certain ratio of their deposits out.

Journalists are incredibly sensitive to criticism which is a trait they actually do share with the CCP. Peter Navarro somewhat tongue in cheek says, "It doesn't sound a lot different from the People's Daily in terms of the news that it puts out." referring to what looks like Left-leaning, anti-Trump, pro-China bias of the publication and being kind of amusing. Journalists make out like its an attack on the Fourth Estate and the fundamental foundations of Western Democratic freedom.

Yet the journalist's reaction does reveal that they think they are above criticism, mild mockery and a bit of humour. They really are a bit dangerous and manipulative in my opinion. We all know that actually.

Indeed it is obvious that journalists are overwhelmingly left leaning with a recent study showing 0.46% of financial journalists called themselves "very conservative," while just 3.94% said they were "somewhat conservative." That's a whopping 4.4% of the total that lean right-of-center. LINK
Navarro's comment is backed up by science!

Yep, its going to be: Wow what a great set of Democrat candidates we have! Then it will be: OMG Trump is back in power.

A man who was destroyed by The System for daring to suggest it was wrong ( and for being right at the wrong time!) - Hugh Hendry 2009.
"I've honestly never known a time of near-universal conviction that we have to worry about inflation today. For quantitative easing, there's no successful precedent. It has never, ever succeeded..... authorities..... should think about combating deflation right now. Betting on inflation is as if "we got a new book and we've read the last page. But if you read the entire novel, it's a different journey."
If 'we'd' addressed the economic problems we have in a different way, we wouldn't have wasted the last 10 odd years fighting a fire that needed to burn itself out, and for us to start again. Now, that fire is likely to consume most of us....

I wonder what follows an everything bubble?

Subsistence farming, stoop labour and soup kitchens (vegan, natch, Four Legs Bad), if certain commenters are to be believed.....

A rare outbreak of sanity? An honest search for fair and reasonable solutions that work for all members of our society?

Is it fair to have a fair deal that works for all members of society when not all members of society work?

The problems we are facing are caused by those who don't want to work. Things like taking income from rental properties, dividends, bonds, tax, rates, interest, capital gains, merchanting, other financial trickery. Seems to be the recipients of these things make the most noise about those who don't want to work.

What would be helpful is a distinction between a job, and work. Work is when you make something or grow something, all the rest is just a facade. All those who think they work, but indeed only have a job, rely on people who do work to grow their food, make their clothes, and the other essentials of life.

The problems we are facing are caused by those who don't want to work.

Or the remuneration (fiat money) offered by employers is constantly devalued in terms of buying power because banks are perpetually creating excess credit to finance the sale and purchase of existing assets until their shareholders revolt.

The majority of bank credit creation in the UK [and NZ] is not even used for transactions that contribute to and are part of GDP, but instead is used for asset transactions. They are not part of GDP, since national income accountants require a ‘value added’ for inclusion in GDP, not just the shifting of ownership rights from one person to another. When bank credit for asset transactions rises, asset prices are driven up, because the loans do not transfer existing purchasing power, but instead constitute an increase in net purchasing power: money is being created and injected into asset markets. When a larger effective demand for assets is exerted, while in the short-term the amount of available assets is largely fixed, the price of assets must rise. Link-section III.

I worked out last year that M3 Money was a bit over 40% of GDP in the early 70's, and when last published (they stopped doing it the same way, check under the charts section on this site) it was up at 120% or so of GDP. Werner is on the money.

Japan shows the way. Growth may not be stellar but they seem to have forged a path where they can maintain growth that is not reliant on a ponzi housing-population scheme as per NZ.

Japan's GDP per capita has been completely stagnant since the 1990s and is lower than ours right now, from what I'm seeing.

Geez whats up with you???

After how many years of deflation and amount of QE?

some of your comments are getting a bit wayward ..

Despite Japan's economic troubles since the 90s...Did Japan cease to have any influence or presence in the world? Did Japan drop off the map? Was there a revolution or did head rolls? Were there wars or mass civil unrest? We use Japan as a cautionary tale, but in reality MUCH worse can and does happen.

I would be far more worried about living in a country with a constant steady state of mass shootings, war, mass poverty, starvation or civil unrest, no healthcare or welfare. Massive housing crashes, deflation etc are hard, but survivable.

Careful GJ, Facts can cause Heads to 'splode... Narrative undermined....we're in an Emergency don'cha know....

But not JGB bond yields and associated curve spreads.

Japan wasn't running trade deficits

I’m not sure what this OCR cut is supposed to achieve. Duncan Garner is advocating for more spending, he is going to buy a couple of beers. I don’t understand how more spending is going to solve our problems. If we spend on imports and holidays that will only boost someone else’s economy. If the government invests in capital - roads, hospitals, etc that is great but from an economic point of view do we want more pressure on our construction industry. It seems dubious that construction can absorb anymore demand. So at close to record unemployment are we just trying to inflate wages? Will that grow the economy? It’s weird to push stimulus into a economy already at capacity. Maybe we are targeting construction at 1-2 years out. The best argument might be to fuel property construction for future years where they expect a downturn. I’m not convinced.

If growth requires stimulus and stimulus requires more debt, and more debt can only be sustained with lower interest rates, how will interest rates ever go up?

This is all about trying to stop the property bubble popping. Put the interest rates up to 8% and Let it pop, let the mortgagee sales start, let the banks fall and let the consequences rest on those who were either stupid or greedy. Everything will reset, those who need to go bankrupt will start again with the restrictions they deserve. Everything else will be fine and this way no one that doesnt deserve to lose will suffer. Save the bubble and we will all suffer and that's just not fair.

I agree all this is likely to do is inflate property prices.

However, one saving grace might be the changes to the bank capital requirements. If those are nice and tight it might keep the housing market in check while freeing up money for real investment.

In fact if I was worried about the economy I’d juice it with some nice low interest rates and then put in a DTI ratio or if I was being sneaky raise the capital required to back up mortgage lending.

All else might be fine if our mortgages were non-recourse, as in the US. But such a reset under our recourse conditions would massively increase private debt for those mortgagees - there would never be an ability for them to climb out of that kind of debt and the State would end up having to house these forever-indebted.

They killed Epstein, and they don't even care that we know they killed him.

'Jonathan Tepper


The Epstein case fascinates because you simply couldn’t make it up.

AG Barr’s father, hired Epstein at Dalton. Then he wrote a Scifi novel about sex slaves.

From NY Times review in 1975
"Almost everything about Barr's novel is nasty”'