US budget deficit up to -4.7% of GDP; bond yields and equity markets fall; Argentina rocked; China credit growth slows sharply; UST 10yr yield at 1.66%; oil unchanged and gold up; NZ$1 = 64.7 USc; TWI-5 = 69.6

US budget deficit up to -4.7% of GDP; bond yields and equity markets fall; Argentina rocked; China credit growth slows sharply; UST 10yr yield at 1.66%; oil unchanged and gold up; NZ$1 = 64.7 USc; TWI-5 = 69.6

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Here's our summary of key events overnight that affect New Zealand, with news of a sharp turn to risk aversion.

The US budget deficit pushed on up closer to the -US$1 tln mark in July, now at -US$961.8 bln. That is 27% higher than one year ago, and well higher than for all of the previous fiscal year. However the recent Congressional deal makes a debt limit shutdown much less likely even when it pushes on up through that benchmark. At -$1 tln, that will represent -4.7% of US GDP, up from -3.9% in fiscal 2018 and -3.4% the previous year.

Bond markets winced, becoming even more risk averse and driving the yield for benchmark US Treasury 10 year bonds down to 1.66% which is the lowest level since October 2016.

Equity markets also reacted negatively, with the S&P500 now down -1.5%. This is much more than the -0.2% that European markets closed at overnight. Yesterday Asian equity markets were generally positive, especially Shanghai which was up almost +1.5%.

Another overnight negative however came from Argentina where the President suffered a shock loss in a primary election campaign for re-election, beaten by a candidate not committed to reform. The reactions have been swift and harsh on both the Argentine currency and equity markets.

In China, credit growth is slowing, and quite sharply. Banks lent just on US$150 bln in new loans in the month, more than -30% lower than for June and more than -15% less than analysts were expecting. This significantly slower pace of lending will significantly fuel expectations that Beijing will have to step up monetary easing measures to boost the weakening economy amid escalating trade tensions with the US.

Just outside Hong Kong, China is readying forces to move in and take over, in an ominous signal.

Locally, we get the REINZ data for July house sales activity at 9am, so join us then for full analysis.

The UST 10yr yield is down a sharp -9 bps to be at just 1.66%. Their 2-10 curve is much flatter for the week, now at just under +10 bps and their negative 1-5 curve is wider at -22 bps. The Aussie Govt 10yr is at 0.95%, down another -4 bps from yesterday. The China Govt 10yr is unchanged at 3.05%, while the NZ Govt 10 yr is also little-changed at 1.12%.

Gold is +US$9 higher today at US$1,505/oz.

US oil prices are little-changed today at just on US$54.50/bbl. The Brent benchmark is little-changed at US$58.50.

The Kiwi dollar is unchanged today, still at 64.7 USc. On the cross rates we are marginally firmer at 95.5 AUc. Against the euro we are softer 57.5 euro cents. That sets the TWI-5 back slightly to just on 69.6.

Bitcoin is now at US$11,349 and that is almost exactly unchanged 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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18 Comments

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Extending on yesterday's local releases, it's fair to draw some parallels between our high household DTI and falling off retail sales.
Low wages, skyrocketing cost of necessities, tax bracket creep, high borrowing, negative savings rate; sooner or later, average households were doomed to run out of means to continue spending on discretionary items.

That is why RBNZ lowered the OCR by 0.5%,

Are any other commentators noticing an increasing number of poor people on the street, supermarket, buses etc. Even in Auckland suburbia it's been highly apparent. Most NZers are poor, the minimal amount of savings from a mortgage rate cut isn't going to be enough.

I’ve thought about this a lot. Some commentators view rising house prices as expansionary, in that they give people the feeling of wealth and spark construction and such. I’m more inclined to view them as leading a contraction in the longer term. Loading up with debt or saving for a massive deposit requires extreme austerity by households. Plus anyone who uses the existing equity as an ATM is in the same boat. For these reasons I can see house price rises as being negatively correlated to growth. Which raises the question, why wouldn’t you put the breaks on the housing market i.e. DTI/land tax.

" I can see house price rises as being negatively correlated to growth. Which raises the question, why wouldn’t you put the breaks on the housing market.."

Because real Growth is dead. TINA . We are consuming the balance sheet.

I think it’s two fold. Politicians genuinely believe growth is growth because that is what the media tell everyone. Mum and Dad property owners genuinely think they are more wealthy when their house goes up in value. I don’t think it’s a conspiracy unless it’s one of ignorance.

In China, credit growth is slowing, and quite sharply. Banks lent just on US$150 bln in new loans in the month, more than -30% lower than for June and more than -15% less than analysts were expecting. This significantly slower pace of lending will significantly fuel expectations that Beijing will have to step up monetary easing measures to boost the weakening economy amid escalating trade tensions with the US.

How will they achieve that using a money-less price control monetary policy regime? Germany deep into negative rate territory is certainly exhibiting recessionary economic conditions. What wasn't eased in it's case? Actual bank lending?

Singapore or Hong Kong’s economic model is largely about arbitraging the inefficiencies, or loopholes, in their larger neighbours. To some extent, money laundering is the core business...China just lets Hong Kong get away with it. It believes that what’s in Hong Kong stays in China anyway. And some powerful vested interests need Hong Kong to get their ill-gotten wealth out.

Wonder if Xi Xinping has squirreled money away somewhere in case it all falls apart and he has to make a quick exit.

Second wondering: How long before our refugee quota can also encompass people fleeing Hong Kong?

i see alot of folks are rubbing their hands seeing the Breaking news headline...

i was just heightening their hopes

Well I almost choked on my toast when I saw a headline that said something along the lines of "Bridges looking like a PM". Apart from the fact that I have a cat that looks like a PM more I cant understand why the MSM is so biased to National. Yes i get it that there are certain types that due to their upbringing or the number of investment properties they have that are slowly going underwater will always have a blue tinge but surely it is expected that MSM should present a balanced view or is that too much to expect in smalltown NZ.

Does look like the Granny Herald columnists have been running quite a few columns recently trying to rehabilitate Bridges' reputation and make him more palatable to the hoi polloi. Just over the past week or two.

and on the crypto front, with effect from September you can elect to have you salary paid in Bitcoin! More info in the attached link
https://cryptopotato.com/new-zealand-to-legalize-and-tax-bitcoin-salary-...

"Bond markets winced, becoming even more risk averse and driving the yield for benchmark US Treasury 10"

what? Investors are so worried about the amount of debt the US govt is taking on that they went and bought more US govt debt?

The Reserve Bank lowering the interest rate is directly linked with a near future house price recovery and increase. They have made it even less worthwhile to save and invest money with banks than ever before. Those of us with money to invest can only put it in shares or property now. Our banks can only raise money now by getting QE funds from overseas, and pushing it into NZ to try to then push it onto us. Except my bank was going to charge me between 12% and 14% for my investment property improvement. So I sold another and used that money instead. My bank had a markup of 10-12% on their foreign sourced funds. They are now in the process of becoming my exbank.