Equity markets turn bullish; Economic fundamentals turn bearish; US discretionary spending wanes; China prepares new debt stimulus; Japan & Germany face recession; UST 10yr yield at 1.56%; oil up and gold down; NZ$1 = 64.1 USc; TWI-5 = 69.5

Equity markets turn bullish; Economic fundamentals turn bearish; US discretionary spending wanes; China prepares new debt stimulus; Japan & Germany face recession; UST 10yr yield at 1.56%; oil up and gold down; NZ$1 = 64.1 USc; TWI-5 = 69.5

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Here's our summary of key events overnight that affect New Zealand, with news of more odd market signals. Core data is weaker, but equity market prices are rising.

Firstly, equity markets are broadly higher today. The trend started in Asia yesterday with Shanghai up +2.1%, Hong Kong up +2.2% and Tokyo up +0.7%. Then overnight, European markets chipped in with rises of about +1.3%. Wall Street is also up more than +1% in late trade.

Driving these rises aren't economic fundamentals. In fact, just the reverse. Markets everywhere are anticipating a new round of significant stimulus as those fundamentals weaken.

US policy has caused the downturn and to save it from itself, even the US Administration is calling for help from the Fed; they say they need a big rate cut and new QE. All eyes will be on Jay Powell on Friday when he is to give a speech at Jackson Hole.

In the US, RV sales are falling and that is often a signal that consumers are pulling back on discretionary spending. Interestingly, rising costs due to tariffs are getting the blame. And Manhattan apartment sales are struggling too.

In China, they are about to loosen the debt limit they have on provincial governments who want to 'invest' in local infrastructure. There is currently an annual limit of about NZ$½ tln for this, nationwide. But the need for new stimulus is growing and that limit will soon be raised. Others are calling for an even wider stimulus effort.

And industrial China is turning to "more debt" to get it through their production slowdown.

Japan’s exports retreated for an eighth straight month in July, while manufacturers’ confidence turned negative for the first time in over six years. Exports to China slumped again and the worry is that these declines could tip Japan into recession.

In Germany, their central bank says the country may now be headed for a recession as businesses pull back on investment.

Yes, despite all this, equity markets are rising today, and globally. That puts it all on the US Fed to rescue the clear disparity.

Even the bond markets sense major American and Chinese stimulus is on the way.

The UST 10yr yield is now at 1.56%, a +4 bps rise overnight. Their 2-10 curve is flatter however, now at just +5 bps and their negative 1-5 curve is as wide at -28 bps. Their 3m-10yr curve is still out at a negative -47 bps. The Aussie Govt 10yr is at 0.93%, and up +4 bps from this time yesterday. The China Govt 10yr is up +1 bp at 3.04%, while the NZ Govt 10 yr is now at 1.07%, a +4 bps gain overnight.

Gold is now at US$1,498 and a drop of -$15 overnight.

US oil prices are a lot firmer today, up +US$1 at just under US$56/bbl. The Brent benchmark is up at US$59.50. An attack on a Saudi oil field is one reason for the rise. But OPEC itself is no longer bullish about demand (see page 71).

The Kiwi dollar is a little lower 64.1 USc. And that is a now three and a half year low against a rising US dollar. On the cross rates we slipped a little to 94.7 AUc. Against the euro we have dipped to 57.8 euro cents. That sets the TWI-5 back to 69.5.

Bitcoin is now at US$10,715 and that is +3% higher than 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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the other day people were praising Japan's performance and today its all downhill!!!

10
up

Its all bonkers!

Businesses no longer need to be efficient, they will just wait for some more free money to invest in their flawed business models...

And equity markets never need fear a correction – The Fed put is apparently considered very alive and well by all.

How long can QE go on for? Coming down from this opiod high might cause some crazy withdrawal symptoms

12
up

QE goes on.. until faith in the currency collapses.

Spot on in my opinion. The only saviour so far is that everyone is devaluing or using QE at the same time. Mind you, we can see the results in the prices of assets.

The markets are usually right , and its often only with hindsight that we see it .

The truth is that there is much uncertainty , but the likelihood of more stimulus ( in China ) and even lower interest rates means that the market is getting its "fix' or is expecting to get its "fix"

The West is still awash with money looking for a yield , the Bond markets are shaky with near zero returns in many cases , that leaves the Stock markets ...........

Beware Of The $5 Trillion Corporate Debt Wall Due Through 2024

Much of the debt has been used for financial engineering schemes, not generally used in expanding the business or increasing cash flow.

"A lot of corporations have issued a lot of debt to buy back stock, instead of investing in new plants and growth, for example," said Simone.

China prepares new debt stimulus

As usual, the mainstream media sees it as a quasi-stimulus maneuver. Is there anything the PBOC does that the Western media won’t characterize as stimulus?

The details of the policy change are almost irrelevant. Most of these benchmarks, ceilings, and floors are set by China’s government. The central bank is just one agency among many in the Communist apparatus aspiring for “optimal” economic outcomes (the very thing the Western financial media admires most: the spirit and idea of technocracy). Link