China retaliates with new tariffs; the US 'orders' American companies to quit China; Trump calls Powell a threat; markets recoil; Chinese yuan drops; EU tightens non-tariff rules; UST 10yr 1.53%; oil down and gold jumps; NZ$1 = 63.9 USc; TWI-5 = 69.1

China retaliates with new tariffs; the US 'orders' American companies to quit China; Trump calls Powell a threat; markets recoil; Chinese yuan drops; EU tightens non-tariff rules; UST 10yr 1.53%; oil down and gold jumps; NZ$1 = 63.9 USc; TWI-5 = 69.1

Here's our summary of key events overnight that affect New Zealand, with news the growing instability of US trade and economic policy is really roiling markets.

Firstly today, Wall Street is down a sharp -2.5% in late trade today and it looks like it will take the full week decline to more than -2%.

Driving the sharp twist lower is an escalation in the US-China trade war. The fact that China has responded with its own retaliatory tariffs to the latest US imposition has infuriated the US President who has 'ordered' US companies to shift operations out of China. It's a call being rejected by business.

And the US Fed boss says they have no playbook for the Trump trade war; they are struggling to figure out the right policy settings when Government policy is so fickle. He stopped short of committing to more rate cuts. Then the US President reacted with fury at the Fed chief asking if he is a bigger threat to him than China. It is now getting very silly indeed and quite sad.

One reason markets are gloomy is that no matter what happens, analysts see the negative effects of the trade war lasting much, much longer than any positive sugar hit a Fed rate cut could deliver.

The Chinese currency weakened again overnight, taking its depreciation against the US dollar since the beginning of July to -2.7% and the Chinese authorities are struggling to keep it from sinking faster. (Since the start of 2019 the devaluation is -4.5%.)

At Jackson Hole, Adrian Orr is getting airtime for the latest RBNZ rate cut, but given the bigger issues it is very minor.

New housing sales in the US fell in July from June, down quite sharply after the positive June data. But year-on-year they are up +4.3%.

The EU is tightening its import rules for food products related to pest control and chemical use. Canada is the first to report an impact on its cherry exports to the EU. But other products in the gun with the EU include apples, pears, blueberries, peppers, potatoes and tomatoes.

In Australia, their new car sales are in trouble with uncertainty twisting buyers to focus on used cars instead. Dealers are suffering.

And the iron ore price is back down to levels we last saw in April, now a -25% fall since the peak in early July.

And in an updated review, Moody's has cut the growth forecasts for sixteen Asia/Pacific economies, including Australia and New Zealand.

The UST 10yr yield has slumped back overnight to be now at 1.53% and just below where it was this time last week. (In between, it got as high as 1.66%.) Their 2-10 curve turned negative overnight, but only just. Still this is the first time this curve has gone negative since June 2007. Their negative 1-5 curve is wider at -32 bps. Their 3m-10yr curve has blown out to a negative -57 bps and down to where it last was prior to the GFC. The Aussie Govt 10yr is at 0.91%, down overnight but up +2 bps for the week. The China Govt 10yr is up +4 bps for the week at 3.07%, while the NZ Govt 10 yr is now at 1.16% (after the 10yr reference bond switched).

Gold has leaped to US$1,529 and up +US$29 on the day and up +US$15 for the week, or a gain of +1%.

The VIX volatility index has jumped again overnight, now at over 21, now well above its average over the past year of 16. The Fear & Greed index we follow is still in the 'extreme fear' zone.

US oil prices are suddenly weaker today at now just under US$54/bbl. The Brent benchmark is unchanged for the week at US$59. The US rig count has moved lower.

The Kiwi dollar is a little softer today, now down to 63.9 USc. That up overnight, but down slightly for the week. On the cross rates we are down at 94.6 AUc. Against the euro we are quite a bit softer at 57.3 euro cents. That sets the TWI-5 back to just on 69.1 and that takes the overall devaluation of the Kiwi dollar since the beginning of July to -3.7%, and against the US dollar it is -4.9%.

Bitcoin is now at US$10,406 and while that is up +3% from where we left it last night, it is virtually unchanged from this time last week. The bitcoin rate is charted in the exchange rate set below.

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26 Comments

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Highlight new comments in the last hr(s).

I saw somewhere that the Chinese want to move their blast furnaces to the coast and buy pelletised iron ore, sintered, from South America. Would this be affecting the price of iron ore?

North east Asia is a dangerous mess right now.

On the good news front the Obama's have healed the ocean and are creaming it beachfront style - hypocrisy set to 11.
"TMZ reports that the former president and first lady are in escrow — aka in contract to purchase — a 29-acre beachfront plot with a 6,892-square-foot main house."
https://nypost.com/2019/08/22/barack-and-michelle-obama-are-buying-15m-e...

Reckon they deserve it more than most.

I like my right wings nutters like my coffee.. hot, dark and bitter :)

What a peculiar comment.

Any more peculiar than the original poster's comment....

Many comments are peculiar. I guess I just don't get it.

Seems that a lot of people miss and appreciated Obama :) The Washington Post - More than 250,000 people sign a petition to rename Fifth Ave. in front of Trump Tower ‘Obama Avenue’
https://beta.washingtonpost.com/nation/2019/08/14/people-sign-petition-r...

I wouldn't be surprised to see China clamp down again on their Capitol Flight, due to the depreciating Chinese currency against the USD as reported in the article. Apparently in Australia there's also been a surge of Hong Kong people approaching local migration agents, hoping to secure Australian residency ahead of buying homes in Sydney and on the Gold Coast due to the unrest in HK. Well at least until their government clamps down on allowing them to leave with their money which is currently restricted to HK$120,000 travailing in and out of Hong Kong.

Capitol Flight

A giant flying building...

Real Freudian slip that one

Trump makes the announcement via Twitter
On October 1, Chinia is going to be hit by fresh tariffs.

Here's the announcement, which was clearly timed to hit moments after the FX close:

For many years China (and many other countries) has been taking advantage of the United States on Trade, Intellectual Property Theft, and much more. Our Country has been losing HUNDREDS OF BILLIONS OF DOLLARS a year to China, with no end in sight Sadly, past Administrations have allowed China to get so far ahead of Fair and Balanced Trade that it has become a great burden to the American Taxpayer. As President, I can no longer allow this to happen! In the spirit of achieving Fair Trade, we must Balance this very unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30% Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%. Thank you for your attention to this matter!

This is starting to get a bit out of control

Trumps actions are beginning to sound more like the oxymoron "Does Trump want to destroy America in order to ‘save’ it? "

https://www.marketwatch.com/story/does-trump-want-to-destroy-america-in-...

Although I dislike Trump, I have defended his China stance. However the caveat to that was I was expecting some degree of reconciliation would be sought. That doesn't seem to be happening. In the last week he is sounding even more deluded than usual.

we are all going to be like Japan, oh joy.
"Edwards is one of the most famous equity bears on the planet, and often attracts scorn for his persistent recommendations to stay out of the stock market. But he is also a very persistent bond bull, and in this he has been right. This week he attacked the notion that bonds are in a bubble. To start off, he suggests that the move in yields is no more than would be expected given sagging global PMIs:
Reasonably enough, this implies that Treasury yields should track global growth, rather than specifically American growth. Amplifying his argument, Albert suggests that yields should be low because even some of the economic data that appear to show strength are in fact beginning to flash warning signs. The latest U.S. non-farm payrolls data came as a reassurance, but he homed in on the length of the work week. When companies see the need to cut back, they often start by trying to cut back the number of hours worked, before resorting to more painful measures. That logic implies that we should regard the recent decline in hours worked as a signal of trouble ahead:
Edwards’ long-term thesis is called the “Ice Age.” He believes that interest rates will grind lower as the world economy runs out of puff, with each low in the cycle lower than the previous one – all very similar to Japan. There, this entailed a steady drop in bond yields (which has happened in the west), and a stricken equity market (which has absolutely not happened). But by his argument, we merely need to wait for the next recession for the denouement. This is a classic Ice Age chart, which he produced this week:

This is how he explains his chart:

The last few cycles have seen a sequence of lower lows and highs for nominal quantities (along with bond yield and Fed Funds). I have used a 4-year moving average and have added where I think we may be heading in the next downturn and rebound - and more importantly where I think the market is now thinking where we are heading. That is why this is not a bond bubble. It is the next phase of The Ice Age. And it is here."

At Jackson Hole, Adrian Orr is getting airtime for the latest RBNZ rate cut, but given the bigger issues it is very minor.
Hmmmm.. ..instructed to attend as was Carney, in all probability.

Curiously short on star power, the Jackson Hole gathering this year has already taken an odd turn. It’s been practically subversive. Usually when the Kansas City Fed gets together for these things each and every August, the main attraction is the top central bankers in the major economies. Outside of the Bank of England’s Mark Carney, this year there’s only Fed Chairman Jay Powell. Link

We have seen terrible examples of IP being stolen, and fake copy products.
The export shipping of Fentanyl and other drugs is deadly (killing far more people than climate change now too).

American corporations took their factories from USA to China leaving tens of millions of unemployed workers in the 'rust belt' with no hope of employment and no assistance to retrain or to move elsewhere for jobs. These ex-workers become depressed and inevitably get pain as a symptom of depression. The unscrupulous doctors prescribe 'potent' opioid painkillers and the patients get hooked. As tolerance to the drugs grows they look to street drugs such as Fentanyl and meth smuggled in from China. These victims of American Corporations' deserting them are Trump's base.
Obama neglected them as did the Clintons and Bushes. This is how Trump got elected. He's a clown but he has to be seen trying to do something for these 'forgotten' millions. He's asking American corporations to bring their factories back from China and give these Americans employment again. What's wrong with that?

Nothing wrong with the idea....however, the factories are not, for the very most part, going back to the USA, and short of communism, cannot do so. Anyone with half a brain does not listen to trump the idiot. The factories are going to Sth Korea, Sri Lanka, India , in short anywhere but USA. If they did start to go back to the USA ( which they are not), unemployment is too low to staff them (because trump naively and foolishly reduced the corporations taxes to boost the economy and hugely increase the national debt when it was running along just fine), they will have to let in more immigrants (against current administration policy) and just doing business in the USA will make product prices head upwards which will and already has, abolished any monetary gains workers have or will make.
Trump just does not understand how it works. He has declared SIX major bankruptcies with his corporations in the past and he is racking up HUGE national debt to pay for his idiocy. The guy is a complete moron. And 145 of his senior advisers that have left his administration in his first 20 months indicate my assumption is correct.
Even though he got elected by a minority of Americans (he did not garner the majority popular vote) it gives one pause as to how many people actually do not have an iota of clue about how to elect someone that is fit to govern. Trump uses fear and loathing to spit his own particular vile nonsense.... just soundbites. It remains to be seen if the people of the USA are stupid enough to give him support in 2020!!!!

Here is an example of Oz Bank playbook in managing a business lending customer out. Right out!

https://youtu.be/2w6q9WLZbzI

While rebalancing a loan book.

And channel 9 again, now looking at the servicing of residential home loans.

https://youtu.be/AB6yM9puTY0

What makes Auckland any different.

Interesting piece in the Sunday Star Times today by Steven Joyce. Basically saying how NZ is on the verge of an 'infrastructure bust' because of the lack of investment into new roading projects.
I don't agree with his road-building agenda, but I do agree with the wider sentiment of the government needing to invest in infrastructure to stimulate the economy.
Some of the big multi-disciplinary engineering companies like Beca. AECOM and Opus who have relied so heavily on roading projects must be getting jittery as well as some of the road-dependent construction firms.

... an infrastructure bust ... hot on the heels of the destruction of our offshore natural gas exploration industry ...

And yet .... and yet Labour are nonplussed why business confidence surveys show a continued depression ... down down ooby dooby down . ..

" Fleecer in Chief " ... the new moniker for Taxcinda Ardern ... and who can quibble with that when she rips into the petrol companies on the one hand , blithely ignoring the fact that she is responsible for raising the excise on fuel several times . . and her government has cancelled 10 of 12 major roading upgrades around the country ....

" Fleecer in Chief " seems apt .