Wall Street up on renewed trade talks claims; US data mixed; France & US agree on digital services tax; OECD growth slips again; UST 10yr yield at 1.53%; oil down and gold up; NZ$1 = 63.9 USc; TWI-5 = 69.2

Wall Street up on renewed trade talks claims; US data mixed; France & US agree on digital services tax; OECD growth slips again; UST 10yr yield at 1.53%; oil down and gold up; NZ$1 = 63.9 USc; TWI-5 = 69.2

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Here's our summary of key events overnight that affect New Zealand, with news that equity markets are thinking better news is around the corner, and bond markets decidedly sceptical.

Wall Street equities are up today by +0.8% so far as the US positions on trade at the G7 summit in France seem to have softened considerably. First that had a positive impact on European equities which were up a more cautious +0.4%, ignoring the Asian signals yesterday when Shanghai fell -1.2% and Hong Kong and Tokyo both dropped about -2% each.

Also improving the mood were US durable goods orders data for July which improved from June, and were up +3.1% from the same month a year ago. However, a closely watched subset of this data, for capital goods, showed no growth year-on-year, and a small slip from June.

The National Activity Index tracked by the Chicago Fed turned sharply negative in July. This resumed its negative trend that was briefly interrupted in June.

But going the other way, the Dallas Fed regional survey of manufacturing turned more positive in August, boosted more by production than new orders, although it too shows a worrying retrenchment in capital investment.

But so far, bond markets are not buying the idea that this is some sort of turnaround. All the US Treasury curves are now negative and getting more so.

One of the agreements reached in France was that the new French 3% digital tax will stay, but the [mostly US] companies levied will be able to deduct that tax from the impending OECD plan for taxing digital services under the BEPS framework.

In Germany, the closely-watched IFO survey has confirmed the negative mood in the business sector is getting worse, dropping for the 11th time in 12 months.

In China, new official interest rate mechanisms that have just been instituted are now to be used to control the floor rate for mortgages. Yes, the new system is more 'market-based' but it also allows the authorities to control how low mortgage rates can go. On average, Chinese borrowers pay 5.44% for home loans with the lowest rate at present being 4.84%.

One of the G7 claims came from the US Administration that "China very badly wants to make a [trade] deal". However, China has made no public signals like that so far; in fact their only public statement didn't sound positive at all.

Meanwhile, growth rates around the world keep on slipping. The OECD says the annualised rate in their group of 36 developed countries is down to +1.6%. The New Zealand growth rate was +2.7% in the year to March and we will get the June data on September 19.

The UST 10yr yield is unchanged at 1.53%. Their 2-10 curve is now negative by -1 bp. Their negative 1-5 curve is wider at -34 bps. Their 3m-10yr curve is still a negative -57 bps and down to where it was prior to the GFC. The Aussie Govt 10yr is at 0.93%, up overnight by +4 bps. The China Govt 10yr is up +1 bp to 3.08%, while the NZ Govt 10 yr has finally followed yesterday's drop and is down by -9 bps to 1.07%.

Gold is still high at US$1,529 and up +US$2 since this time yesterday.

US oil prices are lower again at now just under US$53.50/bbl. The Brent benchmark is also down to US$58.50.

The Kiwi dollar is marginally softer, now at 63.9 USc. On the cross rates we are down sharply at 94.3 AUc. Against the euro we are firmer at 57.6 euro cents. But the overall impact of these various movements leaves the TWI-5 unchanged at 69.2.

Bitcoin is now at US$10,315 and that is up +2.5% from this time yesterday. The bitcoin rate is charted in the exchange rate set below.

 

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18 Comments

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Is it China who wants the trade deal or Trump.....

....my guess is Trump (he NEEDS a trade deal).

There was a debt problem - at some stage it had to become obvious that the US debt was unrepayable - more so with time. So you could expect a disruptive something - turned out to be Trump. Can he organise it so the US can still buy cheap-labour/low regulation shyte, earned by cutting each other's hair and serving each other coffee? I don't think so. He's presiding over an aging collection of infrastructure, an ever-less skilled workforce and his one way to keep the Empire afloat, is to use the military before it becomes outdated. Why would someone in that situation want a deal?

To get re-elected....

Its all about Trump not the American people.

As long as the US is the worlds reserve currency their debt doesn’t really matter. If that changes, watch the gigantic implosion.

Newspaper headline from Uk last night seems to sum it up?
" Trump.... 'crazy like a fox' "

I don't think Trump is crazy - just out of his depth.

That's unfair on foxes, they are very smart animals

Maybe, but things aren't all that rosy with the Chinese economy either

BadRobot, a very pertinent comment.
I suspect that China is capable of absorbing more pain whereas Joe Citizen Americans are more likely to become disgruntled with increasing prices (due to imposed taxes) and downturn in economy, loss of jobs.
With elections next year Trump will not only be looking to a resolution but a very definite and great win.
How will we and the American electorate know that it is a great win? Trump will tell us in repeated tweets.
My prediction - quite possibly no resolution much before additional tariffs due mid December to enable a pick up in the economy prior to elections in November. Given Trump campaigned on "Make America Great Again" and jobs he will not be able to go into the elections with a poorly performing economy. Chinese government has no such accountability.

Exactly.

"This is the greatest win. We've never had a win like this before. I remember my uncle, he was a scientist, he was good on the nuclear. I understand the nuclear. But he told me, we were getting beat by China, China was all over us. Now we're wining. This is a great win for America. Now we need to put a nuclear bomb in a hurricane for more win."

I assume thats the latest from Trump?

https://www.resilience.org/stories/2019-08-26/the-future-of-technologica...

The writer gets most of it, but still has the outdated view that oil prices will rise with demand. That is better addressed by this - worth reading twice:
https://ourfiniteworld.com/2019/08/22/debunking-lower-oil-supply-will-ra...

Then apply it to global interest-rates and real growth (not GDP - that just tracks the increase in computer-held digits while avoiding resource depletion) and factor in entropy. Then you arrive at a permanently-inverted 'yield curve' - due to the reducing bet-opportunities 'going forward'.

As Bank of America writes in "anatomy of two gold bull markets", in comparing the gold bull markets in 2008 and 2018, real rates remain key price drivers, while a critical difference in market dynamics - this time around - is that central banks have been unable to reflate global economies and even as metrics like the value and proportion of negative yielding assets has been increasing, further easing is on the cards. Linked to that, Bank of America makes a stunning admissions: "the risk of quantitative failure, which was not a concern in 2008, makes gold an attractive asset." Link

Fat fingas ! . Sorry .

. TP !

Clare Curran is to retire from politics at the next election .. 12 years of being very well paid to babble incoherently is enough for the tax payer to bear ..

. . more free time to have lunches with Carol ...

Up and down like a kids swing the markets go ............ truth is that while markets may seem reasonably priced on the cost of borrowing , they are at historic highs in relation to PE ratios , at , in some cases 20 to 30 or higher is just plain crazy .

The market has to adjust , its just a matter of time, irrespective of Donald Trump ( although he may chivvy the process along) .