Wall Street fears weakening data; US tariffs Brazil and Argentina steel; China PMI's rise; Aussie data broadly weak; rural prospects dry up; UST 10yr yield at 1.83%; oil firmer and gold lower; NZ$1 = 65.1 USc; TWI-5 = 70.3

Wall Street fears weakening data; US tariffs Brazil and Argentina steel; China PMI's rise; Aussie data broadly weak; rural prospects dry up; UST 10yr yield at 1.83%; oil firmer and gold lower; NZ$1 = 65.1 USc; TWI-5 = 70.3

Here's our summary of key events overnight that affect New Zealand, with news poor data has overwhelmed equity market sentiment today.

Wall Street has opened the week after their long holiday weekend decidedly lower. The S&P500 is down -0.9% so far and falling. European markets had a terrible run overnight with many key markets down -2%. In contrast, yesterday's Asian sessions brought modest gains.

Finally, markets are noticing the weakening data. The mood has been turned by steeper than expected contraction in the US factory sector. The widely-watched ISM PMI deepened its contraction. The US version of the Markit PMI wasn't so negative, but is being ignored.

In fact, apart from the bad US result, a number of other international PMI surveys out overnight were modestly positive and these pushed the global summary to its best reading in seven months.

But other poor US data has kept Wall Street worried. US construction spending fell more than expected in October, for example, and is barely above the same level a year ago. Thanksgiving holiday retail sales were down more than -6%, and more than the rise in online sales.

And not helping was a US Administration decision to add tariffs on goods from Brazil and Argentina, accusing them of keeping their currencies low. It is a hard argument to understand as neither country has a war chest large enough to take on Wall Street traders and if the US can't control its own currency why do they think others can. Only the Chinese have been able to do that.

The China Caixin PMI which is the private survey, has backed up the small improvement their official survey reported yesterday. But both are barely expansionary. The same surveys in Japan is reporting a deteriorating situation.

Japan car sales fell -14% in November to be -1.3% lower year to date. But at least the November decline was less than the -26% slump in October. Weather and sales tax hikes are badly affecting sales at the end of 2019.

In the EU, their PMIs are negative everywhere except in France. But at least they didn't get worse in November.

There was a bunch of Australian economic data out yesterday and most of it wasn't very good. Company profits are falling, firms are destocking, productivity fell and housing building consents fell. And that is in addition to two contracting PMI reports, here and here.

Worse, their rural sector is really struggling, especially in the east. Grain and livestock output is expected to plunge as their drought worsens.

The UST 10yr yield has risen sharply today, now at 1.83% and a +5 bps gain to start the Wall Street week. Their 2-10 curve is more positive at +21 bps. Their 1-5 curve is now up at +6 bps. Their 3m-10yr curve is also more positive +18 bps. The Aussie Govt 10yr is at 1.14% and that is a +10 bps rise since this time yesterday. The China Govt 10yr is now at 3.22%, and a +2 bps gain. The NZ Govt 10 yr is now at 1.36%, and +6 bps rise.

Gold is at US$1,462/oz and down -US$2 overnight.

US oil prices are firmer today at just on US$56/bbl. The Brent benchmark is just on US$61/bbl. Saudi Arabia is pressing OPEC to make output cuts to try an hold the price from falling further.

The Kiwi dollar is noticeably higher today as international traders bid it up when they heard about the NZ Government stimulus reset. It is now at 65.1 USc and almost +1c higher than this time yesterday. On the cross rates we are now at 95.4 AUc and another +½c gain overnight. Remember, this rate was 92.8 AUc at the beginning of November. Against the euro we are quite a lot firmer too at 58.8 euro cents. That pushes the TWI-5 up to over 70.3 and it highest since July.

Bitcoin is lower today at US$7,281 and down -0.5% from 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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8 Comments

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Highlight new comments in the last hr(s).

"firms are destocking". Most likely. But are they declaring that they are? The ploy of 'sell the stock, but still keep it on the books as an 'unsold' asset' looks likely to make a return, as retail sales continue to deteriorate.
"Ted Baker's £25m stock blunder spooks investors"
https://www.telegraph.co.uk/business/2019/12/02/ted-baker-calls-law-firm...

The way some Australia retailers are destocking is by closing down. Increasingly vacant retail space is not going to hold much stock.

"Finally, markets are noticing the weakening data"
Will be interesting to see if this decline is just a temporary blip or start of a longer term change after a decade of pretty good results. Twice in the past month Breakfast Briefing has made passing note that large fund managers have withdrawn back from the markets.

It appears the US has accidentally found a good time to confront Chinese imperialism. If they knew what they were doing, they would do their best to engineer a high USD (which they have) at the same time as a high oil price (presently we have an oil glut, although it might not last much longer). That would exert maximum pressure on the CCP.

The USSR collapse was triggered by high grain prices at the same time as low oil prices:
https://www.aei.org/wp-content/uploads/2011/10/20070419_Gaidar.pdf

Thanksgiving sales are out of the way and Chinese PMI is up, sounds like time for another scrap...

A marked decline in comments today....... Was today's news the the final straw and the catalyst for everyone to be on the phone / email dumping at risk assets?

During the month I spent in the US recently , I noticed that a lot of large-footprint retail stores were having closing down sales , esp in the clothing sector and less so in the electronics ( computer /tv / hih-fi ) .

That was in California where I saw this , but did not see it in Florida , NY or NJ that was noticeable