Fed imposes restraints on banks; US consumer sentiment weak; US spending and income tracks unsustainable; Wall Street sinks; China doused; RBA reveals fears; UST 10yr yield at 0.64%; oil down and gold up; NZ$1 = 64.3 USc; TWI-5 = 69.2

Here's our summary of key economic events overnight that affect New Zealand, with news the uncontrolled surge of the pandemic into the US heartland is a frightening prospect.

But first, in its annual stress tests, the US Fed said a long economic recession could saddle the country's largest and globally important banks with up to US$700 bln in losses from bad loans. It has told them to restrict dividends and temporarily end share buybacks so that they conserve funding for the coming increases in financial stresses. The price of bank shares fell.

Also falling is the Fed's balance sheet, which shrank for a second straight week as foreign central banks cut their use of currency swaps rather sharply, and American banks reduced their use of Fed repurchase agreements. The reductions seem odd when their economy clearly needs additional support, but maybe it is a way to get the fiscal authorities to act and do their part.

The latest consumer sentiment index rose in June from May but at a generally underwhelming rate and far below expectations. The best gains were in the northeast where the pandemic is under better control. But the rest of the country is clearly increasingly anxious.

And data for personal income in the US is concerning too. It jumped in April on the income support that Congress rushed through. But that support hasn't been followed up and new efforts are mired in partisan gridlock and resisted by Republicans. That has resulted in a very sharp -5% fall in real disposable income in May while at the same time personal spending rose more than +8%. Obviously it can't continue on like this very much longer and there is an economic reckoning coming soon. Past lifestyles can't maintained by such a huge mismatch for very long.

And that coming earthquake in consumer demand is getting the attention of equity markets today. The S&P500 is currently down -2.4% near the end of the weekly session and falling. That is a -US$600 bln fall in market cap in just one day, taking the value reduction since the start of 2020 to -US$1.8 tln. Overnight European markets slipped about -0.5%. Yesterday Tokyo was up more than +1.1% (but that meant zero weekly change), Hong Kong was down almost -1% (and also little weekly change), the ASX200 ended the day up +1.5% (and a -0.6% weekly slip) while the NZX50 was flat on the day (and a -1.2% fall for the week).

In China, their annual Dragon Boat Festival is supposed to signal a rebound of domestic tourism. In 2019 almost 96 mln people used the three day public holiday to visit events. But this year things have gotten off to a very slow start with barely 17 mln people turning out on the first day, about half the level Beijing was hoping for.

Part of the restrained enthusiasm may be because of severe flooding in southern China. Social media is awash about the risks to the Three Gorges Dam and apparent buckling of the structure. But authorities are quick to point out that the satellite photographic evidence isn't meaningful.

And one of the ways wealthy Chinese move their money out of the country is being threatened with the annexation of Hong Kong into the Beijing security orbit.

In Australia, their central bank has pleaded with bank bosses to keep lending. Government assistance winds down after September 30 and the RBA expects that will drive a new surge in unemployment.

And Aussie regulator ASIC has lost its badly prosecuted "wagu and shiraz" responsible lending case in the Aussie courts after completely misunderstanding what responsible lending is all about. It's a black eye for cavalier regulators.

The latest compilation of COVID-19 data is here. The global tally is now 9,682,400 which is up +188,000 since yesterday and a rising pace. Global deaths reported now exceed 491,000.

A quarter of all reported cases globally are in the US, which is up a very sharp +57,200 since this time yesterday to 2,446,700. This is now growing faster again than the global rate of infection. US deaths now exceed 125,000. The number of active cases in the US is now up to 1,658,400, up +38,300 in a day. It is an uncontrolled surge that has global implications and the financial ones may be the least of our worries unless they get on top of it.

In Australia, there have been 7595 cases, another +37 since yesterday. Their death count is still at 104 but their recovery rate has slipped to just under 92%. There are now 533 active cases in Australia (up +21).

The UST 10yr yield is lower at 0.64% and a -4 bps pullback as market fears build. Their 2-10 curve is flatter at just under +47 bps. Their 1-5 curve is also flatter at +13 bps, while their 3m-10yr curve is down to +52 bps. The Aussie Govt 10yr yield is also down by -3 bps at 0.86%. The China Govt 10yr is unchanged at 2.92% because of the public holiday there. But the NZ Govt 10 yr yield is down -2 bps at 0.94%.

The gold price is marginally firmer, up +US$6 to US$1,768/oz.

Oil prices have softened marginally. It is now just over US$38/bbl in the US and the Brent price is just over US$41/bbl. The rig count has stayed low, but declined in the past week by just a handful.

The Kiwi dollar is softer in a minor move down, now under 64.3 USc. On the cross rates we are slightly firmer at 93.6 AUc and against the euro we have slipped slightly to 57.2 euro cents. That means our TWI-5 has held at 69.2.

The bitcoin price has stayed down, and is lower today at US$9,161. Over the past month this crypto has fallen -4.7%. 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 ».

Our currency charts are here.