US activity moderates, but Fed's balance sheet to grow sharply; China struggles with debt risk; China tells iron ore buyers to be restrained; G7 close to tax deal; UST 10yr at 1.61%; gold and oil firmer; NZ$1 = 72.2 USc; TWI-5 = 73.6

Here's our summary of key economic events overnight that affect New Zealand with news of China's struggles to contain the impacts of excessive debt and high commodity prices.

But first in the US, the Chicago Fed's National Activity Index suggests that economic activity moderated in April from March. This is actually consistent with other April data like employment. But subsequent data suggests this Chicago Fed monitor will rise again when the May assessments are completed.

We regularly report on the size and growth of the US Fed's balance sheet. It has been rising slowly to about US$7.9 tln or just under 36% of US annual GDP. But new projections released by the New York Fed suggest it could rise to US$9 tln (or 41% of US GDP) by the end of next year, unless they change course and start tapering soon.

In China, corporate debt risks are rising forcing firms to enter into much shorter tenors to get their refinancing deals done. It is the world's second largest debt market, but is by far the largest as far as corporate debt maturing before the end of 2021. In fact, so much is maturing in the next seven months it matches all the maturities for both the US and EU combined for that period. Investors are getting nervous, and that is making the stress levels higher. Making matters worse are two trends; Chinese corporations are defaulting on local bonds at the fastest pace on record, and Beijing is trying to enforce commercial discipline on these debt markets by trying not to bail out investors when debt goes bad. But those Beijing mandarins will need steely nerves to thread their way past investors who can see what is unfolding. In addition, its SOE bad bank Haurong (set up to deal with the fallout from an earlier crisis) is deep in these problems too. It has a good chance of getting ugly.

But make no mistake; Beijing has no qualms about interfering in markets. It has stepped up efforts to curb skyrocketing raw material costs that pose a threat to their economic recovery, summoning representatives of its metal industry at the weekend to warn them against any moves that would bid up prices. It is frustrated that it can't discipline Australia, and it is frustrated at the risks of fast-rising producer prices. But with the rest of the world expanding fast now, it doesn't have the leverage it had when it was running the only expanding economy. Yesterday, Chinese iron ore prices slipped slightly but not as much as you might have expected given the policy directives.

And China's flush of new development projects is past its peak. And that means that sales levels of excavators are now falling, an unusual situation for them.

Taiwan industrial production rose +13.6% in April from the same month a year ago. Looking back a year earlier to avoid the pandemic effect, it is up +18.5%. So this is maintaining a heady growth track. Taiwanese retail sales are up +18.3% year-on-year but that involves pandemic distortions. Compared with April 2019 they are only up a modest +6.2%. Drought and the re-emergence of restrictions from a new pandemic wave is starting to take a bite out of them.

On the global scene, there are reports that the G7 is close to a deal on taxation of world’s largest companies, the objective being to end the ability of global companies to shift profits to low tax jurisdictions. This deal has a better chance of working now that the US is part of the resolution.

On Wall Street, the S&P500 is up +1.2% in a strong start to the week with risk appetites returning. Overnight, European markets rose about +0.5% in their Monday sessions. Yesterday the very large Tokyo market ended up +0.2%, Hong Kong ended down -0.2%, while Shanghai ended its session up +0.3%. The ASX200 rose +0.2% while the NZX50 fell -0.1%.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 166,985,000 people have been infected at some point, up a much less +160,000 per day and a slowing increase as new case numbers ease in India. But they remain very high in Brazil. Global deaths reported now exceed 3,467,000 and up +10,000 per day. Vaccinations in the world are still rising but at a slower pace, now up to 1.67 bln. In the US almost half of their population (49.8%) have had at least one dose. Approaching 40% of Americans have been fully vaccinated (131.7 mln people). The number of active cases there has fallen to 5,791,000 with fewer new infections than recoveries recently and steady progress.

The UST 10yr yield starts today softish at 1.61% from this time yesterday. The US 2-10 rate curve is at +145 bps and marginally flatter. Their 1-5 curve is also a little flatter at +76 bps, while their 3m-10 year curve is flatter at +160 bps. The Australian Govt ten year benchmark rate is down -4 bps at 1.63%. The China Govt ten year bond is unchanged at its new lower level of 3.09%. And the New Zealand Govt ten year is down -1 bp at 1.83%.

The price of gold starts today up at US$1883/oz, a rise of +US$2 today.

Oil prices start today +US$2 firmer at just under US$66/bbl in the US, while the international Brent price is just under US$68.50/bbl.

The Kiwi dollar opens today at 72.2 USc and a rise of +½c since this time yesterday. Against the Australian dollar we are up at 93.1 AUc. Against the euro we are firm at 59.1 euro cents. That means our TWI-5 starts today at 73.6.

The bitcoin price is now at US$37,790 and today it is a giant +14.4% rise from this time yesterday. Volatility in the past 24 hours has still been very high at +/- 4.9%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».