Here's our summary of key events over the weekend that affect New Zealand, with news rising Trump-risk is changing many settings at our local level.
For example, our interest rate swap curve has flattened markedly, now at just 88 bps and its flattest in almost 18 months. Further, CDS spreads for Australsian investment grade corporate debt are now their most positive to American equivalents since before the GFC and probably ever.
Our currency has shown little reaction, but the Aussie dollar has weakened. The NZD is now priced just over 94 AUc, its highest in eight months.
On Wall Street, they ended last week down -2% on the day, the tech-heavy NASDAQ down more than -2.5%. The appointment of John Bolton to a senior US Administration role isn't helping markets feel good about what the future holds.
This is a 'fear' phase based on dodgy trade tensions, but some core commodities are winning with price rises - oil, gold. However, US soybean and hog prices have dropped. And the iron ore price is also lower, but not by as much as you might have expected.
American data out over the weekend saw durable goods orders rise much more than expected. But new home sales fell again, when a good rise was expected, and average selling prices for new homes were actually the lowest they have been for a year. The top end is softer.
In Canada, their consumer inflation came in much higher than anyone expected, up +2.2% in February compared with +1.7% in January and an expectation of +1.9%. That is quite a shift, and a rapid one and will surely see the Bank of Canada action.
And Canada has won a reprieve in a trade dispute with the US. Boeing is sensing it will be a loser in Trump's trade war plans so has withdrawn its claims against Canada's Bombardier's C-Series jets, trying to take some heat out of the growing trade issues. It is a a move that undercuts the Administration. And this is also positive for Northern Ireland.
And Canadian province Ontario has a major budget and debt problem after years of profligate spending on teachers and health care systems in support of sector unions that supported its Government. Moody's has it pegged as the sub-national government with the highest debt of any globally. A severe crunch is imminent there.
China is mulling further responses to US trade actions. Their ambassador to the US wouldn’t rule out the possibility of they will scale back purchases of US Treasuries in response to tariffs imposed by President Donald Trump. If that happened, the expectation is that the fast-swelling US Federal debt will cost a lot more very fast. The US Fed is already on a path to sell US Treasuries, so finding new demand to keep interest rates restrained will be doubly tough. Trump has just signed a US$1.3 tln spending splurge that will see that debt jump. Each time he signs these increases he has a 'never again' moment of theatre, but always does. Congress passed the measure overwhelmingly.
China may also be about to unleash a 'peoples war' against US companies, cutting off demand for American brands operating there. This can be very damaging; just ask Korea and Japan. Tight control of media including social media gives the Chinese State vast power to trigger such responses.
And Moody's says its initial assessment of the US tariff penalties is they won't have much impact on China at all.
It is enough for some senior US officials pining to get back into the TPP.
The UST 10yr yield has weakened considerably and the US Fed signals have faded in the face of the Trump actions. It is now just 2.81% after having hit 2.91% on Wednesday. The Chinese 10yr is at 3.76% (unchanged) and the New Zealand equivalent is at 2.84% (also unchanged).
The gold price was up +US$20 in New York on Friday and now at US$1,347/oz.
Oil prices are up strongly again today, up about +US$1.50 with the US benchmark now just under US$66 and the Brent benchmark under US$70.50/bbl. The US active rig count is now at its highest level in three years and just under 1,000. These high prices will no doubt push it over in the coming week. In fact, US shale drillers are now entering the mainstream, no longer speculative plays.
The Kiwi dollar will start the week at 72.4 USc, marginally higher at the Wall Street close. On the cross rates we are higher at 94 AUc and at 58.6 euro cents. That puts the TWI-5 at 73.3.
Bitcoin is now at US$8,593 and little changed from this time on Friday (down -1%).
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14 Comments
Shares in the US are overvalued and they need to fall to be brought back to reality. Unfortunately their broken market will keep triggering falls everywhere else. The sooner the debt market becomes a market again the better (although expect suffering as a result).
Boeing dropping their law suit against Bombardier is interesting. The US actions make more sense when you look at who is running the place rather than the dummy who is presented as in charge. The militarists seem to be doing very well indeed. I know General McThis gets replaced by General McThat but they are both both military types. The Boeing suit was a thorn in the side of a major ally, and Teresa May certainly asked for a bit of help with Northern Ireland.
The US always puts military matters first, but this administration seems to be more miltaristic than most, judging by the number on staff. This may not be a bad thing, of course, providing they can actually come up with solutions to the real problems the US faces. The last two presidents had an appalling record of incompetence under their watch. (More people died violent deaths in the Middle East and North Africa under Obama than under Bush, apparently. Which is pretty shocking.)
Obama should take a lot of the blame Middleman. Trump seemed to have some sense and advocated getting the US out of useless wars, but has caved in to the military.
Assad must take the credit for getting rid of ISIS out of Syria, ably assisted by Hezbollah and the Iranians. Job mostly done now. The US on the other hand has poured billions into all the various nutty acronyms who remain, who in turn have killed hundreds or thousands of innocent Syrians.
Most of those dead Syrians would be alive today if foreign governments had not poured in the billions, provided hardware and paid salaries to the religious crazy groups of which there are many.
I don't disagree with your overview Roger, but the military guys like Gens McMasters and even Mathis are the doves in this administration (relatively speaking!) It's the civilians, who have never been at the pointy end of anything, that are the hawks. This new guy Bolton, like his predecessor Cheney is an arch-neoconservative. Which means the idiots that started the Iraq war in 2003 are back in the driver's seat.
while i agree about the prioritisation of the military, it generally is not the military advocating war. The current NSA is reputedly a strong hawk, but is not a military man, while the last was, and one of the reasons he was kicked out was because he was arguing against the militaristic rhetoric and threats.
This is generally true of the US military, for despite their reputation, they are generally not lining up to go to war. It is the civilian leadership who do this, and repeatedly so (Vietnam and the Middle East) leaving the military in a huge bind, usually with one hand tied behind their back, no way out and paying in blood. All because the civilian leadership want to be seen as being strong.
Yes, that is my read too. Most of the actual military know exactly what warfare entails, it is people like Bush, Obama and Trump who do not. Which is what I meant when I said more Generals is not necessarily a bad thing. They understand the US and its allies created Al Queada and IS, and that fighting Assad meant training and equipping them. The stupidity of it all is really quite extraordinary. It was greedy Bush and that nice young Labour Englishman Tony Blair, that really stuffed things up big time. Obama just did what he was told would work by his staff.
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