Wall Street drops -3%; PCE rising; US PMIs mixed; China PMI's mixed; China responds to US tariffs; tiny China current account surplus; UST 10yr at 2.73%; oil down and gold up; NZ$1 = 72.1 USc; TWI-5 = 73.4

Here's our summary of key events over the long weekend that affect New Zealand, with news shock waves are hitting Wall Street this morning.

Firstly, there has been a wide change in daylight savings time around the world so Wall Street is still in its Monday trading session. It has been a disastrous opening with the S&P500 down about -2.5%. Tech stocks are the ones suffering most, especially Facebook, Amazon and Tesla.

In economic data news, inflation is rising in the US, according to the Fed's preferred measure. Prices rose +1.8% in February in its PCE index as annual inflation edged closer to their 2% target, a sign of strengthening American inflation pressures that will keep markets accepting that more rate rises will come this year.

There have been mixed signals from the two major PMI releases today. The ISM one slipped from a very high level while the Markit one reached a three year high on a good order flow These surveys were also out for China (expanding at a slower rate), and Japan (also expanding at a slower rate).

Libor rigging lawsuits are still being settled. HSBC has agreed to pay US$100 mln to settle an antitrust lawsuit by over-the-counter investors, including the city of Baltimore and Yale University, who claimed they were harmed when they bought securities tied to rigged Libor.

China has responded to the US trade war tariffs with counter-measures of its own on 128 products it imports from the US valued at about US$3 bln. It is noticeable that the amounts involved are very much less than the duties the US plans on US$60 bln of steel and aluminium imports, or even China's share of that.

In China, systemic financial risks mainly lie at banks, which accounts for more than 80% of the country’s total. But a new official report says financial risks at some Chinese banks are high and have continued to rise, even though the likelihood of a systemic crisis is declining. Risks at large state-owned banks, and at securities and insurance companies, have declined steadily they say, but those at smaller lenders such as Beijing Bank, Ping An Bank, China Merchants Bank, and Shanghai Pudong Development Bank, remain high and are increasing, the report says.

The latest data shows that the use of the Chinese yuan in international trade transactions is actually falling. In the year to December 2017 only 1.66% of transactions used the Chinese currency. By February that has fallen to 1.56% according to SWIFT data.

China also faces rising risk in its offshore investments. Giant state-owned investment conglomerate CITIC has had to write-down a massive NZ$1.3 bln in its Sino Iron project in Western Australia and says closing it and walking away is still an option due to a royalty dispute with a Clive Palmer-backed company Mineralogy.

China is reporting an unusual and sharp improvement in their official factory PMI, with it jumping more than 100 bps after it fell a similar amount in February. The main reason given is a sharp rise in the production component, itself driven by an even sharper rise in export orders. At the same time it reported its non-manufacturing PMI which showed a nice even rising trend, their more normal style. This comes as the private Markit PMI says confidence is going the other way.

And China has reported it had a current account surplus of US$165 bln, or +1.3% of GDP. It ran a trade surplus if +US$141 bln in goods, but ran a deficit of -US$62 bln in services. These overall numbers are tiny in the perspective of the size of their economy and represent about 4 days of trading activity in a year. And they are also small in the perspective of the merchandise trade surplus they run with the US of US$375 bln, which is currently a political hot-potato. (Just don't mention the services trade surplus to the Americans.)

The UST 10yr yield is at 2.73%, down another -1 bp in early trade after the long weekend. The Chinese 10yr is at 3.75% (unchanged from Thursday) while their 2-10 curve is now just +26 bps and near its 2018 low. While Western 10 yr yields have been sinking, the Chinese equivalent has been holding while their 2 year yield has been rising.

Gold markets are open again and are up strongly, climbing +US$18 to US$1,343/oz.

Oil prices are down sharply today by almost -US$2 with the US benchmark now just over US$63 and the Brent benchmark over US$67.50/bbl.

The Kiwi dollar will start the week lower at 72.1 USc. On the cross rates we are at 94.3 AUc and 58.6 euro cents. That puts the TWI-5 at 73.4 and still well in its 2018 range.

Bitcoin has not recovered anything after its sharp slump on Thursday and is now at US$6,980. That is less than half the price it was at the start of 2018 (US$14,741). Recall, speculation drove it to US$19,343 in December, and it was still over US$10,000 just four weeks ago. Also weighing on market sentiment is the impending 'death cross' technical signal, when the 50-day moving average cuts the 200-day moving average from the top, a widely talked-about bear market sign.

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