China digs in; US scrambles to resolve NAFTA; Wall Street rises; CBO sees US$1 tln deficit much sooner; IMF sees a political obsession; Baltic Dry slumps; UST 10yr at 2.78%; oil and gold up; NZ$1 = 73.2 USc; TWI-5 = 74.4

China digs in; US scrambles to resolve NAFTA; Wall Street rises; CBO sees US$1 tln deficit much sooner; IMF sees a political obsession; Baltic Dry slumps; UST 10yr at 2.78%; oil and gold up; NZ$1 = 73.2 USc; TWI-5 = 74.4

Here's our summary of key events overnight that affect New Zealand, with news trade tensions seem to be spreading and the US isn't calling the shots at the moment.

Firstly, just as officials in Washington DC offer soothing remarks about progress on trade with China, attempting to calm things down, China stepped up its attacks on the Trump administration overnight over its threats of billions of dollars worth of new tariffs, saying Washington is to blame for trade frictions and saying it was impossible to negotiate under "current circumstances".

Meanwhile, the US seems caught between this and the NAFTA trade negotiations. Indications are it wants to clear up the NAFTA situation so it can concentrate on the China one. Indications from Washington DC and Mexico City that the NAFTA talks will be wrapped up by early May. The Canadians also see the finish line. Congressional pressure is pushing the Administration to sort NAFTA out quickly.

Despite these pressures, Wall Street is strongly positive today, up more than +1.5%. That is not the case in Moscow where the stock market is taking a hammering on new sanction actions against Putin's favoured oligarch. Putin is apparently not happy, perhaps because he may be the vehicle for Putin's own secret vast wealth.

Most equity markets may be higher, including Wall Street, but they haven't yet tuned in to the Congressional Budget Office update that shows the annual US Federal deficit will exceed US$1 tln much faster than previously predicted - and now by 2020.

The IMF has warned about the political obsession over manufacturing jobs. It says they haven't played a unique role in advanced economies for a long time, and play an even lesser role in emerging economies. The key is growth in service jobs, they say and we should wind back the anxiety over factory jobs.

In Germany, February exports have seen their biggest drop in about two and a half years. The decrease came as a surprise to many analysts who had predicted in an uptick.

All this trade uncertainty may not be affecting airfreight but it has taken the steam out of shipping rates. The Baltic Dry index is back below the 1000 level for the first time in 2018, a place it hasn't been for eight months.

The UST 10yr yield is slipping today and is now at 2.78%. The Chinese 10yr is at 3.75% (unchanged) and the New Zealand 10 yr is at 2.75% (+2 bps).

Gold is up +US$4 to US$1,337/oz.

Oil prices are also up, up almost +US$1.50/bbl today with the US benchmark now just under US$63.50 and the Brent benchmark just over US$68.50/bbl.

Our currency is higher as well and now at 73.2 USc, a one month high. On the cross rates we are also firmer at 95 AUc its highest in nine months and 59.4 euro cents, a six week high. That puts the TWI-5 at 74.4 and at the top of its 2018 range.

Bitcoin is down to US$6,743 which is a -5.6% fall from where we left it yesterday afternoon.

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19 Comments

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I am curious about the IMF comments about factory jobs. wouldn't they be at the core of any economy? Service jobs are about supporting core industries (plus of course tourism and hospitality). So a robust industrial sector should be a prerequisite for the service sector to succeed. Or are they classifying financial sector jobs as part of the Service sector? So advanced economies are just making money on the great money-go-round, and not doing anything substantial?

Some of the most stable, productive and advanced economies in the world such as South Korea, Singapore, Norway, Germany and Sweden have more than 30% of their GDP coming from the industrial sector. Factory nations like China and Thailand aren't very far ahead with around 36% and 38% respectively coming from industries.
Compare that to the US and UK with less than 20% and less than a quarter in Australia and New Zealand. Clearly these statistics don't support IMF's claim.

(CIA world Factbook)

Obviously food and shelter are essentials, so we need the primary and manufacturing industries more than we need to grab a nice lunch out while the cleaner tidies up the house. It's just that as a proportion of GDP it's getting smaller and smaller as we consume so many more services

Can't wait for the REINZ median house price growth for Auckland today! Hey Ego-Boird?

Of course the Auckland median value is going to fall with all the flats being built!

Well if flats are all people can afford, then of course those million dollar price tag homes are just going to sit there unsold. Not long now before reality kicks in and prices really fall.

The HPI figure will take that into account. HPI is the one to watch

David - can refrain from your personal (US) political comments (Putin, Russia, China. etc.);
we (NZ) can be positioned in non-US camp or can be in the short war - whatever the position keep it neutral,
please.

NZ is one of the five eye countries.

How to maintain a strong economic tie with China and also maintain the security tie with the USA will be an ongoing difficult issue for NZ.

You don't think Putin has used his position to amass a secret wealth? Have you seen Putins Palace?

Have you? Or just their projections?
Being neutral is what is making good trade around the globe.........

I've not seen anything David has stated that pushes boundaries. Note though that while not yet mentioned here, Stuff have a report today about china possibly looking to build a naval base in Vanuatu. Now that will have an economic impact, not only on Vanuatu, but us and Aussie! Be interesting to see how that develops.

If it develops in 800 bases as US has it then we need to worry.

Dose the US have 800 bases outside of America? I doubt it.Its follies in the middle east use existing bases at those Governments permissions. It no longer has Clark and Subic Bay in the Philippines, so where else? I suggest that you are exaggerating (wildly) to make a point. While there is much to criticise of the US, these days they are at least a democracy, and don't subjugate any countries like china does to Nepal.

I have noticed your posts supporting authoritarian governments for some time now, stp. You do not post often, but the theme is there.

Firstly, this is David's website, so he is allowed to post what he wishes. Secondly, this is a free-speech society (still), so you are entitled to disagree and to say publicly that you disagree, but do not ask him to keep silent -- demanding others' silence regarding reasonable debate is one of the key elements of authoritarianism and has no place here.

And US is not an authoritarian government?

Singapore transformed its economy and lifted its people's standard of living enormously under an 'Authoritarian' government under Lee Kuan Yew.

India is the largest democracy applauded (or alluded) by the UK and US. Apart of from the so called freedom of speech, more than half its population do not have electricity, a proper loo and are still literate.

It is too easy and tempting to summaries countries/government into free/authoritarian, good/bad, angel/evil
categories without discussing any details.

No, I wouldn't consider that the US has an authoritarian government, whatever else it may be. And it's indicative that we don't seem to get Americans posting here who are offended by criticism of Trump or the American political system, whereas some others seem to have a thinner skin.

Regarding India, many of its problems are attributable to nepotism, corruption, and the problems with the caste system, rather than to democracy or free speech, which is your implied argument there. You are attributing causation to what is a possible correlation -- a key error for a statistician.

Your last paragraph I certainly agree with: we should discuss details and present arguments -- without being asked to be silent.

If asking for neutrality is supporting for authoritarians - I am for it wholeheartedly.

The DJIA must have tanked at the end of the session as it finished only +0.19%. The daily swings on the U.S. markets are becoming increasingly volatile, not a good sign.