US retail sales up; US inventories healthy; IMF says China needs local govt reform; attracted despite discrimination; UST 10yr at 2.83%; oil down and gold up; NZ$1 = 73.6 USc; TWI-5 = 74.6

Here's our summary of key events overnight that affect New Zealand, with news there is new data about why China needs urgent reform.

But first, the advanced data on American retail sales came in better than markets were expecting, up +0.6% from February and up +4.5% from March 2017. The good result was essentially driven by better car sales. Also, petrol sales were up almost +10% year-on-year, and online sales showed the same strong gains. But the overall sluggish non-car sales gains are in contrast to better employment and stronger paychecks in the American labour market.

One reason sales look lacklustre is the lack of price inflation. A good example is milk. Americans are turning away from milk to other beverage options, and as non-dairy substitutes gain popularity. In March, one litre of whole milk fell to about NZ$1.05 at US grocery stores, the cheapest in 14 years.

US business inventory levels are not showing any stress. Relative to sales they are not especially high and the sales/stock ratio is very similar to what it was a year ago.

China needs serious local government reform, says the IMF. Almost 90% of its government spending it done by a myriad of decentralised local government across 31 provinces, 334 prefectures, 2,850 counties, 40,000 townships and 900,000 informal village jurisdictions. It is a sprawl that is extremely hard to co-ordinate and is open to corruption. It also has an insatiable appetite for funding which the IMF sees as an urgent area of reform.

In Shanghai, more than half the Australian companies operating in China say they are not treated equally to their domestic competitors, and doing business in the world's second-largest economy is getting harder. They also say they are prepared to put up with the discrimination because the prospects are rich.

In Australia yesterday, a lesson on our addiction to IT and automation. Woolworths supermarket chain had an IT outage that meant they couldn't operate any checkouts. During the 30 minute outage, some stores closed and advised shoppers to abandon shopping carts mid-aisle.

The UST 10yr yield is up today at 2.83% (+1 bp). The US 2-10 rate curve is moving lower. The Chinese 10yr is at 3.72% (-2 bps) while the New Zealand equivalent is at 2.85% (+1 bp).

Gold is at US$1,347/oz in New York, up +US$2 today. And in an ominous sign for the yellow metal, China is reporting demand is down more than 5%.

And we should also note that aluminium prices have jumped on the international sanctions against Russia, along with the American tariff threats that include the metal. Aluminium prices are now at a seven year high.

Oil prices have fallen by more than -US$1 today and are now just over US$66/bbl and the Brent benchmark just over US$71.50/bbl.

China is signaling that its island province of Hainan may start a program to ban internal combustion engines and go all-electric. It will take a number of years, however.

The Kiwi dollar is virtually unchanged this morning and still at 73.6 USc. On the cross rates we are at 94.7 AUc and 59.5 euro cents. That puts the TWI-5 at 74.6, anchored near the top of its 2018 range.

Bitcoin is now at US$8,014 which is a -3.5% slip from this time yesterday.

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18 Comments

I wonder at the reason(s) as to why interest.co follows Bitcoin.
I’m – probably like most readers – aren’t into money laundering nor would it be the source of information as to the state of the Bitcoin market if one was dealing in drugs. Also, surprising as I understand Bitcoin is only one of many hundreds/thousands of cryptocurrencies.
It’s nice to know what is happening to oil prices so I know what to expect to be happening at the pumps in the near future, and I follow the regular currencies as I travel a couple of times a year. It’s also great to know what is happening in international economies again for the same reasons as to knowing what will be influencing our local markets including future of interest and mortgage rates.
However, whatever the reason(s), do keep reporting Bitcoin as it is titivating to know what is happening in the money laundry, drug trafficking, and world of greed.

Where have you been living such that you missed the whole crypto currency investment craze?

Bitcoin remains the biggest Ponzi scheme in human history . That it has been sustained for so long is just amazing .

But its useless as a currency , its too volatile to be a means of exchange , it is totally unregulated , and has no relationship to normal money whatsoever

Being a little tongue in cheek.
Cyroptocurrencies are not intended as an investment, rather for exchange purposes.
To me I don't see crypotocurrencies as an investment but rather as a gamble. To me, an investment is where one makes a considered decision on a range of factors, a gamble is based on hope.
Although there is a set limit on the amount of Bitcoin, and therefore arguably limited supply may drive it up this is very tenuous as there are plenty of cyrtocurrencies out there.
As an "investment" I would place Biticoin somewhere between a bet on a horse at the upper limits, and the roulette wheel at the lower limit both of which are considered gambles.

The great thing about Bitcoin is you can find a website, and send $10,000 to some guy called Alfonso. He sends you back a note saying you have a bitcoin or two. You feel wonderful.

I agree wholeheartedly with both of you, I feel the same way about gold. But you are delusional if you ignore the reality of your surroundings.

LOL, the biggest money launderers are banks, e.g. HSBC. It's pretty difficult to launder money with bitcoin, since every transaction is recorded on a public ledger and traceable. The exchanges that allow you to convert between fiat currency and bitcoin all require customers to complete KYC requirements, e.g. a copy of your driver license or passport. It's funny, because these straw man arguments against bitcoin are almost identical to the arguments made against the Internet in its early days, e.g. it will only be used by criminals and pornographers.

I wonder at the reason(s) as to why interest.co follows Bitcoin.
I’m – probably like most readers – aren’t into money laundering...

In fairness, the whole community has been frantically following the NZ property market the last few years...

Currently the soil mosture charts are showing this and last years as being unusually wet. It means little if such events are not rare. Is there access to past charts?

Yes. Just click on any of these soil moisture charts and you can get daily history back to June 2013, almost five years.

"It means little if such events are not rare." Keep that in mind with other natural phenomena.

Seems there should be allot of money to be made importing US milk to NZ. Or Aussie milk, that should be hormone free at least.

Forget the REINz waffle,the only news that matters this morning is FLetchers

Yeah I see Fletchers has been in a TRADING HALT on the NZX for the past 20 minutes ?

Whats going on Interest.co.nz ?

$750 million equity raise to prop up the balance sheet, and a new $500 million 'standby' banking facility

https://www.nzx.com/announcements/316806

Good news for Tiwhai Point , unless all production has been pre-sold in hedging arrangements

I see Fletchers TRADING HALT relates to a massive Capital raising exercise ............ $750 million from shareholders plus another half a billion being added in debt onto the Balance Sheet from Banks ( unclear if thats new money or a rollover )

Thats a huge number to ask for at short notice from shareholders , it will of course come mostly from Aussie shareholders .

ELLERSTON CAPITAL who has been buying up Fletcher shares is going to have to play its hand .........and soon.

What is clear is that with a Rights Offer at MASSIVE 24% discount to the closing price yesterday is likely to see older Kiwi baby -boomer shareholders not taking up their rights offers .

And Ellerston Capital could snap up these rights , and get control quite easily .

Next question is very important

Is Fletchers board in cahoots with ELLERSTON Capital in this scheme?

Maybe shareholders should be told the truth for a change