US Fed unchanged but June hike expected; UST debt issuance jumps; China factories find exports harder; airfreight growth stalls; Japan confidence down; UST 10yr at 2.97%; oil and gold up; NZ$1 = 70 USc; TWI-5 = 72.5

Here's our summary of key events overnight that affect New Zealand, with news global trade expansion seems to be going off the boil.

Firstly however, the US Fed stood pat at today's scheduled review just as markets expected. Even though they noted US inflation is near their target and they see strong growth in hiring, they didn't signal faster rate rises are on the horizon, so markets now expect just two more in 2018, the next one in June.

And reinforcing the hiring comment, the latest ADP Employment Report shows hiring at private employers grew slightly more than expected in April. This is the precursor report to Saturdays non-farm payrolls report which is expected to show overall jobs growth at a similar level.

However, American mortgage applications fell last week as interest rates on some 30-year fixed-rate home loans reached their highest levels in nearly 5 years.

The US Treasury Department said it will sharply raise the amount of long-term debt it sells, to $US73 bln this quarter, lifting the auction sizes of coupon-bearing and floating-rate debt again after doing so last quarter for the first time since 2009. The pace of the rise in UST debt is expected to be much faster in the second half of 2018 as the Federal Government deficit takes off as a result of tax cuts and spending increases.

In China, even though their latest unofficial PMI report maintained a stable but low expansion reading, the same report revealed manufacturers are facing a sharply deteriorating foreign demand environment as new export orders declined for the first time in 17 months.

And that is backed up by a new data for international airfreight for March which shows growth of just +2.2% year-on-year, down sharply from +7.7% growth on the same basis in February. Asia/Pacific growth was a part of that shift lower. (Seafreight demand is still robust however.)

China set a much weaker exchange rate yesterday than analysts expected on its first day back from their May Day holiday break, and in advance of the US-China trade negotiations that will start in Beijing on Friday. There are not high hopes of a successful outcome as both sides are digging in.

In Japan, their official consumer sentiment survey showed waning confidence, prompting the Government to change its assessment from "unchanged" to "negative". They say it is due to signs of rising inflation; higher prices for beer, utility bills and some household services.

We should also note that in New Zealand, car sales have peaked and are now coming in a little lower than the same months a year ago. April data was down -2%, a similar fall to what we saw in March.

The UST 10yr yield is now at 2.97% and unchanged from this time yesterday. The Chinese 10yr is at 3.68% (up +3 bps on their return from the May Day break) while the New Zealand equivalent is at 2.84% (up +2 bps).

Gold is at US$1,307/oz in New York. That is up +US$1.

Oil prices are up to just on US$68/bbl in the US and the Brent benchmark is just under US$73.50/bbl.

The Kiwi dollar is still flirting with 70 USc and was slightly below that level before the Fed statement and slightly above after. On the cross rates we little changed at 93.2 AUc and 58.5 euro cents. That puts the TWI-5 on 72.5, and similar to this time yesterday.

Bitcoin is at US$9,125 and +1.6% above the level at this time a day ago.

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3 Comments

Seems the government is not listening to the vested interests:
http://www.newshub.co.nz/home/politics/2018/05/property-investors-lose-o...

It needs to be explained that this is loophole screws other tax payers. If you pay any form of tax, you are paying more than you need to because people who intentionally buy a house that is losing money do so to reduce the amount of tax they pay in the short term in the hope of earning a capital gain tax free in the long run.

These supposed kiwi battlers need to stop trying to get rich quick and invest in bonds and shares. Leave houses for the people who live in them and the landlords who want to focus on earning a profit.

My book of the week

Conspiracy: Peter Thiel, Hulk Hogan, Gawker, and the Anatomy of Intrigue

https://www.amazon.co.uk/Conspiracy-Peter-Gawker-Anatomy-Intrigue/dp/178...