Here's our summary of key events overnight that affect New Zealand, with news investors in China's bond markets are getting nervous.
But first, China has announced about a 10% reduction on its import tariffs for cars and car parts. That reduces it down from between 16% and 35%, rates that had been in place for a decade. However, it is expected the main beneficiary will be European luxury cars rather than American ones. Ironically, GM is already one of the largest car exporters to China, even with the existing tariff rates.
In the US, banks are reporting record quarterly profits to in the first quarter of 2018, a result of the new tax laws favouring them, regulation rollbacks, rising interest rates, and a stable economy. Their net interest margin widened to 3.32%, the highest in five years. Community banks recorded a net interest margin +30 bps higher than that. (New Zealand bank net interest margins average 2.11%.)
The Federal Reserve latest Report on the Economic Well-Being of U.S. Households finds it has generally improved over the past five years. It found that almost three quarters of adults said they were doing "at least OK" financially in 2017 and that is up from 65% in the first survey in 2013. Even so, notable differences remain across race, ethnicity, education groups, and locations and many individuals still struggle to repay college loans, handle small emergency expenses, and manage retirement savings.
There was a factory report out from one regional Fed overnight and that came in very much more positive that analysts were expecting.
Wholesale trade data in Canada also surprised on the upside.
Going the other way is new data in Japan showing chain stores there are reporting slipping sales.
The recent rising and strong growth in world trade has brought an even stronger growth in investment in modern container ships. Capacity has now outstripped demand and even the largest are having earnings woes. Some have said that will result in a cutback on services where overcapacity is the worst. New, higher fuel costs are a new threat. The overall impact will most probably see much higher freight rates soon, especially for regions like New Zealand where competition is not so fierce.
In China, the rising level of corporate and SOE defaults in their bond market is eroding confidence for others in that market. Investors in the US$10 tln market are showing serious risk aversion, yields are rising for corporates and availability of funding is being restrained. The Chinese private commercial sector is very much debt-based, rather than equity-based, so this is serious.
In Australia, it is now clear that coal-fired facilities saved both Victoria and South Australia from blackouts this past summer. And that also needed some large key industry users to shut down so that households weren't affected. The strong push to shift to renewables there is up against a capacity reality and the public policy mood is swinging back to keeping the reliable coal-based backup systems in place and updated.
And Moody's is reporting that tougher regulation and higher self-imposed standards by banks is improving the quality of Aussie covered bonds - which were already among the safest in the world of covered bonds.
The UST 10yr yield is now at 3.06% and virtually unchanged from yesterday. The Chinese 10yr is at 3.71% (down -1 bp) while the New Zealand equivalent is at 2.85% (unchanged).
Gold is also unchanged and still at US$1,292/oz in New York.
Oil prices are stable today and are now just over US$72/bbl in the US although the Brent benchmark is pushing on higher and now just over US$79.50/bbl.
The Kiwi dollar is unchanged as well at 69.3 USc. On the cross rates we are still at 91.4 AUc and at 58.9 euro cents. That leaves the TWI-5 at 72.1.
Bitcoin is now at US$8,203 and that is -1.7% lower than this time yesterday.
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