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US offends allies on trade; Google to give up Pentagon AI contract; US PMIs mixed; Chinese reject US trade position; Swiss mull money policy; UST 10yr 2.90%; oil and gold drop; NZ$1 = 69.8 USc; TWI-5 = 72.8

US offends allies on trade; Google to give up Pentagon AI contract; US PMIs mixed; Chinese reject US trade position; Swiss mull money policy; UST 10yr 2.90%; oil and gold drop; NZ$1 = 69.8 USc; TWI-5 = 72.8

Here's our summary of key events over the weekend that affect New Zealand, with news American economic policy isolation is getting serious.

As part of the preparation for the G7 summit in Quebec later this week, the G7 finance chiefs issued a rare rebuke of a member nation, saying American trade actions undermine global economic confidence and threaten the effectiveness of the Western alliance. The statement actually singled out and named the Americans, the largest and most important member of the group, saying “decisive action” is needed at a leaders summit in Quebec. The ministers told US Treasury Secretary Mnuchin to “communicate their unanimous concern and disappointment".

So, while on one hand the Americans complain about "unfair trade practices" against China, they are busy applying unfair trade practices against their allies - and on the basis of "national security". It is hard to see how their negotiators have any credibility. Rot at the top, based on "inexhaustable vanity". Actually, perhaps NAFTA is now dead. The disconnect with reality was emphasised by a senior White House economic adviser, Larry Kudlow, saying it is the Canadians who are overreacting by being unhappy with the American tariffs.

Google has said will not renew a contract to do artificial intelligence work for the US Pentagon sources say although there has been no official statement from the company. The decision follows strong opposition in the technology giant's workforce. A number of Google employees resigned and thousands of others signed a protest petition against taking part in the Pentagon project, known as Maven.

The release of American PMI indexes over the weekend brought mixed results. The closely-followed ISM one was up strongly to 58.7 while the more international Markit one was down slightly to 56.4 for the US in May. Take your pick.

In Beijing, the Chinese have been hosting the American in trade talks. They will have been 'frank'. They ended with the Chinese warning the Americans that any agreements they make will be at risk if the Americans dud them too with unexpected tariffs. The talks have ended without any deal.

And staying in China, the contribution of high-value-added industries like biotechnology and financial services to China’s overall economy hit a seven-month low in May, according to a private index. The index says that 26.8% of Chinese GDP is accounted for by these high tech and financial sectors. Entry level salaries in these sectors average NZ$2,330 per month, or NZ$28,000/pa.

In Switzerland, they will be voting on a referendum question about money. The idea is that only the state should "create money". A “yes” vote would mean banks could lend only the money they administer in savings accounts, or what they get from relatively expensive money markets and the central bank, and it would crimp the central bank’s ability to intervene in currency markets. Even the central bank is opposed. The vote is on June 11 (NZT), a week from today, and recent polling suggests the idea will go down to a heavy defeat.

The UST 10yr yield is up by +3 bps to 2.90% as markets see Fed hikes are now more certain. The Chinese 10yr is down to 3.65% (unchanged) while the New Zealand equivalent is at 2.77% and that is also unchanged from where we left it on Friday.

Gold is at US$1,293/oz.

Oil prices are now just on US$65.80 while the Brent benchmark is now just on US$76.80/bbl. The spread at +US$11 is its highest since February 2015, and back then there was a US export ban which was ended at the end of 2015. It seems that so much new crude oil is being produced in the US, its infrastructure to their export ports just can handle it all, keeping local prices restrained.

The Kiwi dollar will start the week at 69.8 USc. On the cross rates we are lower at 92.2 AUc and at 59.9 euro cents. That puts the TWI-5 at 72.8.

Bitcoin is firmer and now at US$7,693, up +3.5% and above NZ$11,000 for the first time in 12 days.

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

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47 Comments

Half of America wishes the nightmare would finally end. The other half is the nightmare.

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... the other half failed maths ...... but subsequently went to Trump University ...

And passed with flying colours ...

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its infrastructure to their export ports just can handle it all....
I think there is a typo

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China steel Production
https://wolfstreet.com/wp-content/uploads/2018/06/World-steel-productio…

Full article
https://wolfstreet.com/2018/06/01/who-dominates-the-steel-trade-that-tr…

This involvement in steelmaking by various government entities extends beyond the giant steelmakers. These steelmakers also receive no-questions asked funding from the four state-owned megabanks in China. Many of the steelmakers’ largest customers are also state-owned. China’s central bank, the PBOC, is part of the same team and makes sure that the state-owned banks don’t collapse from the results of their lending practices to state-owned steelmakers that have turned into loss-making zombies.

It is Chinese government entities that together as a team totally dominate the global steel trade.

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Good to see the G7 members (minus the US) are so positive about free-trade. I will expect those members to remove their tariffs and subsidies asap. That has to be good news for NZ exports especially around diary and other agriculture. Who knew all it would take for the EU to remove tariffs was for the US to impose a few themselves.

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Teehee. People just don't like it when their rorts get messed up. The whole conception of the EU is as a protectionist zone with imperial pretensions. The Monet doctrine of centralisation by repeated crisis is straight out of the authoritarian handbook. Yet people don't see it, they fall for the wonderful vision of impossible things.

Interesting times.

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Such a waste of (fiat) currency, pretending that the "Cold War" still exists.

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Does the USA need the world as much as the world needs the USA? How long might it take to find that out?

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Roger, things are about to get a whole lot funnier: word is Melania has flipped and is actively cooperating with Robert Mueller and his team. It's why she suddenly disappeared a few weeks ago behind that incredibly lame "kidney problem" smokescreen and it's why Trump is now preparing everyone for his eventual self-pardon.

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A whopping 95.9 million Americans are no longer in the labor force

https://www.sott.net/article/387188-A-whopping-95-9-million-Americans-a…

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I am not as widely read as you AndrewJ. Obviously...well done....good reading.

I think America have more printers than ever. I think they have more twitters than ever. I think they have more issues than ever....As far as eye can see.....

Talking up the Paper Dollar.

Steeling others thunder.

They also have more "Pickers than ever".....as far as Free to air...TV is concerned.

2nd hand junk at astronomical Dollar prices. What gives, cannot we make a program for ourselves.??.

One mans junk is another mans treasure.

I got plenty...

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between 7-10,000 people retire every day in the States, lots more junk to come when they start dying in droves.

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Nearly half of the American workforce retires between 61 and 65, while nearly one in five retire before 60. People tend to get by with incomes lower than $25k in smaller US towns and cities due to low costs of living and working spouses.
Can the high labour force participation in NZ attributed to high cost of living?

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Isn’t the entire EU a protectionist zone?
Operating from a non-democratic powerbase.
So what are they complaining about re the US?

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Google going morally superior is a laugh. Since the europeans raised the issue I have 'played' with trying to distance myself from Google. That company has entwined itsef in everything I do to the extent the only way to get rid of them would be to go non electronic. Folks - take a look at your Android phone and try to untangke Google from it. The google which you have given every imaginable permission to. Even throwing the phone away will do only oart of the job as a legacy remains.
Mind you there is Apple - but thats just another cancer.

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Interesting - thank you.

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"In Switzerland, they will be voting on a referendum question about money"

The Swiss are amongst the smartest people in the world, I wouldn't discount the idea

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Hmmm, I must wiki and find a list of the worlds smartest countries....
However if they are that smart why did they ignore the development of the electronic watch and ruin their watch industry.
However, I have heard the women dont work and the men go home for a cooked lunch.
I suppose that is smart.

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I talked to a local watchmaker, apple sell more smart watches in a month than the whole of Switzerland watch industry.
https://techcrunch.com/2018/02/13/apple-and-android-are-destroying-the-…

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Isn't that a quality vs quantity argument though. Plus what about the technology that is used for watches are they not licensed. I don't know, but I have seen Swiss watches for over 100K. Its not an apples vs apples argument.

This is more of a question as I'm not sure.

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I suspect it depends on China.

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Go along with that. Omega, Tag Heuer, Longines, Rado, not to mention Rolex, are well in the realm of status symbols. Those sort of people would never ever wear a Seiko. I still have my 1966 Hafis wind up gold watch going strong. Used to always travel with it, back up when the quartz one went flat.

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Tks Andrew, good info. Yes the generational change is gathering way. . State of the art technology versus the old guard as far as your image is concerned. And of course the Bahnhofstrasse. Bought a pair of Bally boots. Only as they were on sale and an odd size. There it is.

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Look at us making fun of the Swiss for their high-end watch making industry when in fact our largest industries put us in direct competition with 3rd world countries. I have spent enough time with the Swiss to know that they mean business.
The revenue earned by the top 3 Swiss companies are more than our national economy.
If you list the largest Swiss companies by revenue, the first watchmaker appears on number 29. Maybe you have heard of ABB, Nestle, Roche, Glencore, Novartis, Holcim or Schindler.
On your comment about going home for lunch, you should read a bit about productivity and educate yourself on how toiling for long hours at work does not mean better output. New Zealanders are out of the most overworked and underproductive in the OECD so we ought to learn that.
It wouldn't hurt to read a bit every once in a while before commenting.

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Have some years experience of working with the Swiss. Unproductive no. Inefficient no. Unprofitable no. Unreliable no. Knowledgeable yes. Humorous sometimes. In summary excellent business people producing excellent product.

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Excellent, Advisor and Foxglove. Only people unwilling or unable to better themselves find comfort in criticising those who are doing well.

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I was talking to a school social worker, she talked about the children who see welfare as a suitable career, just like their parents.
John Knox transformed Scotland, he wanted people to be able to read the bible, every parish had a school. Ended up with Scotland having %80 literacy while England at the time had under %30.

http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S0259-942220…

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Well you can read if you like but I was drawing from an Expat that worked in Switzerland in a hightech industry.
I dont share your adultation of brands, here today and gone in the next takeover.
Long lunches.....gone in our society
Are they smarter and work smarter..unlikely...

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"I dont share your adultation of brands, here today and gone in the next takeover."

Like Rolex, Omega, Nestlé, Novartis, Roche, ABB, Toblerone, Lindt, UBS, Credit Suisse, Zurich Insurance, Swiss RE....

You are talking absolute rubbish, and yes, they are working smarter

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Well, its tuesday and we can return to the vexing question of the european bull semen and whether they test for M.bovis.

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Such lists do exist.

When I was young it was common for NZers to claim that Kiwis were extraordinarily smart. Having the population the size of a large city NZ produced quite a number of "smart" people. If they all came from one city it would have been kind of weird apparently.

Switzerland is primarily composed of German, French and Italian folk though. I remember asking a Swiss visitor if she was from the German side, she looked Germanic to me, and she replied that in Switzerland such questions are forbidden. They're all just Swiss officially.

I believe Yvil once said that he hailed from Switzerland so he may be a little biased :)

Also if you can claim a certain people are the smartest can you claim that others are the dumbest? I have often seen people on this thread claiming that Kiwis are, "so dumb lah". This is actually quite perceptive as Kiwis are indeed the most ignorant of those in the developed world according to the Perils of Perception survey:

https://www.ipsos.com/sites/default/files/ct/news/documents/2017-12/ips…

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Ignorance is not the opposite of intelligence. Nor does intelligence necessarily lead to a broad body of knowledge. So yeah, not sure what the use of comparing apples to skateboards is?

ETA: after looking at the link above, turns out Kiwis were 19th of 38.. so smack bang in the middle contrary to what ZS implied. And at least when asked, we also said we weren't that confident in out answers being right, which I think is much better than the result for India, who were 5th least correct, but had the highest confidence level in their answers... whoops..

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Developed world, Pragmatist, Kiwis are at the bottom of the developed world.

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Still apples and skateboards..

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Had a look at you link but to me only showed NZ has self awareness, a valueable trait.
I take exception to a claim that any society is smart and I believe that brands are just drivel.
Smarter...dont think so...

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That's very typically Kiwi of you. It's amazing how your comment perfectly matches the conclusions of the survey. Thank you.

My theory is that believing a certain group are smarter than another, usually your own, is a technique for success. If you truly believe you are smarter this can give you an edge. Conversely thinking that you are dumber can lead to failure. It is an effective group survival strategy to believe you are smarter and special.

It's complicated though because if the enemy believes you are smarter they more likely to go "nuclear" on you. WW2 was an example of this. And after the war there was a mad rush to grab the best German scientists (Operation Paperclip & Operation Osoaviakhim). Later when the Russians launched Sputnik the Americans noted that their failure was only because the Russians had outsmarted them by managing to grab the smartest Germans.

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Well,
I dont know that much except from watching " von Trapp family" in the Sound of Music where I found out they like cows ad yodelling...

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Von Trapp family was Austrian......

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Thanks Zach. Would think a few selective rapier thrusts from the Swiss Guard might brighten our average up too.

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"Kiwis are indeed the most ignorant of those in the developed world according to the Perils of Perception survey."

And thus - bliss?

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It was poetic licence...I knew....

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