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 ».