Here's our summary of key events overnight that affect New Zealand, with news of very robust service sector expansions worldwide.
Firstly however, the overnight dairy auction has brought a small slip in overall lower prices. They were down -1.3% in US dollar terms but a much more chunky drop in NZ dollar terms at -3.7%. WMP prices are down -1.1%, but both butter and cheese both had falls of about -3.5% in US dollar terms. Overall prices however remain in the range that has existed since early February. Year-on-year we are down -4% in USD terms, but only -2% in NZD terms. So overall, a pretty uneventful auction and payout forecasts are unlikely to be changed by today's event. But it is a weak start to the new dairy season.
In the US, the activity in their giant services sector accelerated in May, pointing to robust economic growth in the second quarter. The official measure of job openings reached a record high in April (although to be fair, it was little changed from the prior month). But in a slightly longer view, trade tariffs and the shortage of workers poses a threat to the outlook. In fact, there are now more job openings that jobless at present.
A more worrying threat comes from the American Social Security System. In a report out today, the trustees say its cost will exceed its income this year for the first time since 1982, forcing them to dip into its nearly US$3 tln trust fund to cover benefits. Those reserves will only last another 15 years or so, meaning after that benefits will need to be curtailed unless contributions rise somehow. There is little political appetite at present for that.
China is claiming that its service sector is growing even faster than previously, up +11.9% year-on-year in the first four months of 2018. That is far faster growth than the overall economy. More credible data shows their services sector expanding at an unchanged and modest pace.
A global survey of the world's service sector shows that expansion is accelerating.
In the UK, their government has sold 7.7% of its holding in nationalised bank RBS. On this transaction, it has incurred a loss of almost £2 bln. Sadly for taxpayers, it still owns 63% of the troubled bank, and aims to sell most of the rest by 2023. Huge losses await British taxpayers who paid £45 bln to rescue this key bank. The British government doesn't use normal accounting practices, so that mark-to-market loss is unbooked yet.
In Sydney, the former head of NSW Infrastructure has called their troubled light rail systems "vanity projects' that were never justified on transportation needs. Adding to their contract woes, construction being hit with strikes today.
And Australia's largest apartment developer is feeling the pressure as banks bring in tighter lending standards for borrowers.
But Kiwis aren't feeling that pressure yet. New car sales in May were their highest ever for that month, up more than +10% on the same month a year ago. SUV sales are now up to a remarkable 65% of all cars sold, up from 58% in 2017.
The UST 10yr yield is slipping today, now at 2.91% and down -3 bps on the day. The Chinese 10yr is at 3.68% (up +1 bp) while the New Zealand equivalent is at 2.81% (up +4 bps).
Gold is a little higher overnight, up +US$6 to US$1,298/oz.
Oil prices up +US$1/bbl to be just over US$65.50/bb, but the Brent benchmark is down to US$75/bbl and the US discount is narrowing.
The Kiwi dollar will start today little changed at 70.3 USc. On the cross rates we are a little stronger at 92.3 AU, but little changed against the euro at just on 60 euro cents. That puts the TWI-5 up to 73.1.
Bitcoin is now at US$7,626 which is +2% higher than this time yesterday.
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