Here's our summary of key events overnight that affect New Zealand, with news tensions are spreading in emerging markets.
But first, American household assets rose to US$116 tln (or 6.1 times GDP) while liabilities stayed little changed at US$15.6 tln (82% of GDP). Net wealth rose but at a slower pace in the first quarter that in Q4-2017, but passed the US$100 tln level for the first time ever. While steady gains in home prices continued to bolster household wealth, the decline in stock prices tempered the pace. But rising net worth bodes well for consumers’ purchasing power and will help sustain household spending, the biggest part of their economy. This data is the essential engine of the world economy, although the rise of the Chinese middle class will change the American dominance at some point. (For perspective, on the same basis New Zealand household assets represent 4.8 times our annual GDP.)
More US Fed data shows that the growth in American consumer credit in the year to April is now running at its slowest rate of increase since 2012 (there was one month in 2017 where the data showed a lower year-on-year change however).
In Canada they released their latest Financial Stability Report. They see an easing of household debt loads, but reckon they are still too high. It will take a long time to normalise the situation, the Bank says.
China's foreign exchange reserves stood at US$3.11 tln at the end of May, down -US$14.2 bln from a month earlier. That marks the second straight month of decline.
In South America, Argentina is getting ready for IMF bailout support. The IMF board will meet over the weekend to formally agree the package. But this comes as it's bigger neighbour also shows signs of severe currency stress. Brazil's real has dropped to a two year low overnight, sparking increased inflation fears. The backdrop is unrest after a massive truckers' strike, and they are heading toward a very messy election in October, shaken after bitter corruption convictions of a high profile strongman leftist ex-President.
This new emerging market crisis comes on top of issues in Italy, the collapse of Venezuela, and money flowing out of other emerging economies like Turkey, Argentina, Indonesia and Malaysia. The odour is spreading. Some say it is being triggered by the US Fed's 'normalisation' track, but really, far too many emerging countries borrowed far too much money 'because it was cheap' and are now suffering the consequences of expiring confidence as interest rates rise. And too many of them borrowed without hedging, accentuating their issues. At the heart of many of these countries were dominant 'strongmen' leaders who thought they knew best.
In Australia, the Chinese businessman who bought the huge dairy farms in Tasmania from the New Plymouth District Council in 2016 is in trouble, after breaching the terms of the bank debt he used to make the acquisition.
The UST 10yr yield has fallen today, now at 2.93% and down -4 bps on the day. The Chinese 10yr is at 3.69% (unchanged) while the New Zealand equivalent is at 2.88% (up a strong +6 bps).
Gold moved marginally higher overnight, up +US$2 to US$1,297/oz.
US oil prices are moving up again, now just on US$66/bbl, and the Brent benchmark is up even further at US$77.25/bbl.
The Kiwi dollar will start today unchanged at 70.3 USc. On the cross rates we are a little weaker at 91.3 AUc, and 59.5 euro cents. That puts the TWI-5 at 72.9.
Bitcoin is now at US$7,690 which is +2.5% up from this time yesterday and still oscillating around the US$7,600 level.
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