Here's our summary of key events overnight that affect New Zealand, with news of fiscal wobbles in both the US and Europe.
Firstly, American consumer prices last month rose at their steepest annual growth rate since 2012, up +2.8% pa and exactly on analysts expectations and reinforces the Federal Reserve's own forecasts. Excluding food and energy, they are up +2.2% pa.
But of course inflation at this rate is undermining pay increases, so real pay gains have now evaporated.
The upshot of both these data sets is that the US Fed will almost certainly raise its policy rate tomorrow by another +25 bps to 2%. That would take it back to the level we last saw in September 2008 - a decade ago - and for the first time (ever?) will put the US policy rate above the New Zealand OCR.
Meanwhile, the US monthly Federal Budget deficit increased to -US$147 bln in May, -$20 bln above what analysts were expecting. Tax receipts were -9.7% lower than the same month a year ago, spending outlays were +10.7% higher. Fiscal management in the US is deteriorating quickly. Their public debt outstanding has reached -US$15.4 tln (not including "intergovermental holdings"), and that is up from -$14.3 tln in the same month a year ago - a -US$1.1 tln (+7.7%) rise in one year and the fastest deterioration in their history.
Their government might not be managed prudently, but American companies including those with a global presence, are certainly on the right side of the ledger. Deutsche Bank analysts have shown that the true trade balance with the rest of the world is +US$1.4 tln, rather than the officially claimed -US$0.6 tln deficit. This summary is well worth a read.
In China, times are tough in their coal belt. One city there failed to pay its employees salaries in May due to fast-declining tax revenues that are largely based on coal output.
In Germany, the mood among investors took a deeper-than-expected slide in June, weighed down by concerns about the impact of an escalation in a trade dispute with the United States and political instability in Italy. An even more unexpected slide is gripping the wider EU investor base generally. This poor outlook comes just a day before the ECB is due to meet and probably signal some sort of tapering plan.
In Australia, the Queensland government Treasury is warning that they may be in for a deficit-threatening downturn from a property market at risk of turning. They have concerns about the over-supply of up to 15,000 apartments in Brisbane's property market combined with a fall in apartment prices of more than -20% in recent years. Their central concern is that the turn will come as similar turns come in Sydney and Melbourne.
Closer to home, Greens minister Eugene Sage has approved a Chinese-owned company to purchase land to expand the existing Otakiri Springs water bottling plant near Whakatane. The company will now expand by investing more than $40 mln over four years to upgrade the plant and establish two new bottling lines. All the product will be exported to China in plastic single-use bottles.
The UST 10yr yield is at 2.96%, up +1 bp since yesterday. The Chinese 10yr is at 3.69% (up +2 bps) while the New Zealand equivalent is now at 3.01%, unchanged.
Oil prices are little changed today and the US price remains just over US$66/bbl. But the Brent benchmark has fallen by about -US$1 to just over US$75.50/bbl. Meanwhile, the official US estimates of likely future crude production worldwide have been scaled back. In 2019 they see demand unchanged, but supply out of OPEC falling. They also lowered their estimates for US crude production as well.
Gold is down -US$4 at US$1,295/oz.
The Kiwi dollar will start today marginally softer at 70.1 USc. On the cross rates we are however a bit firmer at 92.5 AUc, and 59.7 euro cents. That leaves the TWI-5 at 73 and unchanged since yesterday.
Bitcoin is still at US$6,698 which is virtually unchanged from yesterday.
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