US and China exchange tariff hikes; commodity markets drop; US industrial production droops; Canada house sales hit 5yr low, emerging markets battered; UST 10yr 2.92%; oil and gold sink; NZ$1 = 69.4 USc; TWI-5 = 72.8

Here's our summary of key events overnight that affect New Zealand, with news the cavalier American political point-scoring is roiling international trade prospects.

The US President announced 25% tariffs on 800 Chinese products worth about US$50 bln of trade between the two countries. Beijing said it will respond in kind and now has done. The American move looks set to ignite a trade war between the world's two largest economies.

Wall Street greeted the news with dismay, closing lower. Commodity prices tanked.

Meanwhile, American industrial production ended three straight months of growth with an unexpected decline. Output slipped -0.1% in May from April in seasonally adjusted terms, the Federal Reserve said. Analysts had expected a +0.2% rise. That lease year-on-year growth at just +1.6%. Production of consumer goods and business equipment led the numbers lower.

Going the other way, consumer sentiment rose slightly in early June due to consumers' more favourable assessments of their current financial situation and more favourable views of current buying conditions for household durables.

In Canada, sales of existing homes hit a five year low in May, according to industry data. The data was a seven year low for May data. However, sales in Toronto rebounded, and in Vancouver they were also higher. National prices were down -6.4% year-on-year but are up a startling +11.5% in Vancouver led by townhouses and apartment prices.

In Japan, their central bank maintained its ultra-loose monetary policy overnight. It downgraded its view on inflation, signalling that it will lag well behind its American and European peers in rolling back crisis-era stimulus.

Data out of Europe overnight mostly came in as expected for trade and consumer prices. But their labour costs took a jump from +1.4% pa to +2.0%, but that was largely on the back of higher taxes on employment rather than wage or salary increases

In Argentina, their currency resumed its sharp downward fall caused by the sudden resignation of its central bank governor. The rapid appointment of a market-friendly figure did nothing the stop investors facing for the exits.

In Turkey, their currency slid an eye-popping -6%. There is a liquidity crunch there and 10-year bond yields rose for a third day toward the highest closing level on record, as traders braced for a deluge of debt sales next week.

The UST 10yr yield is sliding at the market close to 2.92% and down -2 bps in New York today. The Chinese 10yr is at 3.65% (up +2 bps) while the New Zealand equivalent is now at 2.94% and unchanged after yesterdays chunky fall.

The VIX is back into a normal range at 12.1, the same as this time last week. The average index level over the past year is 12. The Fear & Greed index is moving further over to the 'greed;' side of the index, the most we have seen that in that direction in more than a year.

Gold has tanked, down -US$23/oz in New York to just US$1,279/oz in New York.

Oil prices have also slumped today by about -US$2/bbl and the US price is now under US$65 which is now below it was at this time last week. The Brent benchmark is now just over US$73/bbl also well below this time last week. The US rig count is basically unchanged.

The Kiwi dollar is ending the week just marginally lower at 69.4 USc. On the cross rates we are at 93.2 AUc and at 59.8 euro cents. That puts the TWI-5 at 72.8 and approaching a seven week high.

Bitcoin is now at US$6.547 and little changed from where we left it last night.

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

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31 Comments

G7 Summit Highlights Western Leaders’ Hypocrisy

https://m.theepochtimes.com/g7-summit-highlights-western-leaders-hypocri...

That is truly shallow analysis. It focuses on goods trade only. It ignores services trade because that undermines the narative. And it completely ignores the trade value captured by companies of various nations. In the US case, its a surplus of US$1.2 tln. That's a +6.3% surplus for the US of US GDP and far more than the -3% goods trade deficit or -2% goods & services deficit.

To me, this type of 'analysis' just reinforces the superficial nature of American policy making at present. Every other country leader knows the full impact, except Trump. It is willful blindness. When he figures it out, I expect we will hear a repeat of the "who knew it was so hard" excuse he used with healthcare. Only you, Donald, and your one-eyed supporters. (By the way, The Epoc Times is one of them, a falun gong business. It's an unwise, unreliable source.)

"someone is going to get hurt real bad" .. (ref. Russell peters)

Interesting info about The Epoc Times.

However why can't you just focus on goods trade only? If another country puts tariffs on your goods you can do the same to them surely. If they slap tariffs on your cars you slap tariffs on theirs. It's beside the point that you are making a profit in another entirely different sector.

Also a lot of this extra trading mainly benefits multi-national globalist corporations and may not benefit the common US worker all that much.

Or why don't we focus on the services only. Or even more absurdly on neither - ignore trade balances altogether. The balance of trade should include all sources. Policy should be based on evidence not political rhetoric for home consumption (and realistically this is the reason why the tariffs have been introduced).

A more interesting question to ask - is there any evidence that this will improve the financial well-being for US workers or just make things worse.

Thanks for explaining that.

The tariff structures that are being proposed are carefully crafted, Trump tarrifs solar panels, China opens solar plants in the US and then suprisingly, reduces subsidies on solar generation.
Outcome of that is a estimated 30% drop in the global price of panels.
What is not to like.
Its all a carefull unpicking of some agreement that made china the producer of cheap goods to the world, benefits were mixed....

Low interest rates, asset hyperinflation and record migration is neither enough to keep business confidence high nor push wages and job security higher. Who exactly is benefitting from these policy arrangements?

"Europe’s economy seems to have hit a wall. Yesterday’s maneuvers merely solidified those worries. If the central bank has grown visibly more cautious, and central bankers by rigid doctrine are the most optimistic forecasters on the block, then it indicates there really is something to these growing economic concerns."
http://www.alhambrapartners.com/2018/06/15/dovish-uncertain-therefore-do...

US farm subsidies are $20 billion annual, I guess some bleeds ints export prices.
We dont subsidise ag....do we?

Canada and the EU heavily subsidise their agricultural sectors as well. In Germany, they say what you save from low food prices is made up with higher taxes.
Australia and New Zealand are at the bottom of national spending on agriculture as a percentage of GDP.

No we subsidize its consequences, Capital Gain and all expenses, plus GST, Plus pay more for food, than most countries around the have ever experienced. Per Capita .

Repair their roads...Dam them.

We may only have a small population, plus Tourism etc, but we have been subsidizing our Dear Leaders, their mistakes and their Animal and Growing Taxation and Clean-up Policies. We even subsidize their Land Banking and Housing .."Invest-a-ments".

Even the Middle men in the co-op-err-ratives are heavily subsidised, They can do no wrong...on Balance.

Lose millions, no recourse...

Cheese up...block down, no matter, must not let em eat into the "Profits"

It is others who pay. Even here, when Dollar on our side.......of the bench mark and Hedges we pay for.

All our Workers issues are compounded by bad-luck, Bad Weather, Bad soil, Bad Pick Rates, Bad Import/ Export Policies, they were almost lucky if they break even., plus Tax is deducted at source, not levied after a Year of Accountants...due Diligence.

Oh and then there is the Exchange Rate and Banks to contend with....nuffin Tax evasive for Seasonal Workers, Eat, GST, Drive, Petrol Tax...etc..Taking a Break from Studying, renting and tenting in this Fair Land.

Of sudden storms and no "Real" accommodation, except those exploited by the rental-Mental Brigade, packed in like heaps.

And add in the fact we Tax every single Dollar, on PAYE unlike most other Countries,, I am surprised the Workers employed in this Fair Land, cannot see where the Loot is stored. It is all around em.

Then we expect em back for more of the same....left their kids, missus......No wonder they turn to Asian Influences....Except that is even 'Worse"..little do they know.

I don't get even close to retail when products leave the farm. Dairy farmers get $6.50 for kg a milk solids about 11 litres but before it gets to you they suck %25+ of the cream out. i purchased a litre last week paid $2.64 for it multiply that by 11 and you wonder who make3s the money.
NZ pine 4x2 is cheaper in Australia than NZ, we have a racket thats played out between the grower and the consumer.

I suspect we may have seen the last of the commodity highs for a while.

https://finviz.com/futures_charts.ashx?t=LB&p=w1

https://finviz.com/futures_charts.ashx?t=ZM&p=w1

Biggest shock I got buying food in NZ, was that I had been buying NZ lamb in the UK cheaper than I could in NZ. True story.

cost structure here is way out of whack, I suspect its going to bust.

Yeah that is one downside NZ meat and veges are cheaper overseas. Buying & living locally is not affordable for many NZders. But living & buying NZ from outside the country is... hence many who jump ship. Although we still have cheaper wine in NZ to drown our sorrows... I think the beef & lamb would be healthier.

I prefer the bigger overall picture....ANDREWRJ

Red a lot into it this morning.

Someone will cream it...I think the raquet is quite well Spread...though. Butter...etc.

Us mere mortals will suffer the pangs of outrageous Fortune.

Maybe a Flag for the Bulls. This is one big Supermarket....for the Gamblers ...Unanimous..

https://finviz.com/futures.ashx

Lets make America........well see for yourself..

https://www.marketwatch.com/

"Objectively, global markets indicating such fragility in the face of extraordinarily low rates and about $100 billion of ongoing monthly QE portends difficult challenges ahead. The notion that you can inflate your way out of Bubbles is The Great Fallacy of contemporary central bankers. They've inflated only bigger Bubbles. "
http://creditbubblebulletin.blogspot.com/

perhaps the biggest bubble of all
http://www.bbc.com/future/story/20170223-chinas-zombie-factories-and-unb...

Goodness me, interesting comments from 17mins onwards about margin pressure on Aussie banks being squeezed by increases in offshore funding. I think the interest rate competition we are seeing here well and truly is the fag end of the credit bubble, the banks can only cut their own throats for so long

https://youtu.be/0qehHMtJ7hk

The housing ponzi games is coming to an end, much to the dismay of many avid participants

HO, look the Auckland houses are overpriced compared to yield, however there are still plenty of people to buy them.

The thing is even if they drop by 10 to 20% they are still not going to be affordable for most of the people sitting on the sidelines.

As usual you don't make sense, if prices fall by 20% and still unaffordable, then it's clearly a Ponzi scheme run by unscrupulous specuvultures

There are two types of investors, those who make informed decisions based on fundamentals and others who follow the herd, you definitely seem to be the latter

HO, sorry but it makes perfect sense.
If prices in Auckland dropped by say 20% there will be a lot more that can afford to buy, but many who only have access to say only 600k will still not be able to buy, and will continue to rent.
I personally make decisions by knowing what houses are really worth and buying well below that!
I definitely do not follow any herd, and anyone that knows “The Man” will tell you that he would be be the best property investor that they know!
I have helped several people become far more financial thru property!

I feel bad for those that have followed your advice, hypnosis performs miracles, no wonder they feel well off

If the USA only exports %12 of it's gdp, what is China to do? Brazil won't have enough Soy to supply Chinas demand, they will be forced to buy of the USA, all the Tariffs will do is increase costs to the Chinese consumer. The world markets outside the USA,won't be enough to supply the demand from China without significant price increases.

This article has some interesting comments about how the tariff's are hurting people in the US

https://www.nytimes.com/2018/06/15/opinion/sunday/trump-china-tariffs-tr...

This article hints that beer could become more expensive because of the tariffs

https://www.wsj.com/articles/canned-beer-pays-price-for-trump-tariff-152...

Similarly steel users could lose out as price competition is reduced and prices increase.

https://www.uschamber.com/series/above-the-fold/costs-of-recent-trade-po...

I don't believe that anyone will win in this trade war and all that will happen is that people will start to game the system for their advantage.

"If you're in government who doesn’t like a real estate bubble or a massive inflow of capital. You basically put a medal on yourself and say the economy is booming because of you," he said. "You know the economy is a disaster but you try to avoid the pain."
http://uk.businessinsider.com/argentina-crisis-economist-daniel-lacalle-...