US slaps tariffs on China, China retaliates; US factor production sags; Canada house sales drop; China power consumption leaps, EMs struggle; UST 10yr at 2.92%; oil and gold drop sharply; NZ$1 = 69.5 USc; TWI-5 = 72.8

Here's our summary of key events over the weekend that affect New Zealand, with news threats to trade are rising, but not precipitously so yet.

The US President has announced 25% tariffs on 800 Chinese products worth about US$50 bln of trade between the two countries. Beijing responded in kind.

Wall Street greeted the news gloomily, closing lower. Commodity prices tanked. Just the fear of a trade war is restraining the global economy.

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

Going the other way, American 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. 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 China, new data on electricity consumption shows it up more than +11% in May from the same month a year ago. Factory consumption was up less than +8%, with service sector and residential consumption rose at about twice that rate. China is just not adding generation capacity at anything like these rates, so the consumption growth is unsustainable.

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 toward the highest closing level on record, as traders braced for a deluge of debt sales this week.

In Indonesia, their central bank governor said another rate hike there is on the cards at their June meeting to protect their currency. Korea and Thailand are also now on the EM watchlist.

In Australia, Westpac identified a rogue adviser and dismissed him. Now the regulator is suing for hiring him in the first place. It is dangerous for banks no matter what they do to clean up their adviser networks.

And the Aussie bank Royal Commission fallout seems likely to clamp down on Mum & Dad loans, and cast a pall over most small business lending. Australia is facing a serious credit crunch.

The UST 10yr yield eased to 2.92% and down -2 bps . The Chinese 10yr is at 3.65% (up +2 bps) while the New Zealand equivalent is now at 2.94% and unchanged.

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

Oil prices have also fell again by another -US$2.50/bbl and the US price is now on US$65/bbl. The Brent benchmark is now just over US$73/bbl.

The Kiwi dollar will start today at 69.5 USc. But on the cross rates we are firmer at 93.2 AUc, and 59.8 euro cents. That keeps the TWI-5 at 72.8 and still in its very tight June range.

Bitcoin is still at US$6,505 and the general level it has been at for the past six days.

This chart is animated here. For previous users, the animation process has been updated and works better now.

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

Daily exchange rates

Select chart tabs »
The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

34 Comments

looks like the global economy is on the turn

Must be the Governments fault surely?

Yes, Trump..

"But in an unexpected development - because as a reminder we already knew that the market had priced in an inversion in the short-end of the curve - something remarkable happened last week: the entire global bond curve just inverted for the first time since just before the financial crisis erupted.'
https://www.zerohedge.com/news/2018-06-16/global-bond-curve-just-inverte...

What are they talking about. None of them actually inverted, Or even came close to inverting.

https://www.federalreserve.gov/releases/h15/
https://www.rbnz.govt.nz/statistics/b2
http://rba.gov.au/statistics/tables/#interest-rates
https://www.bankofcanada.ca/rates/interest-rates/canadian-interest-rates/

Flick a message off to JPMorgan's Nikolaos Panigirtzoglou and ask him what the hell is he thinking.

"The US yield curve has started showing first signs of inversion. As shown in Figure 1 which depicts the forward curve for the 1-month OIS rate the US yield curve is currently slightly inverted after the two-year forward point."

David I think you missed the unequal weighting .

"The answer is in the unequal weighing of US duration in the JPM global bond index: specifically, as Panigirtzoglou explains, the US has a much higher weight in the 1-3 year bucket, around 50%, than in the 7-10 year bucket, where it has a weight of only 25%.

This is because in terms of the relative stocks of government bonds globally, there are a lot more short-dated US government bonds relative to longer-dated ones as the US has lagged other countries in terms of the duration expansion trend that took place over the past ten years.

This is shown in Figure 3 which shows the average duration of various countries’ government bond indices over time. It is very clear that the US has failed to follow other countries in the past decade’s duration expansion race and as a result there are currently a lot more non-US government bonds in longer-dated buckets which are typically lower yielding than the US. And a lot more US government bonds in short-dated buckets which are typically higher yielding."

Still got a while to run.

Edit: But any fireworks will still be during Trump's tenure.

"Beijing surprised oil markets with threats to levy tariffs on imports of U.S. crude oil, natural gas and other energy products on Friday, just as China has risen to the top of the list of importers of oil from the United States."
https://www.reuters.com/article/us-usa-trade-china-oil/china-surprises-w...

China willing to cut off its arm just to stick it to the US - and all this while we thought only Trump would be willing to go all Kamikaze to prove a point!

Hardly, China gets it's oil from the Middle East and Russia now that the US no longer needs to. This just strengthens their growing domination via one belt one road. Trump is a handy excuse to further their interests.

Get it right, Mr Witherspoon. You are in danger of being as wrong as the New Zealand media.

Google US oil consumption. 18-19 million barrels a day, yes?

Google US oil 'production' (actually, it's extraction, not production, but never mind) - and fro all sources, conventional and unconventional less than 10 milion barrels a day.

I'll leave you to do the math......

Dont panic "market crash unlikely"

https://m.oneroof.co.nz/news/the-crash-that-really-isnt-35045/?ref=nzhhome
just ignore the data and hope this time is different...

Only a fool would hope for a market crash. I hope you're not one moneyphobe!

LOLdgz......and the biggest fools are the leveraged who believe a crash will never happen and are rendered as the cause of it.

They are all fools. As Gandalf put it: "Fool of a Took!"
https://www.youtube.com/watch?v=CPLq-5e6ulE

Enough with Lord of The Rings links....you sound like a hobbit

Ups and downs are parts of a normally functioning market. The crazy thing to do would be to try an borrow the crash away - it only makes the crash worse when it comes.

up
12

Only a fool, or someone with their snout in the trough, would wish for the status quo to continue. Time to clean out all the hangers on in the economy doing nothing and create some room for those doing something productive. Doing nothing includes all the wankers in real estate.

Very true scarfie it is a parasite on our economy.

'And the Aussie bank Royal Commission fallout seems likely to clamp down on Mum & Dad loans, and cast a pall over most small business lending. Australia is facing a serious credit crunch'
Thanks for highlighting and stating the truth David, I wonder if any of the property perma-bulls have any idea what this might lead to?
'Oxygen masks will fall from the overhead compartment, please fit your own mask before attending to anyone else who attended the New Zealand Property Investors Seminar with you.'

The prices of houses sold by auction in Australia plummeted this weekend, not just in across total market volume but actual total market value. Compared to the previous weekend a year ago, the average sales transaction for Sydney was down over $600K.

http://digitalfinanceanalytics.com/blog/how-much-are-auctions-down/

I wonder if this is why there is a confidentiality agreement in place between our regulators and the banks?

Regulators want to hide the "click" of multiple guns cocking. Might spook the sheeple.

'And the Aussie bank Royal Commission fallout seems likely to clamp down on Mum & Dad loans, and cast a pall over most small business lending.

Bank lending for small business lending in Australia is inextricably linked to housing assets.

Yep, it’s a right proper credit crunch in Aussie at the moment. Their credit bubble is well and truly in reverse, and that crazy mortgage credit ain’t coming back any time soon, it’s a permanent reset

https://en.m.wikipedia.org/wiki/Credit_crunch

"And the Aussie bank Royal Commission fallout seems likely to clamp down on Mum & Dad loans"

To be clear the proposal means that banks would have to warn guarantors (like parents) that they are putting their house on the line by guaranteeing a loan.

Personally I thought this was pretty obvious but maybe some mum & pop's didn't realise this?

“Yeah but house prices only go up, right? So what’s the problem? You can’t lose?” That attitude is the real problem

There will be some very difflcult moments around Aussie dining tables in the next 12 months....ugly

Bob the builder, house prices always go up in the long term. You have a problem with people who can't lose??

Well, yeah, thats right, provided in the meantime you can make debt service and can stay solvent. Let’s we what happens in Aussie over the next 24 months, I think your theory is going to get tested to destruction

I also think this bank of mum and dad stuff is a bubble market phenomenon and there’s going to be some really tough and sad stories coming out of Aussie as their bubble deflates. yuk.

tell that to the Japanese

Time and again you fail to see the bigger problem. This microscopic view to worldly issues is causing most of todays problems

I think "myopic" is more accurate than "microscopic."

You may be scientifically correct