Here's our summary of key events overnight that affect New Zealand, with news of growing turmoil in markets and trade worldwide.
But first, today's dairy auction brought mixed results. Overall prices were -1.2% lower in US dollar terms with both WMP and SMP prices slipping about -1% each. But with the Kiwi dollar dropping just under 69 USc, the change in NZ dollars was a small +0.7% gain in overall prices. Today's movements won't be changing any farm gate payout forecasts on their own, and prices are still in the tight range we have had pretty much since late 2016. Given what is happening with other commodities and the escalated threats to world trade, today's result is remarkably sanguine.
President Trump said he is readying another US$200 bln in Chinese goods for new 10% tariffs - if Beijing retaliates against his previous tariffs hike. China has already said they will, calling the American move 'extortion'. Beijing is angry now.
Wall Street stocks are falling with the Dow down more than -1%, turning negative for the year. The sharp escalation in the US-China trade dispute is unnerving investors and there is a growing risk-off tone to trading. The greenback rose but bond yields sank.
And Chinese investors are rushing for the exits; more than one third on equities on the Shanghai exchange fell by the maximum -10% and were suspended from trading for the day. The Shanghai SSE index was down -3.8%. It was no better in Japan, where the Nikkei was down a chunky -1.8%. Hong Kong split the difference, being down -2.8%. The NZX didn't fare much better, being down -1.2% yesterday. It was a sea of red in stock markets around the world overnight. Your KiwiSaver values will have taken a hit.
American housing starts rose more than analysts expected in May. They were +4.6% above the April level and +8% higher than the same month a year ago. They are now at their highest level since 2007, driven by a construction rebound in parts of the country that have lagged for much of the economic recovery, as well as an extended apartment building boom.
China's reform moves in its corporate financing sector will be complicated by the trade dispute and stock market reaction. Bond defaults are up as regulators pressure the sector to clean up its act, but they were not counting on systemic pressures at the same time. How many defaults they can tolerate in this time of stress is uncertain. Until now, new corporate bond issuance has been high. Debt levels are China's economy Achilles heal.
Just how nervous policy makers are at present was emphasised overnight with the ECB chief saying they could delay their tapering if things get too wobbly. This is why bond yields have tanked overnight.
And in case you missed this yesterday afternoon, house prices are falling in Australia's largest cities. Sydney recorded the third consecutive quarter of falling property prices (-1.2%) and the first annual price fall (-0.5%) since the March quarter 2012, while Melbourne property prices fell -0.6%, the first quarterly price fall since September quarter 2012. Brisbane and Perth house prices also fell. ANZ says the Sydney fall is on the way to a cumulative -10% drop from the peak.
The UST 10yr yield is down to 2.89%, a -4 bps fall. The Chinese 10yr is at 3.61%, also down -4 bps, while the New Zealand equivalent is now at 2.88%, down -4 bps as well.
Gold is down another -US$3 in New York today, at just US$1,276/oz.
Oil prices are down sharply in the US by nearly -US$1/bbl today with the US price is now just on US$65/bbl. The Brent benchmark has changed very little however, still at US$75/bbl.
The Kiwi dollar will start today just under 69 USc as the greenback strengthens. But on the cross rates we are firmer at 93.5 AUc, and 59.6 euro cents. That keeps the TWI-5 at 72.6 and still in its very tight June range.
Bitcoin is virtually unchanged today at US$6,719.
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
44 Comments
Martins got a new shirt! Must be his bear market shirt
The data he looks at only goes to mar 18, so it predates the royal commission revelations and subsequent credit tightening. His words, “you ain’t seen nothing yet”. ANZ calling the bottom at -10% does seem hopelessly optimistic, but we shall see
The most I can lose from my stock investments is 100%. For people who have leveraged into housing, there's no such limit. Also, a couple of my stocks are in companies which do produce food, so as long as other people still want to eat I'd be surprised to see them disappear.
They are plenty out there who are going to lose an absolute bundle when the stock market corrects, the margin lending graph I saw on one of Martin North's recent videos was just scary.
http://static5.businessinsider.com/image/5a454662b0bcd521008b75c4-960/u…
Like yourself, i'm staying teh heck away from leverage in this market.
Stocks will go faster, thats the benefit of a liquid fast moving market. Not sure about further, Auckland house prices are massively overpriced, they are going to be reduced to sane levels. But it will take at least a year to figure out how far the housing market will drop, unlike share thay will be all over in 6 months.
Martin got his face on the gogglebox, bless
He says his prediction is 15-20% off current prices. Who knows. But it looks like a real minsky moment over there.
Well they leant on the premise of borrowers being able to service the debt from the breadline.. And that's exactly where many of the gamblers will end up.
I went to the fair at the weekend with my kids and tried a little experiment. I gave each of them $20 and told them to do what they felt that they wanted with the money. One spent the lot. $20 gone in a flash on popcorn and candy floss. 2nd child spent $10 and kept the rest for a rainy day. 3rd child leant the first $20 - which got spent as well and now she's crying that she has nothing to show for it and didn't get any popcorn either. That's just what happens when you let children have too much money.
More evidence coming from various channels that Trump may not be all that wrong about some of US’s trade partners. So he is disrupting the status quo, about time someone addressed that trade policies are now more about profits and exploiting wage differentials, and less to do with redistribution of resources.
https://www.cnbc.com/2018/06/17/the-us-should-break-german-lock-on-the-…
Trump tariffs are a massive win for SME manufacturers in the US, most of who either had to call it quits due to cheaper imports or succumb to trade pressures and become importers of finished goods themselves.
Import logistics doesn’t employ workers in the same scale and at comparable pay rates as manufacturing does.
I posted this last night, thought it's worth posting in the am
http://www.scmp.com/comment/insight-opinion/united-states/article/21503…
Thanks for that, Andy Xie is excellent:
While the US is viewed as the bad boy in the ongoing disputes, we must recognise that the EU, Japan and China are far more mercantilist. Trump is a symptom, not the cause, of the instability in the global trading system. If anyone ought to step up now to solve the free trade issue, it is the EU. It is a big, rich economic bloc that practises mercantilist policies. If it doesn’t own up and change its ways, why would China or Japan change?
I suspect, no other individual as President would have been able to make this kind of game-changing impact. Same goes for his stance on illegal immigrants via the Mexican boarder and/or the administration's exit from the UNHRC.
Thing about Donald Trump is - from the German Chancellor to the refugee from Central America - everyone believes him when he takes a stance on something.
For the first time in a while, we seem to have an example of a politician whose actions speak louder than words.
Geopolitics has sure become absolutely fascinating.
No other individual would made this kind of an impact because everyone else had the good sense not too? We should not judge him based amount of colour and movement he induces but on how he defends and advances his nations interests? And if we did that, he would surely rank at the bottom (and then some) of US presidents. He is both the worst president and the most odious person ever to serve as president, surely. It is hard to imagine how a president could be as destructive of his nations interests as this one.
Lots of commission was paid out on the way up, all on unrealised gains, perhaps we need to look at that?
Otherwise they will think themselves geniuses making the killing on the way up, while those trying to avoid losses who could well be the real geniuses get penalised.
Mine is all in shares and will remain there. With the long time horizon and long-term out performance of shares over other investing classes, this will have the better outcome. After a crash, I get the rare opportunity to buy more of quality companies at bargain prices.
Looks like copper is going below $3, Lumber is a big loser too. On Ag commodities, there is so much speculation going on and HFT, most pundits have giving up guessing the future anyway.
I see speculation here the next crash comes with opportunities and corrects some underlying valuation issue...
It doesnt. Asset and stock valuations are the least of our worries.
Its (sliding) incomes and energy flows that are stressing the system.
Any crash will do nothing to address this core problem.
The reality is it is only credit bubbles & a bigger debt ponzi that is holding incomes / energy flows up ...
"I think this will take some twists and turns yet."
Agree - People will suck all sorts of lemons when push comes to shove to keep things rolling but to date only AS LONG as they believe the future is brighter and bigger.
There will be big challenges to this underlying belief .. ie rationing, compulsary take over of resources/assets/land, declining infrastructure, electrical grid issues, food supply issues ... ie declining prosperity. Not to mention resource wars
The dismantling of GE
http://money.cnn.com/interactive/news/GE-dismantling-interactive/?utm_m…
Fears of housing 'fire sale' as interest-only loans roll into principal plus interest
http://www.abc.net.au/news/2018-06-19/fears-as-interest-only-loans-roll…
We welcome your comments below. If you are not already registered, please register to 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.