US growth downgraded; emerging TIVA economy wobbles grow; China in bear market; China rail-to-EU grows; UST 10yr at 2.85%; oil unchanged, gold down again; NZ$1 = 67.5 USc; TWI-5 = 71.1

Here's our summary of key events overnight that affect New Zealand, with news of some increasing bumps in the road.

Firstly, the US has announced that its first quarter growth rate was slower than previously expected. There have been two prior estimates, but today they were downgraded to just +2.0% from +2.2%. That is not insignificant, and is based on much weaker consumer spending growth than expected, its lowest in five years.

However, Wall Street is firmer today in the belief that second quarter growth will have picked up.

Things are not so good in some key emerging economies, many of whom are especially susceptible to a strong US dollar. Argentina is now almost certain to fall into recession. Turkey is now facing the consequences of pre-election temporary boosts to its economy where investors are diving for the exits because they know such moves are unsustainable. Oil-rich Venezuela has inflation of 24,600%; essentially it is a failed state where the rule of law has collapsed. Of the TIVA states, perhaps Indonesia is doing best, and pulling back from religious extremism threat at the same time. But its currency is still falling and more rate hikes are due. And perhaps we will need to add Brazil to our watch list too.

In China, official concerns are growing about the short-term sustainability of some corporate debt, especially by property developers. Can-kicking is their preferred solution. And it is not only private firms in stress; the worries extend to some large local SOEs.

Yesterday, the Shanghai stock market lost another -1%, and that takes to total drop from the top to -20% and the emergence of a bear market there. The fundamentals don't look too good.

However, their Belt & Road rail links to Europe are getting praise. One city has now made more than 2000 such shipments, for which it is claimed the China-Europe railway costs one-fifth of the expense of air freight and takes one-third of the time of shipping. Nationally, more than 6200 rail trips were made to Europe on 57 routes in 2017.

The UST 10yr yield has recovered +2 bps from yesterday's sharp fall and is now at 2.85%. The Chinese 10yr is at 3.57%, down -2 bps, while the New Zealand equivalent is now at 2.88%, also down -4 bps. The UST 2-10 yield curve is unchanged +32 bps and still at its 11 year low. Yesterday, the New Zealand 10 year swap rate fell to just 3.03% and that is its lowest since November 2016.

Gold is down yet again, this time by another -US$5 in New York to just US$1,247/oz. That is easily a new 2018 low and now almost a one year low.

Oil prices are higher again today and now just over US$73/bbl in the US. The Brent benchmark is unchanged at US$77.70/bbl.

But the Kiwi dollar will start today at just 67.5 USc and down almost another -½c from this time yesterday. On the cross rates we are also lower at 91.9 AUc, and 58.4 euro cents. That pushes the TWI-5 down to 71.1 and its lowest level since May 2016.

Bitcoin is little changed since this time yesterday at US$6,097.

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