Here's our summary of key events over the weekend that affect New Zealand, with news that many tariff actions kicked in on July 1, and inflation seems to be moving higher in some key large economies.
Firstly, the US Fed's preferred measure of inflation hit +2.0% in May, up sharply from +1.8% in April, and above the +1.9% markets were expecting. The PCE non-core inflation rates was +2.3%. And this data came as personal consumption slipped noticeably. When prices start rising faster than growth, we will call it 'stagflation'. Not there yet, but US policy seems to be driving us in that direction.
Like its Conference Board rival, the University of Michigan consumer sentiment survey is also sliding on the 'expectations' front, although the main levels are holding. That same survey showed an overwhelming level of support for more trade and less tariffs.
In the trade wars, Canada struck back at the Trump administration over American steel and aluminum tariffs overnight, imposing punitive measures on C$16.6 bln worth of American goods until Washington relents.
Canada's GDP rose at the rate of +2.5% in April, slower than for March, but in line with analysts estimates. The trade war with the US is taking the gloss off their performance.
China's official June factory PMI slipped a little as the trade war dampens the outlook, but it is at a level very close to what it was a year ago. Their services PMI rose marginally.
China also had another round of tariff cuts roll out on July 1, a stark contrast to the US approach. But on the financial front, China is cracking down hard on new tech non-bank deposit takers in a bit to eliminate a huge financial stability risk.
EU inflation has also came in at +2.0% although the core rate there (without fuel, food and alcohol) was at +1.0% in May.
In Australia, regulator APRA says many super funds there are misrepresenting their 'cash' investment options by including risky credit instruments and derivatives. Such options have delivered better returns than pure 'cash' up until now, so members will get a surprise when funds are forced to comply with the new tighter guidance.
And sales of new Australian houses fell by more than -4% in May and are now more than -12% lower than the most recent cyclical high that occurred in December 2017. It's a substantial retreat.
The UST 10yr yield was marginally firmer at the market close at 2.85% and up +1 bp in New York. It's another +1 bps firmer in later trade. That American inflation data has had virtually no impact on benchmark bond rates. The Chinese 10yr is at 3.49% (down -5 bps from Friday) while the New Zealand equivalent is now at 2.88%, down -1 bp.
Gold was marginally firmer in New York but still only at just US$1,252/oz in New York which was a chunky -US$17 drop for the week.
US oil prices remain high, and now just over US$74/bbl. The Brent benchmark is now just under US$79.50/bbl. These both represent about a +US$5 rise in the past week. Locally, don't forget we had our own big tariff increase as Auckland motorists were hit with a +11.5c/ltr new fuel excise tax starting in July. Expect considerable cost flow-through to everything transported, and the impact to be national. That will have the same effect as the crude price rising from US$79.50/bbl to US$90/bbl.
The Kiwi dollar starts the week unchanged at 67.7 USc. On the cross rates we are at 91.4 AUc and at 58 euro cents. That puts the TWI-5 at 71.1.
Bitcoin is now at US$6,327 and almost +8% higher than where we left it on Saturday.
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