Here's our summary of key events overnight that affect New Zealand, with news markets have turned a short-term blind-eye to the formal opening of trade war hostilities.
Firstly, the American economy created more jobs than expected in June, but steady wage gains pointed to moderate inflation pressures that should keep the Federal Reserve on a path of gradual interest rate increases this year. The jobs data had higher hiring rates in manufacturing, the participation rate was up +0.2% to (a low) 62.9% and average weekly earnings rose +2.7%. But even though more people are joining the workforce, they are not all finding work yet. Their jobless rate rose to 4.0%.
We should also note that the US economy has just grown through the US$20 tln GDP level in nominal terms. (Official confirmation won't come however until July 28, 2018.)
In Canada, they reported pretty much the same thing; employment growing better than forecast, a rising participation rate, wages rising at +3.5%, ... and a higher jobless rate. The Bank of Canada is now expected to hike rates there soon.
But the trade wars officially got underway yesterday. It was tit-for-tat with between the US and China, as it is between the US and Canada, and the US and many others - virtually everyone. The impact is being shrugged off for now but will be like a slow-burning fuse for a while yet. Wall Street is up about +1% today following a slightly larger rise in Tokyo yesterday. Shanghai and Hong Kong rose about +0.5%. The USD is falling. China also set its currency lower.
China has initiated action against the US at the WTO.
One practical outcome is that some commodity prices are falling substantially. Copper is down now more than -US$1,000/tonne since the first week in June as an example, a -14% drop in 4 weeks. But that just takes prices back to where they were this time last year such has been the run-up in the meantime. Aluminium has fallen -20% in 90 days, but again, that is off an unusual high and just reverting to more usual pricing.
Meanwhile, European member states have given the go-ahead for a free trade deal with Japan, the world's third-largest economy. Brussels said the agreement was sending "a very powerful signal against protectionism." If they can pull it off, it will cover about one third of global trade involving about 600 mln people.
Japan itself has now ratified the CPTPP. Japan is a key player in the multilateral free trade community. New Zealand is on track to do so too, by the end of 2018.
In Australia, hackers based in China have infiltrated one of Australia's most prestigious universities, and the threat is yet to be shut down. The Australian National University (ANU) system was first compromised last year. In a statement, the ANU said it had been working with intelligence agencies for several months to minimise the impact of the breach. Even at this stage, they don't know what was sucked out and how sensitive the information was. The ANU conducts research that has defence, strategic, scientific, technological and commercial applications.
The UST 10yr yield is marginally firmer at the market close at 2.84% and up +1 bp in New York today. That jobs data has virtually no impact on benchmark bond rates. The Chinese 10yr is at 3.54% (up -1 bp from yesterday) while the New Zealand equivalent is now at 2.84%, up +3 bps from yesterday.
The VIX is generally trending down and now just below 13.6 and that is slightly lower than this time last week. The average index level over the past year is 12. The Fear & Greed index has moved a little deeper into the 'fear' side with an index value of 39 (50 is neutral).
Gold is marginally weaker in New York but now a just US$1,254/oz in New York which is a -US$4 drop for the day.
US oil prices are up today, and now just under US$74/bbl. The Brent benchmark is down however to now just over US$77/bbl. These both represent a small retreat in the past week. The US rig count has risen a few this week.
The Kiwi dollar is ending the week decidedly firmer at 67.7. USc. On the cross rates we are at 91.5 AUc and at 58 euro cents. That puts the TWI-5 at 71.5 and at its highest for the week.
Bitcoin is now at US$6,575 and +1.2% higher than this time yesterday and right at its four week average.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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14 Comments
Thoughtful and Interesting piece from the always-thinking Charles Hugh Smith:
Employment expands in the Protected cartel-dominated sectors, and declines in every sector exposed to globalization, domestic competition and cheap capital.
The consequence?
How's the economy doing? It depends on which class you're in. The Protected Class is doing just fine, the class with access to cheap credit and participation in asset bubbles has never had it so good, while the Unprotected Class faces a bleak future of lower real wages, rising costs of living and a social mobility ladder with few rungs left.
Are we witnessing the start of the sunset of the US as the world's leading economy?
China's large population and economic growth over the past 40 years has resulted in it now being the seconded largest economy. Trump's isolation policy is likely to see China knock the USA off top perch sooner rather than later.
This is priceless :) BBC article: Giant 'Trump Baby' could fly over London for president's visit
Plans to fly a giant inflatable figure depicting Donald Trump as a baby over London during the US president's visit have been approved. Reflects Mr Trump's character as an "angry baby with a fragile ego and tiny hands".
No just a very busy week, haven't had much time to catch up on any real news. But you have to admit that Trump Baby stunt in the UK is brilliant!
Anyway how are you doing with convincing people to buy in your neck of the woods DGZ? Sales good? Have prices remained steady for now?
CJ099 yes very good indeed. Two auctions yesterday, both sold under the hammer, both above CV. I attended one of the auctions and couldn't believe how many people I saw. I had to park my car in the next street as all parks were taken. I took a photo, and I wish I could upload it here to prove it to you.
https://rwremuera.co.nz/auckland/remuera/12-brookland-place-18724521/
https://nz.raywhite.com/auckland-city/st-heliers/1903805/
The fact is that I know my area extremely well and I am extremely confident of the place. I keep a close eye on what's happening in my suburb (DGZ) and my extended suburbs e.g. the Bays. It is a very very desirable area, very leafy, very posh, all the streets are well presented, not too far from the city and great PT options. You really get a great peaceful tranquil feeling just standing or walking on the street, looking around, breathing in the fresh air. Parks and reserves are plenty, with the added benefits of some recently completed board-walks and cycle-ways. Many of the properties here have views across the Waitemata Harbour, Rangitoto, Hobson Bay, Orakei Basin and the Sky Tower. For the daily commuters like myself, we have so many options to get to the city without using the motorway. If this is not a paradise I don't know what is...
Last but not least, I don't need to go on and on about the public and private schooling in the area. I think my profile name is self-explanatory lol ^^
perhaps it will go San Francisco on you
https://www.zerohedge.com/news/2018-07-07/san-francisco-home-prices-soa…
Officials believe right now the economy is “very strong” and that demands the same “rate hike” trajectory. The futures curve is betting there is a good chance they are wrong about that and at some unknown point they’ll have to turn around and face their own mistakes yet again.
No wonder the FOMC has been studying federal funds futures. Will they listen this time? The market isn’t betting on it.
http://www.alhambrapartners.com/2018/07/06/good-reason-to-fear-the-futu…
I wanted to comment on this stuff article but I didn’t want to give them all my personal details and set up a stuff account so I’ll just complain about it here.
http://www.stuff.co.nz/business/money/105283062/Damien-Grant-Empathy-wo…
This paragraph is just rubbish:
‘The state controls the money supply and spends one dollar in three in the economy. This leads to an economic and political system that produces boom-and-bust economic cycles.’
Economic cycles predate interventionist governments. Before we had fiscal and monetary policy we had depressions rather than recessions. Counter cyclical spending and monetary expansion are the only two things we know of that work.
Smaller government does not help it makes it worse. Why? Because government provides a floor on demand which stops the downward spiral - see USA circa 1930s and the new deal.
His attacks on Treasury/The Reserve Bank/Prime Minister and Deputy Prime Minister are churlish.
The Sunday Star Times is a rag that I’ve long refused to buy but this is an embarrassing column for them to publish. It missinforms their readers about how the world works.
Small consolation the headline is accurate - recessions are inevitable. We shouldn’t believe policy makers can save us from them. What we do need is policy makers to save for a rainy day. Something consecutive NZ governments have done pretty well at but there is room for improvement.
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