CPI inflation up to 2.9% in US; US 2018 budget deficit to hit US$¾ tln; US FDI slumps; EU, Korea cut growth forecasts; UK Brexit White Paper; UST 10yr at 2.85%; oil down, gold up; NZ$1 = 67.7 USc; TWI-5 = 71.2

Here's our summary of key events overnight that affect New Zealand, with news growth is slowing in some key economies and debt is building up fast in others.

Firstly, American CPI inflation rose to +2.9% in June, its highest increase since 2012. Core inflation, without food and energy, was up +2.3%. Rises like this are undermining their wage gains; in fact there has now been no gain in real wages over the past year, which is a significant turnaround from good gains recorded previously.

In an interview, Fed chairman Powell said they are not yet at their 2% inflation goal even if they are close. Today's data may firm up that view, however. Further gradual rate hikes are still the most likely scenario.

Meanwhile, the American Federal government’s budget deficit narrowed in June compared with a year earlier to -US$75 bln in the month. Spending and revenue collection both fell, including a large drop for corporate-tax receipts in the wake of federal tax cuts. They are on track to record a US$¾ tln deficit in their 2018 budget year, easily a record high and +13% more than 2017. The continuing large deficits are requireing them to borrow aggressively; next week they will auction US$135 bln on US Treasuries, US$84 bln of which is new debt and the balance rollover debt. Congress has lost all semblance of debt restraint.

You have to wonder whether any of this outlook is behind a substantial drop in investment by foreign firms in the US. From 2016 to 2017, FDI into the US dropped an eye-popping -32%, and since 2015 it is down -$180 bln. All this happened as the American economy grew substantially, but it is not attracting investors like it used to.

The European Union has cut its 2018 eurozone growth forecast as both the bloc’s trade conflict with the US and political upheavals within the EU itself threaten to derail their economic momentum.

And the central bank in Korea has made a similar adjustment down for the same trade/tariff reasons.

In the UK, they are coming to terms with the weak position they are in over their Brexit negotiations. They released a White Paper that has all sides underwhelmed and British business concerned.

The UST 10yr yield is now at 2.85%, an unchanged, sideways shift since yesterday. But the UST 2yr has inched up pushing that 2-10 rate curve lower on its relentlessly declining track, now under +26 bps. At this rate of decline, the positive slope of this key curve will have evaporated by the end of 2018. But others think it will happen in about a year. Either way it is a powerful signal that markets think the future is very cloudy. The Chinese 10yr is at 3.54% (unchanged) while the New Zealand equivalent is also unchanged at 2.89%.

Gold has eased back up off its recent lows, up +US$3 to US$1,246/oz.

US oil prices are unchanged today at just over US$70/bbl. The Brent benchmark is now down to just over US$74/bbl.

The Kiwi dollar is essentially unchanged today at 67.7 USc. On the cross rates we are also little changed at 91.5 AUc and lower at 58 euro cents. That has the TWI-5 at 71.2. The Chinese have set their currency today at its lowest level against the USD in more than a year, essentially unwinding the agreed appreciation the Americans demanded back then.

Bitcoin is now at US$6,183 which is -2.7% lower than this time yesterday.

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 ».