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.

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In other main news, Interest.co.nz is consistently overdelivering by producing "90 sec at 9" at 8 and even before. Great work, keep it up!

More like "90 minutes from 9"

UK should get exciting once the Trump visit is over. I guess they are leaving Teresa May in charge for a few days more. Then comes the modern equivalent of hanging the entire cabinet from lamposts. She has run her colours up the mast and they are white as white can be. Following in the embarassing tradition of Edward Heath and Neville Chamberlain of kowtowing to authority. Any authority. Should be interesting.

They need to learn, that government spending does not create wealth, China with all it's stimulus is still slowing. Wealth is created in the private sector, they should learn to value it it more.

Friday already, my books for today. Thought I'd better start doing more than one or I will be here forever.

The Spider Network: How a Math Genius and a Gang of Scheming Bankers Pulled Off One of the Greatest Scams in History;


Michale Lewis Flash boys, all about High Frequency traders. Great insight into a world most of us have no idea of.


This is great read, JFK and the unspeakable, why he dies and why it matters


"Even in terms of inflation, there are only regrets. The US CPI registered 2.87% year-over-year last month, but for still another month there is nothing else but energy inside that number. There is what may seem like an unfair (from the point of view of central bankers) asymmetry to oil. When it’s down that’s deflation and often consistent with the textbook description of what accompanies it."


Disappointing that a first time Green Party Minister has only this to say;

But there’s little concern at the top. Conservation Minister Eugenie Sage expresses her full confidence in director-general Lou Sanson. Neither of them would discuss Head’s case. But Sanson tells Newsroom DOC is in the best shape it’s been in a long time and he has “total trust” in his senior leadership team.

Especially when she will be well aware what really needs to be done;

De Lange, now an associate professor at Unitec Institute of Technology, says Sage’s job will be harder because it’s staffed by managers appointed under a different regime and with a different focus. He believes the department needs to be split in two – the tourism branch that deals with tracks, toilets and huts, and a biodiversity protection branch.

In my opinion, the tourism branch could even be relocated to the Ministry of Tourism - given conservation and tourism are fundamentally in conflict. Take for example, the Kauri dieback problem - closing tracks is directly in conflict with tourism objectives. Of all parties in Parliament, the Greens are in the perfect position to take a lead on this - they have finally been given the power - where is their environmental advocacy/leadership on it?



And he fails to mention that another corporate sector that benefits from it is banking. I was aghast when I first learned that WFF tax credits and accommodation supplements were being taken into account when a bank considers the income/ability to pay a mortgage.

It all comes back to housing costs. Both Clark and Key governments were complicit in feeding that bubble.