US retail sales strong; EU trade surplus shrinks; Canada house sales weak; China growth softens; IMF sees rising risk of worse outcomes; UST 10yr at 2.86%; oil and gold down; NZ$1 = 67.8 USc; TWI-5 = 71.1

Here's our summary of key events overnight that affect New Zealand, with news that has the feeling of being the calm before a storm.

Firstly, American retail sales rose +6.4% in June from the same month a year ago. Car-buying was back in favour compared to the previous month, and that is bolstering expectations for decent economic growth in the June quarter. Still, the month-on-month June growth was only +0.3% compared to the May rise of +1.1% so there was a moderating at the end of last quarter.

The EU trade suplus in goods has fallen in May to +€16.5 bln. Markets were expecting a surplus of +€17.6 bln, so the trade results are starting to move faster than expected.

Canada existing home sales were down almost -11% in June 2018 from the same month a year ago, although there are signs they may be near their cyclical lows. New home sales were up (based on apartments in Toronto and Quebec), but the existing home market in Canada remains weak. House price gains have almost evaporated. Average house prices in Canada are now NZ$560,000.

The OECD area employment rate – the share of the working-age population with jobs – increased by +0.2 percentage point in the first quarter of 2018, to 68.2%, with gains in 28 out of 36 OECD countries. New Zealand is high on this comparative, at 77.7%.

China has reported 2018 Q2 growth pretty much in line with what markets were expecting. They say year-on-year, their economy grew +6.7%, and -0.1% lower than the March quarter. There was better growth in their retail sector, with this up an impressive +9.0% in June (compared with +8.5% in March). But industrial production was up only +6.0% in June, down from a +6.8% rate in March. Fixed asset growth also slowed a little. China is also now publishing labour market statistics using the internationally recognised survey methods. That shows their jobless rate at 4.8%, unchanged from three months ago. However equity investors in Shanghai viewed the data sceptically seeing the 6.7% rate as a seven quarter low, and the SSE Index dropped -0.6% yesterday, falling faster at the end of the session.

Expectations are that China will now start more aggressive stimulation policies in the face of the trade war with the US, and slowing growth at home.

And there is something of a bank run going on in China. Savers are rushing to pull money from peer-to-peer lending platforms, accelerating a contraction of the NZ$300 bln industry. It is also testing Beijing's ability to maintain calm as it cracks down on risky shadow-banking activities. Almost 50 P2P platforms have failed in the past two weeks, adding to 80 cases in June. It's a growing problem.

For all the good current data, views on the future are not so sanguine. The IMF says that rising tensions over international trade has already plateaued the broad global expansion that began roughly two years ago and it has become less balanced. Even though they see growth at +3.9% worldwide, they warn that the risk of worse outcomes has increased, even for the near term. The IMF also says markets are complacent, and that they should preparing for the coming consequences.

Bond prices are lower today which means yields are up. The UST 10yr yield is at under 2.86% and up +3 bps. The Chinese 10yr is at 3.51% (down -1 bp overnight) while the New Zealand equivalent is now at 2.86%, down -2 bps.

Gold is weaker by -US$2 and now at just on US$1,239/oz.

US oil prices have fallen sharply and now just over US$68/bbl. That's a -US$3 drop in one day. The Brent benchmark is now just under US$72/bbl, a similar drop.

The Kiwi dollar is starting today a little firmer at 67.8. USc. On the cross rates however we are also marginally firmer at 91.3 AUc, and at 57.8 euro cents. That puts the TWI-5 at 71.1.

Bitcoin is now at US$6,667 which is a gain of +4.7% since this time yesterday.

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