US new home sales fall; US budget deficit rises faster; EU-US trade talks assume failure; China embraces mortgage debt derivatives; Aussie inflation modest; UST 10yr at 2.94%; oil and gold up; NZ$1 = 68.2 USc; TWI-5 = 71.5

Here's our summary of key events overnight that affect New Zealand, with news new debt seems to be the answer to the problem of rising debt deficits.

But first in the US, the pace of new-home sales fell in June from May, its weakest in eight months, the latest evidence that the housing market is cooling. Purchases of newly built single-family homes - admittedly a small proportion of all American house sales - rose just +2.4% above June a year ago. Their median new home price is now NZ$442,800, which surprisingly, is -4.2% lower than a year ago.

Yesterday, we reported that the American Administration is proposing higher farm subsidies to counter the impact of new tariffs. That has not gone down well; farmers seem to want trade, not aid. At the same time, the White House has released details of a faster rise in their Federal budget deficit, signaling that -US$1 tln annual deficits will arrive sooner than they had expected. The nine months of this fiscal year has already booked a -US$607 bln deficit and it will get worse from here - principally because corporate tax receipts are falling faster than expected. The share of taxes paid by companies following their tax cut is now near its lowest in 75 years. Confidence in the US dollar and UST debt must come under threat at some point unless this trajectory is turned around.

The EU and US are getting ready for "trade talks" but the EU is apparently not bringing salving concessions for Trump - who has instructed that 25% tariffs be prepared in case the EU doesn't roll over. And the EU is preparing retaliation if that happens. On both sides, all the real work seems to be going on assuming the talks fail.

In China, they seem to have fallen in love with securitised home loans. Residential mortgage-backed security issuance was US$30 bln in the first half 2018, five times as much as the equivalent first half of 2017. Suddenly RMBS derivatives are two thirds of all such residential securitisation and the expectation is that it will grow from here. We may have seen this movie before.

In Australia, inflation for the twelve months to June rose to +2.1%. Markets had expected +2.2%, but the result was still higher than the +1.9% in the year to March. There were some particularly steep rises in Melbourne, Adelaide and Canberra, but much more muted changes in Brisbane and Perth. There were also some particularly steep rises for energy; electricity was up +10.4%, gas was up +7.1%, and petrol was up +16.3% pa. Childcare costs are up +6.0% pa. Markets however don't see this result pushing the RBA to raise rates again soon.

The UST 10yr yield has settled back again in New York from this time yesterday and is at 2.94% and down -1 bps near the market close. The 2-10 curve has pulled back further, now at +28 bps. The Chinese 10yr is at 3.57% (up +1 bp) while the New Zealand equivalent is now at 2.82%, down -3 bps.

Gold is up +US$6 today US$1,232/oz in New York.

US oil prices are firmer again today and now just over US$69/bbl. The Brent benchmark is now just over US$74/bbl. Inventories of US crude fell yet again last week and to a level that is the lowest in three years.

The Kiwi dollar is firmer at 68.2 USc. On the cross rates we are also a little firmer at 91.8 AUc, and at 58.3 euro cents. That leaves the TWI-5 at 71.5 which is a one week high.

Bitcoin is a little lower today and now at US$8,125 which is down -3.5% from yesterday.

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