US growth rate depends on how reported; Wall Street unimpressed; Chinese profits rise; UST 10yr at 2.96%; China developing own USD debt market; oil and gold slip; NZ$1 = 67.9 USc; TWI-5 = 71.3

Here's our summary of key events over the weekend that affect New Zealand, with news of more evidence we are now flat-lining at the top of the current economic cycle.

In the first advance estimate of American GDP, it is being reported it rose at an annualised growth rate of +4.1% in the June quarter over the March quarter. This was just slightly lower than analysts were expecting, but was the fastest quarter-on-quarter rate since the third quarter of 2014. It follows a 2018-Q1 rise of +2.1%. In the way such data is usually reported for all other countries, compared to the same quarter of 2017, the gain was +2.8% and up from +2.6% in the year to March - and as such, very average.

Wall Street fell on the news. Bond yields retraced some gains. The USD slipped. And the Wall Street fall was despite Amazon reporting record results, above analysts expectations.

Trade war concerns slightly dimmed US consumers’ outlook on the economy in July.

And in a little-noticed review, the main official economic data agency at the US Department of Commerce has revised many long series by fixing some stubborn seasonality problems they identified. One telling result is that the US savings rate is much higher, and not falling, as has been previously been assumed.

And staying in the US, the rate at which foreigners are buying American houses is falling steeply, declining -20% in the year to March. Related data shows that 8% of US houses were bought by foreigners, down from 10% in the earlier period. (New Zealand reported similar data yesterday and the national level is 2.8%. Like the US, regional data varies widely.)

In Canada, a new poll shows that Canadians are reacting to worries about impending economic stress by cutting back spending. At the same time, their Federal Government is generating surpluses in the first two months of their budget year, at higher levels than expected. But over the whole fiscal cycle an -C$18 bln deficit is now expected.

Profits at Chinese industrial firms grew rapidly in first half of 2018, according to official data. They were up +17.2% on a year-on-year basis, the fastest level for any month in 2018.

In Japan, their big banks have a cash problem. They have so much of it and it is piling up so fast that they can only store it at the central bank. And this could mean they will have to pay to do that. This will raise bank costs and raise Japanese bank interest rates.

In Indonesia, officials there are warning that their current account deficit will grow by nearly +50% this year. However, even after that increase it will still be less than -2% of GDP. But for an emerging economy, especially one as large as Indonesia, this is an unwelcome trend.

In India, they are on standby for another central bank interest rate hike. Growth is strong and inflation is rising. Markets are expecting a +25 bps rise to 6.50% late on Wednesday NZ time.

In Russia, they decided over the weekend to keep its policy rate unchanged. But with ongoing weakness, most observers see the next move down there.

The UST 10yr yield has stayed high at the market close to 2.96% but that is -2 bps lower from where we left it on Friday. Their 2-10 curve is +29 bps. The Chinese 10yr is at 3.56% (up +1 bp from Friday) while the New Zealand equivalent is now at 2.76%, down another -1 bp.

China is building a new US dollar debt market, a bit like the eurodollar market. The Chinese government has sold US$2 bln of US dollar denominated bonds recently and is planning another US$3 bln soon. It is also encouraging Chinese firms to participate, giving them access to lower rates than yuan funding. The risk of course revolves around the exchange rate for the yuan if the funds are used for domestic funding. And all up, it has suddenly grown into a very large market - US$0.5 tln. No one really knows how big the Eurodollar market is, but recent estimates peg it as one quarter of the formal, regulated market, or about US$4 tln. So the Chinese version is just getting started.

Gold is at just over US$1,223/oz in New York and that is an -US$8 retreat over the week.

US oil prices are down today from yesterday and now just over US$68.50/bbl. The Brent benchmark is now just over US$74/bbl. The US rig count is marginally higher this week.

The Kiwi dollar will open at 67.9 USc, almost where it was at this time last week. On the cross rates we are also little changed at 91.7 AUc, and at 58.2 euro cents. That puts the TWI-5 at 71.3.

Bitcoin is now at US$8,195 which is little-changed from where we left it on Friday.

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