China blinks; Canada housing starts fall; Japan orders jump; China prices rise; air travel growth rises; Russia and Turkey battered; UST 10yr at 2.93%; oil and gold unchanged; NZ$1 = 66.3 USc; TWI-5 = 69.9

Here's our summary of key events overnight that affect New Zealand, with news emerging economies are struggling to handle the fallout of a new chaotic trade environment.

Firstly, it looks like China has had a small blink in its trade tussle with the US. Omitted from its tariff retaliation was American crude oil, although sourcing that still will help keep prices down from other places - like Iran, where volume are rising.

In the first world, Canadian housing starts fell sharply in June, consistent with yesterday's weak building permit data.

Japanese machine tool orders rose more than expected in July, up by +13% and far better than its +11.4% rise in June.

In China, consumer prices rose at a faster pace in July, up +2.1% due to larger increases in food and fuel prices, while factory inflation slipped even though it is still at a high a +4.6% pa level.

Beijing is using the Shanghai markets to drive down interest rates. Overnight Shibor, a measure of the shortest-term bank lending rates, fell to 1.42% yesterday, its lowest since 2015. It ended the day a little higher however. This is a mechanism their Government is using to try to stimulate the economy by ensuring lenders have plenty of cheap funding to support businesses and consumers during the uncertainty of the trade war.

The central bank of the Philippines raised its official rate by its most in more than a decade, adding +50 bps to take it to 4.0%. They are battling fast-rising inflation which is now just under +6% and the rate hike comes despite growth falling below expectations.

Yesterday we reported a slowdown in the growth of air cargo traffic. Today we can report that international passenger traffic growth seems to be rising faster. Worldwide, passenger traffic was up +7.7% in June year-on-year. In the Asia-Pacific region it was up +9.5%. Both of these rates are faster than we have reported previously in 2018.

In the sea trade, shipping group Maersk said 94 companies and organizations have so far joined a blockchain platform developed with IBM aimed at boosting efficiency and limiting the enormous paper trail of global container shipping. This is one of the largest rollouts of blockchain technology in the world.

Meanwhile in some key emerging markets, new sanctions drove down Russia's ruble, while worries that Turkey was sliding into a full-blown economic crisis battered their currency. The Argentine and South African currencies were also hit hard.

The UST 10yr yield is down sharply at 2.93%, a -4 bps fall in a day. Their 2-10 curve has slipped to +28 bps. This is despite the US Treasury saying it will sell an eye-popping US$122 bln in new debt next week, taking total US Federal debt held by the public to US$15.6 tln, or 78% of US GDP. The Chinese 10yr is at 3.56% (up +3 bps) while the New Zealand equivalent is now just over 2.71%, down a very substantial -7 bps. And as we reported last night, New Zealand swap rates took a heavy dive yesterday, down about -10 bps across most of the curve.

Gold is little changed, today down -US$1 to US$1,212/oz.

US oil prices have stopped falling and are now still just under US$67/bbl. The Brent benchmark is now just over US$72/bbl. We should also note that Saudi Arabia's attempt to punish Canada over their fury for a perceived cultural slight is having zero impact. A trade war skirmish that failed.

The Kiwi dollar is starting today very much weaker having been dumped on after yesterday's RBNZ MPS and the Fonterra trading halt. It is now just at 66.3 USc and more than -1c lower. On the cross rates we are also very much weaker at 89.7 AUc, and at 57.3 euro cents. That puts the TWI-5 at 69.9 and under 70 for the first time in nearly three years.

Bitcoin is now at US$6.464 and +3.3% higher than this time yesterday. We track this rate daily in the interactive chart below.

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inflation is starting to appear, how it will not arrive here is beyond me, dollar heading to 65 , oil rising and we import most of our goods, you can only absorb so much before it gets passed on, and what will the RB do, with so much personal debt in NZ any increase will take money out of the system and slow our economy so will they let inflation go to the top of the band


Good question. For what it's worth, my guess is the RBNZ will be pretty laid back about price inflation in everyday goods. They will "look through", which is Newspeak for ignore, petrol price rises, food price rises and rate rises and tax rises. Such things are "temporary" and will "wash out" in 12 months.

What they will not ignore is rampant wage inflation. If that gets out of hand, the RBNZ will talk about "the dangers of unanchored inflation expectations", Newspeak for wage inflation, and be "forced to act".

The RBNZ also seem to have learned how to control house price inflation via credit controls rather than by interest rates.

So, overall, unless our very clever politicians decide to get the party going with a really good hot blast of deficit spending whilst unemployment is fairly low, my expectation is the NZD will keep on going down and the RBNZ will continue with the difficult task of sitting on their hands.

Having said that, our wise and helpful politicians, aided by our wonderful civil service, are very skilled at spending more whilst giving the outward appearance of prudence and sagacity.

Great post RW

Thanks. I am attempting to be nicer to our politicians and bureaucrats, to try to deal with the issues and not just rant. It doesn't come easily to me though, once the energy is flowing it is hard to control. I find it much easier to rant, but then I find that negativity takes hold and I descend into demonising those I disagree with. Listening to Jacob Rees-Mogg must be rubbing off on me.

you're spot on

A question RW - are you saying that the the RBNZ is not concerned with inflationary effects on the common people? For example things like petrol, food and rates rises and tax increases have a big impact on the bottom 2/3rds, and credit controls have the biggest impact on people trying to get in to home ownership. So are you saying that their view is that this doesn't matter. Are they just pandering to the money then?

Putting aside your cynicism, and accepting that a rate rise would have a negative impact on people too, what would you have preferred to had happened?

I get you are trying to be nice to the RBNZ and politicians, but not telling it how it is just lets them off the hook. A strong point with democracy is we get to challenge those with the power and influence on the quality and consequences of their decisions, and usually it is only through creating some "noise" that we can get them to listen.

Also Roger, if the NZ dollar and crude oil continue to move in opposite directions, how long before inflation grows out of whack forcing action from either fiscal or monetary decision makers?
Rising import costs and already flatlining household consumption will push scores of retail businesses out of the market, kicking up unemployment. Will construction and commodities export sectors be enough to keep our economy growing?

I suppose it's because they have found it well nigh impossible to get any inflation going apart from in house prices for the last few years. So I expect them to be reluctant to put up interest rates if there is an oil shock. They will ignore it. As you say, an oil shock hits employment, so it prevents wage inflation, so no need for them to act.

I don't think the RBNZ are just pandering to the money as such. I think they are genuinely trying to do the right thing, that they are competent and well meaning. The problem seems to be that the net result is much the same as if their mandate was to modulate interest rates in such a way as to encourage maximum sustainable indebtedness at all times.

Modern money works in mysterious ways that are constantly changing and the RBNZ will tend to be a bit behind the international game. Much of our money problems are due to the capital inflow pressure created by the massive, destabilising, current account surpluses of Germany, China and Japan. Their combined current account surplus must create an equal and opposite capital inflow to the rest of the world. That is how double entry bookkeeping works. So there has been a vast amount of excess capital force fed around the world and the authorities have been slow to understand this and erect suitable and reasonable barriers. That is what the credit controls such as the core funding ratio and loan to value ratio are about, so the RBNZ is getting its ducks in a row.

There are problems in the banking system rules that mean they can lend 3 or 4 times as much to residential housing as to business, but this may not be that fundamental. The problem to my mind is that we have inculcated an anti business attitude as a society. Capitalists are denigrated, and no attempt is made to distinguish between those who make the world a better place and those who do not. Finance has become overly influential and predatory. We don't talk about these things as much as we should, obsessed as we are with the daily dramas.

It is a little concerning that you are saying a man-made construction (money, or at least the digital facsimile of it) now acts in ways that cannot be fully understood. (Mysterious ways)

This suggests we as a species have created a monster that now rules our lives, and various groups (Governments, banks, rich and powerful groups) are all trying to control and manipulate it, and not necessarily in tune with each other, and usually driven by self interest, and the net result is anyone's guess?

With the dollar down 10% since election and about 60billion in imports per year (~20% of GDP) that must show up as a pretty major spike in inflation.


But surely a bonus for our economy if we increase exports with businesses we own? Do NZ govts ever speak of exports?

How many voters are exporters and how many exporters support the COL? I’d say a minority in both cases. This is looking uglier for the COL day by day.



It doesn't matter where China gets oil from at all. It would all just shuffle around a bit and the USA would not be harmed at all.

Time and again we've been reminded by energy analysts that there isn't a lot of spare capacity left for oil drilling anywhere in the world. There aren't a lot of producers out there with extra capacity lining up to fill the 400,000-plus barrel a day gap left by tariffs on US oil to China.

It's a strange world isn't it? Loads of oil in Venezuala, but between the loony lefty dictators and the US response they are a basket case. Russia also has loads of oil but has managed to piss off the Eastern Europeans and US with it's imperial ambition. Iran has also got loads of oil, but because it is part of the Russian Empire and the Saudis don't like them, the US does it's best to turn them into a basket case too.

China sits uncomfortably between the Russian and US camps, desperately trying to take over Africa to ensure an independent oil supply. They also have a historic grudge against the Russians, who stole Siberia from their ancestors. No one talks about that... at least, not openly.

Strange indeed. Historically speaking, the US clearly wants to witness these basket cases fail to a point where:
1) a civil war ensues, which would provide the much-needed impetus to the US economy by reigniting its arms trade
2) the country begs for a bailout, in return for which the IMF and WB force the nation to open up its markets, i.e. make it a vassal state of the US

Yes, it gets very murky. The US state is very good at talking about the forms of democracy, but rather less good at the reality, bit like the EU in that regard.

Questions to table:
-In the GFC, a couple of large US banks started the domino chain which affected the rest of the world because global financial markets are tightly meshed together.

-How big does a country have to be that when it implodes it starts the domino chain?

In reference to Turkey above, if their dictator can’t stem the tide and they go the way of Venezuela (high inflation, economic collapse), is Turkey large enough to be the next trigger?

A common trend in your 90s at 9am is emerging markets constantly raising interest rates due to sudden inflation, do any of them risk getting out of hand?

Also, how long is a piece of string…..


US banks collapsing were symptomatic of the broader risks built up in the US financial sector (i.e. it was going to happen, just a question of what triggered it). Similarly, emerging market pain is symptomatic of US tightening and USD liquidity being drained. I don't think it's so much a domino chain this time. Multiple emerging nations will almost certainly end up where Venezuela is, but that won't deter the US from tightening.

There has been some epic emerging market borrowing in USD, and when that can't be rolled over or gets too expensive due to a collapsing all goes to custard. Commodity prices are possibly the best forward indicator?

I wouldn't say this is a gloomy view. The US can probably keep growing for sometime, and Europe will probably muddle along. Just super painful for some emerging nations (and Australia).


More worrying news however is the '' keeps crashing this morning and my daily fix is being interrupted. Is this a sign that things are getting really bad?

True. I attempted to post something which in hindsight was neither informative or perspicacious and after 20min of frozen screen it appeared in quad. I can think or I can enter comments but cannot manage both at the same time. A computer glitch makes it too obvious.

You are right. We are fighting gremlins this morning. Might have been something I said ... or more likely we are having high traffic today (but not so high I would have thought it affected user experience).

We have had our team on it for an hour so far, no real resolutioin yet. Sorry.


As an experienced but retired computer programmer I recommend shooting one member of your IT support team on the hour every hour. It would help them focus.

International students threaten hunger strikes! What the hell is going on in this country?
Everyone seems to have found the government's Achilles heel - the fears bad publicity on moral grounds can coerced the coalition into any deal.

The Immigration Minister says there are temporary work visas the students can apply for while they work through the issues. Great, any other demands?


Can't blame the students. When our prevous govt put a sign up "Corruption and rorts for sale" and the current govt is slow to take the sign down it was bound to happen. Blame the con men not the rather dumb for being conned.
And the comment 'dumb' is not racism - just check out Akshay Venkatesh or Satya Nadella for the Indian immigrants who never get to NZ. We have been vacuuming up the bottom of the barrel rather than searching for the very best and making it really easy for them.
INZ should show it has a heart and refund these students costs; give them a 2nd chance to meet what I hope are rather higher entrance hurdles and if they fail buy them tickets home.

I think NZQA should penalize the directors of those fraud institutions and use the funds to pay those students back. I don't think the public should pick up the tab for this one.
Also, would Satya Nadella have studied business at Tasman Institute or Amar Bose have founded Bose Corporation if he would've studied at MIT, Auckland instead of MIT, Massachusetts?
Do we really have the grade of tertiary institutions and quality of job opportunities to attract people of that caliber to come work and live in NZ?
I have faced questions like "What is Fortune-500" and "what is this Pfizer" by hiring managers at reuptable NZ companies based on what was in my CV. Really? Are we aiming for people like Akshay Venkatesh with that sort of a job market?

One of my relatives work as an inspector for NZQA. I wish I could relay some of the stories i've been told, but I think that would be inappropriate. Let's just say that some of the "educational establishments" are MUCH worse than even I imagined. It's hard to know how overt and pervasive the scamming has been and the extent to which students were or were not aware that this was backdoor visa entry rather than education. There are certainly situations of international students being scammed by merciless "education providers" but some of them, they must have known.

I have a number of friends who have both been through and worked in the Pretend Tertiary Education (PTE) sector. They are scathing of it, unhappy with the quality they received for their $15-20k per year, and have some pretty horrifying stories - including from some of the highest profile institutes in Auckland.

I have faced questions like "What is Fortune-500" and "what is this Pfizer" by hiring managers at reuptable NZ companies based on what was in my CV. Really?

I've faced this thing here in NZ as well, I hate it.

Appalling on so many levels

Also, would Satya Nadella have studied business at Tasman Institute or Amar Bose have founded Bose Corporation if he would've studied at MIT, Auckland instead of MIT, Massachusetts?

Realistically, these students can probably found better quality education through MOOCs. The NZ govt should be aware of this and that the qualification will be extremely limited in value and workplace application.

The harsh truth is a student who spends several thousands of dollars in tuition at Harvard, Stanford, Cornell, U-Penn etc. does not care so much about the quality of education as much as the more 'realistic' factors around marketability of the degree and its payback potential.
We certainly do education better than institutions in Dubai but the latter is now the fastest growing study destination for Indian students because of its strong job market offering great opportunities and globally-competitive salaries (free of taxes is a bonus).
Unfortunately, limited opportunities in high value industries and employers not ready to look beyond "western" experience discourages the bright ones from coming to NZ.

FYI - FT is the most popular of business school rankings out there. Check out their methodology - barely anything to do with education quality.

"Bitcoin is now at US$6.464 and +3.3% higher than this time yesterday. We track this rate daily in the interactive chart below."

Not heard much about bitcoin for a while. Very interesting chart. Bitcoin has dropped from $27,664 NZD in Dec 17 to $9,416 in Aug 18.

Is that a 65% drop?

Elliot wave proponents will be putting in their buy orders.

David, looks like the USA is just rolling that debt over?

David, looks like the USA is just rolling that debt over?

David, looks like the USA is just rolling that debt over?

All these double and triple posts showing up today...

Looks like's not immune to inflationary pressures. And is there an underlying infrastructural deficit caused by deferred maintenance / investment?