Here's our summary of key events overnight that affect New Zealand, with news that the major economies are starting to slow just as tariff imposts kick in.
The first readings for the American PMIs were out today for August and they show a slowing of their expansion. Their factory PMI slowed to its lowest rate in 9 months, their services slowed to its lowest rate in four months. This slowing is consistent with a recent poll of economists who think it is being caused by the US-inspired trade wars.
Sales of new US single-family houses fell in July, down -1.7% from the June annual rate, but they are almost +13% above the annual rate for July 2017. Median prices rose to US$328,700 (NZ$495,000).
In Japan, their flash PMIs shows factory activity up slightly, with both input and output price inflation at multi-year highs. Overall demand improved, but export orders showed no gain for a third straight month.
The same measure in Europe showed little change with services up, but factory activity down. Their consumer sentiment however is turning less optimistic. But the ECB thinks their recent slowdown will only be a temporary bump and growth will pick up soon.
Overnight, both the US and China started levying previously announced tariffs on each others goods, the start of the first NZ$20 bln tit-for-tat actions. There is much more to come that has been announced. This comes as both restart talks on resolving the issues, but beither Beijing nor Washington are holding out much hope that more talking will resolve anything. Essentially, it is now a zero-sum game with each hoping the pain to be caused will have the other concede. There is a long way for this to run.
In China, they are facing a major biosecurity threat. Their pork industry is dealing with a major outbreak of African Swine Fever, and the crisis is spreading. Given the role of pork in their food chain, this is a really major issue for them. It has the potential to raise meat prices for other animals, significantly.
All eyes will be on Australia this afternoon as the ruling party tries to resolve its leadership issue. There are major implications for New Zealand in this contest.
And Australia has told two Chinese companies that they can no longer supply any components for its 5G networks on the basis of a national security risk assessment. One of those companies is supplying that infrastructure in New Zealand, at least on a test/trial basis.
The UST 10yr is has held over the past 24 hours at 2.82% but the US 2-10 curve is now down to just under +21 bps and a new eleven year low. The US Treasury Department will auction US$217 bln in securities next week, comprising US$104 bln in new debt and US$113 bln in previously sold debt. The flood is starting. The Aussie Govt 10yr is at 2.53% (down -1 bp), the China Govt 10yr is at 3.62% (down -3 bps), while the NZ Govt 10 yr is at 2.60% (down -2 bps).
Gold is down -US$8 at US$1,187/oz in New York.
US oil prices are softer today at just under US$68/bbl. The Brent benchmark is now just under US$75/bbl.
The Kiwi dollar is starting today slightly softer than yesterday at 66.4 USc but right where it was at this time last week. On the cross rates we are firmer at 91.6 AUc, and at 57.5 euro cents. That puts the TWI-5 at 70.3.
Bitcoin is little changed yet again at US$6.456 and only marginally up from this time yesterday. That is now five days of virtually unchanged prices.
This chart is animated here. For previous users, the animation process has been updated and works better now.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
31 Comments
Curious that the ramp up in US Treasury sales doesn't seem to have pushed up rates as yet. It does seem to have led to USD being in short supply outside the US though, judging by the daily currency falls everywhere else. Am I missing something here?
As an aside, Swine Fever is the equivalent of Foot and Mouth for pigs, it is a terrible disease to have. It sounds like the infection is well established so the consequences could be dire. Do pork price rises in China lead to widespread anti government riots? Is the CCP mandate of heaven threatened? This sounds like a big deal to me. Watch for references to Deng Xiaoping, the implication being the current leadership are failing.
Haha, its ironic that the Chinese have imposed tariffs on US pork!
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
the irony being that China owns so much of the US pork industry
https://www.washingtonpost.com/news/wonk/wp/2018/03/28/china-proposed-a…
I'm surprised it hasn't happened already. So many using NZ as a backdoor to Aus due to our loose immigration rules. At some point the penny will drop with joe public that our policies are risking our entry status to Aus. And we will have no grounds to complain........
Rastus. As someone that has spent decades living in Australia, that problem has been evident for a long time. Furthermore, as one that is closely watching the subject of immigration in Europe. There is even talk of civil war there, which currently may be an extreme view but is surely a cause for great concern.
I am afraid a few of those scenarios are just another economic crisis away from becoming reality. So many people are struggling on low wages in high cost countries like Australia and Western Europe, living paycheck to paycheck with low-value service jobs. The tipping point is approaching!
Not going to happen.
Who cares about national security and privacy when we have milk and kiwifruits to sell to the Chinese? And no, the CPC doesn’t meddle in our domestic affairs, at least not directly. They, very subtly I might add, use Fonterra and Zespri to get the message across to our government.
I don’t know if there is a story coming here about Sky’s result but I just want to ask - is anyone worried about their liability in terms of their aging set of decoders? They rolled out those mysky decoders about a decade ago and they haven’t updated them. Given their profit and customer situation, how are they going to do a refresh? I remember when I first got mine and I thought it was the best thing ever. Now, over a decade later and still with the same decoder I hate it with the fury of a thousand suns. It is out of date cr*p.
My understanding is that sky and freeview run off the same satellite (Optus D1 I think) with the same dish required. You should be able to receive it with a compatible box or TV using the sky cable. Many current TV's come with inputs for both satellite and Terrestrial.
A strengthening economy in this bond market is a very simple thing, so simple an Economist could understand it: BOND ROUT!!!! I don’t mean the ones that we heard about all last year and the early part of this year, those that for a time dominated the media but only in the future tense.
A truly strong economy will be foretold by a bond massacre in the present tense.
Again, this is why the FOMC has been talking about the yield curve. It is the bond market laughing in their faces about this “strong” economy – starting with the reasons why it will never really be strong (risk). It is therefore incumbent upon them to say something, anything about why it isn’t going as planned.
http://www.alhambrapartners.com/2018/08/22/the-price-of-mispricing/
The new problem is China, which just by 2015 had borrowed $1.7 trillion in foreign currency, mostly in dollars, to finance its investments.
Tooze called China "the hub of a complex of emerging market economies," with connected manufacturing and other supply lines, commodity and product sales, and countless other businesses relying on the yuan.
A big danger is movements in the yuan, he said. "One of the nightmares is that China would allow its currency to move dramatically and bring down all of the emerging markets," he said.
Emerging market economies, he said, do not have the same cash reserves as China to tide them through a devaluation crisis, he said.
Already, the yuan has devalued by about 10% against the dollar this year. "We are probably testing the limits and the world is watching anxiously," he said.
https://www.axios.com/a-decade-later-the-world-is-not-ready-for-another…
A 10% tariff hurts a small part of the economy. However, a 10% devaluation hurts all Chinese citizens equally and massively.
The yuan devaluation is not a tool for exports. Devaluations are a form of price control and a disguised reduction of salaries. As such, they hurt more than what they aim to protect.
https://www.dlacalle.com/en/china-why-we-should-be-even-more-worried-af…
Rickards: The New Reality Of China's Failing Economy Is Coming Soon
https://www.zerohedge.com/news/2018-08-23/rickards-new-reality-chinas-f…
That's scary stuff. Countries down here in South Pacific have overly relied on China to gobble up all commodities we have to offer - coal, iron ore, timber, dairy, meat etc. This could all come crashing in a jiffy if China decides to cut industrial capacity yet again or reduce imports to avoid shocks from slowing manufacturing growth and narrowing trade surplus.
Do we see a round 2 of harder controls on capital outflow being placed any time soon by the Communist regime?
People are only now (the last nine or ten months) talking about the yield curve. They should’ve been paying attention to it for the last decade. The bond market is where everything happens. The mainstream and the media are fixated on the stock market. Stocks are nothing in the grand scheme of things, a minor toy for the unserious, monetarily speaking.
https://www.realclearmarkets.com/articles/2018/08/24/is_the_economy_act…
"People are only now (the last nine or ten months) talking about the yield curve. They should’ve been paying attention to it for the last decade. The bond market is where everything happens. The mainstream and the media are fixated on the stock market. Stocks are nothing in the grand scheme of things, a minor toy for the unserious, monetarily speaking."
""People are only now (the last nine or ten months) talking about the yield curve. They should’ve been paying attention to it for the last decade. The bond market is where everything happens. The mainstream and the media are fixated on the stock market. Stocks are nothing in the grand scheme of things, a minor toy for the unserious, monetarily speaking.""
That's just rubbish. Look at the US curve for the past 30 years, here. The long run average is +115 bps. So it is really only an issue when it starts to sink below +100 bps and keeps on falling. So you only needed to be paying attention since July 2017. A simple look at the long term chart shows that a decade ago the level was an outlier.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.