Here's our summary of key events overnight that affect New Zealand, with news bond markets are marking down American prospects sharply today.
But first, the S&P 500 hit a new record high after Fed Chairman Powell noted American economic strength and said the central bank's gradual interest rate hikes were the best way to protect the economic recovery. And he said more rate hikes are likely, over and above the two already penciled in for later in 2018. He also said he sees few signs of overheating. This was a direct pushback against the comments of the US President, and equity markets liked it, but the bond market not so much.
US durable goods orders fell -1.7% in July from June and a much bigger fall than markets were expecting. But they were up +8.6% above the same month a year ago.
Mexican GDP fell in the June quarter, also by more than markets were expecting. It was down -0.2% from the first quarter, but up +2.6% from the same quarter a year ago.
In Washington, trade talks between the US and China failed to produce any visible sign of progress, reducing the prospects of a deal soon. Meanwhile in China, authorities are trying to stop the yuan falling too fast so as to curb any prospect of capital flight.
China is also worried about the rise of Scott Morrison as Prime Minister of Australia, fingering him as an anti-Chinese influence.
The UST 10yr is unchanged today at 2.82% but their UST 2 yr is up firmly and that has put their 2-10 curve under +20 bps for the first time since July 2007. Given it was at +26 bps at the start of the week, this is a fast, sharp move and not a welcome one. The Aussie Govt 10yr is at 2.54% (unchanged), the China Govt 10yr is at 3.64% and down -2 bps, while the NZ Govt 10 yr is at 2.60%, unchanged.
The VIX has barely moved this week and is currently at 12 ignoring the political and trade risks, and almost exactly at the average index level over the past year of 12. The Fear & Greed index has moved firmly over to the 'greed' side with a +14% shift.
Gold has had a good move up, this time by +US$20 from yesterday and is now just on US$1,205/oz in New York.
US oil prices are higher today from yesterday and now just over US$68.50/bbl. The Brent benchmark is now just over US$75.50/bbl. The US rig count dropped sharply off its recent high.
The Kiwi dollar is ending the week a little firmer than at this time last week at 66.9 USc. On the cross rates we are now at 91.3 AUc, and at 57.6 euro cents. That puts the TWI-5 at 70.6 and comfortably above its recent three year lows. Against the British pound, we are at a nine week high.
Bitcoin is now at US$6,617 and +2.0% higher for the week.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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7 Comments
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.bbntimes.com/en/global-economy/china-why-we-should-be-even-…
In a research note ANZ, a bank, points out that the short position (bets that gold will be cheaper in future) is the highest since data was first collected by the CFTC in 1993.Nowhere is the negative sentiment more evident than on derivatives markets where investors and speculators seemed to have lost all confidence in gold’s ability to move higher.
According to the CFTC’s weekly Commitment of Traders data up to August 14, investors (non-commercial traders) are now short 215,467 lots, the equivalent of 670 metric tonnes.
The hollowing out of NZ tourist assets.
Locals are losing out when Chinese tour groups are taken to Chinese-owned or backed shops and "payments are made directly to China", .
You see here and the china tour trail across South Island.
Includes air bnb, where local houses are booked thru the china site, pay in yuan!
Also
This is the use of wepay where the entire money transaction is processed outside NZ.
No GST!
See it in tourist shops and supermarket wet market stores.
https://www.smh.com.au/world/asia/china-s-tourism-boom-prompts-fears-th…
Zero-Dollar Tourism
"Zero-Dollar" Chinese tourism is reshaping the market, and local tourist groups, as well as the Chinese consul, are concerned that dodgy operators and business practices are cutting locals out of a share of profits from shopping
Zero-dollar tourism works like this. In China, would-be tourists are offered heavily discounted, all-inclusive package tours that include accommodation as well as flights, transport, meals and translators. The trade-off is that, along with the usual trips to the beach and fine restaurants, tourists are also taken to overpriced shops and urged – in some cases, reportedly even intimidated – into buying marked-up goods.
Zero-Dollar Tourists
https://www.smh.com.au/world/asia/china-s-tourism-boom-prompts-fears-th…
Good advice to the US from a long-term financial insider: How China will react to the trade kerfuffle
Art [Laffer] vastly overestimates American economic strength and Chinese economic weakness, and his mistakes amplify the Administration’s mistaken view that tariffs will occasion intolerable economic pain for China. This is a strategic error of potentially fatal magnitude, on the order of the Russians at Port Arthur, the British at Singapore, or the French at Dien Bien Phu. Western observers speak ignorantly of a “Chinese economy,” when there really is no such entity: There is a past economy and a future economy which are quite different from each other. What we observe at any given time is the destruction of the old and the creation of the new. Averaging the two together is pointless.
And this:
All the other problems in the world are trivial next to the challenge of China. Russia has less than half of our population and a GDP the size of Italy. The world’s jihadists are primitive barbarians who can annoy but not defeat us if we show a modicum of resolve. But China is like the Borg in Star Trek: We will assimilate you, Beijing tells the whole of Asia. Resistance is futile. China wants to Sinofy the 600 million people of Southeast Asia and the 200 million Turks and their relations who live between Turkey and Tajikistan. It seeks to swallow up the great European and Japanese industrial companies into this burgeoning market. It wants to dominate the next generation of technology, including quantum computing. If that happens, there will be a word for an American who works for a Chinese, and it will be, “employed.” That is a nightmarish scenario, but it is not improbable.
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