Here's our summary of key events overnight that affect New Zealand, with news the US is trying to change the art of diplomatic negotiation, replacing 'compromise' with 'bullying'.
Talks between Canada and the United States to update the North American Free Trade Agreement soured sharply today after the US President said a pact would be on American terms, and Ottawa stood firm against signing "just any deal." The key sticking point is whether Chapter 19 will survive. That is section that resolves disputes over arbitrary tariff actions by the other party. The US wants freedom to break the agreed terms without consequences; Canada is wary of giving the dominant party such leverage. It looks like there will be no agreement this weekend as hoped.
And the US is threatening to pull out of the WTO, also over the restriction of having to go to arbitration for disputes.
Wall Street is closing on a weaker note, with the S&P500 down -0.3% on the day. The bond market is also posting lower yields.
Emerging market troubles are spreading. The dramatic interest rate hike in Argentina has failed to stop the rout of its currency. Turkey is facing a faster falling currency as well. And Indonesia and Brazil are watching their currencies fall to fresh lows. (One consequence might be rising demand for gold.)
But within the past few hours, the IMF has pledged "full support" for the Argentina government and that has staunched the bleeding for now.
All this comes as the US and China seem to be making no progress at all in their trade dispute.
India has reported its economy grew at the rate of +8.2% in the June quarter. That was up from +7.7% in the March quarter, and well above analysts expectations.
In China, their factory activity expanded faster in August than July according to official data, and to be fair that is matched by private surveys. But the absolute level of factory expansion is pretty modest. And the sub-category "new export orders" in the index reveals a fall, which may be telling. The service sector expansion also picked up and that is growing at a much more healthy rate.
New Australian energy policies promoting coal-fired power plants to "get power prices down" may well cause them real trouble with their free trade deal aspirations. The EU is saying the level of Aussie coal exports is a "red line for us" and the proposed EU-AU FTA may be stillborn.
The UST 10yr is lower today at 2.85% but their UST 2 yr is also lower and that has put their 2-10 curve at +22 bps. The Aussie Govt 10yr is at 2.51% (down -4 bps), the China Govt 10yr is at 3.60% and down -4 bps, while the NZ Govt 10 yr is at 2.56%, down another -2 bps. New Zealand swap rates are also lower with the 2 year now at 1.98%, a -5 bps fall in the past week and a -16 bps fall over the past month.
The VIX has moved higher this week reflecting rising volatility and is currently at 13.9. slowly by inevitably political risk in the US is getting factored in and rising emerging economy risk is in there too. The average index level over the past year of 12. The Fear & Greed index is unchanged and still firmly on the 'greed' side.
Gold is marginally firmer from yesterday and is now just on US$1,201/oz in New York, up +US$2, although it has slipped -US$3 over the week.
US oil prices are softer today from yesterday and now just under US$70/bbl. The Brent benchmark is now just under US$77.50/bbl. The US rig count rose this week.
The Kiwi dollar is ending the week sharply lower than at this time last week at 66.1 USc, partly from a rising greenback, but mostly from the effects of declining local business confidence. On the cross rates we are firmer at 92.1 AUc, and softer at 57 euro cents. That puts the TWI-5 at 70 and -50 bps lower over the week.
Bitcoin is now at US$7,044 and +6.5% 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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10 Comments
The First Global Domino Tips
http://www.alhambrapartners.com/2018/08/31/the-first-global-domino-tips/
If China was doing so well I wouldn't be getting this in my mail
" P.S! There have been some overwhelmingly negative things going on in China recently but I'm trying to avoid them as much as possible as things here are far more sensitive and touch and go at the moment, anyone trying to protest or talk about the P2P lending crash or the vaccine scandal are being visited by the police and all sorts of nonsense along those lines so I'll have to talk about these things once the pressure is off and the heat has died down, at the moment as China has recently taken some significant steps backward and it has and will continue to affect my life here (and that of everyone, not just foreigners).... More on that in the future!"
India is just another EM facing crisis after crisis.
What's the polling of Australians in the street?
Do they understand that they're being hoist with their own petard? Or has the Alan Jones bleating and the fundie religious leadership fanned ignorance? Where is their media in this? There should be grandparents (which all parents aspire to become, we presume) marching in the streets.
No good piles of bank-computer digits ina 2 degree or warmer world. Stupider than Jack trading in the family cow for some magic beans...
"buy hundred year Argentine debt they said. The yield is high they said. What could go wrong they said..."
https://www.zerohedge.com/news/2018-08-31/argentina-all-bets-are-peso-d…
"Real estate is the driver of the Chinese economy...it accounts (directly and indirectly) for as much as 30 percent of gross domestic product...Despite reforms in recent years, there's little question that Chinese real estate is in bubble territory.’"
https://www.bloomberg.com/view/articles/2018-06-24/why-china-can-t-fix-…
I very much doubt that - unless the author it using a stock:flow measure which would make the comparison fairly dodgy in my view. "Some estimates" is the giveaway. I looked at the flow:flow data for New Zealand and in the year to March 2018, we are at 7.4%. I know NZ is overweight even at that level, so I really doubt China is just that more exposed. More, yes. But seven times more? Dubious.
Readers need to be sceptical of the "breathless doom" anaysis - it's just clickbait. But there is plenty around, so I guess it works.
either way I think China is in for a shake up
https://www.scmp.com/comment/insight-opinion/hong-kong/article/2160018/…
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