US trade deficit swells; Brexit talks move forward; EU retail weak; China PMIs slip; China opens up debt expansion; Indonesia raises taxes on imports; UST 10yr at 2.90%; oil down and gold up; NZ$1 = 65.9 USc; TWI-5 = 69.8

Here's our summary of key events overnight that affect New Zealand, with news China has suddenly reversed course on reining in local authority debt, now seeming to encourage its growth.

But first, the US trade deficit rose to a five-month high in July, with the politically sensitive gap with China hitting a record monthly high of -US$34.1 bln. The annual goods deficit is now -US841 bln or -4.2% of GDP while their annual services surplus is +US267 bln or +1.3% of GDP. The annual goods deficit with China is -US$391 bln or almost half of their total goods deficit. Whatever the Americans are doing to cut it back, it isn't working. US exports shrank as Chinese retaliation cut soybean exports sharply. And the irony is, it is American consumers who are driving the demand for Chinese-made products, despite new US tariffs.

Meanwhile, north of the border Canada is reporting trade improving to a better balance. Their goods trade deficit narrowed to -C$114 mln in July, the smallest deficit since the most recent surplus in December 2016. Exports rose, imports declined. With the US, Canada runs a small +US$15 bln surplus or less than 0.1% of Canadian GDP (or 0.075% of US GDP). The strident US rhetoric about their trade disadvantage with Canada is partisan politicking, unbased in fact. And apparently NAFTA talks are back on, at the invitation of the US side.

The Bank of Canada held its official interest rate unchanged at 1.50%, although analysts now expect a hike at the October review. They seem to be holding off to get the NAFTA situation behind them.

The other NAFTA partner, Mexico, has previously made a deal with the US. That may be behind a rise in consumer confidence in Mexico.

In Europe, the British and German governments have abandoned key Brexit demands, potentially easing the path for the U.K. to strike a deal with the European Union, according to a Bloomberg report.

Meanwhile data on EU retail sales for July was increasingly weak, rising just +1.1% year-on-year and below even depressed analyst expectations, dragged down by Germany and Spain.

There was a surprise slip in the Chinese services PMI for August. Markets were expecting an index of 52.6, a similar expansion to July. But it came in at 51.5 and a noticeable slowing. An index value of 50 represents no change, lower is a contraction. Today's data is the lowest reading since October 2017 and the expansion that there is, is being driven by higher prices rather than rising demand.

In China, and in a direct move to prop up its debt-fueled 'investment' sectors, they have scrapped credit limits on banks lending to local governments. This reverses a national decision that such excessive lending was toxic to their financial stability, which just shows how seriously authorities there regard the recent slippage in their economy. Their debt-binge will now get larger.

Indonesia said it will soon raise taxes on imports of more than 1,000 mostly consumer goods and ban purchases of big foreign luxury cars in its latest move to defend its currency, which hit a new low yesterday.

In Vancouver, their summer holiday real estate fall-off is sharper this year. They have declined to a six-year low while prices for various housing types are weakening sharply, down by more than a third from the same August month in 2017. It is particularly tough in the inner suburbs of Vancouver.

The UST 10yr is holding at 2.90% and their 2-10 curve is wider at +25 bps. The Aussie Govt 10yr is at 2.55% (up +3 bps), the China Govt 10yr is at 3.64% and up +1 bp, while the NZ Govt 10 yr is at 2.58%, up +4 bps.

Gold is has recovered +US$4 of yesterday's drop and is now at US$1,196/oz.

US oil prices are down more than -US$1 today and now just under US$69/bbl. The Brent benchmark is now just over US$77/bbl.

The Kiwi dollar is firmer today at 65.9 USc. On the cross rates we are higher too at 91.7 AUc, and at 56.7 euro cents. That puts the TWI-5 at 69.8.

Bitcoin is down sharply at US$6,933, a drop of over -US$450 from this time yesterday, or -6.2%. Goldman Sachs has abandoned its plan to have a trading desk for cryptos. This price is tracked in the exchange rate chart below.

This chart is animated here. For previous users, the animation process has been updated and works better now.

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