Shanghai stocks leap; US PMIs retreat; Canada inflation eases; UK boxed in over Brexit; ratings agencies upgrade Australia and NZ; UST 10yr 3.07%; oil unchanged and gold down; NZ$1 = 66.8 USc; TWI-5 = 70.3

Here's our summary of key events overnight that affect New Zealand, with news investors have downgraded their fears of how much damage the US can do to China or the world on trade.

Today, world shares hit a more than six-month high after China moved to boost domestic consumption. It is a rally driven by investor bets the latest US-China trade skirmishes are unlikely to dent global growth. Yesterday, Shanghai was up a remarkable +2.5%, and Hong Kong was up +1.7%. Other exchanges showed similar enthusiasm. Today, Wall Street is up more modestly.

Early data for the US September PMIs shows another pullback in their expansion with the composite index falling to a 17 month low. The same data shows prices rising faster and jumping sharply.

Canada’s overall inflation rate eased for the first time in four months to +2.8% in August, but another uptick in core measures of inflation suggest that further Bank of Canada interest-rate increases remain on track.

Canada's retail sales rose +3.7% in the year to July, beating estimates, especially for sectors that don't include cars.

The flash European September PMIs came in pretty much unchanged, as did those for Japan.

The Brexit re-negotiations are going badly for the UK, with the UK wanting a deal the EU won't actually even consider. The chances of a hard Brexit are rising.

In Australia, ratings agency S&P has upgraded their AAA rating from negative to stable The positive review comes two years after S&P told their Government to get its house in order over budget repair, downgrading Australia to negative watch over fears it would not be able to get the budget back to surplus. Since then, a multibillion-dollar boost to income taxes on the back of bracket creep and high migration levels, and company tax receipts, through higher company profits, have allowed the government to bring forward its expectations of a budget surplus to 2019-20.

On this side of the ditch, ratings agency Moody's has affirmed the NZ Government Aaa rating. The outlook remains Stable. Moody's say they expect that "New Zealand's very strong institutions will continue to define the framework for highly effective policymaking that prevents or mitigates the credit implications of potential external and domestic shocks. In particular, the government's strong fiscal position and monetary policy flexibility provide ample capacity to counter shocks". S&P and Fitch both rate the New Zealand Government as AA+ Stable, one notch lower than Moody's.

The UST 10yr is unchanged today at just on 3.07%. Their 2-10 curve is at +26 bps, +5 bps higher in the week. The Aussie Govt 10yr is at 2.70% (down -1 bp overnight), the China Govt 10yr is at 3.71% and also down -1 bp, while the NZ Govt 10 yr is at 2.70%, down -2 bps. New Zealand swap rates have risen +5 to +10 bps over the past week.

The VIX is still its average over the past year of 12. And the Fear & Greed index is still strongly into the 'greed' end of the scale,little change from a week ago.

Gold however is weaker from yesterday and down -US11, now just on US$1,196/oz in New York, but almost the same level as this time last week..

US oil prices are little changed today from yesterday and now just over US$70.50/bbl. The Brent benchmark is now just over US$78.50/bbl. The US rig count slipped a few this week.

The Kiwi dollar is ending the week firmer at 66.8 USc, and up much more than +1c in the past seven days. On the cross rates we are marginally firmer at 91.7 AUc, and at 56.8 euro cents. That puts the TWI-5 at 70.3 and almost at its average over the past 3 months.

Bitcoin is now at US$6,693 and that is a net gain of +3.2% over the past week. This rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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13 Comments

Methinks this chinese relief rally may be a wee bit premature....

Suggestion for Thersa May...

"You don't want to negotiate a fair Brexit deal? No worries. We're off, with no payment now or in the future to soften the blow to you'se lot. Oh, and whilst we're at it? NATO. We contribute 2% of GDP, the rest of you don't. So. We're out of that too. And, Emmanuel....remember when we came to your aid a few years back to defend your way of life? Don't count on that again either. See ya!
Hello? Donald?"

Well said..just watch those arrogant smarmy European pricks on YouTube and understand why Brexit happened!

The European Union always was a CIA project, as Brexiteers discover

https://www.telegraph.co.uk/business/2016/04/27/the-european-union-alway...

Brexiteers should have been prepared for the shattering intervention of the US. The European Union always was an American project.

It was Washington that drove European integration in the late 1940s, and funded it covertly under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations.

EU 1 - UK 0
Well done Europe, don't give in to these arrogant Brits, you don't need them, they will suffer more than you.

EU 1 - UK 0
Well done Europe, don't give in to these arrogant Brits, you don't need them, they will suffer more than you, watch them beg

Coming to a market near you soon....

For There To Be Decoupling, Something's Already Gone Wrong

https://www.realclearmarkets.com/articles/2018/09/21/for_there_to_be_dec...

Monetary Hierarchy, Independence, And Shaming Greenspan Yet Again
http://www.alhambrapartners.com/2018/09/21/monetary-hierarchy-independen...

There is an anti-US rhetoric on these articles for reasons unknown. Manufacturing PMI hit a 4-month high on the back of new orders and job creation. The composite PMI, however, fell a tad because of a lower than expected service PMI. Although multi year highs were recorded in service job growth and order backlogs, a sharp increase in input prices weighed the index down.
All in all, strong indications of future growth in activities with brewing cost pressures.

You know when they ask about business confidence id like to know what the beef is:
• not enough demand
• plenty of demand but no pricing power to raise prices
• insufficient labour
• insufficient labour at the right cost.

Because I suspect the answer is either the last one or none of the above. And that would tell you a lot about what is driving business confidence responses.

Be interesting to see what the 2-10 curve is after this week’s Fed meeting.