US treading water on trade, shutdown; China holiday spending growth disappoints; Italy and Spain take economic risks; ASX dips on Hayne; UST 10yr 2.66%; oil and gold dip; NZ$1 = 67.3 USc; TWI-5 = 72

US treading water on trade, shutdown; China holiday spending growth disappoints; Italy and Spain take economic risks; ASX dips on Hayne; UST 10yr 2.66%; oil and gold dip; NZ$1 = 67.3 USc; TWI-5 = 72

Here's our summary of key events overnight that affect New Zealand, with news that politics seems to be driving the economic news today.

Wall Street is treading water, with the United States and China continuing their trade negotiations with no clear outcome in sight, and Congress still struggling to find a way around the impending reprise of the shutdown.

Meanwhile, the NY Fed published a survey of consumer sentiment today that show them as less optimistic generally about the economy and changes in their own financial situations. The share of households expecting to be better off a year from now fell to 39%, the lowest reading since November 2016.

China is back from its week-long holiday, but spending over that period grew at its slowest pace in seven years and reflecting wider troubles in China's economy. And it turns out two large private corporate borrowers have defaulted on bonds this month.

And we should note that tensions are rising again in the South China Sea. And it is not just because the US is sailing through the area. China is now trying to intimidate the Philippines. These flash points could explode, especially if the US-China trade talks break down.

In Italy, which as more than 2,400 tonnes of gold in its reserves, their new government is looking at using these to support their spending programs without breaching their EU commitments.

In Spain, they have just raised their minimum wage by +22% to €1,050 per month (NZ$406 per week). Their economy had grown +2.5% in 2018 but that was slower than the +3.0% growth in 2017, so this is a high-stakes gamble that the extra purchasing power by this jump in social transfers will pay for itself in growth and higher tax collections.

Today, Wall Street is little changed in mid-afternoon trading. That is in sharp contrast to the strong +1% gains in Europe overnight, and yesterday's +1.4% rise in Shanghai. Hong Kong rose +0.7%.

But the ASX fell yesterday, despite the sharp rise confirmed for the iron ore price. Part of the reason is that second-tier banks are falling out of favour as markets see them as struggling to absorb the costs and lessons of the Hayne Report.

The UST 10yr yield is higher at 2.66% and up +3 bps. Their 2-10 curve is just under +17 bps. The Australian Govt. 10yr yield is at 2.09% and down -1 bp. The China Govt. 10yr yield is back from holiday, adjusting lower by -6 bps to 3.09%, while the New Zealand Govt. 10yr yield is holding at 2.11% and its record low.

Yesterday local wholesale swap rates rose by +3 bps at the short end of the curve and by +1 bp at the long end which puts our 2-10 curve at a 28 month low.

Gold is down -US$5 at US$1,309/oz.

US oil prices are -US$1 lower today at just under US$52/bbl while the Brent benchmark is just on US$61.50/bbl.

The Kiwi dollar will start today marginally softer at 67.3 USc. On the cross rates we are at 95.3 AUc which is marginally firmer, as is the Kiwi against the euro at 59.7 euro cents. That leaves the TWI-5 at 72, a level it has been for a week.

Bitcoin is marginally lower today at US$3,589. 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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30 Comments

We are being pressured to choose a side. The only question - what price is to be paid?

I think if you look closely at what our foreign minister has said and done we have already picked the US

And if I'm being honest, for all it's problems, that is my choice too. But i think I must confess to a bit of cultural bias here.

Mind you it would be very interesting if we picked China, while nestled right beside the huge Yankophile just across the ditch, and competition for influence in the Pacific is heating up?

I posted that in an another post the other day but this is a must watch.
Pretty scary
"the world according to Xi Jiping"
https://www.arte.tv/en/videos/078193-000-A/the-world-according-to-xi-jin...

The Swiss did very well out of neutrality

Location, location, location

The Belgians didn't.

Having a ring of mountains to help defend your country does wonders. the difference between the Belgie and Swiss

Yes, if only there was some kind of flying machine that could fly over the mountains and maybe even drop some bombs, that would ruin the Swiss

As wrong as this sounds in NZ, the Chinese struggle to take a female leader seriously (especially a young one).

Pick off the weakest link
Australia and America have both banned Huawei but are not copping the same cold-shoulder

"China still New Zealand's top trading partner. For the fourth consecutive month China remains New Zealand's top trading partner, with combined exports and imports hitting $26.8 billion, for the year to March"

An interesting company . https://www.cm-inv.com/en/. With global advisory council

Italy's gold, the battle for unearned income heating up.

as long as Germany acts as a backstop, what could possibly go wrong?

I've seen some video's on Facebook, so much water. One of a farner in a chopper flying over his land, hundreds dead animals scattered below. Another still image of a cow that's become wedged during the flooding at the top of a 5m tree.

"Société Générale, says that prices for the 10-year (US) bond are set to rally, pushing yields, which move in the opposite direction, sharply lower.... with the yield set to eventually slump below zero"

And I thought I was bearish! ( although Monsieur Edwards is a bit of an extremist)

The market sell off that happened last year seems to have mostly gone into 10 year treasuries based on the change in yield. It looks like investors are protecting their net worth from a recession.

The 10 years going to 0% is a bit of an extreme prediction.

Being An Economist Means Never Having To Say Deflation

https://www.alhambrapartners.com/2019/02/11/being-an-economist-means-nev...

Ooops !!!

Note the graph on the defaults, Im betting 2019 will be a lot worse

https://www.bloomberg.com/news/articles/2019-02-11/two-large-chinese-bor...

'The global central bank easy money experiment has failed and it is past time that central bankers stopped bullshitting us and just admitted it. Europe is about to enter a recession and rates are still negative'
https://northmantrader.com/2019/02/11/rant-alert/

"From Boom to Gloom"
Morgan Stanley slashes euro zone 2019 GDP forecast to 1.0% from 1.6%. Also cuts inflation, bond yield & euro forecasts, and pushes out ECB's first rate hike to June 2020.'

Chinese culture differs from the West and at the sharp edge its distrust, doubts on the accuracy of Data, Actions in the S China Sea, using loans to acquire influence/power, the disregard of IP and the treatment of inward investors technology all contribute to distrust. Huawei have already been found to have inserted a Rice sized chip in their boards with the inference that it is a spying device , and whilst all countries spy on each other this apparently deliberately placed and hidden kit understandably leads to further distrust. China is a major world power and deserves that respect but must also earn respect and play by sufficient of the rules and accepted practices to be accepted as a sufficiently trusted partner to do business with. I hope that China adapts and becomes a valued player internationally.

Chinese people tend to not question authorities too much. A strange mixture of trust in the authorities and distrust of fellow citizens.

If they complained or questioned authorities too much they would disappear.

I think we are starting to see China's true colours, which no China skeptic will be surprised by.

Something about chickens and roosting comes to mind.