US retail sales weak; US inflation expectations low; China car sales slump; Japan and Germany report low key data; Wall Street strangely ebullient; UST 10yr 2.64%; oil up and gold down; NZ$1 = 68.3 USc; TWI-5 = 73.1

Here's our summary of key events over the weekend that affect New Zealand, with news of a range of data that is turning decidedly ugly.

First, US retail sales have come in with a very small gain in January, which is better than the decline the month before. In fact, the December decline was widened with revised data, while the January rise represents only a +2.3% gain year-on-year. These levels don't indicate a strongly growing economy. Sharply lower car sales in January drove the result. The latest measure of business inventories show a significant rise, up +4.8% year-on-year. That is a big rise, up by almost +½% of GDP in a year.

A NY Fed survey shows that American consumers expect prices to rise more slowly, a decline in inflation expectations that likely reinforces the official Fed reluctance to hike rates further in the meantime.

Car sales in China continued their downhill run into February, falling for the eighth consecutive month. Vehicle sales in February - a period that includes the Spring Festival holiday - totaled 1.2 million, down a chunky -17% from a year earlier.

And Japan's machine tool orders slumped as well. They fell -29% in February from the same month a year ago, the fifth straight drop, and the rate of decline is getting steeper as overseas demand for these investment goods dries up.

In Germany, plunging car output drove an unexpected drop in production of German goods in January and an industry body cut its 2019 growth forecast, adding to signs that trade war tensions and unease about Brexit are weighing on Europe's largest economy. And the German government has apparently cut its in-house growth outlook to +0.8% from +1.0%, the second reduction in less than two months. They follow others.

And this is despite a very large flow of funds out of the UK and into Europe ahead of a hard Brexit. A new study shows that more than NZ$1.5 tin has already flowed, equivalent to "about -10% of the UK's banking assets". The main destinations seem to be Dublin, Paris and Frankfurt.

And Turkey is in recession shrinking by -2.4% in the fourth quarter of 2018, from the previous quarter. This follows a -1.6% drop the previous quarter, making two quarters of falling growth - the definition of recession. (Turkey is the world's 18th largest economy.)

You wouldn't know any of this from equity market movements. Today Wall Street is up +1.3% in a risk-on shift in sentiment. That follows a +0.7% rise on most European markets. And they followed strong gains yesterday in Tokyo (+0.5%), Hong Kong (+1.0%) and Shanghai (+1.9%). Perhaps markets sense the US-China trade talks will end well. Perhaps they are blind to the economic data. Or perhaps they sense major new money printing is on its way. Who knows? It is hard to find any analysis that can reconcile investor mood and the global economic data trends.

The UST 10yr yield is a little firmer today by +1 bp and is now at 2.64%. Their 2-10 curve remains at +16 bps while their negative 1-5 curve is at -8 bps. The Aussie Govt 10yr is down -1 bp to 2.02%, the China Govt 10yr is up +1 bp to 3.17%, while the NZ Govt 10 yr is also up 1 bp to 2.11%. The New Zealand 10 year swap rate is at a record low again of 2.37%.

Gold is lower, down to US$1,292 and a -US$6 fall since this time yesterday.

US oil prices are now just over US$56.50/bbl while the Brent benchmark is just over US$66.50/bbl. That's a small rise overnight. The United States will drive global oil supply growth over the next five years, adding another 4 mln bbd to the country's already booming output, the International Energy Agency said.

The Kiwi dollar is at 68.3 USc and a little firmer. On the cross rates we have gained on the Aussie and now at 96.8 AUc which is its highest level since September 2016. Against the euro we are up to 60.8 euro cents. That puts the TWI-5 at 73.1.

Bitcoin is marginally softer at US$3,844. 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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Way to go China.

"The deputy governor of PBOC said at press conference that mums could use the credit scores provided by the central bank to choose future son-in-law with confidence. Marriage has sadly been making M&A deals in China. Now even more so.

Gold dropped half percent...cant be a looming economic calamity yet

Talk of economic calamity is overblown hype imo

What do you mean "ahead of a hard Brexit"? There is a tiny minority of UK MP's who want a hard Brexit.

Do UK MP's represent the electorate? Not according to this. No Deal is better than May's deal according to the public

And from the same Poll (the bit that the Brexit supporting press conveniently ignored) -

"But buried in the detail of the polling is the fact that the public does want to stay, with those same respondents saying they would back Remain over Leave by 46% to 39% if a vote was held tomorrow"

Andrewj the public aren't voting this week or indeed at all. And whilst the odds of a second referendum have definitely risen, there is, as yet, nothing tabled. What is tabled is a Commons vote on whether to leave with no-deal, which the overwhelming majority of MP's have said they will vote against. The odds at this stage on a "hard Brexit" have never been smaller, so I am a bit lost of what point you are trying to make?

not me Ginga, looks like you have another andrew / Nemesis

HAHA. These threads become more surreal and Python-esque by the day.

And I can happily report that my nemesis is and never will be, some rando on the internet. Online disagreements do amuse and provide some kind of data on various demographics opinions, no one should live in an echo chamber, but they aren't irksome.

Also you are cherry picking polls and I have two problems with that.

1. Aggregates of 74 polls have had Remain votes in the lead since January 2018
2. Polls have been proven particularly flawed at measuring how the UK populace actually votes.

Another interesting piece around those who weren't eligible to vote in the referendum -

Added to the mortality rate amongst elderly people and you've got an absolute minefield..

Youth are for the status quo. Nothing unusual there. It takes time to gather experience and gain wisdom and welcome a revolution.

Perhaps David that those invested in the current paradigm can not conceive of it not working. As are they refusing to listen to the data? Hard to take the pill if all you know relies on it and you can't see past that. Those machine orders out of Japan are about what I would expect as a leading indicator of a credit bubble finally coming to a close and I think the measure is pretty conventional in that regard.

Central Bank narrative crashing off the rails.

" Perhaps they are blind to the economic data. Or perhaps they sense major new money printing is on its way. "
Spot on.
No choice but to fight deflation at any cost.

As long as profit can be enjoyed privately now and cost pushed off to future folk, all's well in the world.

There was I thinking it was all about keeping the government machinery fed. Reducing interest rates is magic for governments as they are the biggest debtor. The need to borrow big is also why governments bail out bankers.

Seems to me at this point in history thinking it's all about the government or thinking it's all about the financial sector is missing half the picture either way.


Rather money printing than immigration. Japan has been rather smart up until now as they're still Japanese.

A bet on more money printing would be one with good odds, that is the only tool in the box. However the fact of money printing is likely to be viewed as an admission of incompetence to do anything else but.

Interesting to read the current crop of Listener 'Letters to the Editor'.

The populace are clearly ahead of the MSM.

I noted that here with the comments before me this morning.

What was the jist of them?

More than one mentioned curbing population, one directly mentioned the Limits to Growth.

Listener readers are probably at the intelligent end of the spectrum, but the letters so outweighed the reportorial content that it wasn't funny.

David C,

How do you measure a " flow of funds " - if it's to a foreign currency then the net flow to the UK is exactly zero given every sale requires a buyer.

I'm always wary of the these stats. Any enlightenment appreciated.

An interesting article and amusing that one of the economists is called Tulip -

Of course cheap money has inflated the property market , more so in NZ where we dont have particularly exciting or robust Capital Markets or Stock Market to soak up the money

Well well well, let me wade into the BREXIT debate .

Now that the Brits know exactly how obnoxious their partners in the EU really are , who would want to be told what to do by an un-elected bunch of bureaucrats in Brussels .

The Brits have chosen to leave , and they could end up with the same arrangements as Switzerland or Norway, simply abide by WTO RULES .

They now need to stop messing about and get on with it

Spoken like a true British colonist, not used to being challenged and not getting their own way. Well done to Europe for standing up to the British arrogance