Wall Street slumps on weak factory data; US Govt deficit hits record; China messes with ag imports from Canada; yield curves invert; UST 10yr 2.44%; oil down, gold up; NZ$1 = 68.7 USc; TWI-5 = 73.3

Wall Street slumps on weak factory data; US Govt deficit hits record; China messes with ag imports from Canada; yield curves invert; UST 10yr 2.44%; oil down, gold up; NZ$1 = 68.7 USc; TWI-5 = 73.3

Here's our summary of key events overnight that affect New Zealand, with news that the mood is dampening and the bounce from the dovish Fed signal earlier is long gone.

This morning, equity markets are on the move - lower. On Wall Street, the S&P500 is down a sharp -1.4% on the day (it ended down -1.9%), and that follows Europe that was down even more (London fell more than -2%). Yesterday, Asian equity markets closed unchanged.

Driving the overnight rout has been very weak factory data for March. The Eurozone flash manufacturing PMI dropped sharply, down -1.7 points from an index that was already showing a contraction. It is now at a 6 year low.

In the US, the same survey dropped as well even if it is still indicating an expansion - but it is weakening fast. The output, new orders, and employment components all weakened.

After Japanese markets closed, the Japan PMI came in worse; factory output fell at its fastest pace in three years and the sector is now contracting.

But before we all jump from the nearest ledge, we should also report that the services sectors in the US and Europe are still expanding. But the rate of expansion is slowing here as well.

Not only are equities dropping, bond yields are as well. And a key rate curve inversion, the 1-5yr UST curve, suddenly grew. And the spread between three-month Treasury bills and 10-year note yields inverted for the first time since 2007. It is this second inversion that has had investors in a double-take.

Not helping the mood, the US Federal government posted its widest monthly budget deficit on record (see pg 5) in February of -US$234 bln, amid falling corporate and individual tax revenue and increasing federal spending. That was -9% higher than the same month a year ago and exceed the record set in 2012.

Add to this news that the chances of a successful US-China trade deal seem to be slipping with intransigence on both sides. And the Brexit mess just seems to be getting messier. Further, the Trump Administration has nominated a sycophant and TV analyst to the US Federal Reserve board. He is a Trump campaign adviser. It is hard to be positive that the economic future will work out well.

Not all news is bad in the US. Home sales jumped almost +12% in February on a seasonally adjusted basis from the previous month. However, they are still down -2% from the same month a year ago.

China is applying the screws to Canada in an effort to bully it over Huawei. It is stopping all canola imports and slow-tracking import procedures for most other agricultural products from Canada.

And staying in China, there has been a major factory accident and tragedy in Jiansu province.

Away from all this, we should note that there are election campaigns underway in both Thailand and Indonesia. Outcomes in both could affect the wider ASEAN block.

The UST 10yr yield has fallen today and is now at 2.44%. Their 2-10 curve is narrower at +12 bps while their negative 1-5 curve has blown out to -21 bps. The Aussie Govt 10yr is down -19 bps this past week to 1.78% (and don't forget it was down -14 bps last week), the China Govt 10yr is down -2 bps at 3.14%, while the NZ Govt 10 yr is at 2.01%. and a drop of -9 bps this week. Yesterday, local swap rates rose off their lows yesterday.

Gold has risen overnight, up to US$1,311, which is also a gain for the week.

The VIX volatility index is higher this week at 16. The average over the past year has been 17. The average for 2017 was only 11 however. The Fear & Greed index we follow is still at a moderate 'greed' level.

US oil prices are falling sharply, down more than -US$1 on the day, now just on US$59/bbl while the Brent benchmark is down to just on US$67/bbl. But to keep that in perspective, that is about where they were this time last week. There was also a sharp drop in the US rig count this week, which is a building trend.

The Kiwi dollar is at 68.7 USc and little-changed from this time yesterday. On the cross rates we are marginally firmer at 97 AUc. Against the euro we are noticeably higher at 60.9 euro cents. That puts the TWI-5 at 73.3.

Bitcoin is also a little firmer at US$3,994. 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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USD 
NZD
End of day UTC
Source: CoinDesk

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Well, all quite uplifting really….

Perhaps enough of the endless ultra-accommodative monetary settings and QE etc. – it appears to have become entrenched, as well as increasingly ineffective.

It would be messy but maybe the business cycle should just be allowed to play out?

Its pretty much been bad news after bad news from the global economic data all this year and strangely wall street has been charging back uo.

The equity markets are truely in bubble mode built on speculation and sentiment. There are going to be some spectacular bankruptcies and stock crashes coming real soon......