Breaking news: Fonterra raises milk price forecast range by 30c, to possibly as much as $7.55. More soon.

Wall Street drops sharply; global factory activity falls; some bond yields invert; trade deal talks stutter; China blocks Canada; Hayne emasculated; UST 10yr 2.44%; oil down and gold up; NZ$1 = 68.8 USc; TWI-5 = 73.3

Wall Street drops sharply; global factory activity falls; some bond yields invert; trade deal talks stutter; China blocks Canada; Hayne emasculated; UST 10yr 2.44%; oil down and gold up; NZ$1 = 68.8 USc; TWI-5 = 73.3

Here's our summary of key events over the weekend that affect New Zealand, with news that is turning sour almost everywhere.

Equity markets shifted gear lower at the end of last week. On Friday on Wall Street, the S&P500 dropped a sharp -1.9% wiping out more than a tenth of its 2019 gains. And that follows Europe which was down a similar amount (London fell more than -2%). An this was even though Asian equity markets closed largely unchanged.

Driving the 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% more 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 further, the Brexit mess just seems to be getting messier. Heck, there's more; the Trump Administration has nominated a sycophant and TV analyst to the US Federal Reserve board. He is a Trump campaign adviser. But there is pushback. Still, 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.

In Australia, it is becoming clear that real action resulting in real change from the Hayne Royal Commission looks less likely now. Not only did those who wanted a full inquiry not get the result from it they expected, now with no meaningful legislative changes, entrenched industry structures that Hayne recommended be reformed - like for brokers and insurance agents - now seem unlikely to change either.

The UST 10yr yield has fallen sharply and is now at 2.44%. Their 2-10 curve is narrower at just +12 bps while their negative 1-5 curve has blown out to -21 bps. The Aussie Govt 10yr is down -20 bps this past week to 1.77% (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.

Gold is firm, up to US$1,313, which is also a gain over the past week.

US oil prices are falling and quite sharply, down more than -US$1 and 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.

The Kiwi dollar is at 68.8 USc. On the cross rates we are marginally firmer at 97.1 AUc. Against the euro we are up at 60.8 euro cents. That puts the TWI-5 at 73.3.

Bitcoin is little-changed at US$3,970. 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 ».

Daily exchange rates

Select chart tabs »

The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

12 Comments

Comment Filter

Highlight new comments in the last hr(s).

Poor David Cay Johnson - and roll on more balanced independent news streams like interest.co.nz - "Nobody wants to hear this, but news that Special Prosecutor Robert Mueller is headed home without issuing new charges is a death-blow for the reputation of the American news media."
https://taibbi.substack.com/p/russiagate-is-wmd-times-a-milion

There's the full chapter from Taibbi here. Old hands may remember Matt as coining the immortal 'giant vampire squid' meme.....
Whatever, it's a sordid story of what history may yet choose to recall as a soft coup attempt on an elected President. And as Zhou Enlai is reputed to have said re the French Revolution when asked about its effects, 'it's too soon to tell'....

But the Victors in this sorry affair are not yet clear, so the writing of History is postponed.....

meanwhile for the longer view, lack of insurance,

"“The sector is concerned that continuing global increases in temperature could make it increasingly difficult to offer the affordable financial protection that people deserve, and that modern society requires to function properly,” he said."

https://www.theguardian.com/environment/2019/mar/21/climate-change-could...

Interesting - cyclone Trevor had the lowest barometric pressure even recorded in Australia - 882 (previous was 905 as far as I can tell). Solely a result of energy from ocean heat. Two years ago a yachtie, 300 miles out from Tahiti, recorded a sea temp of 35deg C - unheard of. Interesting times ahead.....

Is this what's going on behind the scenes at the RBA? The unsent memo:

" CONFIDENTIAL MEMO to all staff - DON'T PANIC:

I know everyone is very worried about the falling value of our house prices. Believe me, this is of the deepest concern to everyone, at all levels of the organisation. So I thought I would take this opportunity to explain how I see things.

We stoked a bloody good bubble, but good times always come to an end. So, as usual we blamed the bankers, so as to head off any criticism of the good ship RBA. As usually happens the bankers had been up to all sorts of naughty tricks, exactly as we intended. They are always just the perfect scapegoat. The public outrage has of course tied our hands a bit in the short term, but the public will soon forget it all and start worrying about house prices too. Then we can act freely to stop the decline, and get on with pumping up the next bubble.

PS: We looked at some legislative changes. Well we told the public we were looking at legislative changes.

But of course, we're not going to change anything and wait for it all to blow over.

Nothing surprises anymore if true

Quite right the RBA is acutely aware of how precarious the financial system is after years of turning a blind eye to the bank's activities. There's also a recent revelation that the APRA mortgage statistics are faulty with the "average mortgage" statistic being unable to discern between a mortgage on one house and a split mortgage on one house. That's dragged the average down to a point where it makes no sense.

What's the point in having statistics that aren't accurate and people have been making decisions based on these faulty statistics for years.

In Australia, it is becoming clear that real action resulting in real change from the Hayne Royal Commission looks less likely now. Not only did those who wanted a full inquiry not get the result from it they expected, now with no meaningful legislative changes, entrenched industry structures that Hayne recommended be reformed - like for brokers and insurance agents - now seem unlikely to change either.

On exactly whose behalf is government governing?

All organisations are run primarily for the benefit of those running them.

Why would it be otherwise, our preferences are intimately coloured by our interests? I have found it most edifying being both a landlord and a tenant, both an employee and an employer. The other side does not think the way you think they do, they see the same landscape quite differently. Often it is as if they gaze at the same mountain from different valleys, each seeing a different face of the mountain.

The only motive for Gubmints now is continued re-election, so 'on whose behalf' = 'to those who directly assist that Happy Ending'.

The rest of us? Principles? Honour? Pffft......

It has always been the money. Even here, no one else can afford to woo the Pollies. Holding them to account is difficult when they hold all the cards.