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US momentum leaks further; global services rise; WTO and IMF warn; trade talks still positive; EU and AU retail sales impress; UST 10yr at 2.52%; oil and gold unchanged; NZ$1 = 67.9 USc; TWI-5 = 72.6

US momentum leaks further; global services rise; WTO and IMF warn; trade talks still positive; EU and AU retail sales impress; UST 10yr at 2.52%; oil and gold unchanged; NZ$1 = 67.9 USc; TWI-5 = 72.6

Here's our summary of key events overnight that affect New Zealand, with news of more tension between expected future optimism, and present loss of momentum.

Firstly in the US, their services sector activity hit a more than 19-month low in March as recorded in the widely-watched ISM survey. The Markit services sector survey was out as well and that recorded a tiny gain even though their level is below the ISM survey.

Private payrolls in America grew less than expected as recorded in the ADP survey, a precursor to this weekend's non-farm payrolls report for March. This ADP survey actually shows shrinkage in factory jobs, and very weak hiring by small business. The jobs growth reported was the lowest in this survey in 19 months and came in well below analyst estimates. The February non-farm payrolls report was also very low (+20,000) and after today's data, analysts have now downgraded Saturday's forecast for March too.

Another sign of a dragging economy is that heavy truck orders fell to their lowest level since October 2016, and are down a massive -66% from March 2018.

Yes, all three of these data releases confirm the loss of momentum we have reported earlier, but it is not all bad news. Mortgage applications jumped in the past week and that was said to be sparked by a drop in US home loan interest rates. In fact, it was the biggest one-week drop in a decade taking the standard US 30yr fixed mortgage to 4.06% (plus points).

Worldwide, there has been a pickup in momentum, especially as reported in services sector surveys. This is being led by Spain, Germany and China. (Closer to home however, the Australian services sector survey looks a bit grim.)

But services don't really drive world trade, and the WTO has sharply downgraded its forecast of trade growth in both 2019 (to +2.6% and down from the prior estimate of +3.7%) and 2020 (to just 3.0%).

And the IMF has released new research that clearly shows tariffs won't work to solve economic imbalances.

The indications from the China:US trade talks continue to be positive. But still no deal or breakthroughs.

In Europe, retail sales came in with much better than expected growth in February and year on year, sales are up +2.5% and that is after inflation, or 'real' growth.

Through the Brexit mess, some investors see positive signs that the UK won't actually fully divorce from the EU. Shares rallied strongly in both Frankfurt (+1.7%) and London (+0.4%) overnight.

As the sales downturn in Australian residential property bites, analysts claim there is more evidence the primary cause in a Hayne-induced credit crunch, rather than affordability limits. One key reason is that sales are equally lower in affordable neighborhoods as those deemed unaffordable. Even highly affordable country towns have experienced the same sales drop-off as inner Sydney and Melbourne.

And yesterday, Australia reported a record high trade surplus along with surprisingly strong retail trade data. Aussies may be spending their tax cuts that are based on future surpluses even before that are enacted.

The UST 10yr yield is up this morning to 2.52%. But their 2-10 curve is still at +19 bps and their negative 1-5 curve is still at -9 bps. The Aussie Govt 10yr is higher at 1.89%,up +7 bps, the China Govt 10yr is higher, up another +6 bps to 3.24%, while the NZ Govt 10 yr is also up, now at 1.94%, up another +5 bps since this time yesterday. Yesterday local swap rates firmed, especially at the long end.

Gold is unchanged however at US$1,291.

US oil prices are also little changed today at just over US$62/bbl while the Brent benchmark is at US$69/bbl.

The Kiwi dollar has recovered +½c since this time yesterday and is back up to 67.9 USc. On the cross rates we are marginally lower at 95.4 AUc. Against the euro we are up slightly at 60.4 euro cents. That puts the TWI-5 firmer at 72.6.

Bitcoin is still rising and this morning is at US$5,096, up another +8% in the past 24 hours. That is a total jump of +24% since the start of April. 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

Stuff is reporting on people losing money on residential properties here. Some significantly. It will be interesting to watch from now on.

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> One Auckland property, on East Coast Road, was bought for $2.5 million in September 2017 and sold in January for $2m.

500k. In some places that's a whole house worth of losses.

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And of course no mention of how much of that $2m sales price got handed back to the bank to settle the mortgage. If the original purchase was with 50% equity, then the owners lost >50% of their equity. And god help them if they only had 20% equity when they brought, they are back to zero.

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Scary as. The RBNZ will have to hoist the DON'T PANIC sign asap. At which point the compliant media will all gush about them saving the day. It is not clear to me why they gush about how wonderful government action is. Usually government action is late and ineffective.

Falling interest rates are a sign of weakness.

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Why are we so afriad of recessions? It would appear to me that the boat is sinking but instead of letting the boat sink (recession) we keep on bailing water out (reducing interest rates) - but we're running out of buckets and the water is still coming onboard. If the boat isn't seaworthy - why try to keep it afloat? Is it not better to let it sink, learn why it sank, then in the thoughts of Buffett salvage the vessel once the tide has gone out (assuming we're not all completely naked...) with an improved design without the need for so many buckets? Or are we just addicted to bailing water while smiling and waving at the other boats who are also smiling and waiving while bailing water?

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Hear, hear. People need a lesson in paying what they think something is worth, not what they felt something was worth.

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Maybe the idea is to continue kicking it down the road for someone else to pick up, as long as possible?

Enjoy the gains, give someone else the pain.

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Look what happens when a small island nation allows strong foreign ownership.

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12219106

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Makes the 20% over 5 years that Ryman take over retirement village townhouses look attractive. Everyone has been rambling on about missing out on capital gain, without any mention of capital loss. Time for a reality check.

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Gosh, even the IMF have now figured out that trade imbalances are usually the result of capital flows. Oh, sorry, they haven't actually said that, just that tariffs merely change where the trade imbalance occurs. Money in = Money out. Luca Pacioli rules.

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Sidebar on China -the writer of this article thinks they have more to lose than does the USA....

In the face of such unprecedented challenges, policymakers have at their disposal only two prescriptions for the alleviation of economic pain – introduce more stimulus measures or end the destructive trade war.
Speaking at the Boao Forum for Asia last Thursday, Premier Li Keqiang squarely rejected any suggestion for providing a “flood-like stimulus”, out of concern that quantitative easing might build on a mountain of debt and introduce more economic risk.
Sealing a deal to end the trade war with the US would help, and such an agreement can’t come soon enough. That is why President Donald Trump claims the US has the upper hand in the trade negotiations. “I think China wants to get it resolved. Their economy’s not doing well,” he has said.

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Bitcoin Cash (BCC) up approx 100% since Monday outstripping most of the major cryptos.

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Alert alert ! Pullback in progress.

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