Draghi recoils at Trump moves; S&P500 nears record; US consumer mood off; China trade surplus jumps, as do new loans; China car sales slide; RBA puzzled; UST 10yr 2.56%; oil and gold unchanged; NZ$1 = 67.7 USc; TWI-5 = 72.2

Draghi recoils at Trump moves; S&P500 nears record; US consumer mood off; China trade surplus jumps, as do new loans; China car sales slide; RBA puzzled; UST 10yr 2.56%; oil and gold unchanged; NZ$1 = 67.7 USc; TWI-5 = 72.2

Here's our summary of key events over the weekend that affect New Zealand, with news of upbeat data, downbeat expectations.

Firstly, ECB boss Mario Draghi took the rare step of criticising Donald Trump for trying to undermine the independence of the US Federal Reserve. Speaking to reporters at the IMF meeting in Washington, Draghi said he was “certainly worried about central bank independence” and especially “in the most important jurisdiction in the world.”

Equity markets ended last week in a risk-on mood. While the S&P500 was only up about +0.7% on the day, that cements in an almost +16% gain for 2019 and takes it to within a whisker of an all-time high (in October 2018). Driving the market are good earnings reports, especially from US banks. Retailers are struggling however, especially bricks-and-mortar retailers.

That risk-on mood is also pushing up benchmark bond yields.

Among American consumers however, the mood is tailing off a bit. The latest sentiment survey in the University of Michigan poll saw a -1.5 point retreat.

In China, their equity markets closed unchanged on Friday, and that is a +29% gain for 2019 so far.

China's March trade balance swelled to almost +NZ$½ tln as exports recovered after the big dip in February. March imports however were quite restrained. China's merchandise trade surplus in March with the US seems to have been huge - as much as +US$200 bln in the month. But seasonal factors are likely to have played a big part in these unusual numbers. Still, it is the import fall that has analysts worried.

Meanwhile, China’s new bank loans jumped in March, rising far more than expected, as policymakers pushed lenders to support struggling smaller companies and shore up the slowing economy.

An even greater worry are the huge debts of local authorities that still haven't fully been quantified, or the assets they back fully valued. Central government agencies are now involved trying to sort things out but the prognosis in not great. There are dozens of organisations involved. The worry is compounded because 2019 marks the beginning of a three-year peak debt repayment period. It has the possibility of getting very messy.

China's passenger car sales fell for the tenth month in a row last month, dropping -12% from the same month a year ago. Their whole vehicle industry is in reverse, except perhaps for the still-small EV segment.

In Brussels, they are reported to have drawn up a tariff response on about US$12 bln of US goods if the Trump Administration goes ahead with its penalty against Airbus. And the move comes after the WTO ruled Boeing failed to comply with previous aid rulings.

In Australia, the data is relatively upbeat, but expectations are not. It is similar in New Zealand. And that poses a puzzle for monetary policy officials - what they see in the economy is different to what they hear from voices claiming to be at the coalface. In a property dominated economy, property voices are loudest but as usual not really in tune with the underlying drivers of economic activity. It's a tussle between facts and feelings, the wealth effect at play.

The UST 10yr yield rose strongly at the end of the Wall Street session and is now at 2.56% which is a +15 bps shift up in the past two weeks, a third of that in the final session last week. Their 2-10 curve is little-changed however at +17 bps but their negative 1-5 curve is narrower at -6 bps. The Aussie Govt 10yr is sharply higher at 1.97% and a final session rise of +9 bps, the China Govt 10yr is up +1 bp at 3.33%, while the NZ Govt 10 yr is at 2.04% and down -1 bp.

Gold is little-changed at US$1,290.

US oil prices are also little-changed, now just on US$63.50/bbl while the Brent benchmark is at US$71.50/bbl.

The Kiwi dollar will start the week at 67.7 USc. On the cross rates we are at 94.4 AUc. Against the euro we are at 59.8 euro cents. That puts the TWI-5 at 72.2.

Bitcoin is at US$5,091 and almost exactly -2% lower than this time last week. 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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8 Comments

interesting week coming up with CGT announcement to be made
my pick they will target rental properties (housing investment) and the rest will fail especially anything that touches kiwisaver

10
up

In a property dominated economy, property voices are loudest but as usual not really in tune with the underlying drivers of economic activity.

Aptly describes NZ's last decade of pretend economic policy relying on house prices and imported nominal GDP growth.

11
up

Ha, the RBA didn't see any pushback coming from the decline in house prices. "No one saw it coming", they cry. Bubble blowers are heroes on the way up, and the enemy on the way down. Everyone takes personal credit for their successes and blames others when things go wrong.

Success has many Parents, but Failure is an Orphan.....

Draghi should wind his neck in, after all he should know very well how it all works .

Firstly it is good for politicians to have a contrarian view to Central Bank decisions , it shows the system is working and that the Central Bank is making decisions that :-

a) Politicians wont or cant make due to political expediency
b) are tough decisions free of political interference
c) reinforce their independence as the Central Bank
d) are made with due skill and care by highly skilled professionals and experts
e) are made with access to all the relevant data , and projections , and in the best interests of the economy

Trump is entitled to his views, and we may not always agree with his views , but he is playing to his audience in this instance .

Lets face it , Trump has made American Politics way more interesting than ever before .

f) don't necessarily align with their publicly stated mandate.

If Draghi is worried about the independence of the Fed, is he also worried about the PBoC? Size must be getting comparable, although perhaps not the influence?

The landlords are always the noisiest & most important people in any economy. They think.