Here's our summary of key events overnight that affect New Zealand, with news house price inflation is picking up fast in China again.
But first, the advance 'flash' report on US GDP growth for Q1 2019 has delivered a positive surprise. Their economy grew at a +3.2% rate suggesting the 10-year recovery retains momentum, despite recent fears that the year was off to a slow start. Among the drivers were good rises in personal consumption and government (deficit) spending. Going the other way, imports fell, inventories rose and there was a decrease in residential investment. PCE inflation was a modest 1.3%
Markets reacted to this by bidding up equity prices (the S&P500 is up +0.4%), bidding bond market yields lower, and letting the US dollar slip. Essentially, currency and bond markets are reading trouble ahead, equity investors see shorter term profits. The drivers of this 'good' Q1 result like reduced international trade and inventory buildups aren't 'positives' that will last more than a quarter or two
Today's data probably means Fed rate cuts are off the agenda. But the bond market signal shows they aren't convinced. Remember, they had signaled two more rate hikes in 2019 and the next time we get a review will be on Thursday, May 2.
Sweden is the latest country to signal dovish policy pullbacks, signals that drive down the value of their currencies. The Swedish krona dropped more than -1% against the euro Thursday as their central bank extended its bond-purchase program and signaled interest rates will stay below zero for longer than previously indicated. They follow the Bank of Canada who abandoned its tightening bias this week after the ECB, Bank of Korea and RBA all flagged growth risks in the past few weeks.
In China, house prices are rising fast again, and its pervasive. A private survey shows that average prices increased more than +13% in the first quarter from the same period year ago in 100 large Chinese cities, including the four largest ones, 32 second-tier cities and 64 smaller ones. They were up more than +20% in 23 of them.
The Shanghai equity market fell -1.2% yesterday, adding to the string of retreats recently and taking the 2019 gain back to +25% (from +33% early in April).
In Singapore, there central bank is warning that the slowdown in the city-state's economy could continue for several quarters. Their data showed some unexpected weak spots as growth momentum wanes, and Singapore's general downtrend was extending.
In Hong Kong, China is clamping down hard on protest leaders, sending them all to maximum security prisons.
In Australia, markets are betting there will be a pre-election May interest rate cut. The next RBA review is on May 8 and the election is ten days later. The RBA's track record shows interest rate cuts often come in May, the easing cycle is often immediately after quarterly inflation data and an election campaign is no barrier.
The UST 10yr yield is down -3 bps overnight at 2.50%, but that is -6 bps lower in the week. Their 2-10 curve is up at +22 bps but their negative 1-5 curve is much wider at -13 bps. The Aussie Govt 10yr is at 1.79% and unchanged overnight, the China Govt 10yr is down -1 bp at 3.42%, while the NZ Govt 10 yr is unchanged at 1.93%.
Gold is up +US$7 overnight at US$1,285/oz.
The VIX volatility index is unchanged this week at 13. The average over the past year has been 16. The Fear & Greed index we follow is also unchanged and still firmly on the ‘greed’ side.
US oil prices are sharply lower today, now just under US$63/bbl while the Brent benchmark is at US$71.50/bbl. And the US rig count fell hard this week after the past few week's stability, taking it down more than -20 rigs and under 1000 for the first time since March 2018.
The Kiwi dollar is firmer this morning at 66.6 USc (really) which is back close to where it was this time last week. On the cross rates we more than +1c higher in a week at 94.6 AUc. Against the euro we are firm at 59.7 euro cents. That all makes the TWI-5 little-changed at 71.6.
Bitcoin is at US$5,104 and that is a loss since 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 ».
Daily exchange rates
Select chart tabs
1 Comments
Serious trouble brewing in Hong Kong, here's Kyle Bass, who sees the HK currency peg breaking...:
One month ago, in annual report on Hong Kong that the US State Department sends to the President, it is stated that, “[d]uring the period covered by this report, the Chinese mainland central government implemented or instigated a number of actions that appeared inconsistent with China's commitments in the Basic Law, and in the Sino-British Joint Declaration of 1984, to allow Hong Kong to exercise a high degree of autonomy.
The tempo of mainland central government intervention in Hong Kong affairs — and actions by the Hong Kong government consistent with mainland direction - increased, accelerating negative trends seen in previous periods.” While the language was aggressive, the report stopped short of recommending a rescission of the 1992 US-HK Policy Act and therefore justified continued special treatment by the United States for bilateral agreements and programs per the Act.
If the Chinese government is successful in moving the Hong Kong legislation from proposal to law, it will become incredibly difficult for the State Department to not recommend rescission. Today, President Trump holds the keys to deciding whether or not the agreement will stand. Despite the State Department’s recommendation, the President has the sole power to make the decision.
https://www.zerohedge.com/news/2019-04-25/quiet-panic-kyle-bass-hong-ko…
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.