US:China trade talks face Trump threats; US jobs growth up; US services data weak; EU inflation up; China tightens FX rules; AU eyes RBA decision; UST 10yr 2.53%; oil and gold soft; NZ$1 = 66.5 USc; TWI-5 = 71.3

Here's our summary of key events over the weekend that affect New Zealand, with news the key US:China trade talks are coming off the rails.

It seems the "they're getting close" trade talks between the US and China aren't after all. The US is now suddenly and unexpectedly saying that punitive tariffs (rising from 10% to 25%) on Chinese goods will be imposed this week because there isn't progress in the talks, to their liking. Beijing is finding out that negotiating with Trump is a zero-sum, take-it-or-leave-it game. No word or reaction yet from Beijing. Key last-minute high-level discussions are scheduled for mid-week. (And this unraveling comes after the US:North Korea apparent detente also seems to be a mirage.)

Separately, it seems there also isn't going to be a US:Japan trade deal any time soon either. Japan is prioritising the TPPA instead. The US:EU trade talks also seem stalled.

On Saturday, the US non-farm payrolls report came in better than analyst expectations, adding +263,000 new jobs in April to their 157 mln workforce. That means that over the past year their employment levels grew by +0.9% when their workforce grew by +0.5%. Their participation rate however dipped below 63% although their unemployment rate did slip to 3.6% which is almost a 50 year low. The growth in hourly earnings was steady at +3.2%.

It does seem odd however that with better-than-expected jobs growth neither the currency nor bond markets reacted one way or the other. Equity markets did however, and the S&P500 was up +1% on the day.

Perhaps some of the hesitation came from other data released at the same time indicating their services sector is no longer expanding vigorously. The ISM data came in lower than expected, but at about the same level the more conservative Markit survey shows.

And one giant player in their services market is Amazon, and there are real indications that its trade is slowing.

Another indicator is US log prices. They are down sharply as housing starts fall away unseasonably.

Across the Atlantic, EU inflation is picking up, and by more than expected. In March, prices were rising at a +1.4% rate but that blipped up to a +1.7% rate in April. That may settle some ECB policy nerves, although economic growth remains a problem. Before the US payrolls report, European equity markets closed higher as well, up about +0.5%.

In China, they are administratively tightening how much their citizens can convert the yuan into foreign currencies. And they are using their 'social credit' system to clamp down on the regulars. You might be surprised how low the permitted levels are, and if you are in China you may well feel trapped.

In Australia, the focus is turning the whether the RBA will cut its policy rate on Tuesday, just 11 days out from their Federal election. Most economists think there will be a cut. But the RBA 'shadow board' is suggesting there won't be. Separately, updated polling is still suggesting a change of Government.

And they will need to face up to a slowing services sector. Employment and wages growth in that sector went backwards in April, reflecting a continued decline in new orders.

The UST 10yr yield is now at 2.53%, and that is +3 bps higher over the past week. Their 2-10 curve is now at +20 bps but their negative 1-5 curve is narrower at -8 bps. The Aussie Govt 10yr is at 1.80%, the China Govt 10yr is at 3.41%, while the NZ Govt 10 yr is at 1.92%.

Gold will open the week at US$1,279/oz.

US oil prices are little-changed today but with a weakish tone, now just under US$62/bbl while the Brent benchmark is just under US$71/bbl. In fact, these are levels similar to those at the start of last week.

The Kiwi dollar will start today marginally firmer at 66.5 USc. But it is likely to come under pressure when markets open because of the US-China escalation. On the cross rates we unchanged in the week at 94.7 AUc. Against the euro we are at 59.4 euro cents. That puts the TWI-5 at 71.3.

Bitcoin is little-changed from where we left it on Saturday at US$5,689. 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 ».