Here's our summary of key events over the weekend that affect New Zealand, with news the trade stand-off between the US and China just got interesting to everyone - except the financial markets.
It is Monday, and the key bit of news is what hasn't happened; China hasn't retaliated yet to the sharp rise in US tariffs imposed on Friday which went on to US$200 bln of goods, taking a 10% rate up to to 25%. This imposition hasn't actually seemed to derail the talks themselves. They have wrapped up now, but both parties have agreed to meet this week in Beijing. Equity, bond, and currency markets have all also reacted as though nothing significant has happened and things will be resolved soon. China's "necessary countermeasures" haven't been imposed, not yet at least.
The US itself has pushed out the timeline, saying China must agree to what it wants within a month or face tariffs of all its exports to the US. In the meantime, the higher tariffs apply on the US$200 bln - and of course it is the American importer who has to pay them and pass on the costs to the American consumer and that is a +US$50 bln extra cost. China exports about US$½ tln per year to the US or about 20% of all its exports. The US exports about US$120 bln per year to China, or about 10% of all its exports.
It seems the Chinese don't see the current state of these negotiations as a breakdown, just an expected bump. And so far the financial markets seem to agree.
Interestingly, iron ore prices are back up near their recent highs. And coking coal prices have also been rising recently. These are not signs of fear in China, even if you can discount the Shanghai equity price rise as the result of instructed SOE buying by 'the National team'.
Consumer inflation in the US has come in slightly less than expected but right on the Fed's 2% target - and slightly above on a 'core' (without food or petrol) basis.
The April update to the US Federal monthly budget shows expanding deficits. For the twelve months to April, this deficit is -US$924 bln. It is conceivable that this will rise to -US$1 tln in the current fiscal year, way earlier than expected, and compared with -$779 bln last year and -$529 bln in the last year of the Obama Administration when it was apparently political evidence of fiscal mismanagement. The Trump Administration looks like it will about double their deficit in just one term, and in that period the deficit has gone from -2.7% of GDP to -4.8% of GDP. (And by the way, that +$50 bln in extra tariff income will hardly touch the sides of this deficit.)
The trade spat is one reason the US deficit could get worse quickly; their Agriculture Secretary said bigger, longer subsidies for farmers are on the way to prop up the sector. US grain stocks are surging as exports fall, according to USDA reports (p32). Other large production countries don't have that problem, according to the USDA.
In Canada over the weekend they reported strong jobs growth with more than +106,000 new jobs gained and by far the most of them full-time jobs. Their participation rate improved as well. It was a result that was much better than expected. In fact, it is their best jobs gain in more than 40 years.
In Europe, German exports rose to over +€118 bln in March, catching analysts by surprise at the gain and cementing a strong gain for the quarter. German imports rose even more strongly. This is data that doesn't fit the narrative of global trade in trouble.
Indonesia says it is wants to import more beef from Argentina to reduce what it says is an unreasonable reliance on shipments from Australia (and New Zealand).
In Australia, HSBC's economist Paul Bloxham has declared that the Australian housing market is now at its bottom and prices and demand will start rising later this year.
And a new election promise has been launched by the Coalition Government promising to guarantee the deposits of first home buyers who have at least 5%, but less than 20% to help them qualify to borrow-to-buy. It would only be available for couples with an annual income of AU$200,000 or less. It is expected to cost the taxpayer AU$500 mln. It is also likely to sharply raise the risk of going under-water quicker.
The S&P500 ended last week with a -1% loss. Although they were unusually volatile, both the European and Shanghai markets also lost -1% on the week.
The UST 10yr yield is now at 2.47%, and that is -6 bps lower in the week. Their 2-10 curve is now at +21 bps but their negative 1-5 curve is wider at -11 bps. We will be keeping an eye on UST bond yields because it is being suggested that China may be able to retaliate effectively by decreasing its exposure to this market, effectively pushing up US benchmark interest rates. The Aussie Govt 10yr is at 1.73% and also down -8 bps over the week. The China Govt 10yr had an -11 bps fall in a week to 3.31%, while the NZ Govt 10 yr is also down -7 bps this week, now at 1.85%.
Gold is at US$1,286/oz.
US oil prices are little-changed today, now just on US$61.50/bbl while the Brent benchmark is at US$70.50/bbl. In fact, these are levels similar to those at the start of last week.
The Kiwi dollar is little-changed at 66 USc. On the cross rates we unchanged at 94.2 AUc. Against the euro we are similar at 58.8 euro cents. That all makes the TWI-5 little-changed at 70.6.
Bitcoin burst into life over the weekend, up almost +US$1,200 and at one point reached US$7,578. It has since settled back and is now at US$7,103 which is +13% higher than where we left it on Friday and a full +36% higher than at the start of the month. Market capitalisation also surged over US$100 bln. 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 ».