Here's our summary of key events overnight that affect New Zealand, with news economic and investment anxiety is growing.
Firstly, the S&P500 is down a very sharp -2.6% so far on Wall Street and falling, as equity markets fear the trade situation is getting out of control. Overnight, European makets dropped about -1.3% while yesterday Shanghai was down -1.2% and Tokyo was down -0.7%. (Hong Kong was on holiday.) The ASX was also lower yesterday (-0.2%), but the NZX50 was the sole market to record a gain for the day (+0.3%). Overall, this correction has wiped -US$1 tln from global equity market values in just one day.
Driving the mood swing is the US;China trade situation. The Chinese came up with their retaliation list and it is much smaller than the American salvo but targets goods that will hurt US exporters, primarily because the Chinese have fairly easy alternatives. But they have held back by saying these increases won't come into effect until June. Duties on about 2,500 items will rise from 10% to 25%, including meat products, frozen fruits, liquefied natural gas, textiles and a wide range of chemicals. A further 2,000 items will get lesser rises. All up that will involve goods to the value of about US$60 bln in annual trade. American airplane sales may be China's next target.
One option the Chinese have that the American's don't is that they can let their currency depreciate - and they are. Since mid April they are let the yuan depreciate by -1.2%. That makes their goods cheaper to Americans and the American goods more expensive to the Chinese.
One of the core reasons equity markets are lower is that no-one seems to understand just where this dispute stands now. Tariffs are going on, but talks are continuing. In fact, indications are that Xi and Trump will meet at the G20. It is a confusing moment.
And one group as confused as any are US Fed officials. On one hand they say they have their settings about right; on the other they see risks from the trade situation. Markets have priced in a full rate cut however.
In China, car sales are still in a severe contraction with April sales down -17% year-on-year.
Meanwhile, the EU is preparing for a round of tariffs, especially on cars, from the US Administration. That too will involve retaliation.
In Australia, just how much their lending market has changed was revealed in official data released about lending commitments. Total lending to households fell more than -17% in March 2019 from March 2018. For the full year to March it was down more than -9%. That is a drop of more than -AU$40 bln and even big banks will have noticed that. Part of it was covered by a +4% rise in lending to business in the year, but that rise didn't quite amount to an increase of just +AU$300 mln. The net effect is a huge fall and has increased the odds of an RBA rate cut.
Vodafone said it will sell its New Zealand business for about NZ$3.4 bln to a group including Infratil and Canada's Brookfield Asset Management. You may recall that Infratil bought Shell's New Zealand petrol retailing operations after which margins were raised noticeably. We need to be careful of what we wish for in terms of local ownership.
The UST 10yr yield is now at 2.40%, and that is -7 bps lower in a day. Their 2-10 curve however is still at +21 bps but their negative 1-5 curve is much wider at -15 bps. The Aussie Govt 10yr is at 1.69% and down -4 bps overnight. The China Govt 10yr is up +1 bp to 3.32%, while the NZ Govt 10 yr is down -2 bps, now at 1.83%.
Gold is up +US$13 and now at US$1,299/oz.
US oil prices are a little lower today, now just on US$61/bbl while the Brent benchmark is at US$70/bbl. And that is despite a flare-up in Persian Gulf tensions where some oil tankers have been attacked.
The Kiwi dollar has weakened overnight on the risk-off mood and is now at 65.7 USc. On the cross rates the Aussie has weakened more than us so we are up at 94.6 AUc. Against the euro we are lower at 58.5 euro cents. That all makes the TWI-5 marginally softer at 70.4.
Bitcoin remains volatile but at the moment is up strongly. It is currently at US$7,802 which is +10% higher than this time yesterday. 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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