Markets in risk-off mood; Fed faces inflation challenges; US data tame; Canada data firm; China gets business loan price war; Australia prepares to vote; UST 10yr 2.40%; oil up and gold down; NZ$1 = 65.4 USc; TWI-5 = 70.4

Markets in risk-off mood; Fed faces inflation challenges; US data tame; Canada data firm; China gets business loan price war; Australia prepares to vote; UST 10yr 2.40%; oil up and gold down; NZ$1 = 65.4 USc; TWI-5 = 70.4

Here's our summary of key events overnight that affect New Zealand, with news of some policy angst about inflation.

First around the world's equity markets, risk is off again underpinned by good corporate earnings. The S&P500 is up by about +0.8% today, European markets did a bit better overnight, and yesterday Asian markets recorded similar gains. The NZX50 was up +0.5% and the ASX200 was up +0.7%.

An interesting point in the policy debate in the US is focusing on when to raise their benchmark rate next. One official wants inflation to rise consistently above 2% before moving. There is concern that the Fed can no longer engineer inflation corrections via their policy rate. American inflation expectations are dipping. At the same time however, US companies are saying that consumers will have to pay for the new US tariffs, and that of course will bring a new, sharp aspect to inflation data.

Pressures from tariff actions actually may start hitting the US before China. The US deficit is blowing out towards -US$1 tln/year, farm states are in trouble, and now American inflation could be about to sharply rise. All these will have collateral international effects but the main impacts will be on the US.

Meanwhile, US housing start data was pretty average, down -2.5% in April from the same month a year ago. The seasonal spring lift this year was less than analysts expected. But for some reason, financial markets saw this data as 'good'.

In Canada, factory data came in positively, up in March by more than +2% compared with the same month in 2018. A private sector survey of jobs in Canada brought a second straight month of strong data.

And the Bank of Canada said in its Financial System Review that it is making progress on "two key vulnerabilities"; household debt levels, and housing market imbalances.

In China, a price war has broken out among banks competing to offer the lowest rates on loans to small businesses as the government has made supporting these companies a greater priority since last year.

And China is starting to reduce its holdings of US Treasuries. They fell in March for the fourth straight month, hitting the lowest level since May 2017, taking them down more than -5% in a year. However, that was more than made up by rises from most other countries of about +4% in a year.

The expected Beijing resumption of trade talks hasn't actually started as expected and it turns out there is no actual schedule for them to restart. The latest US moves against Chinese 5G icon Huawei won't be helping here.

In Europe, traders at RBS, Barclays, Citibank, JPMorgan and a large Japanese bank using market chat rooms to rig foreign exchange spot trading have brought a €1.1 bln set of fines.

On the eve of the Australian Federal election, employment data for April brought little to cheer about. Full time jobs shrank by -6,300, part-time jobs rose by +35,000 (and more than correcting for the -21,000 fall in March). And their jobless rate blipped up a bit with the headline level now at 5.2%.

The final face-to-face Roy Morgan Poll before the Australian election shows the opposition Labor Party regaining the initiative and pulling away from the ruling Liberal-National Party coalition with an election winning 52%:48% lead. The increase for the opposition party came through an increased primary vote at the expense of the Greens and indicates the chances of Australia electing a hung Parliament this weekend have diminished.

The UST 10yr yield has stopped sinking, now at 2.40%, and that is a +2 bps rise. Their 2-10 curve however is still at +20 bps and their negative 1-5 curve is still at -15 bps. The Aussie Govt 10yr is at 1.65% and down -4 bps overnight. The China Govt 10yr is down -2 bps to 3.29%, while the NZ Govt 10 yr is also down -2 bps at 1.81%.

Gold is down sharply, down -US$11 to US$1,285/oz.

US oil prices are sharply higher today, up +US$1 and now just over US$63/bbl while the Brent benchmark is just under US$73/bbl.

The Kiwi dollar is softer today at 65.4 USc and that is a seven month low. On the cross rates we are virtually unchanged at 94.8 AUc. Against the euro we are still at 58.5 euro cents. That leaves the TWI-5 little-changed at 70.4.

But bitcoin has gone into reverse today. It is currently at US$7,932 which is -2.0% lower than this time yesterday. But it is still over NZ$12,000 and this is the fourth consecutive day above that benchmark. 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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USD 
NZD
End of day UTC
Source: CoinDesk

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Trumps tariffs are income for the American govt. They need it.