US durable goods fall; Trump says Huawei’s dangerous; Huawei in serious trouble; Japan’s massive stimulus plan; Indian government outlines US$1.4 tln in spending; 10yr 2.32%; oil down and gold holds; NZ$1 = 65.5 USc; TWI-5 = 70.5

US durable goods fall; Trump says Huawei’s dangerous; Huawei in serious trouble; Japan’s massive stimulus plan; Indian government outlines US$1.4 tln in spending; 10yr 2.32%; oil down and gold holds; NZ$1 = 65.5 USc; TWI-5 = 70.5

Here's our summary of key events over the weekend that affect New Zealand, with news that India is about to make international economic waves.

But first in the US, new orders for durable goods fell in April by more than markets were expecting. Excluding orders for military spending, they were down -2.5% from March. Markets were expecting a -2.0% fall on this basis. In a year they were down only -1.1 from April 2018. But things are not so close for non-defense capital goods which were down -4.6% year-on-year.

Moderating demand and weaker prices are raising concerns and the first place to feel the pinch is America's road freight market.

But in the international bulk shipping market, the Baltic Dry index is rising, and has done so steadily since early April. It is now up to a level last seen in January. Airfreight seems to be where the hard trade pressures are being felt however.

On the trade war front, the US President said his complaints against Huawei might be resolved within the framework of a US-China trade deal, while at the same time calling the Chinese telecommunications giant "very dangerous." Apparently that 'danger' is a tradeable bargaining chip.

And the US is moving to allow companies to seek tariffs on goods from countries found (by them) to have undervalued currencies. It's a move that would further escalate its assault on global trading rules. And India is in their sights too.

In China, Huawei seems to be in serious trouble. Beijing policy-makers are raising their rhetoric, its phone assembler is furloughing workers, and the company itself is seeking US$1 bln in funding.

A Chinese car maker is claiming that it has developed an inexpensive vehicle fuelled by water. Its engine runs on hydrogen produced by a chemical reaction when a catalyst is applied to a mixture of aluminium powder and water.

In Japan, they have adopted a record-breaking fiscal 2019 budget that includes NZ$28 bln in stimulus, measures aimed at softening the impact of a looming consumption tax hike on an economy already facing broader uncertainty.

In India, their prime minister has won re-election with a resounding majority. Growth is slowing from its fever pitch rate, and with a transformation from an informal economic base to a more formal one dominated by companies, India could be a winner in the trade war between China and the US with both sides realising its size and trajectory will matter to them. The new Government is about to go on an eye-popping US$1.4 tln spending spree. There is no way the rest of the world won't notice. That is equivalent to more than 2% of world GDP.

The RBNZ deputy governor Bascand was in Australia at the end of last week facing Aussie criticism of his plans to require their big banks to hold more capital in New Zealand. He is reported as saying he is "open minded" about modifying the drafted requirements.

The UST 10yr yield has risen back to 2.32%, but that is -7 bps lower in the week. Recall it fell -7 bps in two of the previous weeks too. Their 2-10 curve is now at +16 bps but their negative 1-5 curve is wider at -21 bps. The Aussie Govt 10yr is at 1.53% and down -12 bps over the week. The China Govt 10yr is up +3 bps in the week to 3.33%, while the NZ Govt 10 yr is down -6 bps this week, now at 1.76%.

Gold is little-changed at US$1,285/oz.

US oil prices have recovered somewhat from the sharp drop late last week and are now at US$58.50/bbl, but that is still down more that -5% in a week. The Brent benchmark is at US$68.50/bbl. 

The Kiwi dollar will start the week firmer at 65.5 USc. On the cross rates we little changed at 94.6 AUc. Against the euro we are similar at 58.5 euro cents. That all makes the TWI-5 little-changed at 70.5. The yuan has stopped depreciating against the US dollar and Beijing has clamped its value at 6.89 every day last week.

Bitcoin is back over US$8,000 this morning at US$8,018 which represents almost a +US$1,000 gain 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 ».

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"Global trading rules" have never been respected by China. I say good on Trump for finally standing up to them. European steel manufacturers certainly know the consequence of China's trade policies. This idea that free trade is always good everywhere is just not true.

One of the big issues in the trade framework between the US and China is that the US wants state owned enterprises to be run like business rather than an arm of the CCP. With Xi being an actual Marxist, he finds it hard to allow a free market and that can't comprehend that business are not there for sole purpose of the Party. In the long term, Huawei failing might be good for China if it leads to real reform of their economy and a little less control of all aspects of society by the CCP.

”Failing Huawei" won't give you real reform of the economy nor less control by the CCP. Failing CCP will.

I think a failing Huawei will lead to massive pressure on the CCP and probably Xi being replaced. We can only hope that the US keeps it's nerve and other countries like NZ and, more importantly, the EU backs the US against the CCP.

There will be massive pressure, especially given the 70th adversary of PRC in October. But that does not necessary lead to replacement of Xi.

Instead, nationalism sentiments will be fueled up and people are likely to be more supportive of him. That is the China under Xi's ruling. I kind of miss when Jiang or Hu was in power. That was a time when CCP was quite responsive to foreign criticism and pressure, economic and political reforms were on the party's agenda. Now Xi talks about "four matters of confidence", i.e, confidence in the socialist path, theory, system and culture.

Huawei will not be allowed to fail. Would be too embarrassing for the Party. They will ramp up their semiconductor industry development.
There will be no liberalising reform while Xi is in power, as an old-school totalitarian expect it to get far more '1984'.

Huawei will not be allowed to fail.

Probably, but not for all of your stated reasons.

There is also the question of whether Trump will stick with his current hard line. That question is the also the most important for the Europeans. Why should they break with China when Trump is likely to reverse his decision? He says he still wants to make a deal.

The consequence of the the 737 MAX accidents give China a tool to exert pressure of its own. The credibility of the U.S. regulator FAA is damaged as it was the last one to ground the planes. It is China that will decide when those planes are allowed back into its air. What if it does not do that. What if it buys less planes:

No other country has greater demand for aircraft: In the 20 years through 2037, Boeing estimates Chinese purchases at 7,690 new planes worth $1.2 trillion.

Airbus will be happy to sell all those planes. Unless of course Trump makes a deal and lets Huawei off the hook.

That will be -for now- most likely be the end of the story.

Link

“And the US is moving to allow companies to seek tariffs on goods from countries found (by them) to have undervalued currencies.”
That’s kind of ironic as the US is the worlds reserve currency in a purely fiat era. It sounds like they want their cake and want to eat it too.

Bitcoin above 8600 now. What a difference an hour makes!

Lonewolfnz is part of the massive global promotion of bitcoin over the last few weeks. The major players pumping it up before they dump....worked last time so trying it again.

easy come ... easy go

Lonewolfnz is part of the massive global promotion of bitcoin over the last few weeks. The major players pumping it up before they dump....worked last time so trying it again.

Well, I use the Bitbank exchange in Japan and trading volumes are relatively low. Make of that what you will. Plenty of short sellers have been squeezed on BTC in the most recent upward movement.

You must have missed all my comments in December where I said I was happily buying in the mid 3000s, and then people laughed at me when it fell to 3,300. I'm not buying now, just the odd dollar cost averaged investment over time. I'm up 34,000 in profit in just the last month (nearly 10,000 today alone)

Indian infra $1.4 Trillion is eye popping but $1.5 Trillion/annum on the "climate change" gravy train just isn't good enough for the kids these days.

"Interest in climate change is becoming an increasingly powerful economic driver, so much so that some see it as an industry in itself whose growth is driven in large part by policymaking.

The $1.5 trillion global “climate change industry” grew at between 17 and 24 percent annually from 2005-2008, slowing to between 4 and 6 percent following the recession with the exception of 2011’s inexplicable 15 percent growth, according to Climate Change Business Journal."

And all paid for and implemented by the production and use of carbon based energy no doubt.

I like trade wars. They get people to the table. Sure they argue, spit & spat at each other but that's better than shooting at each other. Isn't it?