Here's our summary of key events overnight that affect New Zealand, with news that the China:US trade rivalry is ramping up to the point it is serious for the world economy as impacts bite harder.
The recent bond rout is intensifying with prices sharply higher and yields sharply lower as confidence about the future leaks away. This is essentially being driven by concerns the trade situation is being mismanaged badly. US Treasury rates are back to overall levels last seen in 2007 and the market is now pricing in three US Fed cuts.
Wall Street is down another -1.1% today so far. And that means the fall in May is accumulating and now well above -5% so far, trimming the 2019 gains back to just on +10%. Overnight, European markets fell hard, down about -1.5%. And yesterday, Shanghai was actually up +0.2% but Hong Kong dropped -0.6% and Tokyo dropped -1.2%.
In the US, mortgage applications fell away in the latest data available for May. And mortgage rates dipped as well.
The Bank of Canada, which pushed through three hikes in 2018, held its policy rate overnight in its latest review. And it made no sign that it is about to resume those rises. Their rate remains at 1.75% and that is the first time in twenty years it has been above the New Zealand policy rate.
China is ramping up its threats to withhold rare earth minerals for export in retaliation for US moves in their trade war. These minerals are vital for the tech industry and China is a dominant supplier. And such minerals are crucial for US military equipment. The US sources 80% of its needs from China. But it isn't the only supplier; Australian sources will now get a shot in the arm.
China has a debt problem and its getting worse. Their overall leverage ratio, which measures outstanding debt in the real economy against nominal GDP, increased to 249% at the end of March, the highest since this series started more than 25 years ago.
The growing trade wars have brought a sharp drop in air cargo growth in April and the trend is clearly negative this year. International volumes were more than -5% lower than the same month in 2018 and down more than -8% in the Asia/Pacific region. Cost inputs are rising, trade tensions are affecting confidence, and airlines are cutting capacity. Passenger traffic grew however, up +5% for international travel globally, but up only +2.9% in the Asia/Pacific region. But this growth is leaking away and quite quickly.
Another problem is festering as well. Overnight both the EU and the ECB separately challenged Italy over its inability to control its ballooning public debt levels and the contagion risk that poses to all of Europe.
In Australia "everyone" is expecting an RBA rate cut next week. Borrowers will be the beneficiaries and banks are preparing to reset mortgage rates to fresh record lows. Savers will be on the short end.
The UST 10yr yield is lower by another -2 bps today and now at 2.24%. That is its lowest level since September 2017. Shorter tenors are down even more. Their 2-10 curve is down at +16 bps while their negative 1-5 curve is wider again at -27 bps. The Aussie Govt 10yr is at 1.49% and down -3 bps. The China Govt 10yr is also down -3 bps to 3.33%, while the NZ Govt 10 yr is down -5 bps to 1.73%.
Gold is up +US$3 at US$1,281/oz.
US oil prices are lower today and are now under US$59/bbl. The Brent benchmark is at US$69/bbl.
The Kiwi dollar will start today down nearly -½c at 65.1 USc. On the cross rates we are also lower at 94.2 AUc. Against the euro we are little-changed at 58.5 euro cents. That puts the TWI-5 down at 70.1 and about where it was at this time last week.
Bitcoin is a little softer today, now at US$8,680. 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 ».