Here's our summary of key events overnight that affect New Zealand, with news investors are hunkering down, quitting equities and buying bonds.
First up today, Wall Street is in a bad mood. The S&P500 is down -1.3% and this follows European markets which were all down more than -1% overnight. Tokyo was down -1.6% yesterday although Shanghai closed little-changed. This means that Wall Street lost -6.6% in May. Ending weakly doesn't bode well for June.
Bond markets aren't giving positive signals either with yields on benchmark bonds falling to levels we haven't seen since September 2017. Bond investors however are doing just fine with bond prices up more than +10% in May alone.
The spark is another capricious Trump decision to try to hit Mexico economically with tariffs over the social issue of border control. Everyone but the US President knows this tariff will be paid for by Americans. Maybe there is short-term political advantage among economically illiterate voters, but Wall Street and the companies listed there know this policy will cost American firms again, in the same way the China tariffs are. May has been the worst month of 2019 for American investors.
Oil prices have dived in the expectation that demand is about to sink.
Meanwhile, US inflation is rising. The Fed’s preferred inflation gauge, the price index for personal-consumption expenditures, rose at a +1.5% pa rate in April, its fastest gain in 2019. Other Fed data sees it rising much faster. Pass-on tariff costs are a part of this.
In Canada, their economic growth picked up in Q1 2019 with a surprise rise to +1.3% year-on-year. But this is still way below the numbers being posted south of the border.
And China says it will publish its own black list of businesses or individuals deemed to have violated market rules or taken ‘discriminatory measures’ against them, especially over Huawei.
China's official factory PMI fell back into contraction and fell more than analysts expected. Driving it down were steep declines in export orders. But their much larger services sector is still expanding at a healthy rate.
US importers are finding ways to avoid some of the tariffs on China-sourced goods. Meanwhile, today China's retaliatory tariffs take effect.
The UST 10yr yield has sunk further today, now just under 2.13%. That caps a stunning weekly fall of -19 bps and for all of May the fall is -38 bps. Bond markets are in full 'fear' mode. Their 2-10 curve is now at +21 bps but their negative 1-5 curve is wider at -30 bps. The Aussie Govt 10yr is at 1.47% and down -6 bps over the week (on top of last week's -6 bps). The China Govt 10yr is down -3 bps in the week to 3.30% (and has been an island of stability in May), while the NZ Govt 10 yr is down -2 bps this week, now at 1.74%.
Gold has jumped +US$16 overnight to US$1,305/oz.
The VIX volatility index is up this week at over 18 and above its average over the past year of 16. The Fear & Greed index we follow is still firmly on the 'fear' side.
US oil prices are down a spectacular -US$4 today and are now just on US$53/bbl, and that is a -10% fall in a week on top of last week's -5% drop. The Brent benchmark is now at US$65/bbl. The US rig count is marginally higher this week but is unlikely to stay there long. Still, they may stay high for a while because drilling costs are falling.
The Kiwi dollar is up against a falling greenback this morning at 65.4 USc. But that just puts it back where it was this time a week ago. On the cross rates we little changed at 94.3 AUc. Against the euro we are similar at 58.6 euro cents. That all makes the TWI-5 marginally lower over the week at 70.4. The yuan has stopped depreciating against the US dollar and Beijing has clamped its value at 6.89 every day this week, essentially putting it back on a fixed peg. But it may not last long.
Bitcoin has had a volatile week rising as high as US$8,869 and falling as low as US$7,954 for a +/-6% range. Today it is at US$8,412 and a +5% gain since this time last week. The bitcoin 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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