Here's our summary of key events overnight that affect New Zealand, with news of a cavalier US President who is ignoring the lessons of history has tweeted "Trade wars are good and easy to win'. Retaliation seems certain. America's allies are recoiling.
Separately in the US, car loan interest rates are rising, and quite quickly. According to one survey, they now average 5.2% pa which is up from 3.9% five years ago. This latest level is the highest in eight years. And it is pushing buyers to seek lower payments by extending the length of their loans.
Canada’s GDP expanded at a slower pace than expected in the December 2017 quarter, marking a disappointing end to a strong year and adding to worries that their economy faces stiff headwinds from American trade and tax policy.
In Japan, their jobless rate fell to 2.4% in January. That's a 25 year record low, while a ratio of job openings remained at a 44-year high, the latest signs that their labour market is tightening as growth improves. China claims a jobless rate of 3.9%.
This weekend brings an important election in Italy that could possibly add new (and old) unstable politicians to the EU scene. Italy's banks struggle with bad loans and the state itself is saddled with massive debt - but the voters don't seem to care, and even their finance minister is relaxed about it all. The choice seems to be between billionaire (and previous failure) Berlusconi, or comedian Grillo. Competent alternatives aren't rising.
In Australia, banking giant CBA is reportedly cutting interest rates to property investor clients.
Sales of new passenger vehicles in New Zealand were -7.9% lower in February 2018 than the same month a year ago. But SUVs took a remarkable 59.1% share of that. Sedans are now a minority segment. The sales of commercial vehicles continues its record setting trend, up +10.3% on the same month a year ago, taking the annual rate to a new record and +14.1% higher than the equivalent period last year.
The UST 10yr yield has bounced back to 2.86% today on Wall Street. The Chinese 10yr is at 3.87% (up +2 bps) and the New Zealand equivalent is at 2.96% (down -1 bp).
Local swap rates ended the week flatter, and are now approaching their flattest of 2018. Average Australasian investment-grade corporate CDS spreads are now lower than their US counterparts, something we see rarely.
The VIX hasn't retraced to the levels before the mid-February wobbles and is still over 20. The Fear & Greed index is even more strongly on the fear side than this time last week.
Gold markets aren't closed yet but the price of gold has bounced back strongly from yesterday's steep drop to US$1,322 in New York. But over the week, that still represents a -US$6 fall.
Oil prices are lower today with the US benchmark now just under US$61.50 and the Brent benchmark under US$64.50/bbl. The US active rig count is now at its highest level in three years.
The Kiwi dollar is slipping today is now at just under 72.3 USc. On the cross rates we are at 93.2 AUc and 59.7 euro cents. That puts the TWI-5 back at 73.4 and ½ point below this time last week and right at the bottom of the 2018 range.
Bitcoin is now at US$10,868 and down -2.3% below where we left it yesterday afternoon.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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19 Comments
Our Donald winds everybody up.
At least with a tariff the losses are calculated and there is something to talk about.
I object to Free Trade Agreements as they are not, access for some products is negotiated in exchange for losses on something else like generic drugs or intellectual property and as as well the details are frequently kept secret.
Duplicious I say.
Phewww
They had to do something, being stuck in ground hog day, told recovery is always just around the corner, wears off after 10 years, voters revolt..
https://consortiumnews.com/2018/03/02/italys-choice-shock-or-stagnation/
http://www.alhambrapartners.com/2018/03/02/auto-sales-sink-again-withou…
A more cynical reader might expect the original text would have done so by saying the usual, something like “Major automakers reported lower U.S. new vehicle sales for February on Thursday as consumer spending continued to be strong, robust, and downright booming otherwise.” It would have been a hard case to make given these results, but since when has the media failed to live up to that challenge before? Alas, we will never know honesty or typicality.
Amongst everything else about Trump let’s not forget that he is the oldest President to be elected. So if you look at Reagan,, as the next oldest, will then a lot of the criticisms or realities of his policies, globalisation, wholesale tax cuts, greatly accelerated defence/ military allocations etc etc,etc, came into being after he had passed. So if Trump’s policies do in fact one day, cause record unemployment, riots on streets, bankrupt households and the great slump, it is hardly likely that he will be around to face the music. “What me worry.” Alfred E Newman was quoting that in the sixties!
Of course PROC cheats. Faults on both sides. How does escalation help this end well? A different leader at the helm who earns the respect of other world leaders might have produced a different outcome? I suggest it would wiser not to poke the bear. There was once a time the world begged for cheap Chinese labour, then its products. America might still be great if it weren't for the self inflicted GFC, widening wealth gap post GFC.
This has the potential to cost livelihoods, possibly lead to global conflict.
That is just not correct; things have gotten a lot better. The US current account deficit is -2.6% of GDP in 2017. It was -6% in 2005. Given the size of their economy, everything should be related to "% of GDP" otherwise you fall in to the man-in-the-street fear of large numbers.
Anything less than -3% of GDP is fine for a country that a) has the world's reserve currency, and b) where much of the 'new economy' trade is not properly counted in GDP.
And their feared Federal debt is nowhere as large as it is portrayed on Fox News. The US$18 tln debt includes $7 tln owed to other Government agencies, US$2 tln owed to the Fed. Only $5 tln is owed to the rest of the world, so that is a manageable 30% of GDP and falling. Even on this score, things are nothing like the fear-mongering. (But I do agree that the sudden new surge in deficit spending could become serious.)
But red-state simpletons buy the manufactured fear. For many of those, they look around and see decline. But much of that is own-goal stuff, failure to retrain, failure to move to states with better job prospects, failure to spend on public education, arrogance that they are gods-own and the world owes them a living. Do this for a generation or two and it embeds. (What is ironic is that the red-state middle class has a perception that black America has these faults. But actually they recognise them because they are really their own.)
The Tea Party core is not America - it is an aberation, a throw-back. I just hope democracy works and next time the largest vote isn't gamed and hijacked again.
The US was actually 'winning' until 2016. Now it is at real risk of losing. It needs to make rational decisions and ignore the current fad of boomer "I-have-experience-so-I-know-best" bluster.
I just tell it how I see it. Friends working for the Ca State are doing well, %14 pay increase, a lot less tax.
On the other hand the opioid epidemic is not going away, still over 10,000 people living in tents around us.
Huge inequality, obvious the moment you get away from the mainstream. Farmers have had a 73 billion dollar drop in income, thats about %50 since 2013.
Lots of Trump supporters about.
Does David Stockman have good enough Credentials ?
https://www.zerohedge.com/news/2018-02-25/david-stockman-exposes-stock-…
https://www.bloomberg.com/news/articles/2018-03-02/u-s-inflation-may-be…
http://www.alhambrapartners.com/2018/03/02/chart-of-the-week-this-ones-…
Why not. China could instead follow the yellow-bellied lily-livered "western" countries who allow the US multi-nationals to come in and rip the taxable guts out of them while they huff and puff and talk about bringing in legislation to curb base erosion profit shifting - been talking about for 10 years
If they want to stand up to the protectionism of Trump they would be bringing in a default 30% tax on earnings shifted out to Singapore, Ireland and Holland and they would do it tomorrow and make it retrospective 5 years
Very important considerations re the trade war. Expect NZD to get battered at some stage.
The unfolding events remind Chris Turner, global head of currency strategy at ING Groep NV, of the early 1990s when the U.S. took protectionist steps against Japan.
“We might now have people dusting off their forecasts for the dollar-yen to reach 80 in 2019,” said Turner, whose forecast stands at 100 for now. “Investors may be front-running potential shifts in portfolio capital into 2019 and be saying today it’s worth increasing hedge ratios, and the best currency to do that is long yen.”
The yen surged to a then-record high in 1995 of 79.75 per dollar. The currency has long been seen as a haven during times of turmoil in part because the nation’s high savings rate has traditionally allowed Japan to be less dependent on outside sources of funding during trade and political disputes.
https://www.bloomberg.com/news/articles/2018-03-02/yen-emerging-as-curr…
J C why would the NZD get battered if a US initiated trade war ensues. Other than the JPY The NZD could find itself to be one of the stronger currencies if this was to eventuate ,if trade wars or indeed de facto currency wars do not eventuate the NZD will be an out performer in the coming years.
I left New Zealand for Canada 1970 and have spent 45 years in manufacturing in North American aerospace.
Canada is the US biggest supplier of both steel and aluminum. When it comes to these two products the US is running a trade surplus. In fact, overall trade between the US & Canada is pretty well balanced so surpluses can go either way. Writing from experience, the steel industry is highly integrated and this applies also to aerospace and aluminum. To Kiwis back in NZ, trade agreements are about hocking stuff of to another country. The NAFTA was created to simplify supply chains. Canada and the US do not make stuff and hock them off to each other they make things together. If Trump doesn't do a U-turn on the tariffs there will be workers on both sides of the border that will be hurt. Canada will retaliate. However, China and the EU are involved and it could turn into an all-out trade war which will indirectly hurt NZ. Andrew, this video shows how Wilbur Ross explained to Trump why tariffs were such a good idea. The US/Can supply chains have evolved over many years and can't be put back together again and will have to be rebuilt which will not happen overnight. Canada has started, a bit on the late side, to look both east and west for new friends and trading partners. Having spent the last 2 years doing work in the US I feel the US is in decline and more so under Trump.
I just read 'John Boyd'
https://www.amazon.co.uk/Boyd-Fighter-Pilot-Who-Changed/dp/0316796883/r…
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