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Here's our summary of key events overnight that affect New Zealand, with news investment levels are falling in some of the largest economies in the world.
But first, the US economy grew +2.1% in the second quarter of 2019, far slower than the +3.1% growth rate in the first quarter. But is was better than analysts were expecting (+1.8%). Still, this is the second slowest rate of expansion for the Americans since the end of 2016 and validates IMF and World Bank forecasts that this giant economic engine is slowing. Holding the rate up was strong consumer spending. However, other economic activity was as weak, or weaker, than preliminary estimates forecast. That includes exports, and especially investment, which is something serious to watch.
Staying in the US, new data shows that their home ownership rate at 64.1% just isn't improving. They have a unique inhibitor in their student debt levels. They had a rate touching 70% just prior to the GFC but it has atrophied since. The equivalent New Zealand home ownership rate is 62.3%.
In Washington, the US President has come down on the side of the tax-dodging US tech giants, threatening to tariff French wine if the French go ahead with their digital services tax. President Macron then signed the French law.
But the influence of US policy moves, especially sanctions, are being increasingly discounted. China for example is still buying Iranian oil despite those American sanctions.
Meanwhile, Chinese industrial profits are falling. Demand is falling. And that will mean new investment will be under pressure. It has an uncanny similarity to the sharp investment slowdown in those latest US GDP results.
And ordinary people in China are no longer feeling lucky. It turns out China's lottery sales fell -40% year-on-year in May.
In Western countries - and New Zealand is no exception - it is common to publicly fret about high household debt levels. But these levels have been stable or declining in many. New Zealand for example has had broadly stable overall debt levels since 2007. In 2007 household debt was about 73% of GDP; by 2018 it was still 'only' 75%. In the US it has fallen from 98% to 78%. But in developing countries, especially China, it is rising toward Western levels. China's household debt load over the same time-frame has gone from 18% to 55%. Thailand has gone from 45% to 72%. Malaysia from 50% to 66%. And South Korea from 72% to 98%. While many of these are still lower than countries like New Zealand, it is the rapid growth to new high levels that may leave them with a more severe hangover because they don't have a flexible exchange rate. Pegged rates require rapid use of reserves to maintain stability in the short-term. As the international economy cools and new investment pulls back, these new higher household debt levels will get serious risk scrutiny.
In Australia, weekend house auction clearance rates are up. In Sydney they came in at 73% (compared with 49% in the same weekend in 2018). In Melbourne it is 74% (compared with 53% last year).
The UST 10yr yield is now at 2.07% and a +2 bps rise over the week. Their 2-10 curve is slightly flatter for the week, now at +21 bps and their negative 1-5 curve is at -14 bps. The Aussie Govt 10yr is at 1.23%, down -13 bps for the week. The China Govt 10yr is up +1 bp for the week to 3.18%, while the NZ Govt 10 yr is now at 1.54%, a -6 bps fall on the same basis.
Gold is now at US$1,418/oz which is a -US$4 slip for the week even if it was up slightly in final trading from the prior day.
US oil prices are little-changed today. They are now just over US$56/bbl. The Brent benchmark is also little changed at just over US$63.
The Kiwi dollar starts the new week softer at 66.4 USc which is actually more than -1c lower than this time last week. On the cross rates we are firm at just over 96.1 AUc. Against the euro we are down to 59.6 euro cents. That eases the TWI-5 back to just on 71.6 which is nearly -100 bps lower than a week ago.
Bitcoin opens at US$9,534 and that is down nearly -10% for the 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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