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Here's our summary of key events overnight that affect New Zealand, with news reality checks are appearing globally.
Firstly, and as expected, the US Federal Reserve made its first rate cut since 2008, taking its upper bound benchmark rate from 2.50% to 2.25%. Powell says more cuts "may come". It also ended its program of selling down the bonds it had built up during its quantitative easing program. It was due to pause that program in September anyway.
On the news, the US dollar rose marginally. Benchmark bond yields fell. And Wall Street equities fell sharply, down -1.2% so far which reflects a growing understanding of the underlying economic risks ahead.
Inflation and employment are the two Fed mandates. They are struggling to get inflation up to 2%, but employment metrics seem to be where they want them. We get the July non-farm payrolls report this Saturday and today the precursor ADP Employment Report is out indicating +156,000 jobs growth, better than the last two months but a modest level compared with the last few years. The factory sector was weak again, with all the gains in the service sector. Markets expect a similar modest growth from the non-farm payrolls report.
Overnight there has been more evidence the US factory sector is struggling. The widely-watched Chicago PMI has come in with a deeper contraction. In fact it is at its weakest level since December 2015.
In Shanghai, the trade talks haven't resolved anything, but at least the two parties are trying. The next round is scheduled for September.
And elsewhere in China, another large private company, this time a carmaker, has defaulted on a bond.
To contain risks like these, officials are now saying China will accelerate the debt-for-equity swaps of qualified companies to reduce high corporate leverage.
China’s factory activity shrank for the third straight month in July, underlining the headwinds facing them. But China's official PMI's show that the contraction eased somewhat. However their services sector, which is still expanding at a healthy rate, slowed slightly in July.
The latest negotiations for China's favoured trade deal, the RCEP are wrapping up with "good progress" claimed in this 27th round of talks. But fault lines are developing. New Zealand and Australia have been keen promoters of the 16 country deal deal, but reservations are growing about investor protections. And India is showing increasing reluctance at China's pushing. There is now talk that the Chinese will elbow India out of the group, and possibly New Zealand and Australia too unless they get their way. But many other smaller countries too are growing uncomfortable with how things are going.
Meanwhile, the TPP is developing nicely as a multilateral trade deal. Japan is buying more pork, beef and wine from such countries such as New Zealand, Canada and France after lowering tariffs. The US is out in the cold in these areas.
In Japan, the latest data on vehicle production, housing starts and construction orders all beat the modest estimates of analysts. But Japanese consumer confidence is still in the pits, and getting worse.
Data out in Europe shows that the eurozone GDP rose +1.1% in the second quarter of 2019. This was marginally better than expected, and partly because Italy didn't contract as expected. Also low and uninspiring was eurozone inflation which has come in at +1.1% in July. Food prices are rising however, up +2.0%.
The UST 10yr yield is now at 2.01% and down -6 bps on the US Fed rate cut. Their 2-10 curve is now back narrower at +14 bps and their negative 1-5 curve is wider at -17 bps. The Aussie Govt 10yr is at 1.19% and down -2 bps since yesterday. The China Govt 10yr is down -2 bps to 3.18%, while the NZ Govt 10 yr is now at 1.47%, a further -3 bps fall on the same basis.
Gold is now at US$1,417/oz which is a -US$13 fall overnight.
US oil prices are little-changed today. They are now just on US$58/bbl. The Brent benchmark is also firm at just over US$65/bbl.
The Kiwi dollar starts today -½c lower after the Fed cut, now at just on 65.6 USc. On the cross rates we are softer at just on 95.9 AUc. Against the euro we are a little lower at 59.2 euro cents. That pushes the TWI-5 down to 71.2.
Bitcoin has firmed to over US$10,000 for the first time in a week and now at US$10,027 and up +4.1% since this time yesterday. 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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