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Here's our summary of key events overnight that affect New Zealand, with news we are getting an object lesson of the folly of tariffs. The trade war situation is going from bad to worse.
The US President has announced new tariffs on US$300 bln of imports from China. Starting September 1, those extra goods will be hit with a 10% levy. This comes after China placed orders for US soybeans and in the middle of negotiations between officials. But this latest tariff action undermines future orders for US agricultural products and rural prices crashed after the news.
Wall Street also went into reverse on the news; equities are down -1% after being up that much before the announcement. Currency markets have been buffeted (with the Aussie dollar one of the most affected), and bond yields have dived.
Meanwhile in the US economy itself, the closely watched ISM PMI came in lower for July and now barely expanding, when a rise was expected. Another similar survey points out this is the lowest level since 2009.
And US construction activity shrank in the year to June as well as falling from May.
China is likely to react to this US move by restricting American economic activity in its domestic markets. It seems unlikely to buckle in the way that the US hopes. No more orders for US agricultural products are likely.
China's private sector factory Caixin PMI for July has come in slightly better than expected, mirroring the official China factory PMI released a few days ago. It is now at 49.9, essentially neither expanding nor contracting. There are rays of light however; new orders and production output are expanding again.
Japan vehicle sales were up almost +7% in July from the same month a year ago. But that is just a rush to beat a sales tax hike. Overall, Japanese factories are contracting however.
And the eurozone manufacturing sector is now contracting at its fastest pace since 2012.
The Bank of England has cut its forecasts for UK growth over the next two years to just +1.3% and warned that a no-deal Brexit will hit their economy further and trigger a further drop in the value of their currency.
The downturn in the global manufacturing sector has extended into its third consecutive month in July. Production and new order intakes declined further, as conditions in many domestic markets remained soft and international trade volumes continued to contract. These negative trends filtered through to the labour market, resulting in another round of job losses.
The UST 10yr yield has slumped -12 bps so far to be just on 1.89%. Their 2-10 curve is now back wider at +18 bps and their negative 1-5 curve is narrower at -11 bps. The Aussie Govt 10yr is at 1.12% and down -7 bps since yesterday. The China Govt 10yr is down -1 bp to 3.17%, while the NZ Govt 10 yr is now at 1.48%, and up +1 bp on the same basis.
Gold is up sharply making back yesterdays drop and more, up to US$1,442/oz which is a +US$25 surge overnight.
US oil prices fell hard on the tariff news on fears that demand will collapse. They are down more than -US$4 to now just on US$54/bbl. The Brent benchmark is just on US$61/bbl.
The Kiwi dollar starts today unchanged against the greenback at 65.6 USc. On the cross rates however we are much firmer at 96.3 AUc. Against the euro we are unchanged at 59.2 euro cents. That leaves the TWI-5 at 71.1.
Bitcoin is on the sidelines at US$10,112 and up less than +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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