China guides its currency; US job growth slows; Canada trade deficit narrows, US deficit widens; China targets more US goods; NAFTA progress, maybe; UST 10yr at 2.95%; oil and gold lower; NZ$1 = 67.4 USc; TWI-5 = 71.1

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Here’s our summary of key events over the weekend that affect New Zealand, with news mainly on the trade front.

Firstly, China is reimposing a banking rule today to help stop the slide in the value of its currency. Ironically, the fall is from market forces rather than the charge of ‘manipulation’ from the White House. Doubling the irony, today’s move is actual ‘manipulation’ which should stem the decline. Many other South East Asian countries are very vulnerable to the China-US currency war, caught between a choice of export competitiveness and exploding inflation, or no growth and price stability.

American job growth slowed more than expected in July as employment in the transportation and utilities sectors fell, surprisingly for the transportation sector. But there was a drop in their unemployment rate which ticked lower to 3.9% because of a stubborn participation rate which shows no sign of improving any time soon. Also stubborn is the rise in earnings, up +2.7% pa, again. It has been at this level for more than two years now and if anything seems to be softer now than it was at the end of 2016. It is proving to be a long wait for tighter labour market conditions to show up in broader jobs gains or in pay increases.

Canada’s goods trade deficit narrowed from C$2.7 bln in May to $626 mln in June, the smallest deficit since January 2017. This was a much better result tan markets were expecting. The Canadian trade surplus with the US widened however and locals spurned imports from their southern neighbour.

More directly in the trade war, China as announced new tariffs on US goods, ones that will especially hurt US hardwood exports – and some very fast-rising oil and gas exports. They also targeted food products, chemicals, steel, aluminum and consumer goods like furniture, bicycles, baseball gloves and beauty products. More than US$60 bln of trade in additional goods have been singled out for additional tariffs.

The American trade deficit widened in June at the fastest rate since November 2016, pushed by a stronger dollar and front-running buying. The trade deficit in goods and services increased +7.3% in June from the previous month to -US$46.4 bln. It was, however, about what analysts were expecting. But we should also note that the American trade deficit overall is now at its highest point of the Trump presidency and almost as high as in 2009. Of special concern for them is that services exports have stopped rising.

American trucking companies ordered a record 52,400 big rig trucks for regional and long-haul routes in July, what is usually the slowest order month of the year. That is nearly triple the orders from last year, when fleets ordered 18,726 trucks, and a +24% jump from June’s orders.

And there appears to be progress in the NAFTA negotiations. The US and Mexico are close to a deal, and Canada says things are positive. It now all depends on whether Trump can accept the compromises involved.

In Italy, bond investors are retreating and yields are rising ahead of what will be contentious budget negotiations within the new and unstable Italian government.

In Turkey, they are struggling with a fast-falling currency – made worse by an emboldened strong-man president espousing fantasy economics. The Turkish lira is down to a record low and facing a sudden crash. All its debts are in US dollars, all its income-producing assets are in local currency.

The UST 10yr yield retreated on the US payroll data outcome and is now at 2.95% and about where it was at this time last week. Their 2-10 curve is just on +30 bps. The Chinese 10yr is at 3.49% (unchanged) while the New Zealand equivalent is now at 2.83%, also unchanged.

Gold was down -US$2 at the US market close and now a just on US$1,213/oz, another -US$9 retreat over the week.

US oil prices are a little lower today and now just over US$68.50/bbl. The Brent benchmark is now just over US$73/bbl. The US rig count is marginally lower this week.

The Kiwi dollar is starting the week at 67.4 USc, and down nearly -½c from this time last week. On the cross rates we arelower too at 91.1 AUc, and at 58.3 euro cents. That puts the TWI-5 at 71.1.

Bitcoin is now at under US$7,000 and down more than -5% from where we left it on Saturday. We track this rate daily in the interactive chart below.

This chart is animated here. For previous users, the animation process has been updated and works better now.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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NZD

End of day UTC
Source: CoinDesk

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