China PMI recovers strongly; US data weak; good Canada GDP growth; more China stimulus; good Japan data; Aussie negative gearing in spotlight; UST 10yr under 2.41%; oil unchanged and gold dips; NZ$1 = 68.1 USc; TWI-5 = 72.8

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Here’s our summary of key events overnight that affect New Zealand, with news with a China turnaround story.

China’s official factory PMI made a remarkable recovery, jumping from a contracting 49.2 in February to an expanding 50.5 in March. They say most of this is due to the data provided by large state-owned enterprises; smaller private ones are still contracting. We will need to await the Caixin PMI to be sure this sudden improvement is for real. If it is confirmed, it will be domestic demand rather than exports that is driving their improvement. And that is significant.

In the US, official data shows consumer spending barely rose in January and income increased only modestly in February, suggesting their economy was still losing momentum after growth slowed in the fourth quarter of 2018.

However, there was better news on new home sales in the US, which firmed nearly +5% in February from January, to get back to the same level they were a year ago.

The other main survey of American consumer sentiment reported a better level in March, but that is at odds with its rival survey.

In Canada, their January GDP result came in with better growth than was expected (yes, they do their GDP monitoring monthly).

Back in Beijing, the United States and China said they made progress in trade talks that concluded over the weekend. The Americans called them “candid and constructive”.

Meanwhile, Beijing is taking a different tack in their new round of stimulus – using its big four state-owned banks to pump out for debt finance. The amounts involved are not small. Between the better PMI, trade talks in the balance, and more stimulus, this goes some way to explain why the Shanghai equities market is up +25% so far in 2019.

In Japan, they also got some quite good data reported over the weekend. Vehicle sales were up again in February and that follows very strong (+7%) production rises in January; and housing starts rose (+4.2%) as well.

In Europe, the main news is the continuing failure of the British to agree on anything related to Brexit, with the latest series of parliamentary votes all resulting in rejection. A crash-out is now inevitable it seems. The EU isn’t holding its breath and seems to have abandoned any hope of an organised divorce.

In Australia, their tax office data shows how crazy Aussie landlords have become with their attachment to negative gearing. It is being seen as positive progress that the proportion of Australia’s 2.2 mln landlords who are negatively geared fell to 60% in fiscal 2017, the lowest level since 2003. No wonder a correction in their housing markets have hit them so hard. And debt growth for housing has now hit its lowest annualised level since records started there in 1977. The opposition Australian Labor Party has said it will scrap negative gearing for new investors from the start of 2020.

The UST 10yr yield is now at 2.41%. Their 2-10 curve is narrower at +14 bps and their negative 1-5 curve is wider at -19 bps. The Aussie Govt 10yr is slightly firmer today at 1.79% but right where it was at the start of the week, the China Govt 10yr is lower on that basis however, now at 3.08%, while the NZ Govt 10 yr is at 1.83%, up +5 bps since this time yesterday. On Friday, local swap rates rose firmly off their lows.

Gold has dipped -US$2 over the weekend to US$1,292, and a -1.2% loss for the week.

US oil prices are firm, now just on US$60/bbl while the Brent benchmark is at US$67.50/bbl. That is about where they were this time last week.

The Kiwi dollar is holding this morning at 68.1 USc. On the cross rates we are marginally lower up to 95.9 AUc. Against the euro we are at 60.6 euro cents. That puts the TWI-5 at 72.8. Yes, the currency did fall sharply earlier in the week on the RBNZ signal, but it ended March right at its average for the month.

Bitcoin is also a firmer at US$4,094 and a +2.5% weekly gain. In fact, at this price, it has now topped NZ$6,000 for the first time in over 4 months. This 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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