Equities in remarkable about-turn; China growth sags; IMF trims 2019 world growth forecasts; iron ore prices rally; UST 10yr at 2.79%; oil unchanged, gold down; NZ$1 = 67.3 USc; TWI-5 = 71.6

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Here’s our summary of key events overnight that affect New Zealand, with news of more global growth warnings.

Firstly however, today is a public holiday on Wall Street (Martin Luther King Day). Markets closed overnight in Europe a little softer, down about -0.3%. However they followed Asia yesterday which was up about +0.3%.

But now may be a useful time to assess how Wall Street has opened in 2019. The S&P500 has actually risen +6.5% in the first thirteen trading days of the year. That is enough to take it back to the same level it started at in 2018, so wiping out some of the ugly losses that kicked in from the start of October until Christmas. In that period, the S&P500 index fell -19.6%, but since it is back up +13.6%. It has been a remarkable turnaround in these early days of 2019.

In those same 13 days Shanghai has risen +5.9% but that pales in terms of its losses from the start of 2018 which now have accumulated to -21.0% even after the recent bounce.

Yesterday, all eyes were on the release of a raft of official Chinese data. That shows ‘fixed asset investment‘ rose +8.7% in private companies but only +1.9% in State-owned enterprises, a clear sign of the dead weight China’s central and local SOEs have on their economy. Retail sales in Q4-2018 rose +8.2%, a lowish rate for them in terms of recent activity.

But the big data was their Q4-2018 GDP release which showed growth slowed to +6.4% in Q4-2018. That is the lowest quarterly rate in 9 years but was as expected. However it was below the third quarter (+6.5%). That this signal is the official data suggests the real rate might be slower. A drive by Beijing to get its provincial governments to report accurately may be taking a toll. We should also note that electricity production grew at an average of +4.9% for the quarter. Electricity production is often used as a proxy for the real, unsanitised Chinese growth rate.

But to keep things in perspective, the slower China growth still added more than Australia’s annual GDP.

This China slowdown, and the rising risks in the US – not to mention the signs the EU is stalling – has seen the IMF cut its growth forecasts for 2019 and 2020. Their forecast cuts are modest and off the best rates since the GFC, but they do make the points that the risks are to the downside, the fall-off is slightly faster than they had expected, and that the 2018 decoupling of financial market expectations from the global policy tensions, especially over trade, is probably not going to last much longer.

So those recovering equity markets might falter in the shadow of the China slowdown and the IMF adjustment. But then again they may not. Overnight iron ore prices rose strongly in China as inventories of the ore fell and expectations rose that more official stimulus will sharply raise demand soon.

The UST 10yr yield is little-changed today at 2.79%. Their 2-10 curve is settled at +17 bps. The Aussie Govt 10yr is at 2.31% and down -2 bps, the China Govt 10yr is down -3 bps at 3.11%, while the NZ Govt 10 yr is at 2.35% and unchanged.

Gold is down -US$2 to US$1,280/oz.

US oil prices are little-changed overnight at just under US$54/bbl while the Brent benchmark is just under US$63/bbl.

The Kiwi dollar has stayed down at 67.3 USc with virtually no change overnight. On the cross rates, we little-changed against the Aussie at 94.1 AUc and holding at 59.2 euro cents. That puts the TWI-5 at 71.6.

Bitcoin is at US$3,539 and virtually unchanged. This rate is charted in the exchange rate set below.

This chart is animated here.

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

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Source: CoinDesk

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