OECD warns on derivatives, China’s BRI; Argentina enters emergency mode; Indonesia currency drops, Turkey inflation jumps; PMIs slip; UST 10yr at 2.86%; oil higher, gold unchanged; NZ$1 = 66 USc; TWI-5 = 69.8

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Here’s our summary of key events overnight that affect New Zealand, with news emerging markets are struggling to contain their pressures.

But first we should note that Wall Street is closed for their Labor Day public holiday. Yesterday most markets in our time zone closed lower, including our own, and there is an anxiety over what the New York markets will signal in September. The very long bull run will end at some point and memories have faded on how these things turn. Over-reaction is a common outcome.

The OECD is pointing out that global financial system risk is high with interconnectedness through high levels of financial derivative exposure, as high as it was just prior to the GFC. They also want global standards to manage and restrain cross-border infrastructure investment like that of China’s Belt+Road Initiative, pointing out the extreme risks building for emerging economies through China’s shadow lending. They see the current Chinese track based on corruption, a lack of transparency, ignoring environmental risks, and a twist to the dominance of state-owned enterprises.

Surprisingly China has responded quickly; overnight President Xi has promised Africa ‘debt relief’.

Argentina has announced austerity measures in a bid to tackle the “emergency” created by the country’s currency crisis. Their President said they could no longer keep spending more than they earned. He announced new taxes on some key exports, and said “about half” of the nation’s government ministries will be abolished. Their gamble on ‘gradualism-with-IMF-support’ clearly didn’t work, and they have been left with few choices.

The currency situation in Indonesia is not looking flash either.

In Turkey, inflation has leaped to +18% pa, an all-time high and up from +10% in March. Their central bank has promised action to restrain it. Their official interest rate is currently 16.25% and is likely to rise substantially soon.

Manufacturing activity in Mexico expanded more slowly in August, but it still expanded. In Brazil, their rate actually picked up, moving from a contraction two months ago, to expansion in August.

In the Eurozone, they are recording a slowing in their relatively high rates of factory activity. It is now a run of expansion that now stretches to 62 months. But the latest data is the slowest growth since November 2016.

In China, the private Caixin China General Manufacturing PMI slipped to 50.6 in August from July, marking the third straight monthly drop and its lowest level since June 2017. It has come in lower than analysts expected. The sub-indexes for new orders and output both expanded, with the former falling and the latter climbing. This showed cooling demand and strong supply existed at the same time across the Chinese manufacturing sector. This PMI reading is more cautious than the official Government one.

The UST 10yr is unchanged at 2.86% and their 2-10 curve is still at +23 bps due to the US holiday. The Aussie Govt 10yr is at 2.52% (unchanged), the China Govt 10yr is at 3.61% and up +1 bp, while the NZ Govt 10 yr is at 2.55%, down -1 bp.

Gold is unchanged at US$1,201/oz.

US oil prices are marginally firmer and now just over US$70/bbl. The Brent benchmark is now just over US$78/bbl. Questions over Iranian crude supply after sanctions hit are keeping the market well bid.

The Kiwi dollar is holding lower at 66 USc. On the cross rates we are lower at 91.6 AUc, and softer at 56.8 euro cents. That puts the TWI-5 at 69.8 and a three week low.

Bitcoin is now at US$7,271 and essentially unchanged. That takes it over NZ$11,000 for the second day in a row and the first time in a month. This price is tracked in the exchange rate 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 ».

Daily exchange rates

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USD 

NZD

End of day UTC
Source: CoinDesk

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