Stocks up even as key data fades, especially in the US; Canada and Japan too; China stabilises; BIS wants risk weighting audits; AU banks ‘strong’; UST 10yr 2.76; oil and gold drop; NZ$1 = 68 USc; TWI-5 = 72.5

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Here’s our summary of key events over the weekend that affect New Zealand, with news share prices may be up but the underlying data moves are almost all negative.

At the end of last week, Wall Street was up +0.7% following most of European markets which were up a similar amount to close out the week. Tokyo, Hong Kong, and especially Shanghai finished their trading sessions in a surge higher. Markets seem to feel after the US-North Korea meeting failure, that the US Administration will cave in its trade talks with China and business will get back to ‘normal’.

Share prices may be up but the data certainly, isn’t especially in the US. Firstly the influential ISM PMI came in well below expectations. Their factory expansion is slowing, although it is still a moderate expansion. The slowing is also recorded in the Markit PMI for the US and this one has the dip a bit steeper.

US carmakers reported weak February sales, notable because the weakness was pronounced for SUVs. This trend does not auger well for US manufacturing and the pressure will be on to cut costs.

Meanwhile, the latest consumer sentiment survey shows the bounce back in early February faded sharply in the second half of the month.

All up, the US Q1-2019 data is pointing to low economic growth, with the corporate tax cut sugar-hit no longer effective.

The same sagging in economic pace is being recorded in Canada. Their Q4-2018 GDP growth was anemic – in fact, some called it ‘gruesome’. Their factory PMIs slipped as well although they are expanding faster than in the US even if the pullback is to a 26 month low. And Canada won’t be helped by falling oil prices. None of this suggests that Canada will continue with its rate hikes.

On Thursday we got the official Chinese PMI survey result and it wasn’t pretty, revealing their factory sector was contracting (49.2). The suspicion always is that official data sanitises the real situation. But over the weekend we got the private Markit/Caixin China PMI and that paints a far less worrying picture. This one says operating conditions faced by Chinese manufacturers were broadly stable in February (49.9). Encouragingly, both output and total new orders expanded slightly, despite export sales slipping back into contraction. At the same time, capacity pressures continued to build, with backlogs of work rising.

In Japan, factory production declined at fastest rate since May 2016 and slipped in to a contraction in February. It’s been a sharp fall. Japanese consumer confidence keeps on falling too. But they are starting to get a small uplift in inflation. And Japanese capital spending is also turning up.

Globally, the manufacturing sector is running out of puff. The consolidated Markit PMI reports that factories are now barely expanding and the situation is especially tough for those factories manufacturing investment goods. Consumer goods demand is at least positive even if it too is expanding at a slowing pace.

Also globally, the Bank of International Settlements is reported to be calling for risk weightings to be independently audited in an effort to stop errors and cheating.

In Australia, the release of the IMF banking system stress tests points to few risks and a sector well positioned to withstand a severe shock. (See page 30.)

They will need that resilience. CoreLogic data shows that Sydney and Melbourne house values fell more than -1% in February alone to be almost -12% lower from the same month a year ago for many key markets in both cities. These cumulations mean this is the worst Australian housing price decline in decades. The contrast with New Zealand is stark.

The UST 10yr yield rose at the end of last week to 2.76%. That’s a +11 bps gain in a week. Their 2-10 curve is also up, now just on +20 bps while their negative 1-5 curve has almost vanished. The Aussie Govt 10yr is up +2 bps to 2.17%, the China Govt 10yr is holding at 3.20%, while the NZ Govt 10 yr is down -1 bp to 2.20%. On Friday, local swap rates rose and steepened, erasing the weakness of earlier in the week.

Gold has fallen sharply, down to US$1,293 and a -US$23 drop since this time on Friday.

US oil prices are sharply lower, now just under US$56/bbl while the Brent benchmark is down to just on US$65/bbl. That’s a drop of more than -US$1 as demand worries drive the pullback.

The Kiwi dollar will start the week just under 68 USc and little-changed from this time on Saturday. On the cross rates we marginally softer at 96.1 AUc. Against the euro we are at 59.8 euro cents. The TWI-5 will start the week at 72.5.

Bitcoin is also softer at US$3,790 and a dip of about -1%. 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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