US confidence slips; US terms of trade improve; China get larger surplus with US, less with others; China new debt jumps; Italy pretends on CETA; UST 10yr 2.83%; oil up, gold down; NZ$1 = 67.6 USc; TWI-5 = 71

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Here’s our summary of key events overnight that affect New Zealand, with news the consequences of aggressive American trade moves are exactly working out as intended so far.

First, the latest survey of American consumer sentiment shows it slipping again, but from a relatively high level and still historically high.

June data out in the US shows their terms of trade improving. Import prices are up +4.3% year-on-year while export prices are up +5.3%.

Meanwhile, their trade deficit with China grew. The June Chinese data shows it at -US$29 bln for goods. And it may get even larger as US importers try to front run their requirements ahead of the expanded tariffs the Americans have announced. In fact, that was probably the reason for the large June result between the two countries, related to the first tariff announcements.

But overall, China’s goods trade surplus shrank because it shrank with neatly everyone else. And part of that was a moderating of import demand. Chinese exports rose +11.3% year-on-year in USD terms to reach US$216.7 bln in June, while imports increased +14.1%, down from +26% in May. (Data for New Zealand is here.) Part of that import drop is a -12% fall in iron ore imports, a diect consequence of Chinese clean air regulation.

One perhaps surprising consequence of the US tariff action is that a number of car companies are swiftly moving to set up expanded manufacturing – in China.

Another consequence is that the Chinese are slowing their financial market ‘reform’ in the face of the trade tiff risks. An example is the earlier-claimed policy move to slow the growth of corporate debt; instead they are letting it run as stimulus support. Bank lending was up almost +13% year-on-year to June. In June alone, Chinese banks extended ¥1.84 tln in new yuan loans, up from ¥1.15 tln in May and ¥1.18 tln in April. Now that is heady, recent growth.

China’s NZ$1.4 tln sovereign wealth fund is seeking the authority to invest in their domestic stock and bond markets for the first time. It wants to end restrictions on its mandate following government moves to open up financial markets.

The new Italian government has ‘announced‘ that it will not ratify the CETA trade treaty with Canada. But no-one is really taking the position seriously; the provisions of the deal are largely in place already, so formal ratification means diddly. The Italian statement is mainly for domestic consumption, holding their shaky coalition in place.

Yesterday equity markets were calm, holding on to small rises. Today in New York, markets are also calm with the S&P500 holding on to minor gains

The UST 10yr yield is weakening at the market close at under 2.83% and down -2 bps in New York. Their 2-10 curve keeps going down, now under +25 bps. At -1 bps per day, inversion could come quicker than markets expect, and when that realisation dawns it may be self-fulfilling. The Chinese 10yr is at 3.52% (down -2 bps from yesterday) while the New Zealand equivalent is now at 2.88%, down -1 bp.

The VIX is generally trending down and now just below 12.4 and that is slightly lower than this time last week. The average index level over the past year is 12. The Fear & Greed index has moved to a neutral level.

Gold is weaker in New York but now a just US$1,241/oz in New York which is a -US$13 drop for the week.

US oil prices are up today from yesterday and now just under US$71/bbl. The Brent benchmark is now just under US$75/bbl. Today’s rise comes even after reports indicate that the US is considering dipping into its strategic reserve to get more supply into the marketplace. But these both represent a small retreat in the past week. The US rig count has risen a few this week, again.

The Kiwi dollar is ending the week at almost exactly where iw was this time last week at 67.6. USc. On the cross rates however we are lower at 91.1 AUc and the lowest level in six months, and at 57.9 euro cents. That puts the TWI-5 at 71 and at its lowest for the week.

Bitcoin is now at US$6,184 which is locking in almost a -6% drop for the week.

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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