US domestic slowdown continues; US-China trade talk optimism; EU business confidence down; Chinese manufacturing takes a hit; UST 10yr under 2.38%; oil unchanged and gold down; NZ$1 = 68 USc; TWI-5 = 72.6

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Here’s our summary of key events overnight that affect New Zealand, with news the US domestic economy has slowed more than initially thought.

Figures released on Thursday show the US domestic economy slowed more than projected in the fourth quarter of 2018, coming in below the Trump administration’s 3% annual target and corporate profits were down as well, failing to rise for the first time in more than two years. The data shows the GDP growth rate for the fourth quarter was 2.2%, and down from the previous estimate of 2.6% and the third quarter’s 3.4%.

While US pending home sales also fell, down -0.1% in February from January, and down -4.9% from the same month a year ago.

This comes on top of signals last week from the Federal Reserve has abandoned any plans to raise interest rates this year. While the return of an inverted US Treasury yield curve late last week has also dampened markets. The 3-month U.S. Treasury yield exceeded the yield on the 10-year note last Friday for the first time since 2007 and is often seen as signal of an impending economic slowdown or recession.

Wall Street has swung between gains and losses today as optimism over the US-China trade talks has been tempered by the threat of an economic slowdown, with the fourth cut in GDP growth.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are in Beijing today for a new round of talks with Chinese officials which are aimed at ending the ongoing trade war between the two countries.

Meanwhile, the World Trade Organization says the United States has ignored a request to halt subsidies to Boeing. It’s the latest development in a 15-year-old transatlantic trade row with the EU which appears to be getting closer to tit-for-tat sanctions.

The European Union says the WTO ruling has confirmed its claims that Boeing has continued to receive illegal subsidies. But the United States says only tax breaks from Washington State, which are worth around $100 million a year, have been in breach of WTO rules. 

The United States and EU have been battling since 2004 over each other’s claims that they have been illegally subsidising plane manufacturing giants Boeing and Airbus, with an ongoing tit for tat battle against each other bogging down the WTO’s regulatory role over trade disputes.

In Europe inflation figures released in Germany for the month of March were weaker than expected. Consumer prices rose an annual 1.4 percent. It comes as the EU policy makers are battling with how to address the lack of consistent price pressures despite years of stimulus. 

Earlier this month the European Central Bank said it had cancelled plans to “normalise” policy and would delay any rates increases until next year and would instead provide banks with even more liquidity.

While the European Commission overnight published the Business Climate Indicator (BCI). The survey of euro businesses showed declining business confidence.

China has entered the latest trade talks with Premier Li talking about the ‘steady’ and ‘positive’ state of the Chinese economy. 

But despite such optimism, figures released this week suggest the trade war with the US is starting to bite. Chinese manufacturing profits fell by 15.7 per cent year-on-year, while profits from oil processing companies falling 70.4 per cent.

Equity markets are little changed today in either Europe or on Wall Street. Yesterday both Tokyo (-1.6%) and Shanghai (-0.9) closed sharply lower on the day, Hong Kong was little-changed. Australia (+0.65%) was unusually higher, and New Zealand continued its remarkable strong run (+0.7%). In fact, since the start of the year the NZX50 is up 12% and that is after being up almost 5% in 2018 (remember the S&P500 was down -7.5% in 2018), and on top of 22% in 2017. It is quite a run, probably fuelled by a rising flow of KiwiSaver funds looking for a home in a small market.

The latest data on the acceptance level of the Chinese currency internationally has it languishing. While it is still the eighth most used for international transactions, it is at a still insignificant 1.15% share, little changed from two years ago. The US dollar (43.4%) and the Euro (35.7%) still dominate. In fact, over the past two years, the British pound has gained more market share (+0.35% to 4.24%) than the yuan (+0.03% to 1.15%). China is making almost zero progress in getting international traders using its currency.

The UST 10yr yield has held overnight at now just on 2.38%. Their 2-10 curve is now up 13 bps while their negative 1-5 curve is down 24 bps. The Aussie 10 year is down 5 bps at 1.76%, the Chinese 10year is up 1 bp to 3.10%, while the NZ 10 year is down a disconcertingly large 11 bps to 1.78%.

Gold however is down sharply, down US$23 to US$1,289/oz. US oil prices are little-changed today and still just under US$59/bbl while the Brent benchmark is just on US$68/bbl.

The Kiwi dollar is little-changed from this time yesterday at 67.9 USc. On the cross rates we are unchanged too at 96 AUc. Against the euro we are at 60.5 euro cents. That leaves the TWI-5 at 72.6.

Bitcoin is slightly firmer at US$4,017. This rate is charted in the exchange rate set below.



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