US Fed signals next rate hike; US data average; beefier tariffs coming from the US on China goods; India raises rates, Australia senses house price declines; UST 10yr at 3.00%; oil and gold drop; NZ$1 = 67.9 USc; TWI-5 = 71.4

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Here’s our summary of key events overnight that affect New Zealand, with news US-China trade tensions are rising.

Firstly however, the US Federal Reserve held short-term interest rates steady today and offered an upbeat assessment of the economy’s performance, suggesting another interest-rate increase is likely at its next meeting.

That upbeat assessment was reinforced by the data released in the ADP employment survey, a pre-cursor to the upcoming non-farm payrolls report. That showed a rise of +219,000 new jobs, the highest since February. But in a long-run perspective, an increase at this level is pretty average. Plus or minus +200,000 has been the norm since 2010.

There were also two separate American PMI surveys released overnight for July. Both show the expansion at a high level but slowing. In one, the slowing is minor (even though it is now at a five month low), in the other more widely reported survey, was even more marked. And perhaps the slowdown will continue. Major American carmakers have reported lower new vehicle sales for July from steep declines in passenger cars.

Data for US contruction spending for June was up a strong +6.1% above the same period a year ago. It was boosted by private spending; public infrastructure spending is on a downward trend.

The American Government need for new debt is rising. Today they said they will raise the amount of long-term debt it sells to US$78 bln this quarter and at the same time launched a new two-month T-bill. The new borrowing estimate for the third quarter is the highest since the same period in 2010 and one of the largest on record for the July-September quarter.

The US Administration is now expected to announce beefier 25% tariffs on a proposed US$200 bln in imports from China, up from the original plan of 10% tariffs, pressing harder on what it sees as an effective lever on the Chinese. Wall Street has shifted lower on the news, despite a banner result from Apple. China has reacted with anger and vows retaliation. It has already reacted by setting its currency lower today – and over the past two months has effectively allowed a -7% devaluation.

Away from the US, it is clear that factories around the world are facing some headwinds with output, exports, and employment rising but at a slower rate.

But it is not all bad for companies outside the US. American beef exports are being substituted in China for others, and that means our prices are rising. 

In India, as expected, they have raised their policy rate again, this time by +25 bps to 6.50%. Inflation concerns are growing and they are also increasingly concerned about the effects of the trade wars.

In Canada, they are about to roll back their plans for a carbon tax. They fear their jobs market can’t handle the impact.

In Australia, an interesting debate is gaining traction; it challenges the idea that recent virtue signaling by boards of directors, saying the pressures for ‘modern governance’ cause companies to both lose focus, and incentivise managers to twist direction away from their core function. The new head of AMP is blaming this top-driven social trend as a core reason his company lost its way and eventually failed its customers, its staff and its investors.

And staying in Australia, the expert opinion seems to be mounting that a severe house price reduction is on the cards. The falls have been very minor recently – down -1.6% in the past year – but some see this as a precursor to an overall -20% drop. (It’s not a new idea, however.)

The UST 10yr yield is up at 3.00%. Their 2-10 curve has steepened slightly to +31 bps. The Chinese 10yr is at 3.50% (down -2 bps from this time yesterday) while the New Zealand equivalent is now at 2.82%, up another +3 bps. And in Japan, bond traders are bidding up yields there, unconvinced their central bank’s stay-the-course policy is sustainable.

Gold is down -US$7 at US$1,217/oz in New York.

US oil prices have fallen back again today and now are under US$68/bbl. The Brent benchmark is down even more sharply to under US$72.50/bbl.

The Kiwi dollar will open today at 67.9 USc, a little lower than this time yesterday. On the cross rates we are unchanged at 91.7 AUc and at 58.2 euro cents. That puts the TWI-5 at 71.4.

Bitcoin is now at US$7,550 which is down another -2.1% since this time yesterday. We track this rate daily in the interactive 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 ».

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NZD

End of day UTC
Source: CoinDesk

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