US inflation rising; GM warns on tariffs; Trump official warns the Fed; Canada hits US with tariffs; Canada GDP up +2.5%, APRA warns on ‘cash’ definition; UST 10yr 2.85%; oil up again, gold holds; NZ$1 = 67.7 USc; TWI-5 = 72.1

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Here’s our summary of key events overnight that affect New Zealand, with news inflation is up in key economies, and Aucklanders are about to get a jolt as well.

Firstly, the US Fed’s preferred measure of inflation hit +2.0% in May, up sharply from +1.8% in April, and above the +1.9% markets were expecting. The PCE non-core inflation rates was +2.3%. And this data came as personal consumption slipped noticeably. When prices start rising faster than growth, we will call it ‘stagflation’. Not there yet, but US policy seems to be driving us in that direction. (By the way, not everyone thinks inflation is rising in the US.)

General Motors, the world’s fourth largest vehicle manufacturer, warned overnight that tariffs proposed by the Trump Administration could force it to scale back its huge domestic US operation at the cost of American jobs.

The US Administration has also broken with tradition by warning the supposedly independent Federal Reserve that it must only raise interest rates “very slowly”. The same official claims the US budget deficit is shrinking (!)

Like its Conference Board rival, the University of Michigan consumer sentiment survey is also sliding on the ‘expectations’ front, although the main levels are holding. That same survey showed an overwhelming level of support for more trade and less tariffs.

In the trade wars, Canada struck back at the Trump administration over American steel and aluminum tariffs overnight, vowing to impose punitive measures on C$16.6 bln worth of American goods until Washington relents.

Canada’s GDP rose at the rate of +2.5% in April, slower than for March, but in line with analysts estimates. The trade war with the US is taking the gloss off their performance.

EU inflation also came in at +2.0% although the core rate (without fuel, food and alcohol) was at +1.0% in May

In Australia, regulator APRA says many super funds there are misrepresenting their ‘cash’ investment options by including risky credit instruments and derivatives. Such options have delivered better returns than pure ‘cash’ up until now, so members will get a surprise when funds are forced to comply with the new tighter guidance. KiwiSaver ‘cash’ funds here don’t suffer the same distortions, but there are similar examples of bending the margins here.

The UST 10yr yield is marginally firmer at the market close at 2.85% and up +1 bp in New York today. That inflation data has virtually no impact on benchmark bond rates. The Chinese 10yr is at 3.49% (down -5 bps from yesterday) while the New Zealand equivalent is now at 2.88%, down -1 bp from yesterday.

American corporate bond spreads are still widening however.

The VIX is generally trending up again and now just above 15.3, although that is slightly lower than yesterday. The average index level over the past year is 12. The Fear & Greed index has switched back to the ‘fear’ side with an index value of 36 (50 is neutral).

Gold is marginally firmer in New York but now a just US$1,251/oz in New York which is a chunky -US$18 drop for the week.

Oil prices are up again today, and now just under US$74.50/bbl. The Brent benchmark is now just under US$79.50/bbl. These both represent about a +US$5 rise in the past week. The US rig count has slipped a few this week. Locally, don’t forget that Auckland motorists will be hit with a +11.5c/ltr new fuel excise tax starting. Expect considerable cost flow-through to everything transported, and the impact to be national. That will have the same effect as the crude price rising from US$79.50/bbl to US$90/bbl.

The Kiwi dollar is ending the week unchanged at 67.7. USc. On the cross rates we are at 91.5 AUc and at 58 euro cents. That puts the TWI-5 at 71.1 and almost -2% lower that where it was at this time last week.

Bitcoin is now at US$5.875 and almost unchanged since yesterday but still its lowest level since late October 2017. It’s peak-to-trough change is now -70% and close to the famous Dot-Com bust of 2001. Hundreds of other cryptos have now become worthless and law enforcement authorities are checking trading behaviour of many promoters.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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