US jobs growth beats estimates; ditto Canada; equity markets rise; China takes US to WTO; some metals retreat; EU gives Japan trade deal the green light; UST 10yr 2.84%; oil up, gold down; NZ$1 = 67.7 USc; TWI-5 = 71.5

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Here’s our summary of key events overnight that affect New Zealand, with news markets have turned a short-term blind-eye to the formal opening of trade war hostilities.

Firstly, the American economy created more jobs than expected in June, but steady wage gains pointed to moderate inflation pressures that should keep the Federal Reserve on a path of gradual interest rate increases this year. The jobs data had higher hiring rates in manufacturing, the participation rate was up +0.2% to (a low) 62.9% and average weekly earnings rose +2.7%. But even though more people are joining the workforce, they are not all finding work yet. Their jobless rate rose to 4.0%.

We should also note that the US economy has just grown through the US$20 tln GDP level in nominal terms. (Official confirmation won’t come however until July 28, 2018.)

In Canada, they reported pretty much the same thing; employment growing better than forecast, a rising participation rate, wages rising at +3.5%, … and a higher jobless rate. The Bank of Canada is now expected to hike rates there soon.

But the trade wars officially got underway yesterday. It was tit-for-tat with between the US and China, as it is between the US and Canada, and the US and many others – virtually everyone. The impact is being shrugged off for now but will be like a slow-burning fuse for a while yet. Wall Street is up about +1% today following a slightly larger rise in Tokyo yesterday. Shanghai and Hong Kong rose about +0.5%. The USD is falling. China also set its currency lower.

China has initiated action against the US at the WTO.

One practical outcome is that some commodity prices are falling substantially. Copper is down now more than -US$1,000/tonne since the first week in June as an example, a -14% drop in 4 weeks. But that just takes prices back to where they were this time last year such has been the run-up in the meantime. Aluminium has fallen -20% in 90 days, but again, that is off an unusual high and just reverting to more usual pricing.

Meanwhile, European member states have given the go-ahead for a free trade deal with Japan, the world’s third-largest economy. Brussels said the agreement was sending “a very powerful signal against protectionism.” If they can pull it off, it will cover about one third of global trade involving about 600 mln people.

Japan itself has now ratified the CPTPP. Japan is a key player in the multilateral free trade community. New Zealand is on track to do so too, by the end of 2018.

In Australia, hackers based in China have infiltrated one of Australia’s most prestigious universities, and the threat is yet to be shut down. The Australian National University (ANU) system was first compromised last year. In a statement, the ANU said it had been working with intelligence agencies for several months to minimise the impact of the breach. Even at this stage, they don’t know what was sucked out and how sensitive the information was. The ANU conducts research that has defence, strategic, scientific, technological and commercial applications.

The UST 10yr yield is marginally firmer at the market close at 2.84% and up +1 bp in New York today. That jobs data has virtually no impact on benchmark bond rates. The Chinese 10yr is at 3.54% (up -1 bp from yesterday) while the New Zealand equivalent is now at 2.84%, up +3 bps from yesterday.

The VIX is generally trending down and now just below 13.6 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 a little deeper into the ‘fear’ side with an index value of 39 (50 is neutral).

Gold is marginally weaker in New York but now a just US$1,254/oz in New York which is a -US$4 drop for the day.

US oil prices are up today, and now just under US$74/bbl. The Brent benchmark is down however to now just over US$77/bbl. These both represent a small retreat in the past week. The US rig count has risen a few this week.

The Kiwi dollar is ending the week decidedly firmer 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 71.5 and at its highest for the week.

Bitcoin is now at US$6,575 and +1.2% higher than this time yesterday and right at its four week average.

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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