US jobs growth slows; Wall Street drops sharply; US consumer confidence remains high; Canada jobs impress; China inflation cools with trade slowdown; UST 10yr at 2.86%; oil firms, gold leaps; NZ$1 = 68.6 USc; TWI-5 = 73.2

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Here’s our summary of key events over the weekend that affect New Zealand, with news China’s trade surplus with the Americans grew even larger in November even as their trade with the rest of the world slowed.

Firstly however, American job growth slowed in November with their non-farm payrolls rising just +155,000 and well below the expected +198,000 gain. It was also well below the +237,000 gain in October. This represents quite a quick slowing in the pace of their labour market. Their unemployment rate was unchanged as was their low participation rate, but their underemployment rate rose. Monthly wages also increased less than forecast, but are still up +3.1% pa so it is likely the US Fed rate hike due on December 20 will still go ahead. From there however, things now look less certain and they may be nearing their ‘neutral rate’.

Wall Street didn’t taking kindly to the data or its indications of the economic track, and ended up down -2.3% on Friday, and down -3.8% for the week. And that means equities are now in loss territory over all of 2018, down more than -2%.

US wholesale trade sales fell in October from the prior month while inventories rose, more signs of an overall slowing economy. And part of that is the depressing effect the trade wars are having.

But so far there is not a lot of sign these economic impacts are flowing through to consumer sentiment which seems to be holding at a good level. But the ‘expectations’ of future gains are slipping.

US consumer credit data for October shows an unexpectedly large jump, almost twice what was expected. Much of the increase was due a +10.8% leap in revolving credit, a category that includes credit cards. Non-revolving credit – which includes car loans and student debt – rose +6.7%.

Meanwhile in Canada, they also released jobs data overnight for November and it was impressively positive. Employment rose much more than expected (+94,100) and almost all of that was for full-time work (+89,900). Their jobless rate fell, and for them, to an all-time low. If there is an issue here it is their slow rise in wages, up just +1.5% year-on-year and well below the October gain of +1.9%, itself not impressive. Canada also released its merchandise trade data overnight and that showed a widening deficit.

In China, they released their November CPI data earlier today and that shows prices moderating, coming in up +2.2% from the same month a year ago and a drop from +2.5% in October. Their producer prices are falling more significantly, up only +2.7% in November compared with a rise of +3.3% in October and +5.3% in November 2017. That is a continuation of a slowdown that has been going on since June and the lowest year-on-year increase since late 2016.

And China’s exports slowed unexpectedly last month, growing at a slow-for-them +5.4% rate as demand weakened in most markets – except in the US where strong growth put China on track to post another record trade surplus. Their surplus for the month with the Americans totaled US$35.5 bln and a new record monthly high. China’s exports to the US rose +9.7% on year to US$46.2 bln, while imports from the US dropped -25% to US$10.6 bln, no doubt as traders continue to rush to beat ‘new tariffs’ – but those seem to be pushed back another three months, at least. The same data shows New Zealand with a very health trade surplus with China where we bought only a bit over half the value of what we exported to them.

The UST 10yr yield will start this week at 2.86% after a big -15 bps drop last week. Their 2-10 curve is higher at just under +14 bps although recall it was at +20 bps this time last week. But their 2-5 curve actually inverted to be negative. Traders noticed. The Aussie Govt 10yr is at 2.44% (down -15 bps over the week), the China Govt 10yr is at 3.32% and down -8 bps for the week, while the NZ Govt 10 yr is at 2.48%, and down another -11 bps over the week.

Gold is higher, benefiting from all this uncertainty and risk retreat. It rose +US$28 from this time last week to US$1,248/oz and that is its highest since July 2018.

US oil prices firmed on news OPEC and Russia actually did strike a deal to cut output. US prices rose about +US$1/bbl to just under US$52.50/bbl. The Brent benchmark is now just over US$61.50/bbl. The US rig count is still holding at its 200 week high despite these very low prices and this production has made the US a net exporter of petroleum products.

The Kiwi dollar is starting the week marginally firmer at 68.6 USc. On the cross rates we are at 95.3 AUc, and also firmer at 60.3 euro cents. That puts the TWI-5 at 73.2.

Bitcoin is notably higher today at US$3,621 which is a +11.2% gain since Saturday. This rate is charted in the exchange rate set below.

This chart is animated here.

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

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