Americans to tariff most China goods; US PPI rises faster; Canada raises rates; Turkey deficits grow; Aussie property investors gloomy; Aussie tax cheats revealed; UST 10yr at 2.85%; oil and gold down; NZ$1 = 67.6 USc; TWI-5 = 71.1

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Here’s our summary of key events overnight that affect New Zealand, with news the Americans are getting increasingly reckless on the trade front.

The Trump Administration has announced that it will target another US$200 bln of Chinese goods for sharply higher tariffs. This summary of the ti-for-tat so far is excellent. The announcements happened after Wall Street closed. Bond market yields turned down, both the JPY and the USD rose in a risk-off mood, and gold lost another -US$12/oz. Asian equity markets responded very sharply lower yesterday, down the thick end of -2%. Today, Wall Street took fright and is down about -1% as well in mid afternoon trade. China’s retaliation is yet to be announced.

Meanwhile, American producer prices increased more than expected in June, up +3.4% from the same month in 2017, and higher than the +3.1% markets were expecting. Key rises were in the cost of services and motor vehicles, leading to the biggest annual increase in more than six years.

Those higher prices came as evidence rises that inventories are building again. Wholesale inventories were a higher than estimated in May amid strong increases in the stocks of machinery and a range of other goods. Economic activity bolstered by rising inventories of unsold goods can’t sustain growth for long.

North of the border, Canada’s central bank raised their policy rate as expected, to 1.50%. But some analysts think this is a case on “one-and-done”, but most think another three or four rises can be expected as the inflationary pressure builds, including from the trade and tariff pressures they are facing. And that is what the Bank of Canada is thinking too.

In Turkey, a key NATO member, but one controlled by a capricious strongman president who is assuming increasing central powers, their central bank announced that the country’s current account deficit grew substantially in May, and net outflows gathered pace. The Turkish currency fell sharply on the news, and it was already very weak.

In Australia, a new survey of property investors found a gloomy mood. Confidence in house price growth and the availability of finance has plummeted with a tripling of the number of surveyed property professionals lowering their expectations in those two areas. And this comes after official figures show new loans to housing investors fell to their lowest total in more than two years.

And staying in Australia, their tax authorities have been analysing the ‘tax gap’ for companies and individuals. It turns out that for every $1 in tax avoided by multinationals and other large companies, $3 is cheated by individual taxpayers, much of it aided and abetted by accountants. It’s been called a national sport; its their voters who are the serial cheaters, over-claiming work and other expenses and costing the thick end of NZ$10 bln per year.

The UST 10yr yield is now at 2.85%, a -2 bps fall overnight. And the US 2-10 rate curve has narrowed again, now at just +26 bps, a new low since 2007. The Chinese 10yr is at 3.54% (down -2 bps) while the New Zealand equivalent has stayed up at 2.89%, down just -1 bp.

Gold is down by -US$12 to US$1,243/oz.

US oil prices are down sharply today on the rising prospects of a tariff-induced US economic stall. They are down -US$4/bbl to just over US$70/bbl. The Brent benchmark is now down to just over US$76/bbl, a -US$6 drop. These falls came even as US crude and petrol stocks fell sharply last week.

The sudden shift to a risk-off mood has resulted in the Kiwi dollar starting today lower by -½c at 67.6 USc. On the cross rates we are unchanged at 91.7 AUc and lower at 57.9 euro cents. That shifts the TWI-5 down to 71.1.

Bitcoin is now at US$6,352 which is virtually unchanged since this time yesterday.

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