Markets calm at end of week; China exports boom; China trade surplus with US jumps; China car sales weak; Brexit deal ‘close’; Italy risk rises; UST 10yr 3.15%; oil drops and gold lower; NZ$1 = 65 USc; TWI-5 = 69.1

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Here’s our summary of key events overnight that affect New Zealand, with news we are ending the week on a calmer note, but one that may only be temporary.

Wall Street opened strongly today, up more than +1.5%. But as trading has progressed those gains are slipping and it is up only +0.3% in mid afternoon trade. This comes after ‘the home team’ got cranked up in Shanghai, reversing the falling trend and posting a +0.9% rise on Friday. However, that was after Shanghai was down -5.8% over the week with most of that loss on Wednesday. Wall Street is heading for a -4.9% weekly loss.

Perhaps behind today’s bounce is that the falloff in Chinese exports just isn’t happening. This is now five consecutive months where markets were expecting to see sharp declines from the effects of the trade war and rising tariffs, but there is no sign even yet. China’s exports strengthened unexpectedly in September, up almost +15%, and the countries’ trade gap with the US hit a fresh high of -US$34 bln. More American tariffs are on the way, but so far the ones imposed only seem to have juiced up the trade between the two countries. Its a trend full of irony and quite unexpected. The “rush-to-beat-tariffs” narrative can’t go on forever. On the other hand, Chinese imports fell -14% reflecting subdued domestic demand.

And car sales in China fell for a third straight month in September, and it now looks like they will have their first yearly decline in passenger-car sales in almost three decades.

The World Bank has released a new index comparing ‘human capital’ in most countries. New Zealand ranks creditably, juts slightly behind Australia and Canada, and marginally ahead of the US.

In the UK, there are indications that a Brexit deal may be close. All eyes will be on the terms when it is released.

“History suggests that the world is about due for another financial crisis. One of the places it might start is Italy. Many of the ingredients are there. A pile of questionable debt. Weak banks. An erratic government. And a sizable economy able to inflict collateral damage outside Italian borders.” And its new unstable government might find an angry Germany, fed up with all challenges, only too ready to push it out of the EU. A fuse could be lit as soon as the Brexit situation becomes clearer.

In Australia, house prices are likely to slip further as the demand for new mortgages dries up. The number of new mortgages fell by a larger-than-expected -4.5% in August, to be down more than -10% over the year. It is weakest result in almost eight years when the property market was still struggling in aftermath of the GFC.

The UST 10yr yield is actually little changed from where we left it yesterday at 3.15%. Their 2-10 curve has at +31 bps. The Aussie Govt 10yr is at 2.74% (down -1 bp overnight), the China Govt 10yr is at 3.61% and also down -1 bp, while the NZ Govt 10 yr is at 2.68%, and up =1 bp. New Zealand swap rates have risen a minor +3 bps across the curve over the past week.

The VIX has risen sharply this week and is now at 25, up from 16 last week. It is considerably above its average over the past year of 12 and indicating that volatility has returned to markets. And the Fear & Greed index has moved to the extreme end of the ‘fear’ side. It has been a fast jerk from this time last week.

Gold is down -US$3 overnight to US$1,218/oz and that puts it up +US$17 for the week.

US oil prices are little changed today at just over US$71/bbl. The Brent benchmark is now just under US$80/bbl. But both a large pullbacks from this time last week. The US rig count was up strongly this week.

The Kiwi dollar is ending the week little changed from yesterday at 65 USc, but up +60 bps in the past seven days. On the cross rates we are little changed at 91.5 AUc and unchanged on the past week, and little changed at 56.3 euro cents (although more than +60 bps up on the week). That puts the TWI-5 at 69.1 and a good weekly gain.

Bitcoin is now at US$6,229 and unchanged from yesterday but a net loss of almost -5% over the past week. This rate is charted in the exchange rate set below.

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

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End of day UTC
Source: CoinDesk

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