Trump relents; trade talks to restart with few conditions

Kia ora

and welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

This podcast is supported by Hatch.

Self-directed investors should have the world at their fingertips. Kiwi Wealth’s digital investing platform Hatch allows Kiwi investors to grow their wealth, their way.

Hatch provides safe, easy and affordable access to the largest share markets in the world. Investors can choose from the world’s most recognisable companies like Amazon and Netflix, popular ETFs like The Vanguard Total Market ETF, as well as more niche, thematic funds like cannabis or disruptive technologies.

Sign up and browse shares in under 2 minutes, visit hatchinvest.nz for more info.

There is a lot to cover today, so let’s get into it. Today this podcast leads with news about the global trade tensions.

On the side-lines of the Osaka G20 meeting, the United States and China agreed to restart trade talks after the Americans offered concessions including no new tariffs and an easing of restrictions on tech company Huawei. The Americans think the Chinese will now buy more US farm goods. If they do, the price will turn out to be interesting. The Americans get to keep the tariffs already in place not realising that they are essentially a tax on themselves. China has persuaded the United States to return to the bargaining table without agreeing to any of the changes that the Trump administration has previously said were essential and not negotiable, but which Beijing regarded as an affront. More talks in the future, more tensions due in the future. And an identical playbook to the last G20 summit in Argentina.

There is an expectation that there will be something of a relief rally in equity markets when they resume later today. The US dollar may rise. We'll see.

But in something of an interesting counter signal, Apple said it is shifting the production of the only model it makes in the US, the Macbook Pro, to China.

The Australians signalled that they will be throwing their weight behind the TPP and the Regional Comprehensive Economic Partnership. The RCEP includes China and India, although the TPP doesn't, but both include Japan. Neither include the US.

The inflation measure the US Fed watches closely, core Personal Consumption Expenditure came in for May at 1.6%, unchanged from April. Analysts had expected a minor dip, but that didn't happen. In any event, it is still below the Fed's target and it isn't moving.

Another closely watched index is the Chicago Purchasing Managers survey and that fell into contraction in June for the first time since January 2017. This is just another in the set of regional factory surveys showing American manufacturing is either without any growth or is in contraction. The most telling aspect is that new orders are falling.

These pullbacks haven't yet flowed through to consumers yet, although the latest sentiment survey seems to have topped out. And it is those on higher incomes who are reporting the most concern about the future, the surveyors said.

And it is more than just the US; the trade tensions are generating a global slump in factory activity.

China’s factory activity shrank as expected in June, and the expansion of its service sector PMI slowed, also as analysts expected. Both signals emphasised their need for more economic stabilisation stimulus.

The EU and a group of South American countries have agreed a large multilateral trade deal, apparently the largest one the EU has ever done. (It took 20 years of negotiation.)

Do you know that we have a unique tally of all the major construction projects on the in Auckland? It’s a huge list worth more than $70 bln. You can find it at [interest.co.nz/ property/major-auckland-projects](https://www.interest.co.nz/ property/major-auckland-projects)

In Australia, new RBA data shows that lending to businesses and property buyers grew only marginally in May, while the fall in personal loans got deeper. In fact, Australian housing debt grew just +3.7% in the year to May - the slowest annual growth rate since records started in 1976. The New Zealand data shows ours grew +6.3%.

And staying in Australia, a new banking code of practice comes into force today. Among other things, there will be no more unsolicited offers for higher credit card limits, no more commissions on LMI, and no more attempts to sell insurance with other products customers want.

The US Treasury 10 year yield is now at 2.01% and down -5 bps from the same as at this time last week.

Gold is little-changed overnight but up +US$12 in a week and is now at US$1,409/oz.

US oil prices are sharply lower on demand fears and rising shale output. They are now just on US$58.50/bbl, a drop of more than $1 at the end of trading last week. The Brent benchmark is lower too at US$64.50.

The Kiwi dollar is up +125 bps in the past week against the US dollar. You may recall it rose +105 bps in the prior week. We seem to be in a strong firming phase and back to levels we last saw in April. It is now at 67.2 USc. On the cross rates we are also firmer over the week at 95.7 AUc. Against the euro we are up +121 bps in a week at 59.1 euro cents. That all pushes the Trade Weighted Index up to just under 71.7. We aren't yet at the same type of firming we got in October and November 2018 when we firmed a full +8%, but we might be starting along a similar track.

You can find links to the articles mentioned today in our show notes.

Get more news affecting the economy in New Zealand from interest.co.nz and subscribe to receive this podcast in your favourite podcast app - we're on Apple Podcasts, Google Podcasts, Spotify or subscribe on our website.

Tell your friends and leave us a review - we welcome feedback from listeners.