US growth sags in Q2; China corporates rush to issue USD debt; Aussie car loan default rates rise; AU education collapse; Melbourne apartment market woes; UST 10yr yield 2.25%; oil drops, gold unchanged; NZ$1 = 70.3 US¢, TWI-5 = 74.6

Here’s my summary of the key events from overnight that affect New Zealand, with news Chinese debt distortions are spreading.

But first in the US, data on their labour market, retail sales and industrial production all suggest their economy regained momentum at the start of the second quarter. But expectations of a sharp rebound seem unlikely as their goods trade deficit rose +3.8% to US$68 bln in April amid a drop in exports. Rising inventories in both the retail and wholesale sectors are also weighing on growth.

In China, the number of companies issuing US dollar debt is rising and the values are ballooning. Chinese companies pay higher yields which attracts bond investors, but the sheer size and sudden rush into this is ‘impressive’, and not necessarily in a good way. This Chinese debt suddenly now exceeds a quarter of all emerging market corporate dollar debt.

In Australia, Moody’s is reporting that default rate for securitised car loans is rising. In fact one Liberty tranche has a weighted-average 30+ day delinquency rate of 9.02% at March, up from 7.74% at December. However, the average was much less at 1.72% but up from 1.43% in the prior quarter.

And staying in Australia, one of their leaders in the export education industry has close collapsed. Classes have also been cancelled for 15,000 students at 13 campuses across the country. The event is sure to sour the reputation of this sector and affect New Zealand in the primary markets from where students are recruited.

And there is big trouble in the Melbourne apartment market. Chinese investors are pulling out accentuating the downturn. Around 5,000 new apartments are expected to be completed and up for sale this year. But 80% of Chinese buyers will not be able to settle because they can no longer get finance. They either forfeit their deposits and abandon the sale or sell at a loss.

In New York, the UST 10yr yield is still at 2.25%. The yield inversions in China have unwound today with the yields for their government 2, 5 and 10 yr debt all now at 3.69%.

The price of oil fell sharply today. The US crude benchmark is now back under US$49 a barrel, while the Brent benchmark is just under US$51.50. OPEC has extended its agreement on output cuts until March 2018 but markets are highly sceptical this move will be effective.

Gold is basically unchanged at US$1,256/oz.

Meanwhile, the Kiwi dollar is been holding its own, supported by positive views of the NZ budget and fiscal situation and is now at 70.3 USc. On the cross rates the Kiwi is at 94.3 AU¢, and 62.7 euro cents. The TWI-5 index is still at 74.6.

And bitcoin is higher again, but only marginally today at US$2,501.

If you want to catch up with all the changes yesterday, we have an update here.

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

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