US productivity rises; China devalues; EU and Greece cement deal; AU confidence falls; Singapore growth sags; UST 10yr yield 2.13%; oil lower; NZ$1 = 65.3 US¢, TWI-5 = 70.1

Here’s my summary of the key events over night that affect New Zealand, with news the surprise Chinese devaluation is shaking up world markets.

But first, in the US productivity rose strongly in the second quarter, but not as strongly as was expected, and a weak underlying trend suggested inflation could pick up more quickly than economists have anticipated. Wholesale sales were flat in June and inventories remained high in other data released overnight.

And small business confidence bounced back strongly in July from a 15-month low as owners anticipated solid sales and inventory growth.

But it has been the surprise devaluation of the Chinese currency that has galvanised markets overnight. It has hit stocks and commodities and boosted government bonds prices, undermining yields. The 1.85% devaluation is the largest in its history and reflects a sudden shift in Beijing’s exchange-rate policy, changing their policy focus toward stabilising growth rather than staying on their reform program. It is noticeable that every journalist seems to want to get the term ‘currency wars’ into their coverage of this change.

There was also data out overnight that car sales in July in China came in -6.6% below the same month a year ago, and unsold stocks are rising.

In Europe, overly indebted Greece and its international creditors reached an €85 bln (NZ$140 bln) bailout agreement overnight after nailing down the terms of the deal-in-principle they reached a month ago – by taking on even more debt. This deal is supposed to save them from financial ruin and keep them in the eurozone.

And in Australia, business confidence has fell sharply after two months of positive sentiment, according to the latest monthly National Australia Bank survey. Concerns about China’s slowdown are weighing on companies’ outlook.

Similarly, Singapore reported growth of just +1.8% that was its weakest in three years, held back by those same China concerns.

In New York, the UST 10yr yield benchmark has reacted to the China devaluation consequences in trading today and is now down sharply to 2.13%.

The oil price has fallen as well and in the US, is now currently just on US$43/barrel, and Brent crude is now back under US$50/barrel.

And the gold price is higher however on all this uncertainty, but only marginally up at US$1,110/oz.

The New Zealand dollar starts today lower as ‘collateral damage’ from the China devaluation, now at 65.3 US¢, at 89.6 AU¢, and at 59.2 euro cents. The TWI-5 is now at 70.1.

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

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

Daily exchange rates

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for(i=0;i

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