Trump's latest double standards rattle financial markets

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

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

And today we lead with news markets will be on edge this week after a sharp -2.7% retreat on Wall Street on Friday and the largest one-day drop since early April. Bonds twisted into defensive mode. Commodities fell, especially oil. Bitcoin retreated sharply. And the USD shifted into its traditional risk-averse mode but not by as much as you might have expected. Many traders seem to want to shift away from the traditional US-is-safe investment thinking. Not helping is that the US has started supporting the Argentine peso to prop up its Trump-friendly president.

Although this coming week is the start of the US Q3 earnings season reports, the jolt at the end of last week might make these usually-important signals somewhat less relevant.

Normally we would get US inflation data this coming week but it will undoubtedly not come. So we will have to rely on other US data, mainly from the Fed, but also trade sources.

Developments in Japan's political transition will be important this coming week. And the IMF will release its World Economic Outlook update.

China will release CPI and other September banking data this week. India will also released inflation data. For us, it will be the September REINZ results sometime this week. And Australia will release details about its September labour market.

Over the weekend in Canada, they reported a surprisingly strong jobs report there for September with a gain of more than +60,000 jobs in the month, embellished because full-time job gains exceeded +106,000. This is far better than the overall +5000 gain expected. Of course, we didn't get an American jobs report for September because of the shutdown that affects their statistics system, but if the ADP Employment Report is any guide, Canada likely grew its workforce more than the US, which is a rare occurrence given that the US workforce is more than eight times larger than Canada's.

On Saturday (NZT) in a bewildering social media post, Trump threatened to hike tariffs on Chinese exports - again - and cancel a meeting with Chinese President Xi in South Korea later this month. The broadside sent markets into the sharp retreat. He was reacting to the Chinese expanding its rare-earth export controls. He said "no way that China should be allowed to hold the world ‘captive’", blind to what he is trying to do with his own unilateral tariffs.

Just when market optimists thought that the US and China had a chance of making up, Trump has exposed his weakness - his lack of self-awareness and childish inability to understand the double standards he seeks.

Markets have reacted badly to the tiff, seeing it as a flare-up in trade wars that will hurt the global economy. Equities fell sharply, bond yields went into risk-aversion mode, and the USD became less competitive. Commodity prices fell.

The US Federal Government September deficit result due out over the weekend has been delayed, another data victim of their shutdown. It might be a while - mass firings of federal workers has begun.

In Japan, the elevation of "Iron Lady" Sanae Takaichi to lead the LDP seems to have stumbled at the first hurdle. The LDP's main coalition partner has refused to work with her. Japanese politics could be extending its revolving door government style.

In Australia, business is in a hesitant spot too. Data out on Friday for August showed monthly business turnover fell -2.2% (seasonally adjusted) and this fall was the largest since April 2023 with drops across nine industries. Manufacturing was down -5.8%, tech was down -3.7%, and mining was down -1.9%.

The UST 10yr yield is now at 4.05% and unchanged from Saturday but down -9 bps for the week.

The price of gold will start today at US$4016/oz, up +US$28 from Saturday and up +US$128 from a week ago. Silver is now just on US$50/oz, a weekly gain of +US$2.

American oil prices are holding lower at just on US$59/bbl and a five month low, down -US$2 from a week ago, with the international Brent price now just under US$63.

The Kiwi dollar is at just over 57.2 USc, unchanged from Saturday and down -110 bps from a week ago. Against the Aussie we are up +10 bps at 88.3 AUc. Against the euro we are little-changed at 49.3 euro cents. That all means our TWI-5 starts today at just over 61.8, unchanged from Saturday but down -80 bps for the week. Also, see this.

The bitcoin price starts today at US$114,215 and down -3.0% from this time Saturday. Volatility over the past 24 hours has been moderate at just under +/- 2.1%.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.