Here's my summary of the key news over the weekend in 90 seconds at 9 am, including news regulators are about to practice for a financial meltdown.
But first, as we start the new week the story is the 'bond rally' and the worries about the impacts of low inflation.
At the end of trading in New York last week, UST 10 yr bonds yielded just 2.29%. In fact, the UST 30 yr is about to go under 3%. Our swap rates may be under pressure today when they open.
The US Treasury Inflation Protected Securities (TIPS) market is suggesting price stagnation may be just around the corner. Not only is American inflation not rising, the yields investors are prepared to offer above that have virtually disappeared and the move lower in the past 10 days has been fast.
Driving the lower inflation outlook is the combination of lower oil prices, lower prices for many key commodities especially metals, and a higher US dollar. Taken together, they are allowing consumer price inflation to stay very low in key economies, and the talking heads are talking more about the prospect of deflation.
Deflation is feared because that makes the value of money higher. Which in turn means you will be able to buy more with it the longer you wait and accumulate it. Which means you may not spend it now, so demand could fall along with industrial output and jobs. Whether this is true or not is not really being debated however.
Those extremely low TIPS yields are seeing investors pull large sums from the funds that invest in them. Funds like PIMCO are seeing major withdrawal flows. That creates bond market stability risk.
To guard against such risks regulators from the United States and Britain will get together in a "war room" tomorrow to see if they can cope with any possible fall-out when the next big bank or other major financial institution topples over.
In China, their top central bank economist has warned that their sluggish real estate sector is the biggest risk to the country’s economy (although he dismissed any risk of a hard landing). A marked slowing in property investment has hit their steel sector. That represents a major flow-on risk for Australia.
The S&P 500 and Nasdaq on Friday posted their largest weekly declines since May 2012 and the Dow turned negative for the year, led down by technology stocks after a chipmaker warned of a major pullback in the industry.
The oil price has also fallen again and is now under US$86/barrel with the Brent price now under US$90/barrel. The surging US dollar has a lot to do with this movement.
Gold was down on Friday to US$1,221/oz.
We start the week with our currency level higher than it was this time a week ago. The NZD is at 78.1 USc, we are back over 90.0 AUc, and the TWI is at 76.3.
If you want to catch up with all the changes yesterday we have an update here.
The easiest place to stay up with today's event risk is by following our Economic Calendar here »
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4 Comments
China slaps Aussie coal with import tariffs for first time in 10 years:
http://mobile.reuters.com/article/idUSL3N0S41QP20141009?irpc=932
Ooo La La!
Friday's news ;-)
http://www.interest.co.nz/news/72377/lower-us-jobless-claims-german-exp…-
"Deflation is feared because that makes the value of money higher. Which in turn means you will be able to buy more with it the longer you wait and accumulate it. Which means you may not spend it now, so demand could fall along with industrial output and jobs"
How sad
It is best to have your money loosing value than increasing in value.
When money is loosing value (inflation) presure is on not to hold onto it. That means the higher inflation the faster we spend. The more we spend and the more our money looses value the more we have to work to get imore money
They tell us it is bad when money either holds its vaue or increases in value.
When money is increasing in value we are under less pressure to run out and spend it. That means we have to earn less of it.
If we need less money we can do less work and enjoy life.
So the drop in jobs does not matter if we need less work.
It would be awful if we were able to work less and enjoy life.
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