China house prices fall; US Fed doubts their economy is weak; RBA eyes more rate cuts; IMF values energy subsidies; UST 10yr yields up to 2.22%; NZ$1 = 73.7 US¢, TWI-5 = 76.7

Here's my summary of the key issues from over night that affect New Zealand, with news of regulatory confusion in Australia.

But first, in China house prices continued their fall in April according to data out overnight. But there was a small and tentative rebound in some cities suggesting that recent steps by policy makers are helping engineer at least a stabilisation in their housing markets. Last week, the central bank cut interest rates for the third time since November; it has already removed several restrictions on some home purchases.

In the US, new Federal Reserve analysis published overnight has shown that the American economy is probably not as weak as the recent official estimates suggest, adding to arguments for raising interest rates sooner rather than later. "There is a good chance that underlying economic growth so far this year was substantially stronger than reported," they concluded. Another voting Fed official agreed.

But markets ignored the comments and the analysis, convinced rate-hike risks have faded. The Dow and the S&P500 reached record highs. Raised earnings expectations didn't hurt either.

American consumers also are feeling better about their finances even though they remain tight.

In Australia, we reported yesterday the ASIC warning on the risks of low interest rates in powering asset price bubbles especially in the housing markets. But at the same time it turns out the RBA is talking of more potential for rate cuts. It is a major public policy problem when regulatory signals are not co-ordinated.

In New York, the UST 10yr benchmark yield rose in trading this morning, recovering much of what it lost on Friday. It is now back at 2.22%.

The US oil price is little changed at US$59/barrel, while Brent crude is at US$66/barrel.

Overnight the IMF released a paper looking at the "true cost" of energy subsidies; that is, the difference between what consumers pay for energy and their full cost including climate damage, health impacts and congestion. They reckon that 'subsidy' is $5.3 tln. But they don't show how they calculated the load by country. They do say coal is the main culprit and electricity the least. They ignored nuclear energy. The analysis will likely offend both China and India.

The gold price is a little higher at US$1,228/oz.

The New Zealand dollar starts today lower by a whole 1¢ at 73.7 US¢, at 92.4 AU¢, and at 65.2 euro cents. The TWI-5 is at 76.7.

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 »