Here's my summary of the key events overnight that affect New Zealand, with news the US Fed is in no rush to raise rates.
Today they kept their policy rates unchanged. They see their labour market improving even as growth in economic activity appears to be slowing. They also see households' real incomes rising at a "solid rate" and consumer sentiment remaining high even though household spending growth stays "moderate".
They seem happy that their price stability and job growth targets are on track, but have held their rates this time because inflation is below where they want it. There was one dissenter, the president of the Kanasas City Fed who wanted to hike now.
The door seems open for a June hike, especially given their positive review of the state of the US economy.
Markets rose on the news. Stocks are a little higher on Wall Street erasing a pre-announcement fall, and the US dollar is stronger.
The American trade deficit narrowed sharply to a one-year low in March, as both imports and exports fell, suggesting economic growth in the first-quarter was probably not as weak as currently anticipated.
And "pending home sales", a forward housing demand indicator based on contract signings, increased in March for the second consecutive month and reached their highest level in almost a year. Only in the West region was there a decline in contract activity last month.
In China, the state of their bond market, their 'maturity wall', and the levels of leverage are all worrying investors.
In New York the benchmark UST 10yr yield slipped back on the Fed announcement and is now at 1.90%.
But the oil price is higher by $1/barrel, now just over US$45/barrel in the US, while Brent is now just over US$47/barrel. The World Bank has raised its forecasts for the oil price - while at the same time reducing its forecasts for agricultural commodities.
The gold price is up as well at US$1,250/oz. But this price is slipping following the Fed announcement.
And finally today, the NZ dollar opens little lower are we head into the RBNZ rate announcement, now at 68.4 US¢, at 90.2 AU¢, and at 60.5 euro cents. The TWI-5 index is now at 71.7.
Now, its all eyes on the RBNZ rate decision at 9 am.
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 ».
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10 Comments
They (Fed) also see households' real incomes rising at a "solid rate" and consumer sentiment remaining high even though household spending growth stays "moderate".
I don't think so.
That interpretation is consistent with other survey-based estimates including a trio of polls conducted by Gallup. Their US Economic Confidence Index dropped to -16 in the latest week (thru April 24), the lowest reading of 2016. Both the current conditions component and economic outlook piece dropped, though the decline was far more pronounced for future expectations. According to the survey, only 35% said the economy is getting better while an alarming 60% are saying it is getting worse.
That is already a potentially significant problem since Gallup’s monthly spending poll continues to show no overall growth in consumer activity. Dating all the way back to 2013 (lagged reaction to the 2012 slowdown), Gallup’s survey of daily consumer spending has conspicuously stagnated no matter what the unemployment rate has done, how high stock prices traversed, or how many times some FOMC member claimed emphatically that the economy is far better than generally believed. Gallup’s estimate for March 2013 was $89 and it was $89 yet again in March 2016 (not adjusting for actual price changes outside calculated “inflation” rates). Read more
G Morgan this morning.
this home buying - its a gravy train
http://www.radionz.co.nz/audio/player/201798678
Of course all the advantages in resi prop ownership were constructed, in the day, when debt and mortgage finance was hard to get, if not rationed. (Loans only to build a house, not buy a house).
Not so now.
Bryan's on it
The banks have created the housing market and will go on fuelling it until they are restrained. In the meantime, asset inflation in the housing market could not suit them better. The demand for mortgage finance from those whose purchasing power is inflated by their ability to borrow many times their income is stimulated ever further by soaring house values.
http://www.nzherald.co.nz/home-truths/news/article.cfm?c_id=1500914&obj…
It is unlikely that government will have the courage to tackle the banks (or their home-owning supporters) on this issue. Any action that might be taken would in any case have to be taken gradually and cautiously, so as to avoid a bursting of the bubble and great damage as a result both to individual family budgets and the national economy.
Oh no the OIO
http://www.stuff.co.nz/business/industries/79383536/labour-party-identi…
troubling if so, for how can the 3 directors associated with 1,400 companies fit the OIO "hail-fellow-well-met" threshold (code/rule/guideline/whats for lunch).
David , the Chinese way of dealing in Bonds has got to be the biggest PONZI scheme on the planet .
I am being over - simplistic here , but this is how it works in its easiest to describe form :-
You can buy bonds yielding say 4% and then pledge the income stream to fund the purchase of more bonds yielding say 6 % , and so on , and end up with an inverted pyramid of debt .
It takes just one link in the chain to crack ( such as a default or a risk driven increase in interest rate yields generally) and its game over .
Lets not forget the Bond market is way bigger than the stock market , so the damage could be a spectacular destruction of wealth
Boatman - you describe Repurchase Agreement bond financing techniques. The Chinese hardly have ownership of this type of egregious bond position funding racket - most global banks are it's wealth transfer recipients - Lehman Brothers took the game one level too far, apparently? Read more
If a counterparty collateral call is demanded to extend RP financing things can turn to custard (as you note) very quickly if liquidity is unobtainable to satisfy credit risk concerns. Read more
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