International trade grows; US Fed pays huge dividend; FX 'cartel' traders to be indicted; China inflation jumps; Aussie milk output sinks; UST 10yr yield at 2.39%; oil lower, gold up; NZ$1 = 69.9 US¢, TWI-5 = 76.2

Here's my summary of the key events overnight that affect New Zealand, with news there may actually be criminal charges brought against the traders who fixed currency trading in London.

But first, core indicators of international trade seem healthy. Air cargo data for the seasonal peak month of November shows a +6.8% rise from the same month a year ago, even though the industry added +4.4% more capacity. Growth was very strong everywhere, except Latin America. And for those that still follow it, we should note that the Baltic Dry Index rose from 429 at the start of 2016 to 961 at the end, more than a +100% gain.

In the US, the Federal Reserve said it will pay a 'dividend' of US$92 bln in profits to the US Treasury for 2016. The figure is down from the US$98 bln that the central bank's 12 regional banks paid back in 2015. The Fed earns interest on government bonds if holds, most of them bought during the GFC. As at December, it alone held US$5.5 tln of the Federal Government debt, or 28% of it.

Bloomberg is reporting that prosecutors are poised to charge the currency traders at the heart of one of the biggest market-rigging investigations. The imminent criminal charges are against members of ‘The Cartel’ chat group who used instant messages to coordinate the rigging of foreign-exchange benchmarks by sharing confidential customer information. Unfortunately, the process could take a long time because all of them live or work in London and extradition will be required to get them to court.

Data out in China yesterday shows that CPI inflation there was up +2.1% in 2016. China inflation levels have large international ramifications. Even more influential is their Producer Price inflation, and that has turned around remarkably. In 2015 that was actually deflation of -5.9% whereas in 2016 it has turned into inflation of +5.5%. Now, that is fast-rising in anyone's language. Part of this rise is because iron ore and coal cost them much more.

Staying in China, data out overnight shows that 23.9 mln cars were sold in China last year, a +15.9% rise. That is the fastest rate of growth in three years. But a tax incentive may have something to do with the size of the gain.

In Australia, Rabobank is predicting that 2017 milk production there will fall to a 20 year low.

In New York, the UST 10yr yield is essentially unchanged today and now at 2.39%.

Oil prices are about -US$1 lower today following a similar fall yesterday, now just under US$51.50 for the US benchmark, while the Brent benchmark is now just on US$54.50 a barrel. The US is now expected to raise crude output by +300,000 b/d by 2018. That is +4.5% higher than for 2016.

The gold price is firmer again today, up +$11 from this time yesterday at US$1,189/oz.

The New Zealand dollar is marginally softer and now at 69.9 US¢. On the cross rates it is holding at 94.9 AU¢, and against the euro up at 66.2 euro cents. The NZ TWI-5 index has slipped to 76.2.

And in related currencies news, it has been revealed that bitcoin transactions out of China accounted for 98% of all bitcoin transactions in the July-December 2016 period. Using bitcoin to avoid Chinese capital controls has brought warnings from the Chinese central bank.

If you want to catch up with all the 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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There is so much new debt in china and money flowing out, sooner or later it will cause a massive problem which could spread worldwide

The Fed earns interest on government bonds if holds, most of them bought during the GFC. As at December, it alone held US$5.5 tln of the Federal Government debt, or 28% of it.

Not quite the exact story in respect of the Federal Reserve.

The System Open Market Account (SOMA), managed by the Federal Reserve Bank of New York, contains dollar-denominated assets acquired via open market operations. Read more

The full balance sheet can be viewed here.

The rise of populism isn’t the politics of rejecting experts, it is the rejection of these “experts” – who quite frankly deserve more than voter disdain. Credentials have come to be seen by a very large and growing proportion of the global population to declare incompetence, having nothing at all to do with intellectual capacity apart from objectivity. It isn’t the denial of reasoned argument but rather the logical end of it. Read more

The problem for PBoC is that their task is impossible to pull off. The enormous amount of waste embedded in the system as a result of years of inflationary policies has left the Chinese economy riddled with bad debt and probably trillions in non-performing loans. Consequently, investors believe further exchange rate depreciation will be needed and the offshore (CNH) forward market price in the typical Chinese approach of incremental change. As long as FX reserves are plentiful, complacency will be the name of the game, but that will leave a lot of people exposed to a rude awakening.

Capital controls lead to a blackmarket that reveals the true freefloating rate the people are willing to exchange at. Does the CNY-BITCOIN-USD rate diverge from the official CNY-USD rate?