Here's my summary of the key events from overnight that affect New Zealand, with news of an important advance for fuel cell cars.
But first in the US, new applications for unemployment benefits unexpectedly fell last week while producer prices rose strongly in April, pointing to a tightening labour market and rising inflation that will likely cause the Fed to raise interest rates in June.
And the head of the New York Fed again signaled that the US central bank is closer to reducing its reservoir of QE bonds, or "gradually remove monetary policy accommodation” as he puts it.
In China, its US$1.7 tln government-bond market is under new stress. The yield on longer-term 10 yr debt fell below that on shorter-term 5 yr debt. That inverse yield curve usually signals trouble that a painful correction is coming. Ironically, some traders blame the shift on Beijing’s efforts to reduce financial risk.
In Canada, ratings agency Moody's has cut the credit ratings of all their major banks by one notch. It was the first downgrade in more than four years, signaling that soaring household debt combined with runaway housing prices leave the lenders more vulnerable to losses. Moody's still has their outlook as negative on all six lenders. The downgrade however, still leaves the ratings one notch higher than New Zealand's main banks.
In Europe, they have raised their forecast for economic growth, another sign most countries are enjoying an extension of the long gradual expansion post the GFC.
In Australia, a new process to produce pure hydrogen looks to rival batteries as an energy source for cars. Japan is making a major commitment to hydrogen power and the Aussie process makes it far easier to distill the fuel. Economical "fuel cell" cars may be closer than we think, emitting only water vapour.
And staying in Australia, foreign investment in their housing surged almost +20% in dollar terms last year with Chinese buying accounting for well over half of the total. Foreigners were allowed to buy NZ$80 bln of residential property in 2015-16, but in transaction-number terms it was a +9% rise to 40,100.
In New York, the UST 10yr yield is pretty much unchanged at 2.40%.
The price of oil is marginally firmer. The US crude benchmark is still just over US$47.50 a barrel, while the Brent benchmark is just over US$50.50. OPEC has raised its forecast for 2017 oil-production growth from countries outside the cartel by more than +60%. It is the latest evidence that rapidly rising American production is undermining OPEC’s efforts to raise oil prices by curbing their output.
Gold is unchanged at US$1,220/oz.
The New Zealand dollar is lower that this time yesterday after the RBNZ OCR review and now at 68.5 USc. On the cross rates the Kiwi is at 92.9 AU¢, and 63 euro cents. The TWI-5 index is at 73.7.
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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7 Comments
No way!!! Everything will be back to normal after the election. I think not
https://www.tvnz.co.nz/one-news/new-zealand/chinese-investment-in-kiwi-…
Yeah not surprised that Canada's banks have been downgraded. They left bringing in the Foreign Buyers tax until it was too late. Toronto has just had a massive spike in the number of listings which shot up by 33%. Due mostly to foreign investors trying to ditch their property stock.
And the head of the New York Fed again signaled that the US central bank is closer to reducing its reservoir of QE bonds, or "gradually remove monetary policy accommodation” as he puts it.
Indeed.
The next chart shows that the real, inflation-adjusted federal funds rate is still negative at a time when the economy has exceeded central bankers' median estimate for full employment and inflation is near their 2 percent target. U.S. unemployment was 4.4 percent last month. Fed officials currently estimate the longer-run sustainable rate is 4.7 percent.
Such aggressive stimulus at this stage of the economic cycle is unusual and intentional. Fed Chair Janet Yellen has tried to pull more people back to the labor force by keeping rates low and is also removing accommodation only gradually in an attempt to preserve the expansion.
"The bond market is a little complacent about it and is likely taking its cue from wage growth, which remains modest." Read more
Mr Draghi was invited to The Hague to discuss the eurozone economy, which is edging towards recovery after years of fragility following the financial crisis. He told MPs that the ECB was helping to create jobs and generate growth.
But the Dutch political establishment has been fiercely critical of the ECB’s stimulus measures, which have seen the central bank buy more than €1.8tn of assets over the past two years and cut interest rates to record lows.
Mr Draghi faced accusations that he had raided Dutch pensioners’ wealth through ECB policies: many Dutch share the German view of blaming the central bank’s measures for eroding their savings.
In two hours of sometimes sharp exchanges, Mr Draghi also faced questions about the transparency of the bank’s meetings and whether the ECB’s stimulus measures broke EU treaties.
Asked what would happen if a eurozone member needed to restructure its debt, he said: “We don’t want to speculate on the probability of things that have no chance of happening. Why are you asking me that?”
At one point following the ringing of bells in the Tweede Kamer, the lower house of the Dutch parliament, one MP called out that the sound was the “end of your [QE] policies”. Read more
The Government Investigates!
This video makes the complex seem so simple and understandable. ;)
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