Fed acknowledges inflation pressures; US PMIs mixed; Evergrande dodges default; EU frustrated with UK unreliability; RBA moves against BNPL; UST 10yr 1.65%, oil and gold rise; NZ$1 = 71.4 USc; TWI-5 = 74.9

Here's our summary of key economic events overnight that affect New Zealand to wrap up a week where markets just ambled along wondering what a resurgent Delta outbreak in most countries will do to economies, and how the upcoming festive season will play out.

In the US, the Fed boss has acknowledged that inflation pressures are unlikely to be resolved fast, and although they don't anticipate raising rates soon, they are pushing ahead with reducing and stopping their bond-buying activity (tapering). He said supply bottlenecks are getting worse and that is keeping prices up, although he still bravely expects the impact to fall away at some point.

Meanwhile, a national manufacturing PMI fell to 59.2 in October from 60.7 in September, the lowest since March and below market expectations of 60.3. The index pointed to the third consecutive month of slowing manufacturing activity after a record growth in July although it is still a healthy expansion. The slip in the October data is because of a weaker expansion in output and a moderation in order book growth.

But the giant American services sector is in improving shape with its PSI index expanding a better-than-expected 58.2 from 54.9 in September and ahead of expectations

In China, Evergrande surprised overnight by making an US$83 mln payment to international bondholders right at the very end of their grace period, and staving off default for another week. It was a surprise because most observers thought they would prioritise local creditors, suppliers and disgruntled homebuyers. Those groups may now feel very aggrieved as their wait is extended.

But this last-minute event will do little to help the overall commercial property development sector in China, or the local authorities who rely on selling them land to fund local services. In the July-September quarter, -80% less land was sold by these local authorities than in the April-June quarter.

We should note that earlier on Friday, Evergrande filed statements at the Hong Kong Stock Exchange where it is listed, which said its effort to sell a key division to generate funds had failed, and it also said it may now not be able to meet its financial obligations.

In Japan, they got some inflation in September, a turnaround from the deflation it had in August. Its factories and services sector are both expanding in October, according to a widely-watched survey, and that is a good improvement too.

In Europe, they reported a slightly faster expansion in their factory PMIs and this was despite the continuing supply chain woes. But a noticeable slowing in their services sector PSIs, particularly in Germany. The fast re-emergence of Delta pandemic infections is holding them back.

And the EU is weighing its response to their trade deal with the UK, if the British renege on it over the Irish border arrangements as originally agreed. The mood is to respond forcefully, even ending the deal. Gaining the new FTA deal with New Zealand will be a very poor second if they lose the EU one.

In Australia, after only recently dismissing the Buy Now Pay Later sector as minor, the RBA as regulator has moved to force these companies to change their contracts with merchants so that banning surcharging is removed. The BNPL sector fought the move, but has now lost. Merchants can now surcharge BNPL transactions in Australia (pg 49).

And the RBA was forced into a rare Friday bond auction for its 3-year maturity. It went into the market to purchase AU$1 bln, forcing the yield back down to its target 0.1%. It was forced to do that because market participants see a weakness here and bid the yield up to 0.7% pa. They profit when they can force the regulator to respond to defend its policy position because the face price of the bond rises when the yield drops. Market observers see the AU$1 bln being nowhere enough to end this game, so this test of wills will be one to watch.

And staying in Australia, Delta cases in Victoria have risen to 2189 cases reported there today, and so no real improvement again. There are now 23,230 active cases in the state and there were another 16 deaths yesterday. In NSW there were another 345 new community cases reported today with 5,037 active locally acquired cases which is lower, and they had five deaths yesterday. Queensland is reporting one new case. The ACT has 13 new cases. Overall in Australia, more than 71% of eligible Aussies are fully vaccinated, plus 15% have now had one shot so far.

The UST 10yr yield opens today down -1 bp at 1.65%. (A week ago it was 1.58%.) The US 2-10 rate curve is flatter today at +119 bps with shorter rates rising, longer rates slipping so a bull flattening. Their 1-5 curve is holding at +109 bps, while their 3m-10 year curve is also flatter at +160 bps. The Australian Govt ten year benchmark rate is lower by -2 bps at 1.79%. The China Govt ten year bond is up +1 bp at 3.00%. The New Zealand Govt ten year is holding its new higher level at 2.44% and still a three year high.

Wall Street has opened its Friday session with the S&P500 down -0.2% and heading for a weekly gain of +1.7%. In overnight European markets, most were up about +0.6% although London rose only +0.2%. All fell away at the end of trading. Yesterday, Tokyo rose +0.3% to end the week down -1.0. Shanghai fell -0.3% on Friday, but ended the week up +0.3%. Hong Kong rose +0.4% yesterday and ended with a very strong +2.8% weekly rise. The ASX200 ended its Friday session flat again for a weekly rise of +0.7%. The NZX50 ended with a -0.3% fall yesterday, limiting the weekly gain to +0.6%.

The price of gold has risen +US$12 to US$1793/oz. That is a +US$25 or +1.4% gain since this time last week.

And oil prices are back up today, up +US$2 to just under US$83.50/bbl in the US, while the international Brent price has risen but by much less, now just over US$84.50/bbl.

The Kiwi dollar opens today slightly softer at 71.4 US. Against the Australian dollar we are unchanged at 95.7 AUc. Against the euro we are softish at 61.4 euro cents. That means our TWI-5 starts today at just on 74.9, but still well over the top of the 72-74 range of the past eleven months.

The bitcoin price has retreated again today, down another -3.7% from this time yesterday and is now at US$60,698. And that is actually -1% lower than this time last week, although it did get as high as US$66,880 and its record high on Thursday. Volatility over the past 24 hours has remained high at just over +/-3.1%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».