Here's our summary of key economic events overnight that affect New Zealand with news that the bond market is sending 'clear signals' that much higher inflation is here to stay.
But first in the US, new home sales picked up more than expected in September and are now running at an annual rate of +800,000 which is +17% above the annual rate in August, but miles below the 971,000 rate of sales in September 2020.
The US Conference Board measure of consumer confidence rose in October when analysts were expecting another lower result. But consumer expectations remain low even if they think the present situation for them is actually quite good.
The Richmond Fed factory survey in their Mid-Atlantic states came in much better in October than for September. It is yet another survey that features good new order flows, rising backlogs, and prices jumping at near extreme levels (+13%). The surveyed firms do expect the pricing pressure to ease, but to levels that would have sent warning bells at an earlier time (+6%).
And we should note that there was another big US Treasury bond auction overnight, this one for the two year maturity. US$167 bln was offered for the US$67 available (the Fed took US$6 bln). This was well above the US$144 bln in demand at the prior equivalent auction. But despite the demand, yields rose. Today's bond yielded 0.44% median, whereas at the prior event last month it was 0.28% pa.
And we should also note that the US "five year break even inflation rate" is now touching 3%, the first time it has done that since 2005. Essentially, it is signaling that the bond market is betting inflation is here to stay - it isn't going to be transitory. Similar signals are coming from European markets.
In China, the next shoe dropped late yesterday in the "Evergrande" saga. Rival Modern Land failed to repay a US$250 mln bond "due to unexpected liquidity issues". Modern Land is based in Beijing, but listed on the HKSE.
Over the past week, the Chinese central bank has added ¥700 bln (NZ$150 bln) in short term liquidity into their banking system, probably because of the property sector woes.
Yesterday, South Korea reported their economic expansion ran at a 4.0% annual rate in Q3, and that was sharply lower than the +6.0% rate in Q2-2021. This latest data is actually their weakest expansion rate since the depths of the Q2-2020 pandemic contraction.
Likewise, Singapore reported very disappointing industrial production data for September. A slowdown was expected, but not the contraction they ended up with.
Completing the disappointing regional data, Hong Kong exports rose slower in September than expected, and import growth didn't retreat nearly as much, leaving them with a wider trade deficit. They too are importing inflation.
In the metals world, we should note that the fast jump in the magnesium price is easing almost as quickly as it rose. Recovering Chinese smelter production is behind the improvement, although prices are not expected to return all the way back to prior levels.
In Australia Delta cases in Victoria have risen to 1510 cases reported there today, and so more improvement again. There are now 24,715 active cases in the state and there were another 4 deaths yesterday. In NSW there were another 284 new community cases reported today with 4,388 active locally acquired cases which is lower, and they also had 4 deaths yesterday. Queensland is reporting no new cases. The ACT has 12 new cases. Overall in Australia, more than 73% of eligible Aussies are fully vaccinated, plus 13% have now had one shot so far.
On Wall Street, the S&P500 has started their Tuesday session +0.2% firmer and at a new record high level. Overnight, European markets were all up +0.8% except Frankfurt which gained more than +1.0%. Yesterday, Tokyo closed up a very strong +1.8%, but Hong Kong ended down -0.4%, and Shanghai ended down -0.3%. The ASX200 ended unchanged while the NZX50 was down -0.1%.
The UST 10yr yield opens today down -2 bps to 1.62%. The US 2-10 rate curve is flatter today at +117 bps. Their 1-5 curve is unchanged at +106 bps, while their 3m-10 year curve is little-changed at +157 bps. The Australian Govt ten year benchmark rate is +4 bps firmer at 1.80%. The China Govt ten year bond is unchanged at 3.00%. The New Zealand Govt ten year is up +2 bps at 2.46%.
The price of gold has fallen back today by -US$15 to US$1792/oz.
And oil prices are up +US$1 to just under US$84.50/bbl in the US, while the international Brent price is up less, now just over US$85.50/bbl.
The Kiwi dollar opens today little-changed at 71.6 US. Against the Australian dollar we are a fraction softer at 95.5 AUc. Against the euro we are a fraction firmer at 61.8 euro cents. That means our TWI-5 starts today still at just on 75.1, but still well over the top of the 72-74 range of the past eleven months.
The bitcoin price is lower by -2.6% since this time yesterday, and now at US$62,001. Volatility over the past 24 hours has been modest at just over +/-1.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».