Markets await the Fed; US factory sector slows; jobs gains less than expected; China PMIs disappoint; Adani stumbles again; EU inflation eases; UST 10yr 3.46%; gold and oil lower; NZ$1 = 64.4 USc; TWI-5 = 70.9

Here's our summary of key economic events overnight that affect New Zealand, with the big news of the day, the one markets are waiting for, is the US Fed review and its policy re-positioning. But that isn't released until 8am NZT, so this section of our report will be updated when these details are released. Markets are now expecting them to raise their policy rate by +25 bps, which is a downshift from the recent pace. That will take the upper bound to 4.75%.

Update: The US Fed has in fact now raised its policy rate by +25 bps to 4.75%, as expected. It also said more rate rises are likely because its battle against inflation isn't won yet. The NZD slipped slightly on the news, but bond rates barely moved. This Fed review confirmed market positioning.

But there is other important data out today in the US.

First, there were two parallel PMI reports out overnight for the American factory sector. The widely-watched ISM one slipped slightly further into contraction, but the new orders component was particularly weak. The internationally benchmarked Markit one reported that same decline, but this is a sharpish recovery for this survey. They say new order flows only softened slightly. For both reports, that is now three months of contraction.

US mortgage applications resumed their downward track last week, falling -9% to be -41% lower than a year ago. There was little change in mortgage interest rates last week.

This weekend we get the next US non-farm payrolls report and that is expected to show +185,000 rise which will be less for January than December. Today, the precursor ADP employment report said the gain for private sector payrolls was only +106,000 and that was far less than the +178,000 expected and the surprisingly positive December level of +253,000. To be fair, storms hit hiring in January and that will affect the non-farm payrolls report as well.

And the closely-watched JOLTS report of job openings was released for December today and that reports a continuing 'hot' labour market. These rose to more than 11 mln in surprising strength, when a fall to 10.25 mln was expected. There was no uptick in layoffs. In fact, this report is a major positive surprise.

In China, it is a fine margin but the private Caixin PMI survey did not confirm the official Chinese factory PMI with a shift to an expansion. The Caixin survey still reports a small contraction, but new orders shrank for the sixth straight month.

In India, the woes of the Adani Group mount, in the face of a highly critical report of the honesty of the company. Adani had pushed ahead with a capital raising from 'friends' and had claimed it was fully subscribed. But then suddenly it abandoned the transaction. That leaves it in a precarious position and their share price has fallen into the basement. One of the world's richest men is suddenly no more. No business can survive on distortions.

Meanwhile in New Delhi, the Indian Government released its 2023 Budget which includes a major boost for infrastructure spending. This is their final full budget before the 2024 general election. India is now the fifth largest global economy.

Japan's factory PMI stabilised in January, but that is still a small contraction.

The EU PMIs saw their manufacturing downturn easing further and cost pressures fading. But they are still reporting a small contraction.

EU inflation fell to 8.5% in January when a 9% rate was expected, and December recorded a 9.2% rate. Falling energy costs are certainly helping. Although this is a good result, tracking in a positive direction lower, we should note that 'core' inflation didn't budge.

The UST 10yr yield starts today at 3.46%, and down -7 bps from this time yesterday. The UST 2-10 rate curve is slightly more inverted at -72 bps. And their 1-5 curve is more inverted at -110 bps. Their 30 day-10yr curve is more inverted at -106 bps. The Australian ten year bond is down another -5 bps at 3.54%. The China Govt ten year bond is little-changed at 2.95%. And the New Zealand Govt ten year is starting today at 4.21% and unchanged.

Wall Street has opened it Wednesday session with a -0.5% fall ahead of the Fed. Overnight, European markets fell slightly, except Frankfurt which rose +0.5%. Yesterday, Tokyo ended its Wednesday session up a minor +0.1%. Hong Kong recovered +1.1% on the day. Shanghai was also up and by +0.9%. The ASX200 ended up +0.3% yesterday while the NZX50 ended with a good +1.0% gain.

The price of gold will open today at US$1924/oz and dipping -US$3 from this time yesterday.

And oil prices start today sharply lower, down -US$1.50 at just under US$77/bbl in the US. The international Brent price is now just on US$83/bbl. 

The Kiwi dollar is softish at 64.4 USc. Against the Australian dollar we start today much lower at 91 AUc and a -¾c fall as the Aussie dollar surges. Against the euro we are -½c lower at 58.9 euro cents. That all means our TWI-5 starts today at 70.9 and down -50 bps from yesterday.

The bitcoin price is now at US$23,000 and down a minor -0.5% from this time yesterday. Volatility over the past 24 hours has remained modest at +/- 1.0%.

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