US new house sales retreat; UST bond auctions well supported; China profit falls stabilise; China markets get new liquidity stress; UST 10yr 4.40%; gold up and oil low & flat; NZ$1 = 60.9 USc; TWI-5 = 69.8

Here's our summary of key economic events overnight that affect New Zealand, with news of falling wholesale rates in the US and rising equity risks in China.

First in the US, the one corner of their housing market that has been expanding - the sales of new homes - dipped in October. Sales of new single-family houses fell by 5.6% to an annualised rate of 679,000, well below expectations of a 723,000 rate. This is a sizable miss but in the context of the past eight months, it is just part of a developing yo-yo pattern. It will only be important if November doesn't bounce in that pattern.

There were two US Treasury bond auctions today. The two year was well supported with bids worth US$138 bln for the US$55 bln available. The median yield fell to 4.83% from the prior equivalent auction at 5.01% five weeks ago. The five year was also well supported with bids worth US$136 bln for the US$56 bln available. In this case the median yield fell to 4.37% from 4.82% at the prior equivalent event four weeks ago. The large and growing US budget deficits are not finding funding stress as demand is strong and yields are falling (prices bid up).

Perhaps driving these lower yields, 20 months after the US Fed began a campaign against inflation, investors now believe there is a greater chance that the central bank will cut rates.

And today is Cyber Monday in the US, the end of the retail sales push for the moment in the lead-up to the end of year holidays. There are no early indications to report.

Across the Pacific, Chinese industrial profits rose +2.6% in October from the same month a year ago. But that makes them -7.8% lower in the ten months of 2023 than the same period in 2022. The softer pace was evident in state-owned firms (-9.9% vs -11.5% in Jan-September) and the private sector (-1.9% vs -3.2%). Given the overall -10.6% slump from 2021, this is still a minor and fragile recovery.

In Beijing, stock market authorities have apparently moved to prevent major shareholders of listed companies from selling, apparently worried that this could kill off a market rally that they want to see occur. These shareholders are now trapped. Major shareholders in Shanghai, Shenzhen and Hong Kong will be nervous and the Beijing move could have unintended consequences.

Not only is the giant insolvency of Zhongzhi group causing immediate headaches for Beijing, now it appears that liquidity in Hong Kong is becoming a short-term issue. The one-month Hong Kong interbank offered rate, or Hibor, rose +15 basis points to 5.53% yesterday, the highest since October 2007. Demand for the local currency is on the rise as lenders stockpile cash for regulatory purposes, sucking capital from the interbank system. This year-end demand for cash is exacerbating an already-tight liquidity environment there.

Meanwhile, Hong Kong exports held up in October to both top the level of last year and the prior month.

The UST 10yr yield is down -7 bps from yesterday, now at 4.40%. The key 2-10 yield curve is still inverted by -49 bps however. Their 1-5 curve is marginally more inverted, by -82 bps. Their 3 mth-10yr curve inversion is now -99 bps and more inverted. The Australian 10 year bond yield is now at 4.50% and down -10 bps from yesterday. The China 10 year bond rate is down -1 bp at 2.72%. And the NZ Government 10 year bond rate is up +6 bps at 5.15%.

Wall Street has opened its week with the S&P500 little-changed, held back by the unusual low in the VIX. Overnight, European markets were all down by -0.4%. Yesterday, Tokyo ended its Monday session down -0.5%. Hong Kong ended down -0.2% and Shanghai doen -0.3%. The ASX200 ended its Monday session down -0.8% which the NZX50 was down -0.5% with a late retreat.

The VIX volatility measure had fallen to its lowest since January 2020, before the onset of the pandemic. But in today's trade it is just off that low. The VIX is often referred to the 'fear gauge". (It is a popular measure of the American stock market's expectation of volatility based on S&P 500 index options.)

The price of gold will start today just under US$2010/oz and up +US$7/oz from this time yesterday.

Oil prices have flatlined since yesterday at just over US$75/bbl in the US. The international Brent price is still just over US$80/bbl.

The Kiwi dollar starts today at 60.9 USc and a little-firmer from yesterday, but it is its highest since early August. Against the Aussie we are -20 bps lower at 92.3 AUc. Against the euro we are unchanged at 55.7 euro cents. That all means our TWI-5 starts today just on 69.8 and also unchanged from yesterday.

The bitcoin price starts today at US$37,006 and down -0.5% from this time yesterday. Volatility over the past 24 hours has also been modest at just on +/- 1.4%.

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