Global markets eye Fed decisions; US PPI low; US mortgage applications jump; China's weaknesses extend; Argentina devalues hard; Australia near surplus; UST 10yr 4.16%; gold and oil up; NZ$1 = 61.2 USc; TWI-5 = 70.2

Here's our summary of key economic events overnight that affect New Zealand, with news we are waiting on the US Fed.

Financial markets are in limbo, cautious ahead of the US central bank's monetary policy meeting results that will be released at 8am NZT today. We will update this item when these details are released. They are widely expected to keep the fed funds rate steady at 5.5% for a third consecutive meeting and push back against expectations of rate cuts early next year. Back in September, the Fed's dot plot indicated two cuts in 2024, but Chairman Powell recently deemed it premature to discuss rate decreases. They will release new economic and rate forecasts which will be closely watched and parsed.

Update: The Fed Statement is here and was quite restrained. Its accompanying materials gave its clearest signal yet that its aggressive hiking campaign is finished, forecasting a series of cuts next year. Immediately after its release, UST bond yields fell, the USD fell, and the S&P500 also rose. (These changes are not reflected in the rest of this article.)

Meanwhile American producer prices were unchanged in November from October to be just +0.9% ahead of year-ago levels - and that was a lower increase than expected. Consumer inflation might be stubborn but producer prices are now rising at very modest levels. Recall, US PPI peaked at more than +11% pa in early 2022.

American mortgage applications rose an unexpected +7.4% last week from the week before, a sixth consecutive weekly and driving applications to their highest level in over four months, thanks to the continuous decline in interest rates. The benchmark 30 year fixed home loan rate is now down to 7.07% in this survey, it lowest since July.

In China, the expected bounce-back from October's weak new lending levels came but it wasn't as robust as expected. China's banks extended almost ¥1.1 trillion in new yuan loans in November, a good rise from October's weak level but falling short of market expectations of ¥1.3 tln. Household loans, including mortgages, rose by almost +¥300 bln after shrinking in October, while corporate loans also rose by +¥300 bln from October.

In their Capital Flows Report, the IIF says China will suffer net outflows from Chinese stocks and bonds of -US$65 bln in 2024 from foreign investors, extending the 2023 trend of de-risking. In November alone, foreign investors pulled a net -US$3.7 bln from Chinese equities and bonds. Other emerging markets are not getting this cold shoulder.

China's delayed but important 2 day Central Economic Work Conference has wrapped up, but you would hardly know. The readouts of decisions and goals are in special Beijing-speak and opaque to most. Most of the released goals are platitudes.

The newly-elected Argentine government devalued the peso’s official exchange rate by -54% to 800 to the greenback on their second day in office, firmly above market expectations that ranged from a 27%-44% devaluation, marking a new record-low for the battered currency. The decision also narrowed the gap between the official rate and dollar prices for individuals available in parallel markets, which have approached 1,100 pesos per USD. It followed a group of aggressive economic measures passed by the new administration, the so-called “shock treatment” pledged by newly-elected President Milei that aims to battle inflation that approaches 150%, a plunging peso, and elevated levels of money creation to service spiraling debt. The new government stated it will cut an equivalent of -2.9% of GDP in spending, including reductions in social subsidies and pensions, while implementing a +2.2% increase in taxes over the next year. As a consequence, official forecasts for monthly inflation rose to over 20%.

Australia's Mid Year Economic & Fiscal Outlook (MYFEO) was released yesterday and it was surprisingly positive, signaling that they may in fact get another surplus this year - making it two years in a row Canberra has achieved that. It is built on the "usual suspects" - very high mining profits and delaying infrastructure spending. The tax receipt uplift is due predominantly to personal income taxes being +$30 bln higher than forecast, including +$9 bln for this financial year, and company tax. Tax relief for bracket-creep may be coming soon.

The UST 10yr yield is softer on secondary markets at 4.16% and down -5 bps from yesterday at this time ahead of the Fed. The key 2-10 yield curve is more inverted, now by -51 bps. Their 1-5 curve inversion is also more inverted, now by -94 bps. And their 3 mth-10yr curve inversion is now -120 bps, also more. The Australian 10 year bond yield is now at 4.26% and down -4 bps from yesterday. The China 10 year bond rate is little-changed at 2.67%. And the NZ Government 10 year bond rate is down -11 bps, now at 4.87%.

Wall Street has opened its Wednesday trade with the S&P500 unchanged ahead of the Fed decisions. Overnight, European markets were little-changed, all +/-0.1%. Yesterday Tokyo ended its Wednesday session up just +0.3%. Hong Kong went the other way, down -0.9%. Shanghai was hit harder with a -1.2% loss on the day. Interestingly there was no late home team support and when it didn't arrive the hurt increased. The ASX200 ended up +0.3%. And the NZX50 rose the best of the markets we follow, up +0.8%.

The price of gold will start today just on US$1982/oz and up +US$2/oz from this time yesterday.

Oil prices are up +US$1/bbl from yesterday at just over US$69.50/bbl in the US. The international Brent price is now down at just under US$74.50/bbl.

The Kiwi dollar starts today at 61.2 USc and little-changed from yesterday. Against the Aussie we are -¼c lower at 93.1 AUc. Against the euro we are down -10 bps at 56.7 euro cents. That all means our TWI-5 starts today just on 70.2, -20 bps softer than yesterday at this time.

The bitcoin price starts today at US$41,856 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.9%.

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