US data mixed; Canada ends QE; Chinese profits rise; Germans pay much more for imports; Aussie inflation trouble for the RBA; UST 10yr 1.53%, oil soft and gold stable; NZ$1 = 71.8 USc; TWI-5 = 75.3

Here's our summary of key economic events overnight that affect New Zealand with news our wholesale rate markets are being roiled by Aussie inflation data.

But first in the US, orders for durable goods declined -0.4% in September from August, following a downwardly revised rise in August. But analysts had expected a much larger -1.1% drop due to ongoing supply chain disruptions. The September data is the first decline in five months. But we should also note that the September data is more than +14% higher than the same month in 2020. New orders for capital goods jumped +26% on the same basis.

Meanwhile, the US merchandise trade deficit topped -US$100 bln in September, its largest ever. Exports rose +17% year-on-year while imports rose +18%.

There was a large US$67 bln US Treasury bond auction overnight for their 5 year maturity. The Fed took US$6 bln, and private bidders offered a massive US$155 bln. But they did so at higher yields. This event ended with a median yield of 1.12% pa, whereas the prior equivalent auction yielded 0.94% pa.

On Wall Street, tech firms including Google and Microsoft, are reporting record earnings.

The Canadian central bank had a rate review overnight and left its policy rate unchanged at 0.25%. But at the same time, they ended their QE program - no more new money printing for them. However they didn't go so far to signal when they might start draining the built-up reservoir of pumped-in liquidity. They added about C$350 bln on Canadian government bonds to their balance sheet over this QE program in about 18 months, or about 20% of annual GDP.

In September, industrial profits at Chinese industrial enterprises rose +16.3% from the same month a year ago, growing much faster than their revenue gains of  just under +10%. They seem to have taken advantage of soaring material prices and persistent supply bottlenecks to raise margins. (Official data is opaque because they only release it on a year-to-date basis.)

And in a move, many didn't see coming, China's authorities essentially instructed their businesses to ensure they pay their offshore debts on time, and give early warnings if they suspect they can't.

In Europe, import prices German companies paid jumped almost +18% in September from a year ago, the steepest price increase since August of 1981. But most of the rise was for energy and is off a low base. Still these costs will flow through the German industrial community and into final goods.

In Australia, their headline inflation rates dipped to 3.0% in September, down from 3.8% in June. This was an expected reversal, but the effect was more than they anticipated (3.1%). The more technical RBA Trimmed Mean CPI however actually rose by +2.1% year-on-year in Q3, the most since Q4 2015, after a 1.6% rise in Q2. And one large supermarket chain in Australia, Woolworths, says it is facing fierce cost rises. And that comes at a time more Australians are eating out after lockdown, rolling back their recent high volumes.

These rises put the RBA's bond market targeting in a tough spot. Markets now think the RBA may have to raise its policy rates faster and earlier than they had previously signaled. And bets along those lines will make it increasingly expensive for the central bank to defend its 0.1% three year yield target.

On the trade front, Australia is "winning" its tussle with China, after Beijing essentially blocked its importers from buying Australian commodities. We all know Beijing has relented on buying Aussie coal. But the latest prices for cotton and oats shows Beijing's 'punishments' have had zero impact on Aussie producers or exporters.

On the domestic front, rents are rising fast in Australia, rising almost +9% over the past year and the highest gains since 2008.

And staying in Australia Delta cases in Victoria have risen to 1534 cases reported there today, and so more improvement still. There are now 24,715 active cases in the state and there were another 13 deaths yesterday. In NSW there were another 304 new community cases reported today with 4,170 active locally acquired cases which is lower, and they also had 3 deaths yesterday. Queensland is reporting two new cases. The ACT has 10 new cases. Overall in Australia, more than 74% of eligible Aussies are fully vaccinated, plus 13% have now had one shot so far.

On Wall Street, the S&P500 has started their Wednesday session unchanged at a new record high level. Overnight, European markets were generally down -0.3%. Yesterday, Tokyo closed little-changed, but Hong Kong ended down a sharp -1.6%, and Shanghai ended down -1.0%. The ASX200 ended up less than +0.1% while the NZX50 was down -0.4%.

The UST 10yr yield opens today down a very sharp -9 bps to 1.53%. The US 2-10 rate curve is very much flatter today at +104 bps. Their 1-5 curve is unchanged at +105 bps, while their 3m-10 year curve is little-changed at +149 bps. So we have bear-flattening conditions today. The Australian Govt ten year benchmark rate is unchanged at 1.80%. The China Govt ten year bond is also unchanged at 3.00%. The New Zealand Govt ten year is up a very sharp +10 bps at 2.56%.

The price of gold is having a minor rise today, up +US$3 to US$1795/oz.

And oil prices are down by more than -US$2 to just under US$82.50/bbl in the US, while the international Brent price is now just over US$83.50/bbl.

The Kiwi dollar opens today firmer at 71.8 US. Against the Australian dollar we are little-changed at 95.5 AUc. Against the euro we are a fraction firmer at 61.9 euro cents. That means our TWI-5 starts today at just on 75.3, still well over the top of the 72-74 range of the past eleven months, and possibly now resetting this range.

The bitcoin price has dropped by -5.0% since this time yesterday, and now at US$58,909. Volatility over the past 24 hours has been high at just over +/-3.8%.

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