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Here's our summary of key events overnight that affect New Zealand, with news a spotlight is being thrown on some very large risks and some very large unintended consequences.
But first, the latest minutes show the US Federal Reserve debated cutting interest rates more aggressively at its last meeting, although they were united in wanting to avoid the appearance of being on a path to more rate cuts. The debate caused a split over whether to cut rates and by how much. In the end the cut they agreed was seen as a mid-cycle adjustment, a “recalibration” rather than the start of a more aggressive easing cycle. They clearly are unsure how future moves will unfold.
There is much to worry about. The key issues will get debated, with international participants including our own Governor Orr, at the Jackson Hole meeting that starts today.
One of those worries is that US federal deficits are projected to swell more than expected over the next decade, according to the Congressional Budget Office. Yesterday, the US Administration said it was looking at cuts to their capital gains rates and their payroll tax rates. But today they ruled these out. The spectre of trillion dollar deficits from an Administration who claimed they would produce a surplus as a result of their previous tax cuts-for-the-wealthy, is too much even for them. That fantasy has been thoroughly debunked.
American existing home sales rose more than expected in July, boosted by lower mortgage rates and a strong labour market. But they are only up +0.6% above the level of July 2018, so it is a boost above expectations rather than any real growth. Including 'points', American mortgage rates are generally higher than those in New Zealand. Median prices dipped from June to US$280,800 (NZ$438,200) but are +4.3% higher than a year ago.
In Canada, their inflation rate stayed at 2.0% in July and that defied the expected decline. Rising food and durable goods prices kept their CPI rate up.
China is pulling back on outbound investment, with the value of deals dropping -18% in the first half of 2019, the sharpest fall in more than ten years.
And China's monetary authorities say they are mulling official interest rate cuts and easing of their reserve ratios as a way to stimulate their economy.
In Australia, a new report says their universities face a 'catastrophic' hit if China rolls out currency controls to defend itself in the trade wars. The loss of up to -AU$1 bln from Chinese students would hurt in fundamental ways, the report claims.
And from the file of unintended consequences, the Aussie tax office has ruled that those who receive compensation from banks as a result of the Hayne inquiry into financial services may be held to owe back taxes for those earlier periods, and will need to fix filing an 'incorrect' tax return. Tax on more than AU$6 bln is involved.
The UST 10yr yield is still at 1.58%, little-changed from this time yesterday. Their 2-10 curve is flatter however, now at just +1 bps and their negative 1-5 curve is wider at -30 bps. Their 3m-10yr curve is wider, out at a negative -48 bps. The Aussie Govt 10yr is unchanged at 0.93%. The China Govt 10yr is up +2 bps at 3.06%, while the NZ Govt 10 yr is unchanged at 1.09%.
Gold is also little-changed, down -US$2 and now at US$1,504/oz.
US oil prices are a little softer today at just on US$55.50/bbl. The Brent benchmark is unchanged US$60.
The Kiwi dollar is softer against the US dollar and now just below 64.1 USc. That is a -4.4% devaluation since the beginning of July. On the cross rates we are lower at 94.4 AUc. Against the euro we are unchanged at 57.8 euro cents. The TWI-5 has now drifted down to 69.4.
Bitcoin is now at US$10,090 and that is a -6.2% drop since this time yesterday. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».