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Here's our summary of key events overnight that affect New Zealand, with news both monetary and fiscal policies in the largest economies seem not to be working.
In Frankfurt, the ECB has lowered the interest rate on the deposit facility by -10 basis points to -0.5% but left its other benchmark rates unchanged. This is as markets expected. In addition and more importantly, it has restarted its QE program. It will make bond purchases at a monthly pace of €20 bln starting in November. This is a pretty modest restart, but important all the same. And it came with a promise of indefinite stimulus until growth returns, essentially tying incoming Christine Lagarde to the policy setting as Mario Draghi bows out. These decisions weren't unanimous however with dissent at the need for a cut and the restarted QE.
Continuing insipid economic growth has been their trigger. In fact, as they met, Eurozone industrial production data for July came in -2.0% lower than for the same month a year ago and their capital goods component fell by even more. In fact, EU countries are the laggards in the G20 data released by the OECD today. That review was also held back by the US and Japan. The countries with rising expansions included Canada, China, Indonesia and Korea.
In the US, consumer inflation came in at +1.7% in August and that was less than expected (+1.8%). However core inflation rose to +2.4% and that is a one year high. Most observers expect the Fed to turn a blind eye to this and cut their benchmark rate next week by -0.25% to 2.00%.
And in a landmark event, the US Federal budget deficit widened to more than $1 tln in the first 11 months of the fiscal year, the Treasury Department said, the first time deficits have topped that mark in seven years and the first time ever in a non-recessionary period. It came much quicker than expected. The eleven month outcome is -36% worse than the full twelve month 2018 result. That means it has jumped from -3.7% of GDP in 2018 and has now breached -5.0% of US GDP in 2019 - and there is still one month to go. At some point, markets will notice the risk. Tax cuts for the rich haven't worked in the way they were sold.
But today, they are ignoring it and noticing the ECB. QE juice has markets on both side of the Atlantic up about +0.6% today. Yesterday in Asian equity markets, Shanghai and Tokyo both rose +0.8% although Hong Kong fell -0.3%. The ASX200 was up +0.3% but the NZX50 was down -0.2%.
Also encouraging equity markets are more conciliatory tones in the pre-positioning ahead of October trade talks between China and the US. There are reports the US Administration is trying to find a face-saving exit plan. The IMF has said that this chronic dispute, which doesn't seem to be resolving anything, will cut world economic activity by -0.8% in 2020. That is more than US$0.5 tln of loss and twice the total GDP of New Zealand.
The UST 10yr yield continues to rise, up another +2 bps and now at 1.79%. Their 2-10 curve is unchanged at +6 bps. Their negative 1-5 curve is narrower at -18 bps. Their 3m-10yr curve is also narrower at -24 bps. The Aussie Govt 10yr is up +2 bps at 1.16%. The China Govt 10yr is also up +3 bps at 3.09%, while the NZ Govt 10 yr is up +4 bps, now at 1.32%.
Gold is again higher today, up +US$4 at US$1,499/oz.
US oil prices are lower again today, and now just over US$55/bbl. The Brent benchmark is also down at just on US$60.
The Kiwi dollar is unchanged at 64.2 USc. On the cross rates we are softish at 93.4 AUc. Against the euro we are lower at just under 58 euro cents. The TWI-5 has dipped to 69.4.
Bitcoin is now at US$10,296 and +2.1% higher than 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 ».