US Fed trims key rate, gives mixed signals; US housing starts jump; FedEx slumps; China struggles to stimulate; Aussie job ads fall; UST 10yr yield at 1.78%; oil and gold lower; NZ$1 = 63.2 USc; TWI-5 = 68.4

US Fed trims key rate, gives mixed signals; US housing starts jump; FedEx slumps; China struggles to stimulate; Aussie job ads fall; UST 10yr yield at 1.78%; oil and gold lower; NZ$1 = 63.2 USc; TWI-5 = 68.4

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Here's our summary of key events overnight that affect New Zealand, with news financial markets are eyeing some American confusion.

First up today, and surprising few market observers, the US Fed has trimmed its benchmark policy rate by -25 bps to 1.75%-2.00%.

They said that "although household spending has been rising at a strong pace, business fixed investment and exports have weakened" and both inflation and wage growth seem stuck below their targets.

It was quite a split decision, with two votes to make no change, seven for the -25 bps cut, and one vote to cut by -50 bps. Signals for the next move were quite mixed.

Market reactions are modest, mainly because it was the expected decision. The bond markets bid down yields in the hours before the release and have stayed there since. Equity markets were lower before, and dipped lower after. Currency markets had a little flurry at the time and the US dollar has firmed a little.

Financial markets are still being buffeted by pressures that test the Fed's upper bound and the NY Fed had to buy another $75 bln of securities to hold it within the policy range. In two days, that is an unexpected $125 bln of emergency market activity.

Meanwhile, US housing start data for August came in more than +6% higher than the same month a year ago in an unexpected gain. Building permits rose even faster, up at twice the year-on-year rate.

American mortgage applications were flat in the latest survey as they have been for more than two years, and revealing rising interest rates.

And icon airfreight company FedEx shares plunged the most in a decade after the company’s global Express business showed its vulnerability to global trade disruptions.

In Canada, CPI inflation level for August came in lower at 1.9%, and down marginally from the 2.0% in July.

And a new study shows that Canadian household wealth is now falling for the first time since the GFC.

In China, new data shows that their fiscal spending fell in August, the first fall in a long time as central and local governments face funding strains amid a large-scale campaign to cut tax and fees. Still, they are still planning to ramp up major infrastructure projects, especially major rail network expansions.

Later today we will get the Bank of Japan policy review.

The EU CPI was also reported overnight, surprising no-one with a stable 1.0% gain in August and stubbornly below the ECB 2% target.

In Australia, new data out today from Seek shows job ad levels dropping fast and substantially, down more than -8% year-on-year to August.

As the session moves into the afternoon, Wall Street has turning more negative, now down -0.6%. This follows European markets overnight that were modestly positive, and Asian markets yesterday that were modestly mixed.

The UST 10yr yield is lower, down -3 bps and now at 1.78%. Their 2-10 curve slipped back to +3 bps. Their negative 1-5 curve is still at -21 bps. But their 3m-10yr curve is sharply narrower at -18 bps. The Aussie Govt 10yr is unchanged at 1.14%. The China Govt 10yr is up +2 bps, now at 3.14%. The NZ Govt 10 yr is now at 1.27%, a another fall of -3 bps from yesterday.

Gold is a little lower today, down -US$5 to US$1,497/oz.

US oil prices gave up another -US$1 of the weekend rise to be now just on US$58/bbl. The Brent benchmark is now just under US$63.50. The latest inventory levels of American crude stocks show them rising and well above expected levels.

The Kiwi dollar is softer on a rising greenback, now at 63.2 USc. On the cross rates we are softer too at 92.5 AUc. Against the euro we are down to 57.2 euro cents. That puts the TWI-5 down to 68.4.

Bitcoin is now at US$10,195 and little-changed since 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 ».

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21 Comments

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Highlight new comments in the last hr(s).

US central bank still behind the curve? Does that mean the USD stays strong, causing the worldwide USD shortage to intensify? Does this in turn keep China's hands tied, so China continues slowing and Europe continues imploding?

Expect more social unrest and political polarisation (both between and within countries) as the eye of the storm hits over the next few months?

Indeed. Exchanging US banks' primary dealer inventory of pristine securities overnight for central bank reserves is not the same as those same 24 primary dealers' banks creating credit for those demanding it to settle commercial liabilities.

Thanks Audaxes. You're understanding of the actual mechanics is far greater than mine. I just try to make sense of what better informed people say may be happening.

The US construction sector has been the missing link in its post-GFC economic resurgence. It looks like the sector could keep things afloat for the time being.

Is it about the US, though? There seems to be two USD systems at work, the US based USD system which the Fed controls; and the USD system for the rest of the world. The US system is working fine, but the ex-US system is under severe pressure, it seems.

Looks like we can scrub the ETS. Pestilence has achieved climate zealots goals already. "One quarter of world's pigs killed by African swine fever as disease spreads to South Korea"
"...The official line is that 38.7 per cent of hogs in China have been killed but Mr Quilty believes that number will be close to 70 per cent by year's end.
"That equates to close to 20 per cent of global [meat] protein," he said."
https://www.abc.net.au/news/rural/2019-09-18/one-quarter-of-worlds-pigs-...

Is being a climate zealot a bad thing?

In a parallel universe where 97% of the world's scientists are co-conspirators in a climate change hoax and cherry-picked links disprove everything...yes, it's terrible.

Dictating what people eat in a vainglorious attempt to change the climate is more mad than bad. It is only bad when you thing of all the immediate needs like health, education, vaccination, clean water... that climate changer money should have been spent on. No conspiracy needed just noble cause corruption and $1.5 trillion/year gravy train.

True, it's only possible for people to work on one issue at a time...Reducing meat consumption has stopped Bill Gates' efforts around disease eradication in their tracks!

Dictating what people eat in a vainglorious attempt to change the climate is more mad than bad. It is only bad when you thing of all the immediate needs like health, education, vaccination, clean water... that climate changer money should have been spent on. No conspiracy needed just noble cause corruption and $1.5 trillion/year gravy train

Ouch. That looks like it could have been pulled straight from one of Hosking's scripts.

Lack of pig meat is one of the big factors driving current high demand for beef, which in turn is making it worthwhile for Brazilian farmers to burn down the Amazon. It's not a win for the climate.

Why the world isn't running out of farmland. "U.S. farm output grew by 170 percent between 1948 and 2015—at an average annual rate of 1.48 percent. With total input use rising only 7 percent over the same period, productivity growth accounted for most of total output growth during that period. TFP grew at an average annual rate of 1.38 percent, compared to 0.1 percent for total inputs."
"Between 1948 and 2015, labor inputs declined by 75 percent and land inputs fell by 24 percent."
https://www.ers.usda.gov/amber-waves/2018/march/agricultural-productivit...

Haber–Bosch process.

"Modern agriculture is the process of using land to turn fossil fuel into food" - Al Bartlett.

"U.S. farm output grew by 170 percent between 1948 and 2015—at an average annual rate of 1.48 percent. With total input use rising only 7 percent over the same period." Clearly it is not all down to urea inputs.

Total input use rising only 7% since 1948? That figure sounds like complete bollocks
Can you explain how land input also falls 24%?
The US like every where else is running out of viable farmers ... because they must continually lower production costs .. farmers there are not in good shape
Scale has been the corporate way to lower costs and its no longer working
Acres of greenfield land would indeed be a saviour

on second read - it bascially means when you account for far less labour (bigger machines) and add far more UREA the inputs havent risen .... right

Financial markets are still being buffeted by pressures that test the Fed's upper bound and the NY Fed had to buy another $75 bln of securities to hold it within the policy range. In two days, that is an unexpected $125 bln of emergency market activity.

In reality, the Fed actioned temporary open market operations with an overnight maturity.

Tuesday's $53.15 billion repo add, offset by a small reverse repo drain expired on Wednesday. It was replaced by a $75.00 billion repo add and a much larger $18.91 billion reverse repo drain. Both will expire on Thursday. Hence, the totals being bandied about are a lot of nonsense. Details here

Furthermore, EFF traded well outside the Fed's, at the time, 2.00% - 2.25 % stipulated corridor.

As we said yesterday was likely to happen, FRBNY published today an effective federal funds rate for September 17 of 2.30% – 5 bps above the central bank’s target range.

What’s much worse than that was the whole fed funds range. As we pointed out, the most remarkable part of Monday’s fiasco was the percentiles; the 99th being 3.00%! With IOER sitting at 2.10%, that meant banks were choosing to hold reserves and get paid by the Fed only 2.10% instead of moving into fed funds and getting paid as much as 3.00% (and so much more in repo).

In comes the Fed with this additional $53.15 billion in liquidity yesterday, and what happens to the ranges? On a day when the Fed is conducting a major operation, the 99th percentile shoots up another 100 bps to 4.00%! That $53.15 billion doesn’t seem to have been used much or very effectively by those 24 dealer banks, at least not in the way it was meant to have been used. Link

Woe betide any Upper Hutt villagers moaning about rates. You won't see it coming and the world won't know.

https://www.stuff.co.nz/national/politics/115884157/sas-commanders-someh...
https://www.stuff.co.nz/national/politics/115880079/the-sas-is-telling-a...

UH Chief executive part of what is increasingly looking like a SAS omerta cover up with involved parties now using what is known in the legal profession as the Key Defence. This ranges from "I cant remember", "the sun was in my eyes", "I was on leave at the time" to my personal favorite, "it was an error on the part of a junior staffer".

Why is this investigation taking place now? Mapp knew about the killings in at least 2014 as did Coleman.
Also ask yourself why this is not being covered by everyones firestarter and favorite weed mat which seems to think we only need to know the current raves from Hosking.

I am more inclined to think that any war is regrettable, but if you are going to have one then collatoral damage is a certainty. Why be surprised? If blame is to be placed, put that blame on the politicians who sent the troops in.

Oh, honestly, this ain't GeneralPlan Ost we are digging into here.....more of a 'he said, she said' teacup storm....