US Fed ends loose capital rules; Canada retail struggles; India recovers hesitantly; commodity prices eye bull run; Aussie retail struggles; UST 10yr at 1.73%; oil holds but gold rises; NZ$1 = 71.7 USc; TWI-5 = 73.8

Here's our summary of key economic events overnight that affect New Zealand, with news we may be entering a commodity 'supercycle' again, one that may set the scene for a return of product price inflation.

But first in the US, the Fed has announced that its looser capital requirements for banks during the pandemic will expire at the end of this month, a signal that they expect the US economy to speed out of its COVID funk.

In Canada, that recovery is mixed at best. Their retail sales are still shrinking on a month-on-month basis, even if they are up a minor +1.3% above the pre-pandemic level a year ago in February 2020. Those year-on-year gains are shrinking.

In India, they may be getting on top of their pandemic spread and their economy is returning to a more normal state. Vaccination rates are rising fast. But for India, "normal" isn't a helpful term. Consumer confidence isn't high and there remains a lot of industry slack. Inflation, perhaps a localised case of 'stagflation', is embedded and unlikely to go away, meaning their central bank has few opportunities to lower the cost of debt in India. That makes it an expensive place to invest.

India is the world's fifth largest economy with a high growth rate. But that hides an inefficient structure that policymakers are finding it hard to reform. However it is making economic progress, especially if viewed from a longer perspective, and there are many economic stars in their economy. Despite this, it is unlikely Indian growth will be at the forefront of leading the global economy out of its pandemic setbacks. It is more likely to be a beneficiary of others (US, Japan, China) than a driver on its own. It remains an underperformer, is a long way from emulating the economic success of South Korea or Taiwan or even China. But its sheer size means it gets a seat at the global table of policy makers.

In China, trading in iron ore futures shows buyers are failing to drive the price lower, as Beijing wants. Yes, it took a small dip a week ago, but has risen since and although it is not quite back to prior levels it certainly hasn't retreated significantly and remains +85% higher than a year ago and +30% higher than at the start of 2021.

If the US and Japan economies rise in 2021 as anticipated, this could put the squeeze on China. It won't then be the dominant buyer of many key commodities and that will likely raise prices, itself an inflation-fueling event.

In fact, analysts are now seeing key commodities like copper with huge upside. Miners are reluctant to bring on more capacity due to being restrained by regulation, and being burned the last time they did that through an oversupply rush. For them, a better strategy is to rise what they thing is a new "supercycle". Similar industry tracks are in place for lithium. If it turns out like that, it will be inflationary - the age of product deflation may be ending..

Australian retail turnover fell at a -1.1% in February from January in a surprise retreat. A rise of +0.4% was expected to build on the +0.3% rise in January, but that is not what they got. Their snap lockdowns in the period had a larger impact that assumed. However on a year-on-year basis, February 2021 retail turnover was +8.7% higher than for February 2020. This will be the last of the 'fair' year-on-year comparisons for a while. (We will tend to compare with two years ago from now on.)

In Australia, the AFR is reporting that parents (the Bank of Mum & Dad) are lending, giving or underwriting record amounts for houses purchase deposits to help their adult children buy their first home. The claim is that the Bank of Mum and Dad is Australia’s ninth-biggest mortgage lender with a "loan book" of AU$34 bln (estimated from a sample). This support is now averaging more than AU$89,000, an increase from AU$74,000 in the past 12 months, and enough for a 20% deposit in most of the nation’s postcodes outside Melbourne and Sydney. The AFR quoted data is according to an analysis by researcher Digital Finance Analytics. (For perspective, Australia's largest home loan lender (CBA) has a loan book of AU$468 bln across both owner occupied and investment properties. The total market is AU$1.806 tln.)

In New York, Wall Street is lower in early afternoon trade today with the S&P500 up +0.3% on the day, but down -0.4% for the week. In between however it reached an all-time record high on Thursday (NZT) but only just. Overnight European markets were sharply lower, down an average of -1%. Yesterday, all the main Asian markets closed with even larger retreats with Tokyo down -1.4%, Hong Kong also down -1.4% and Shanghai down -1.7%. For the week these markets were mixed with Tokyo up +0.2%, Hong Kong up +0.9%, and Shanghai down -1.4%. The ASX200 ended yesterday down another -0.6% for a weekly loss of -0.9%. However the NZX50 Capital Index was the outlier and ended up +0.2% for a weekly gain of +0.5%.

The latest global compilation of COVID-19 data is here. The global tally is still rising and at a fast pace, now at 122,044,000 and up +617,000 in one day. Global deaths reported now exceed 2,695,000 and +21,000 in one day, and much of that from the raging situation in Brazil. Vaccinations in the world are rising fast however, now up to 410 mln and in the US a third (114.7 mln) have now had this protection and they are achieving a very fast rollout. The number of active cases there fell yesterday to 7,283,000 (-14,000 more in a day), resuming the reducing trend and taking the number currently infected down to under 2.2% of their population.

The UST 10yr yield is unchanged from yesterday at just on 1.73% and a rise of +9 bps in a week to a 15 month high. The US 2-10 rate curve is staying steeper at 157 bps. Their 1-5 curve is also steeper at +81 bps, while their 3m-10 year curve is holding at +171 bps. The Australian Govt 10 year yield is down -7 bps at 1.83%. The China Govt 10 year yield is softer by -1 bp at 3.27%. And the New Zealand Govt 10 year yield is going the other way, up +3 bps at 1.83%. That is a net rise of +9 bps in a week.

The price of gold starts today up +US$10 in New York at US$1743/oz. A week ago this price was -US$22 lower.

Oil prices are holding at the lower level it dropped to yesterday, now at just under US$61.50/bbl in the US, while the international price is now just under US$64.50/bbl. American drillers are recommissioning wells at a faster rate now.

The Kiwi dollar opens today at over 71.7 USc and almost exactly where it was this time last week. In between it got up to up to 72.7 following the US Fed meeting but couldn't hold that halo for more than a day. Against the Australian dollar we are firmish at 92.6 AUc. Against the euro we little-changed at 60.2 euro cents. That means our TWI-5 opens today at 73.8 and very little different to where it was a week ago.

The bitcoin price will start today at US$58,868.94 and down -1.2% from this time yesterday. But for the week it is up +2.2% and in between reaching a record high of US$61,557 on Monday. Volatility in the past 24 hours has been +/- 2.7%. 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 ».