Here's our summary of key economic events overnight that affect New Zealand with news markets are struggling to make sense of a world economy in transitions, both out of a pandemic, and into a new era where sustainability is a key policy driver.
But first, a Federal Reserve official said overnight that he sees the first rate hike by the American central bank coming as early as 2022. This is way earlier than the recent indications from the Fed's own meeting dot-plot. Some people like the new shift. But it is a view that unnerved Wall Street, delivering an almost -1% retreat. Oddly, bond markets reacted by driving down yields, an unexpected shift.
More technically, the US Fed's balance sheet rose above US$8 tln for the first time this week, a rise of +$113 bln. A key driver is banks stashing cash there, rising +US$200 bln in a week, so without that surge the Fed's balance sheet would have shrunk. As confidence in the prospects for the US economy rises, bond spreads between risk-free debt and commercial bond yields are falling, and quite sharply. But that renewed rush to invest in commercial opportunities is seeing banks park the funds allocated temporarily at the Fed before they can be disbursed. It means that 9.3% of the Fed's balance sheet are these parked funds, up from 6.9% last week, quite a move.
Along the US-Canada border, there are two events to report that affect trade. First, the Americans are unhappy the Canadian government is keeping the border closed to people movements based on the pandemic risks. But perhaps more importantly, the Lake Onartio/St Laurence Waterway levels are now so low they are affecting shipping in one of the world's busiest waterways. This is adding to supply-chain difficulties and adding to shipping costs with echos internationally.
Canadians took out almost C$18 bln worth of new mortgage debt in April, the fastest monthly increase on record and enough to bring their total housing debt to almost C$2 tln and a +7.8% annual rise. (In Australia, and economy just slightly smaller than Canada, total housing debt exceeds AU$1.8 tln, and it is rising at about +6% pa.)
In China, reports are filtering out that Beijing is detaining and arresting analysts who report on crop yields. This sort of work is very hard to do unless you tour and observe crop regions first hand (which is how it is done is most countries). But independent reports have been snuffed out in China over the past few weeks. It does raise the question about why Beijing needs to be so heavy handed on this arcane, technical corner of market assessments.
China is still not getting iron ore or coal prices down. Threats against 'speculators' are growing, but so far it seems this latest rise is more a reaction to regulators limiting supply.
In Germany, producer prices are zooming higher, with input prices up +7.2% in May from the same month a year ago. That is their steepest annual rise in 13 years.
In Australia, an influential economist now says their official cash rate will start rising in 2023.
Separately in Australia, their largest home loan lender has told brokers that they will assess borrowers on the basis of a 6.77% mortgage rate. This is now well above the assessment floors of the other major banks in Australia where ANZ is at 5.1%, Westpac 5.05% and NAB 4.95%. (We have an update of New Zealand serviceability test levels here.)
Wall Street is trading -0.91.3% lower on the S&P500 in afternoon trade and heading for a weekly loss of -1.9%, which may be the worst week of the year for them. Overnight European markets all fell quite hard and by about -1.8%. Yesterday the very large Tokyo market ended its session down another -0.2% for a weekly retreat of -0.7%. But the Hong Kong market was up +0.9% and reducing its weekly loss to -0.2%, while the Shanghai ended little-changed on the day for a weekly but suffered a rather large weekly loss of -2.5%. The ASX200 ended up a minor +0.1% but that is a weekly gain of +0.9%. The NZX50 Capital Index rose a minor +0.1% on Friday to end a week with virtually no net change.
The UST 10yr yield starts today down -6 bps at 1.45% and giving up all of its gains since mid-June. The US 2-10 rate curve is very much flatter at +118 bps. Their 1-5 curve is unchanged however at +80 bps, while their 3m-10 year curve is much flatter as well at +140 bps. The Australian Govt ten year benchmark rate starts today at 1.53% and down -2 bps. The China Govt ten year bond is still at 3.15%. And the New Zealand Govt ten year is now at 1.80% and unchanged at its higher level.
The price of gold starts today at US$1770 which is down another -US$9 from this time yesterday. And that makes it down -US$111 or -5.7% in a week. Silver is unchanged today.
Oil prices are up +US$1 today at just under US$71.50/bbl in the US, while the international Brent price is on US$73/bbl.
The Kiwi dollar opens today at 69.4 USc and down another -½c since this time yesterday. That makes it a -1¾c fall in a week taking this key rate to its lowest since November 2020. Against the Australian dollar we are little-changed at 92.6 AUc. Against the euro we are soft at 58.5 euro cents. Currency commodities are out of favour. That means our TWI-5 starts today at 72.1 and a six month low.
The bitcoin price is now at US$35,613 and down another -5.9% from this time yesterday and -4.9% lower than this time last week. Much of today's fall has come in the last hour. Volatility in the past 24 hours has been very high at +/- 4.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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