Here's our summary of key economic events over the weekend that affect New Zealand with news it's a week where central banks may have to rescue dysfunctional public policy again.
First in the US, there is another Fed policy position review this week on Thursday and all eyes will be on tapering signals. But this decision is likely to be overshadowed by the growing partisan fight in Congress over raising their debt ceiling. While the Democrats granted the Trump presidency a holiday from this self-imposed restriction, the Republicans are using it to hobble the Biden spending plans. This seriously raises the likelihood of a technical US default soon - they will make their debt payments, just not on the scheduled dates.
This intransigence triggered UST bond yields to rise at the tail end of last week. It may also weigh on the Fed's decision-making.
And the closely-watched University of Michigan sentiment survey came in at the same level in September as it was in August - and that isn't good because August was a sharp dive to a decade low. The worries all center around inflation. There is unease that it won't be transitory, which for consumers could be self-fulfilling. A strong view is that now is not a good time to buy a house.
Equity markets are showing concern. While the overall S&P500 fall in September so far has been -2.0% market watchers are eyeing a larger decline than we had in September or October 2020. With the S&P500 futures indicating a -1.3% fall when Wall Street opens tomorrow, that would take the loss so far this month to -3.3% and something market watchers will take seriously, wondering what it signals.
North of the border, Canada goes to the polls tonight in a Federal election. Apparently it is too close to call according to most polls.
China's central bank also reviews rates this week, on Wednesday. No change is expected but more targeted liquidity measures are expected as their economy grapples with a general slowdown, the pandemic, and property industry stress.
The central bank injected NZ$20 bln (¥100 bln) into their financial system late on Friday through seven and 14-day reverse repurchase agreements, the most since February, as the Evergrande situation seems to be getting worse. Evergrande bond holders can't find buyers, which points to sharp losses and ugly margin calls, both of which can cause a cascading impact and general contagion.
Worse for China, a top analyst sees Q3 delivering zero growth as the overall economy slows fast now. One reason is that their car-making industry is stumbling and for the same reason the US auto industry is too - a lack of computer chips.
This overall economic pullback has meant that Chinese firms are far more reluctant to invest overseas. Through August, the 2021 outbound FDI levels are more than -4% lower than in 2020.
And the iron ore price has dived further in China in what is being described as a "brutal collapse". It is now below ¥600/tonne and a -55% fall since it peaked May 2021. Their environmental agency is planning a new winter air pollution campaign that is expected to curb steel mill activity sharply. There are tales of 'panic selling' surfacing now, especially in Australia.
Meanwhile, China's bid to join the TPP comes with problems for them, as the process requires all existing members to agree, and that includes sceptics like Australia and Japan. It may have boxed itself in to having to either negotiate seriously for economic reform with these antagonists, or be seen as just an opportunist trying to derail the new AUKUS alliance. Either will be somewhat humiliating for China. If it feels that way, it could lash out.
Singapore's exports sagged in August and by more than expected. A good bounce-back from a weak July was expected but it didn't happen, so this has been a big miss. In fact August exports were lower than for July and that ate into the year-on-year gains which are now pretty modest.
In Australia, they have approved a major expansion to coal mining in an FU just before the United Nations Cop26 climate conference in Glasgow, Scotland, where Australia will be pressed to commit to tougher emissions reduction targets. It now seems likely Australia will ignore those calls.
And there were another 10834 new community cases in NSW reported yesterday with another 986 not assigned to known clusters, so not quite as severe there although that may just be weekend reporting. They now have 14,021 active locally acquired cases. Victoria reported another 507 new cases yesterday, so it is still bad there too. Queensland is reporting zero new cases. The ACT has 17 new cases. Overall in Australia, more than 47% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
The UST 10yr yield opens today at just over 1.36%, off -1 bp from this time Saturday. The US 2-10 rate curve is at +114 bps and unchanged. Their 1-5 curve is unchanged too at +79 bps, while their 3m-10 year curve is unchanged at +131 bps. The Australian Govt ten year benchmark rate starts today at 1.33% and unchanged. The China Govt ten year bond is at 2.89% and down -2 bps. The New Zealand Govt ten year is now at 1.89% and up +1 bp.
The price of gold will start the week at US$1754/oz which takes it back to about where it dipped briefly to in mid-August. It wasn't a good week for the yellow metal.
But oil prices have drifted -50 USc lower over the weekend so in the US they are now just over US$71.50/bbl, while the international Brent price is now under US$75/bbl.
The Kiwi dollar opens today at just on 70.3 USc and little-changed since this time on Saturday. Against the Australian dollar we are at 96.9 AUc. Against the euro we are just under 60.1 euro cents. That means our TWI-5 starts the week at just under 73.8, still near the top of the 72-74 range of the past ten months.
The bitcoin price has risen today, now at US$47,406 and a minor +0.9% firmer than where we left it Saturday. Volatility in the past 24 hours has been modest at just under +/- 1.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».