Here's our summary of key economic events overnight that affect New Zealand with news the Fed has pulled the trigger on tapering.
The US Federal Reserve said this morning that the US economy has made progress toward employment and inflation goals and that if progress continues broadly as expected, a reduction in the pace of asset purchases may soon be warranted. The Fed also signaled interest rate may need to rise faster than initially expected, with 9 of 18 policymakers projecting borrowing costs to rise in their dot plot for 2022. Their signals for the move higher from there is even stronger.
Meanwhile, the partisan standoff on the US debt ceiling continues. Congress achieved the easy part - getting the House to approve. The hard part looms, Senate approval. Janet Yellen is frustrated, as are most former Treasury Secretaries. If it continues, a credit rating downgrade is entirely possible for the US. It is not unprecedented.
US existing home sales slipped in August by -2%, dampened by high prices and low choice. There is 11 weeks supply at current sales levels which is low for them. But there is a stirring in their mortgage market with application levels turning higher recently while mortgage interest rates are flat. With recent data showing consumers expect quite high inflation to keep hitting them, perhaps they sense interest rates are as low as they will go in this current business cycle.
European consumer sentiment is holding on to its strong levels in September, far above their long term average. This has been the case for three months now, taking it back to pre-pandemic levels.
The Chinese central bank left its key interest rates unchanged again, but it has pushed NZ$25 bln in liquidity into markets to underpin the Evergrande confidence crisis. There are reports the home team is coming to the rescue of Evergrande with a "negotiated" coupon arrangement with bondholders. It will be very interesting to see if that deal applies to foreign holders or not. That interest payment to foreign bondholders is due later today.
In the rough-and-tumble world of trade negotiations, it seems that Taiwan has now formally applied to join the TPP. It is a move sure to anger China, which made its own quixotic application recently.
The pandemic pressures and uncertainties are driving Australians to save. According to official data, household had AU$162 bln in savings as at June 2021, double the previous peak of $80.5 billion saved by households in 2015. And separate estimates show that the surge is only just starting, rising to AU$230 bln by the end of this year. A level like that is expected to prop-up consumer spending and bolster their economy, once it emerges fully from lockdowns.
And staying in Australia, there were another 1035 new community cases in NSW reported yesterday with another 844 not assigned to known clusters, and these numbers are lower than recently. They now have 12,810 active locally acquired cases. Victoria reported another 628 new cases yesterday, and so worse there again. Queensland is reporting zero new cases again. The ACT has 16 new cases yet again. Overall in Australia, more than 48% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
The S&P500 is up +1.0% in afternoon Wednesday trade in a broad rally. That follows an even stronger rally in European markets where it was bookended by Frankfurt's +1.0% rise and London's +1.5% rise. Yesterday, the vert large Tokyo market ended down -0.7%, but Hong Kong was up +0.5% and Shanghai was up +0.4%. The ASX200 ended up +0.3% as did the NZX50 Capital Index.
The UST 10yr yield opens today at just over 1.31% and -2 bps lower from this time yesterday. The US 2-10 rate curve is a little flatter at +109 bps. Their 1-5 curve is marginally steeper at +77 bps, while their 3m-10 year curve is unchanged at +127 bps. The Australian Govt ten year benchmark rate starts today at 1.25% and down -2 bps. The China Govt ten year bond is at 2.88% and soft. But the New Zealand Govt ten year is now at 1.89% and up +2 bps from this time yesterday.
The price of gold will start today little-changed at US$1776/oz.
But oil prices have bounced higher overnight and compared to yesterday's levels are up +$1.50 to just under US$72/bbl in the US, while the international Brent price is now just over US$75/bbl.
The Kiwi dollar opens today at just on 70.2 USc and firmer since this time yesterday. Against the Australian dollar we are little-changed at just under 96.8 AUc. Against the euro we are firm at 59.9 euro cents. That means our TWI-5 starts today at 73.6 and moving back towards the top of the 72-74 range of the past ten months.
The bitcoin price has bounced back a little today, and is up at US$43,240 and a +3.4% rise from this time yesterday. Volatility in the past 24 hours has remained extreme at just under +/- 4.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».