Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the New Zealand dollar briefly topped 80 USc overnight on more confidence about the economic outlook for China, which drives growth and commodity prices in our region.
China's economy grew 8.9% in the December quarter from the same quarter a year earlier. This was the slowest growth rate in two and a half years, but was better than expected.
It also reinforced expectations that China's authorities would ease monetary and fiscal policy to prevent a further slowing of growth. See more here at Bloomberg.
The hope that China can avoid a hard landing boosted expectations that commodity prices and demand from China would remain high, which helped lift growth currencies such as the New Zealand and Australian dollars, along with the Brazilian real.
However, the head of China's Statistics Bureau Ma Jiangtang said a moderation of growth was desirable and he pointed to China's current five year plan, which is for growth to average 7% over the 5 years to 2015.
Chinese stock markets rallied 4.2% on signs of a soft landing in China, while US stocks were up 0.8% and European stocks rallied 1.5%.
European stocks were helped by a sharp fall in Italian and Spanish bond yields, which eased some of the concerns about the European sovereign debt crisis.
Spain sold almost €5 billion of short term bonds in well received auctions. The one year bond yield fell to 2.05% from over 4% last month.
The key driver is strong demand from banks for short term government bonds after these banks borrowed almost €500 billion from the European Central Bank. Their governments are encouraging them to invest this cheap money from the central bank, which costs them 1%, in government bonds yielding 2% or more. This has become known as the LTRO (Long Term Refinancing Operation) carry trade.
Here's a nice description of the LTRO carry trade here at FT Alphaville (no pay wall)
Meanwhile, closer to home, the NZIER's Quarterly Survey of Business Opinion showed a deterioration in sentiment as the excitement around the World Cup faded through November and December. See our article on the NZIER's survey here.
The NZIER now expects the Reserve Bank will hold the Official Cash Rate until late 2013 and said there is a chance of a contraction in New Zealand's GDP early this year.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.