Here's my summary of the key news overnight in 90 seconds at 9 am, including news US manufacturing output unexpectedly expanded in September, sparking a rally in US stocks and a rise in oil prices.
The Institute for Supply Management (ISM) survey showed a rise to 51.5 in September from 49.6 in August. Any result over 50 indicates expansion and the result was above the most optimistic survey. See more here at Bloomberg.
US stocks rose 0.6% and the oil price rose 0.3% on hopes the world's largest economy might be recovering. See more here at Reuters.
Also overnight, US Federal Reserve Chairman Ben Bernanke boosted expectations of monetary stimulus for longer, saying he would keep short term interest rates near 0% into mid 2015, even if the US economy began recovering. He said inflation pressures remained subdued. See more here at Bloomberg.
However, factory production elsewhere contracted. The Markit Economics gauage of factory production in the 17 nation Euro-zone was 46.1, showing a clear contraction. A Chinese factory production index showed the 11th month of contraction in New Zealand's second biggest export market.
Japanese business confidence also slumped in the last quarter. See more here at Bloomberg.
The weak outlook for economic growth globally and the prospect of near 0% interest rates for much longer in America is extending expectations of low inflation and low interest rates in New Zealand. Currently, economists expect the Reserve Bank of New Zealand to hold our official interest rates at 2.5% until late 2013, before only a gradual and small rise to around 3.5%. These low interest rates are fueling extra competitive activity between mortgage lenders.
Meanwhile, across the Tasman, Australia's economy is slowing too. Australia is New Zealand's largest trading partner.
Economists and markets are pricing in a 60% chance of a 25 basis point cut in Australia's cash rate to 3.25%. See more here at SMH.com.au.
This closing up of the gap between Australian and New Zealand interest rates makes the New Zealand dollar relatively more attractive than the Australian dollar. This has driven a rise in the New Zealand dollar from around 77.5 Australian cents to almost 80 Australian cents in the last month. This has helped boost the Trade Weighted Index to near one year highs of 73.8.
This will put further pressure on manufacturing exporters who sell into Australia and on tourism operators in New Zealand that cater to Australians.
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2 Comments
Iron ore prices soon to be half- you think an Aussie crash will do nothing to the property market, here? http://www.cnbc.com/id/48923482/Bear_Case_Iron_Ore_to_Hit_50_in_2013
Huge ripple effect as China shuts down steel production- who will buy Aussie mined goods? Give it a year, we'll find out- nobody http://www.reuters.com/article/2012/09/27/us-china-baosteel-idUSBRE88Q03720120927
Meanwhile property still is a hedge against inflation, like gold. However, the huge bubble creasted since 2001 will offset significant future capital gains in porperty.
The same cannot be said ofr gold, which offsets money printing. The trend of # of ounces to buy a house will continue. In 1980, what was it? 50 ounces?
Aussie must have a rate cut to avoid devastation of their property markets. It won't work. Same will happen here. That is the real reason banks want you to lock- they know which direction rates are headed.
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