90 seconds at 9 am: UST 10yrs yields sink; US Fed targets big bank liquidity; China PMI shines; POBC tightens; EU PMIs weak; NZ$1 = US$0.835 TWI = 76.7

Here's my summary of the key overnight news in 90 seconds at 9 am, including news that data out of China is driving world markets.

But first, US Treasury 10-year note yields traded at almost a three-month low as signs of a loss of momentum in economic growth reinforced the view that the Federal Reserve will delay slowing its stimulus program until next year. 

The US Fed is proposing that the biggest American banks be required to hold enough easily sold assets to survive a 30-day credit drought under liquidity rules that exceed international standards adopted earlier this year.

But it is China that is shaping the direction in western markets as mixed messages emanated from the world’s second biggest economy.

First, the good news. The HSBC Flash Manufacturing PMI came in at 50.9 for October, up from 50.2 in the previous month and well above consensus estimates. The key sub-indices all performed relatively strongly, with output and new orders at six- and seven-month highs.

China’s slowing growth has been a concern for the markets this year, so a stronger reading from this key indicator was welcomed.

But the optimism was tempered by renewed ructions in their interbank market. The overnight repo rate moved above 4% and the seven-day rate hit 5%, the first time it has done so for four months. The People’s Bank of China has withdrawn about 100 billion yuan over the past two weeks, and this reduction in liquidity has probably caused conditions to tighten and consequently pushed rates higher.

Signs that the Chinese property market is overheating prompted Beijing’s municipal government to introduce both some new and some restrictive measures this week, and it is possible other cities will follow the capital’s lead. The PBOC’s liquidity withdrawal could be seen as the next stage in the government’s efforts to reduce debt at the local level.

Lacklustre Eurozone PMIs, as well as mixed corporate results, were also out overnight. Banks were among the worst performers after Credit Suisse missed estimates and Santander came in below revenue forecasts. In the US, Ford beat expectations while Dow Chemical’s results disappointed.

In late trade, the Dow is up about 0.5%, oil is still weak as supplies flood the markets - natural gas inventories are particularly large - but gold is up, now touching US$1,350/ounce.

The NZ dollar starts today lower at 83.5 USc, 86.8 AUc, and the TWI is at 76.7 a five week low.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »