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90 seconds at 9 am: US and EU factories hum, Chinese factories slowing; stocks fall, bond yields fall; AUD falls; Argentina with currency trouble; NZ$1 = US$0.832 TWI = 78.8

90 seconds at 9 am: US and EU factories hum, Chinese factories slowing; stocks fall, bond yields fall; AUD falls; Argentina with currency trouble; NZ$1 = US$0.832 TWI = 78.8

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of some surprises in the latest state of global manufacturing.

Overnight a range of January PMI's for big countries were released and they show a divergence growing in factory growth rates between the US and now Europe, and China. The US PMI came in at 53.7 despite the recent disruptive cold snap, the EU level at 53.2 a 31 month high, but the Chinese PMI reported a surprise contraction at 49.6, a six month low.

The Chinese surprise caught markets off guard. Gold has jumped in mid-day trade today in London and New York, now up to US$1,260/oz. Oil is up a little in the US, down in the Brent benchmark. Stocks however are falling, with the three New York stock indexes all off about 1%.

UST benchmark bond yields fell sharply - that is, bond prices rose - and the yield for the 10 year is now down to 2.81%.

More importantly for us, it is causing a steady fall in the Aussie dollar although it has not yet affected the Kiwi too much.

In The US, existing-home sales edged up in December, meaning sales for all of 2013 were the highest since 2006, and the median price in December was US$198,000 up almost 10% on the year. American jobless claims were almost unchanged from the previous week. The latest data now shows that the 5.1 million Americans on unemployment benefits has been cut to 3.7 million following the Congressional budget cuts that kicked in in January 1. It's tough to be unemployed long-term in the US.

In Argentina, they have a new currency crisis with the peso falling the most since 2002. They are restricting internet shopping in a bid to slow the fall.

In Australia, homebuyers are borrowing at the fastest pace in four years amid record prices, straining debt levels already among the developed world’s highest as interest rates are set to climb. The value of new mortgage approvals jumped 25% in November from a year earlier, the fastest annual pace since September 2009.

Here at home, look out for the latest edition of the Crown accounts as at November. These will become important markers for the upcoming election campaigns.

The NZ dollar starts today pretty much unchanged at 83.2 USc, but the Aussie is falling and the Kiwi is now at 94.8 AUc and very close to its all-time post-float high. The TWI at 78.8.

If you want to catch up with all the changes on Thursday, we have an update here.

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

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2 Comments

Am intrigued at the rather shrill calls for interest rate hikes, when the currency will be doing some irreparable harm on its own. I would have thought that if the NZD AUD cross stays anywhere near where it is now, that interest rate hikes out of step with the rest of the world are out of the question.

We haven't even got inflation to the mid point of the target band yet, let alone materially above it. I doubt Bill English is on a hot line to Mr Wheeler to raise rates in an election year either, especially while he's still got to fund a gaping deficit. English probably is though busy ringing power companies asking them to keep their prices down.

Last March's CPI change was 0.4%; and at 1.6% currently, we are still 0.4% below the target. So we would need a 0.8% increase this quarter to immediately get to the target. I understand the RB takes of course a longer view, but on the bold assumption that it actually has some eye on rebalancing the economy, and on the current account as well as inflation, Wheeler surely will want the currency down first before doing anything. 

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A repeat of a posting of mine that repeats its not todays rate that counts, its 18mths times rate without a hike that the RBNZ is reacting to...   Remember that all of the banks pretty much have ex-RBNZ economic staff working for them now (in some cases it seems almost all) so the bank have a very good idea of exactly what the RBNZ is looking at and putting into their models to forecast inflation, and therefore indirectly where the OCR should be now and into the future.    Youre right, all of those stats that I quoted above are as you described them, either a fact (e.g. Current terms of trade), a forecast (e.g. the 2014 GDP which just about everyone has it strong in a 3-4% range) or a survey of sentiment. But again please remember, since monetary policy only impacts the economy 12-18 months out, its forecasts of future inflation, and therefore of the leading indicators that provide guides to that, that matters. The important point about them is that when you run corellation studies over these factors they paint a picture about the future for the RBNZ. For instance you don't get 3.5% GDP  levels if business and consumer sentiment is poor etc. and 3.5% growth levels inevitably raise inflation levels in this country etc. So the RBNZ models all the important factors and it splits out projected inflation tracks for them and they can see if they've got a problem or not - currently that modelling, because of all those factors I quote, plus others, will be showing them that they have a growing problem which is getting worse with each stat /survey that comes out which mostly have been beating their expectations for those.     Imagine the situation if the RBNZ waited until it actually had the high inflation and then acted. E.g. Oh dare inflation now running at 2.50% with an upward projectory, let's hike the OCR. Where  do you think inflation would be in 18 months time when those hikes have impacted the economy, 5% as it did in 2007, and what new job do you think Wheeler would be looking for ? What's worse, as it powered up through 3% do you think the RBNZ would be timidly hiking by only 25bps amounts, and do you think that they would be able to stop around 5.5% as the market currently has priced into fixed rates - short answer is no, it would be very nasty for borrowers, but fortunately the RBNZ and the market knows all this, it's just some of the public and complainers that don't. But some like yourself try to educate themselves which is good to see.    
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