Here's my summary of the key news overnight in 90 seconds at 9 am, including news of a big selloff.
Equity markets in New York lost 2% on Friday, bond markets saw yields fall sharply with the benchmark UST 10yr bond yield falling to 2.72% its lowest since November.
For us that means a sharp dip in swap rates and further flattening of the curve. It also saw our currency shift a little lower as we were dragged down with the Aussie.
The underlying reason for this selloff is a rush to safety and a rise in risk aversion all prompted by growing fears emerging markets like Argentina, Thailand, Russia, Venezuela and Indonesia - even Malaysia and South Africa - will all struggle to handle the fallout from the US Fed's tapering.
And the signs are not good in those countries - they seem to have made little preparation for the consequences of a rise in interest rates and the end of cheap credit.
This Thursday we will get to know the extent of the Fed's tapering speed. They cut back by $10 bln per month in December and most experts expect a similar move again this week, reducing the US$85 bln US stimulus per month US$75 bln, and now to US$65 bln per month. The bond market rally sort of helps them because they don't have to worry about yields spiking as they turn off the tap.
The Fed decision will come just before the RBNZ's own OCR decision. The markets rate it a higher chance of an OCR rise than the experts do, but perhaps the emerging market turmoil is tempering those market bets.
Over the weekend, ECB boss Draghi said there had been a 'dramatic improvement' in the Eurozones recovery. The IMF boss however kind of rained on his parade saying she worries about the fragile nature of the EU improvements and is especially worried about the threat of deflation.
For something slightly different, the Chinese media has identified New Zealand as a top holiday destination for their heavy hitters. Despite our currency, our tourism industry is doing very well at present.
The NZ dollar starts today a whole cent lower at 82.1 USc, 94.5 AUc and the TWI is at 77.8.
If you want to catch up with all the changes on Friday, 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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7 Comments
Deflation is bad because it weakens/reduces the purchasing power of your currency, which means your debt increases in real terms.
There is a call for falling house prices because their value is seen as unnaturally high, and not supported by underlying economic activity.
US natural gas hit $5.20 on Friday, up 170% from its low in April 2012, and its highest for over 3 years. Even before the latest cold spell it was trading well north of $4.
I recall the claim made here and elsewhere that the US fracking 'revolution' meant that US natural gas prices had only one way to go and that was down.
Clearly those claims were bulls+++. Hardly surprising when people do not do their research. The 'Red Queen' raises her head.....
Whine on.
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