Massive ECB speculation; Chinese banks under pressure; US housing starts surge; Canada cuts rates; UST yields firmer; NZD slides; NZ$1 = 75.7 USc, TWI = 78

Here's my summary of the key issues that affect New Zealand overnight with news of a shock rate cut by a G7 country.

But first, the shape of the ECB bond buying plan is now subject to intense speculation. Overnight it was 'revealed' that the central bank is considering buying €50 bln per month until the end of 2016, which would make it a massive €1.2 tln stimulus injection. (That is NZ$1.8 tln, or about equivalent to more than eight years of NZ GDP.)

Equities rose world wide, bond yields fell.

In China, their money-market rate climbed the most in a month on speculation banks will start hoarding funds to meet a seasonal pickup in cash demand before the Chinese New Year holidays which start on February 19.

That same banking system will face rising pressure over the next few years from bad loans, narrowing of net interest margins and financial disintermediation due to reforms and the economic slowdown, according to official Chinese state media reports.

In the US, building starts for new single-family homes raced to their highest level in more than 6½ years in December and permits surged; the data was seen as a hopeful sign for their sluggish housing market recovery which has lagged the rest of their recovery.

North of the border, the Bank of Canada has shocked markets with an unexpected rate cut - from 1% to 0.75%. This is in direct response to the lower oil price, which the bank said it expects will recover to around $60 in the medium-term, and it is concerned it will erode growth and inflation for Canada. Oil is a core export for Canada.

Back in New York, benchmark UST 10 year bond yields are slightly firmer today having risen a few bps to 1.80%. But swap rates in New Zealand start today sharply lower. The 1-5 curve is now just 8 bps. The two year swap rate is just 3.69%, its lowest in more than two years.

The oil price is up $1 overnight to about US$48/barrel range while Brent crude is at US$49/barrel. 

On the other hand, gold is down slightly. Its price is now US$1,288/oz.

We start today with the New Zealand dollar lower again, today by more than 1c. It is at 75.7 USc, at 93.6 AUc and the TWI is at 78. US exporters are starting to worry about the recent rise in their currency.

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

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