ECB bond buying program announced; China adds liquidity; UST 10yr yields rise again; NZ swaps fall; oil down again, gold up; NZ$1 = 75.4 USc, TWI = 78.1

Here's my summary of the key issues that affect New Zealand overnight with news the ECB has fired its bazooka.

The European Central Bank took the ultimate policy leap overnight, launching a government bond-buying program which will pump hundreds of billions of new money into a sagging euro-zone economy.

It will pump €60 bln of new bond buying into markets until September 2016, all up a €1 tln plan. While late, it is bolder and more sweeping than expected, reflecting the reality that the status quo will not do.

The immediate consequences have been local. The value of the euro has fallen against the US dollar. And Denmark is in a fight to maintain its peg to the euro.

But the impact on us? Probably quite small. Japan and the US have undertaken larger bond buying programs and the Chinese stimulus efforts have been big too. This eurozone action doesn't change much for us, other than it is just another one. After all, we export only about 10% of our trade to the area, import about 15%. In other words, somewhere close to 90% of New Zealand's trade is not with the eurozone.

Under the radar overnight China’s central bank injected about US$8 bln in cash into their money markets, spurring speculation that further loosening of monetary policy may be on the way, as their economy grows at a slower rate.

In the US, weekly claims for unemployment benefits rose although the overall trend remains lower.

In New York, benchmark UST 10 year bond yields are higher again today having risen +10 bps today to 1.89%. But swap rates in New Zealand are going the other way and start today sharply lower - and now completely flat. The 1-5 curve hardly exists at just +4 bps. The two year swap rate fell -6 bps to 3.63%.

The oil price slid to under US$47/barrel range while Brent crude is now under US$49/barrel. Oil futures tumbled overnight after the US Energy Information Administration announced the largest build up of American crude oil stocks in at least 14 years. Those stocks jumped four times what markets were expecting.

On the other hand, gold popped back up. Its price is now US$1,299/oz.

And the latest USDA dairy price monitor of Oceania showed prices for milk powders rising modestly, mimicking the trends in the last Fonterra auction.

We start today with the New Zealand dollar a little lower again, today by about ½c. It is at 75.4 USc, at 93.1 AUc and the TWI is at 78.1.

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 »