90 seconds at 9 am: Yellen's 'patient' message

Fed signals rate rises coming; China cuts growth targets, Singapore trims peg; Australia wary of inflation; NZ$1 = 74.6 USc, TWI = 77.5

29th Jan 15, 8:07am by David Chaston

Here's my summary of the key issues that affect New Zealand overnight with news of the US Fed's latest update.

In a statement the US Fed has confirmed it is on track to start raising interest rates, probably in mid 2015 but they said the will "be patient". They cited rising economic activity, lower jobless levels and rising incomes.

The Statement broadly confirms market signals which expects them to start the first increase mid-year.

Wall Street is also higher today, propelled by stellar earnings reports from both Apple and Boeing.

China will cut its 2015 growth target to around 7%, its lowest goal in 11 years, as policymakers push through reforms intended to make the economy more driven by market forces. It also announced it will plan ahead in three year blocks rather than just focusing on the year ahead.

In Athens, financial markets were stalked by default fears overnight because the new anti-bailout government appeared determined to defy the country's international creditors.

Not only are the Fed and the RBNZ reviewing their policy rates today, yesterday Singapore eased its monetary policy in an attempt to keep its currency from rising further. Low inflation was a key driver.

In New York, benchmark UST 10 year bond yields are at 1.80%. Swap rates in New Zealand are unchanged from yesterday.

The oil price fell marginally overnight and is now just under US$45/barrel while Brent crude is just under US$49/barrel.

Gold is basically unchanged and is now at US$1,287/oz.

We start today with the New Zealand dollar unchanged this morning after it failed to hold an attempted strengthening overnight. It is at 74.6 USc, down against the Aussie at 93.5 AUc and the TWI is still at 77.5.

The falling Aussie dollar has the Australian's wary of a coming rise in inflation.

China's yuan broke into the top five as a world payment currency in November, overtaking both the Canadian and Australian dollars, global transaction services provider SWIFT said overnight.

At nine this morning, we have full coverage of the RBNZ OCR review.

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 »

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20 Comments

by MortgageBelt | 29th Jan 15, 8:19am 1422472778

The U.S. 'recovery' likely to be affected by the oil price decline, and any rate hike is uncertain.

Australia: in current world conditions, a little inflation may actually be a good thing. - many countries would love to have some inflation connected to some general economic progress (including some decent wage rises).

Hopefully, the RBNZ has heard of Canada and Singapore. And other global conditions.

by Stephen Hulme | 29th Jan 15, 9:03am 1422475383

Hopefully, the RBNZ has heard of Canada and Singapore. And other global conditions.

Wheeler could be pressed hard not to ignore the sovereign yield surges of other indebted nations and act in accord with market sentiment pricing higher yields before they are forced upon us by outsiders.

by Andrewj | 29th Jan 15, 9:09am 1422475759

What have we got in common with Greece?

by cowboy | 29th Jan 15, 9:32am 1422477166

Increasing bureaucratic control, Increased government/quango reliance, increasing sovereign debt. increasing inequality, government in denial. ie all the socio-economic markers.

by MortgageBelt | 29th Jan 15, 9:54am 1422478483

And a mini-austerity programme of under funding of hospitals, schools, universities, polytechnics, austerity for regions, cap on wages, and a reserve bank ready to grind any signs of economic buoyancy, a lack of govt spending on infrastructure.

by OMG_WTF | 29th Jan 15, 9:56am 1422478571

And corruption.

by steven | 29th Jan 15, 10:22am 1422480153

Indeed, however the spending on houses is the private sector still spending, both Labour and National seem happy with that. Councils are still spendign, at least if teh 4~5% increases per year are anything to go by. We have also had quite good dairy payouts until recently, somewhat lucky for us. May the delusions we are doing well continue I guess.

by steven | 29th Jan 15, 10:27am 1422480458

We are a long way off, if nothing else the wholsale tax dodging, social payouts and levels of debt are way different.

by steven | 29th Jan 15, 10:10am 1422479443

um no.

a) Putting up the OCR with the tradeables already in deflation is a great way to send us into recession by killing them off.

b) rates bear no relation to actual risk.

by Stephen Hulme | 29th Jan 15, 10:35am 1422480944

b) rates bear no relation to actual risk.

Maybe you should either position some interest bearing capital at risk to know about what you claim or let others who survive trading capital get on with the job of discovering it on your behalf.

by steven | 29th Jan 15, 11:17am 1422483430

codswallop. Being a doctor able to tell a patient "you have cancer" doesnt not mean as a doctor you have to have cancer to do so.

a) Appreciating there is too much risk to invest bears no relationship to having the capital to do so or not.

b) It is indeed an/my opinion, I do not know but frankly I dont think others "know" either. So my opinion is we are in for a Greater Depression as bad as the 1930s. Whether its going to start this year or next, or in the next 5 maybe as long as 10 I dont know. But if nothing else declining oil output when it starts guarantees massive changes and I think destrcution of so called "wealth / capital"

c) What I can see is adequate proof by recent examples in the last decade alone that raising the OCR will very likely cause a recession. Of course if you have cash and cash like things betting on a recession or depression and hence deflation to increase the value of cash's spending power tax free makes you a vested interest maybe even trying to win both ways. Get an income risk free and hence keep the cash even if the high rate does us in.

by Roger Witherspoon | 29th Jan 15, 11:30am 1422484223

But, but, but What About Auckland House Prices? They might go down! Aucklanders would have to cut back on their boats and overseas holidays and then where would we be?

Wait, what is that sucking sound I hear far off? Is it the sound of non resident owners of Auckland property taking their money out of the country as the NZD plummets towards its true value? Is it getting louder?

by steven | 29th Jan 15, 12:45pm 1422488708

Auckland "sucking sound" no that's Len and his latest beau.

;]

by steven | 29th Jan 15, 12:57pm 1422489424

Seriously just what happens is an interesting Q I have been wondering for a while.

The biggest is where does the money go to?

So lets assume the money thats being invested is the wealthy buying assets anywhere they can with their cash piles in order to protect it and maybe even stash it away from various tax men/govn grasps expected in the future.

So we have seen some comments from davos that fund managers are buying escape holes, so why not their clients?

If so maybe it cannot go anywhere. What worries me then is we could end up with lots of "rich" but useless parasites in NZ all expecting significant returns off us NZers and political favours to guarantee it.

I dont know about you but I wonder how safe these people will be if they ever need to in extremis exercise their bolt hole "rights". ie will ordainary NZers tolerate them or use them as target practice after it becomes painfully apparent the damage and losses they have caused and want to continue to do.

I am not sure on what the true value of the NZD really is V other currencies. For me we are in less of a mess, except for housing and farming debt that is. Im sure glad I live in NZ that is for sure.

by Roger Witherspoon | 29th Jan 15, 1:35pm 1422491736

Yes. The non-residents cash is probably borrowed in his own currency though, so he will panic when the NZD declines past a certain point.

As you say, it is nice not having Russian tanks a few fields away or Russian nuclear missiles targeted on us, as is the case in Europe.

by Colin | 29th Jan 15, 10:44am 1422481453

Wall Street is higher ???

Dow -195

S&P -27

by King of the whiners | 29th Jan 15, 11:24am 1422483882

LOL.

by King of the whiners | 29th Jan 15, 11:35am 1422484547

Interesting. Priced in NZ$ gold is up some $NZ200 since the start of 2015 (at $NZ1,750/oz). Up about 13% from the average of around NZ$1,525 it traded for in 2014.It mirrors the same move in gold priced in Euros.

by steven | 29th Jan 15, 12:41pm 1422488492

But you need to be consistant IMHO, so I'd suggest the best way is think in USD for gold.

by Boatman | 29th Jan 15, 1:00pm 1422489623

Aussies need not worry , their inflation is still at the bottom of the target range , it is just a blip ......