US growth cools, confidence holds; Greece eyes drachma comeback; China wary of deflation; Aust to tax bank deposits; bond yields rise; oil and gold falls; NZ$1 = 75.6 USc, TWI = 80.2

Here's my summary of the key issues from over the weekend that affect New Zealand, with news of a new tax on bank deposits.

But first, American economic growth cooled somewhat in 2014 Q4 coming in at +2.1% and less than half the +5% in Q3.

Meanwhile the latest reading of American consumer sentiment fell in March from February, a survey released on Friday showed, though the reading was better than expected, and a lot better than the same month a year ago.

And also over the weekend, Federal Reserve Chair Janet Yellen signaled that the US central bank will likely start raising borrowing costs later this year, even before inflation and wages have returned to health, but she emphasised the return to normal interest rates will be gradual.

In Europe, officials there are raising the possibility of Greece having to adopt to parallel currency to pay local bills. They say it could keep Greece inside the euro-zone, essentially allowing it to default on its own people, but it would still owe its international creditors in euros. Such a 'solution' would be very humiliating, more so than a 'Grexit', but it would sheet home to the locals the folly of their endemic corruption and past extravagances.

China's central bank governor warned on Sunday that the country needs to be vigilant for signs of deflation and he said China's policymakers were closely watching "slowing global economic growth and declining commodity prices". His comments are likely to add to concerns that China is in danger of slipping into deflation and underline increasing nervousness as their economy continues to lose momentum despite a raft of stimulus measures.

In Australia, it looks like they are going to get a new tax on bank deposits. Oddly, the idea now has bipartisan support, although it will come with the usual aggressive political bile and recrimination. The idea was first Labor's, now about to be adopted by the Coalition. Banks say they will pass on the cost. It will improve the New Zealand advantage; over here we do pay slightly higher home loan rates but we also get much better term deposit rates. Our differential is smaller than in Australia and is now likely to be an even better advantage. And the Aussies are also reassessing their commitment to dividend imputation.

In New York, the UST 10yr yields rose on Friday to 1.96%. Similarly, New Zealand swap rates start this week on the rise.

The crude oil price however fell and is now at US$48/barrel and Brent crude is at $56 a barrel. Energy analysts are divided over where exactly the price of oil is going to go. Late on Friday, the US rig count showed the smallest decline in active rigs in months, one small sign that the steep tapering off in drilling may be coming to an end. In addition, the crisis in Yemen may not be having the impact on the market that analysts first suspected.

The gold price also fell to US$1,198/oz.

The New Zealand dollar will start the week lower at 75.6 US¢, it is at 97.8 AU¢ a new post-float closing high, and the TWI is at 80.2.

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

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