US Fed on track for rate hikes; Negative yields in euroland; Mexico's century bond; ATO audits tech multinationals; oil and gold drop; NZ$1 = 75.5 US¢, TWI = 80.5

US Fed on track for rate hikes; Negative yields in euroland; Mexico's century bond; ATO audits tech multinationals; oil and gold drop; NZ$1 = 75.5 US¢, TWI = 80.5

Here's my summary of the key issues from overnight that affect New Zealand, with news of some odd things happening around the euro.

But first, just released minutes from the US Fed show that officials there acknowledge international risks to the US economy and the weak start to the year domestically but are still confident enough in the strength of the US recovery to plan for an interest rate hike later this year. In fact, some Fed officials still see a June hike as possible.

QE in Europe is starting to show the expected distorting impacts. Firstly, Switzerland auctioned NZ$330 mln of 10-year government bonds with a negative yield overnight, in what some banks said was the first time a government has effectively made investors pay for the privilege of lending to it for such a long period.

And Mexico borrowed €1.5 bln (NZ$2.1 bln) at 4.2% with a promise to repay the principal in 100 years time.

In Australia, technology giants Apple, Google and Microsoft have each told their parliamentary inquiry into corporate tax avoidance that they are being audited by the Australian tax authorities for alleged tax avoidance.

In New York, the UST 10yr yield was unchanged overnight at 1.92%. 

However the US oil price has fallen sharply today and is now at US$51/barrel and Brent crude is at $55 a barrel. The correction came after US government data showed the largest weekly increase in American crude stocks since 2001 and far above market expectations, and a day after Saudi Arabia reported record production in March.

The gold price fell back another $10/oz today and is currently at US$1,199/oz.

The New Zealand dollar will start today higher at 75.5 US¢, still very high against the Aussie at 98.1 AU¢, and the TWI is just on 80.5. We should also note that the euro has fallen further overnight and at one point the NZD bought more than 70 euro cents, an all-time record. It's a tad under than at present.

If you want to catch up with all the local 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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End of day UTC
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5 Comments

As the oil price drops you need to produce more to keep the money rolling in, like Aussie Iron ore.  

And NZ milk - it's the commodity trap.

So are people buying negative 10's because the economy is doing good, or because it is doing great?

Obviously it's because it's so strong! Why would you even have to ask? Robust 'growth' is right around the corner... (7 years and counting). 

I have this theory that there is a lack of credit worthy borrowers with bankable projects.  The banks need a certain amount of high quality assets to balance out all the credit card debts and personal loans.  National laws dictate what kinds of debt qualifies as high quality colateral, generally they include the countries government debts.  Certain types of investment funds are also limited in the types of assets they can own.
 
I look at this as a sign that we are close to a debt saturation limit, too many high risk projects, not enough low risk projects.  I can't see any other reason to own these type of guaranteed loss investments.