Here's my summary of the key issues from overnight that affect New Zealand, with news that borrowing from banks stunts growth.
But first, today's US Federal Reserve monetary policy review was a tame affair as they issued another no-change, wait-and-see statement. They have marginally lowered their internal forecasts for US GDP, their unemployment rate, and inflation forecasts relative to their March analysis. But the analysis also showed they are forecasting two +25 bps rate hikes in 2015.
Given there are only four more such reviews left this year, markets seem to need to prepare for a September start to their hiking. These interest rate rise signals are coming as they acknowledge "international developments".
No doubt the main one is the Greek situation, and policy makers across the region, and even in Greece, are now actively preparing and talking about a 'Grexit'. Overnight, their central bank warned of painful consequences, and their prime minister said he was ready to take those consequences. The day is close now where someone says the game is over. In the meantime, weird analogies are being expressed, often about cows!
Back in the real world, the OECD has said governments should limit the amount banks can lend to households and cap the pay of top-earning male executives in the finance sector if it wants to avoid another financial crisis. It said its research shows that bank loans slow growth compared with credit provided by other market sources such as bonds and equities.
They also say bank loans cause a "misallocation of capital, by funding investments with low profitability; magnifying the cost of implicit guarantees for too-big-to-fail banks; drawing highly talented workers away from sectors with greater productive potential; and generating boom-bust cycles."
In China, there are signs that their housing market troubles have bottomed out and they are on the mend. At least that is the view of one major analyst.
Back in the US, their Congressional Budget Office has put the spotlight back on the long term costs of funding an aging population. It says that although federal deficits have shrunk markedly in recent years, under current law increased spending for Social Security and major health care programs, along with increasing interest costs, would cause their debt to rise steadily over the long term and faster than overall economic growth. In just another 25 years US federal debt will be more than 100% of GDP, growing and clearly unsustainable.
Back in New York, UST 10yr benchmark yields rose today following the Fed statement and are now at 2.37%.
US oil markets are pretty much unchanged with the US benchmark price just under US$60/barrel, and Brent crude is now just under US$64/barrel.
The gold price is up a little however, now at US$1,182/oz.
The Kiwi dollar has started to rise following the Fed statement. This morning it opens by pushing up over 70 US¢, is at 90.2 AU¢, and it has risen to 61.8 euro cents on the Greek woes. The TWI-5 is at 73.4.
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 today is by following our Economic Calendar here »
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