sign up log in
Want to go ad-free? Find out how, here.

US Fed brushes aside bond concerns; growth returns; services dominant, even in China; UST 10yr yield 2.36%, oil unchanged; gold falls again; NZ$1 = 66.4 US¢, TWI-5 = 71.1

US Fed brushes aside bond concerns; growth returns; services dominant, even in China; UST 10yr yield 2.36%, oil unchanged; gold falls again; NZ$1 = 66.4 US¢, TWI-5 = 71.1

Here's my summary of the key issues overnight that affect New Zealand, with news we have finally transitioned through the GFC - into a different world.

Financial markets are fretting over the ability of the bond markets to absorb an approaching interest rate rise, but the US Fed has a message for the industry: deal with it. Rising rates have been signaled for some time by the regulator, and market angst will be brushed aside by policy makers. A bump in the road is coming - a big bump for bond investors and others who bet that markets would stay weak for a long time - but both the US and more lately the EU have turned the growth corner. Expansion looks far more likely these days.

Japan and even China - despite recent events - look less risky. It is only the "emerging markets" who still have questions hanging over their immediate future.

What is odd about this, is that the major international economic institutions - the IMF, World Bank, even the OECD - seem to be on the back-foot, seeing the future through a strong reverse lens.

Even locally, it looks like Australia will get through the realignment of its economy away from a dominant minerals sector. And the dairy-induced gloom in New Zealand looks overdone. These transitions will be there but they are not the only things happening. As a local example, few of us realise that dairy is about to be relegated to second place in our export sector as booming tourism takes over.

And with expanding job creation in the US, the engine is in place to drive China, Japan and the EU. And those second-level economies are vital for Australia and New Zealand.

The other large issue we overlook is that Services dominate our economic performance. It is much easier to focus on the traditional 'goods' trades, but in most economies these now represent less than a third of economic activity.

This is especially relevant in China. We have always looked at that market as a factory for cheap goods, but we are now wrong in that view. Services and high end products are allowing incomes to rise there in a sustained way.

Tourism-overtaking-dairy is an example of a trend replicated worldwide, dominant in the US, emerging in China - even happening in New Zealand.

In New York, the UST 10yr yield benchmark is basically unchanged today, now at 2.36%.

Oil markets are also unchanged. The US benchmark price is now just over US$50/barrel, and Brent crude is just below US$57/barrel.

The gold price, however, is down yet again, now at only US$1,102/oz. In fact, it got as low at US$1,094 last night at one point.

The Kiwi dollar showed more gains overnight. We are start today at 66.4 US¢, at 89.4 AU¢, and at 60.7 euro cents. The TWI-5 is at 71.1.

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 »

Daily exchange rates

Select chart tabs

Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
End of day UTC
Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

14 Comments

So, what will floating mortgage rates be by Friday?
And will short term fixed rates move, or have the next 3 cuts been already priced in?

Up
0

Last week it was possible to negotiate a 5.59% floating rate or a 4.69% 2 year fixed rate so should see 3.99% 2 yr fixed by year end & maybe 4.95% floating?

Up
0

Rising rates have been signaled for some time by the regulator, and market angst will be brushed aside by policy makers. A bump in the road is coming - a big bump for bond investors and others who bet that markets would stay weak for a long time

Angst enveloping the feed-stock of "God's work" - never. They form the collateral back bone which provides the means to financial intermediaries that conduct maturity, credit, and liquidity transformation without explicit access to central bank liquidity or public sector credit guarantees. As for tourism....

Up
0

"Services dominate our economic performance. It is much easier to focus on the traditional 'goods' trades, but in most economies these now represent less than a third of economic activity"
That's great news David, so we really can be rich serving lattes, mowing lawns and selling each other houses. We don't have to worry about dairy prices, dismal current account deficits and debt rising at double the nominal GDP. Think I'll take a world trip, put it on the mortgage, no expense spared. That's gotta help. Right?

Up
0

yeah, wondering about that, too.
Services?
What services, and who for?
Oh, I forgot, governments will just keep printing funny money so people can keep buying stuff they don't need.
I'm sure it'll all work out fine.

Up
0

If the rise of interest rates in the US last a year I will bring you a dozen of my craft brewed beers David :-) Am still skeptical that they will actually rise, but in the current madness I wouldn't bet against it.

Up
0

If the FED says rates will rise, then rates will rise.

Up
0

Talk is cheap.

Up
0

No. Gold is cheap. A signal from the FED that rates are going up is a guarantee.

Up
0

No too sure about that.
And even if it will go up, it will come down again pretty quickly.
The economy is sluggish everywhere, and the data used to forecast rates rises or cuts, is flawed and massaged more than a Wagyu cow.

Up
0

I think that conforms a little too closely to what I wrote last month about the last FOMC policy statement in that Yellen and the committee are nothing more than trying to convince or scare a recovery into existence. If the recovery was there, they would do it already and call the unemployment rate enough evidence. Instead, they still “have” to say the recovery is there (rational expectations), but since it isn’t there they have to recognize a way out of that stance. Read more

Up
0

Long-term rates already have risen scarfie. It's only the FED rate that remains at its lows.

Soon that will move up too.

Up
0

Only a minor blip because US Federal Reserve QE was terminated. View T30 one month tab

Nonetheless, it's interesting that 12 month libor just moved to a new high this year at 0.79535%. Given this is a credit spread rate indicator other factors could be at play.

Up
0

Furthermore, global wholesale money supply growth has been terminated due to a lack of demand or regulatory constraint, or both. Read more

More proof of a slump

Up
0