90 seconds at 9 am: All eyes on the Fed

Fed meets, US CPI tame, OECD says 'hike', S&P downgrades Japan, Shanghai stocks jump; UST 10yr yield 2.27%; oil and gold higher; NZ$1 = 63.5 US¢, TWI-5 = 67.7

17th Sep 15, 7:22am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news all eyes are now on the Fed.

American consumer prices unexpectedly fell in August from July as petrol prices resumed their decline and a strong dollar curbed the cost of other goods. The benchmark CPI-less-food-less-energy is up +1.8% year-on-year, the same rate it was the previous month. Tame inflation complicates the Federal Reserve's decision whether to hike interest rates. The Fed started its meeting earlier today and will report its decisions early tomorrow. Markets are all focused on them.

According to the OECD, the global economic outlook has grown darker than it was only a few months ago, but the United States is doing well enough that its central bank should go ahead with its first rate increase since the financial crisis, they said. This diverges from unsolicited advice the IMF, BIS and World Bank have given recently.

Part of the reasons for the less positive global mood is that Japan's recent glow has dimmed. S&P downgraded their sovereign debt to A+ from AA- overnight following Fitch and Moody's. It last downgraded Japan in 2011. The credibility of Abenomics is again under question.

However, equity prices rose strongly in Shanghai yesterday, up almost +5% on the day. Other markets fared better too.

In New York, the UST 10yr yield benchmark is firmly in the 'up' direction today, now at 2.27%.

The US benchmark oil price is also higher, now at US$47/barrel and the Brent benchmark is at US$49/barrel.

The gold price has also risen, today quite strongly, to US$1,119/oz.

The New Zealand dollar is pretty much where it was at this time yesterday. That is, 63.5 US¢, at 88.4 AU¢, and 56.2 euro cents. The TWI-5 is now at 67.7.

One influence on the exchange rate today will be the release of the Q2 GDP growth result which will come at 10:45 this morning.

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

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Source: RBNZ

Source: CoinDesk

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9 Comments

by Basel Brush III | 17th Sep 15, 7:58am 1442433482

What? No mention of the rejection of the Lochinver bid.
The NZ Herald seem to know
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115… despite no formal announcement as yet.
Of course the rejection smells of National listening to its Focus Groups rather than any other logic that might just apply.
When was the last time a bid was based on what a NZ based and funded competing party may be able to achieve.
Come on.

by Henry_Tull | 17th Sep 15, 7:57am 1442433471

If Fran's scoop is correct and the sale of Lochinver Station has been declined
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115…

Is this a crafted response in light of the policy/legal guidelines or, a trade related return volley following the WMP buyers strike basis the party policy turn in January 2015?

In comparison to other big buys, it seems over lent banks were not there.

by MortgageBelt | 17th Sep 15, 8:03am 1442433834

Which Event will trigger GFC2?
The Fed hike?
The EU disintegration?
Or the Stock Market?

by Stephen L | 17th Sep 15, 8:37am 1442435878

I rather hope the Fed do raise rates. It does seem time the world at least started back towards a model where savers had some return for their savings, and more importantly, that asset bubbles are not blown any bigger than they already are.
There will likely be some shocks for emerging markets I gather, when those who have borrowed in US dollars start having to pay back in USD, or at least have to start paying interest on $10 trillion of extra dollars floating around.
Separately it will be good for the markets and the media not to spend another three months talking about will they, won't they.

by David George | 17th Sep 15, 8:56am 1442437008

Quite so Stephen, I'm sure we're all sick of the narrative and the hypocrisy - the economy is strong, unemployment is way down and so on yet we have to keep interest rates at (by some accounts) 5,000 year lows. Seriously; is the system so precarious, teetering on the proverbial knife edge that it'll turn to custard by raising rates from 0.25% to 0.5%? Seems to me that the need to keep interest rates this low inspires zero confidence and undermines the very thing the banks want - credit expansion - more debt.

by Stephen Hulme | 17th Sep 15, 10:18am 1442441887

Seems to me that the need to keep interest rates this low inspires zero confidence and undermines the very thing the banks want - credit expansion - more debt.

It's vicious circle.

The top line at banks is under pressure in the low-yield environment and regulators are taking a relatively severe stance on capital,” said Dirk Sebrechts, who helps manage more than 200 billion euros ($226 billion) at KBC Groep NV in Brussels. “They have to look into their options on costs.” Read more

Janet Yellen just doesn’t factor; it has been out of her hands since August 2007. It has taken eight years, but Americans finally seem ready to start to break out. In that respect, the FOMC’s continuing dance of confusion and disarray only helps pinpoint where to begin. Read more

by Simon | 17th Sep 15, 8:44am 1442436271

Will have to be a result of another 'undercover' asset bubble that becomes a monster and that pulls in people who have not right investing in that class. Property was last time, tech was the time before that (late 90s).

US equity valuations arent far enough out of wack, some property markets around the world are but volume and relatively speaking, not too rediculous.

It'l be where ever the most compelling 'story' is for sales people to push that sucks in the masses.

Saw this morning fitbit is valued at 7 billion which to me seems rediculous. But the tech sector as a whole, if you include the likes of apple, isnt over valued based on the earnings they are bring in.

Once bitten twice shy might be the theme since 2007, where people are skeptical (sp?) of 'bubbles' (how many times has this word been seen globally since 2007 as compared to before hand) so what ever happens it will need to be extra stealthy to sneak under peoples radars, or happen a number more years down the track after people finally get over the 'eveythings a bubble' syndrome (i.e forget about the gfc), which history shows always happens eventually (and generally doesnt take much longer than 7 years).

by scarfie | 17th Sep 15, 11:33am 1442446435

A fair analysis. There are of course those saying that corporate buy backs are distorting equities and setting up a time bomb. But I think you have to look past the possibility of a cataclysmic bubble burst to the long term trend of a system dying because there are not enough resources left to grow. The long term trend is a slowing down of growth, the financial system is simply reacting to this. The real problem isn't a bubble bursting. It lies in the inevitable debt defaults that will cause the lost of confidence in a system that depends on it.

by steven | 17th Sep 15, 12:02pm 1442448128

Not so sure on "The long term trend is a slowing down of growth" just how much real growth has there been in 7 years? and what little there is, isnt it mostly debt driven? More like growth if finished overall except in sectors that are strong enough or have a monopoly to force a higher return like Council's/rates getting 5%. The weaker areas then have to shrink 5% to compensate as ppl have no more money. As an example if I even get a pay increase this year, last year's $40 extra got absorbed in rates, insurance, electricity and rail fares plus a bit, rinse and repeat. I am only a bit "better off" as the broadband cost fell $60 a month and went unlimited volume. Since then the NZD/USD has dropped 20% ish, imports like petrol will go up unless the price per barrel drops even further taking yet more out of my pocket.

I suspect many middle income earners are like me and then there are the low income earners who are probably worse off, you cannot really grow an economy when a substantial % of ppl are not "getting ahead". The smoke and mirrors of financial games only last so long.