VW scandal threatens German economy more than Greek crisis; Fed set on rate hike; Chinese diesel exports hit record high; Caterpillar makes huge layoffs; US economy in growth mode; UST 10yr yield 2.09%; oil stable, gold up; NZ$1 = 63.5 US¢, TWI-5 = 68.2

VW scandal threatens German economy more than Greek crisis; Fed set on rate hike; Chinese diesel exports hit record high; Caterpillar makes huge layoffs; US economy in growth mode; UST 10yr yield 2.09%; oil stable, gold up; NZ$1 = 63.5 US¢, TWI-5 = 68.2

Here's my summary of the key events overnight that affect New Zealand, with news (released after the 90@9 video was recorded) that the Federal Reserve's chair, Janet Yellen, expects the US central bank to begin raising interest rates later this year.

Speaking at the University of Massachusetts, Yellen said she thought inflation would gradually move up to the Fed’s target rate of 2% as unusually low oil prices and other factors prove temporary. She suggested global economic weakness would not be significant enough to alter the Fed’s plans to raise its key short-term rate from zero by December.

The Wall Street Journal reports Yellen made her case like a prosecutor making a courtroom closing argument, as she laid out her most detailed case yet for a raise, effectively lobbing a warning to financial markets that the central bank’s decision to hold rates last week wasn’t a shift toward an interminable delay of monetary tightening. 

In other news, analysts are warning the Volkswagen emissions scandal is posing a bigger threat to the German economy than Greece’s debt crisis.

ING Bank’s chief economist says if Volkswagen’s sales were to plunge in one of its main markets like the US, the German economy will be shaken. The car maker is one of the country’s largest employers, hiring more than 270,000 people in Germany alone.

China exported a record volume of diesel last month, after already shipping unprecedented amounts of steel and aluminium overseas.

Weak economic growth is sapping domestic demand for commodities, while refineries, mills and smelters grapple with excess capacity after years of expansion. China’s excessive exports are only exacerbating the global commodities glut that’s driven prices into the ground.

The world’s most valuable machinery producer has announced plans to cut up to 10,000 jobs, or 9% of its workforce by 2018. Caterpillar has made the call as slumping oil prices have battered drillers.

The oil industry had propped up the US-based company after it made 13,000 staff redundant in 2013 when the mining sector took a hit.

Nonetheless, data out of the US shows the economy is in growth mode. New home sales in August rose more than expected to their highest level since early 2008. 

Meanwhile new orders for manufactured durable goods fell by 2.0% last month – a smaller drop than analysts were expecting. August's decline followed two consecutive gains, boosting optimism that many American companies were unfazed by weak overseas markets.

As for the US labour market, the number of people filing new applications for jobless benefits barely rose last week.

In New York, the UST 10yr yield benchmark has fallen to 2.09%.

The US benchmark oil price remains at US$45/barrel, while the Brent benchmark remains at US$48/barrel.

The gold price is up around US$20, to US$1,151/oz.

The New Zealand dollar has been the strongest performing currency overnight. It’s strengthened a cent against the US, compared to yesterday morning, to 63.5 US¢. It’s risen to 90.5 AU¢ and 56.6 euro cents. The TWI-5 has jumped to 68.2.

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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Hellen in the breeze - but what way is the wind blowing?
President of Property

Nonetheless, data out of the US shows the economy is in growth mode. New home sales in August rose more than expected to their highest level since early 2008.

I dont agree that increased house sales means increased growth. Could just be investors looking for places to put their money. look at the share market and bonds - so why not houses?

I'll believe the rate rise when I see it...heard it all before really but there's always something that makes them chicken out.

If you had invested/acted based on the Fed will raise for the last 3 or 4? years then you would have lost $s. If you had listened to the gold bugs for the last 6? your losses would have been 30% with no sign of recovering.

Really for me when the talking heads get it wrong for so long sensible ppl should be listening elsewhere IMHO.

The economy is being corrupted, markets fixed. If reserve banks keep printing money then in theory gold bullion would go up in value. Simply because something that can be printed shouldn't be worth more than something that is scarce. The gold market is manipulated and will only find it's true value in a GFC. Buying gold is a bet against the ruling classes ability to keep successfully manipulating the system. Gold is being valued in money terms, but the money supply is IOUs and printed paper. Will much of world debt ever be repaid? How much money is being printed? We are working for and getting paid with promises and paper. It is the financial system itself that is losing credibility.

Well where to start.

a) if gold doesnt go up then your simple economic model is obviously wrong.

b) Conspiracy theory, well consider Occam's razor as an almost cast iron rule, see a)

c) Buying gold at the wrong time is a sure fire way to lose money especially when you have no valid model to work with to know when to buy and when to sell, or get lucky, good luck.

d) World debt repaid, yes never. Personally as money and gold is an iou for work which is energy and by 2050 fossil fuels are effectively gone from the world economy its pretty obvious debt cannot be repaid with something of value.

e) It is a lot more complex than the financial system. It is the grow for ever on a finite planet assuming a never ending supply of oil and non-happening climate change to keep the food coming that is the broken system.

A fair and just society needs a fair and just financial system. The only growth we are experiencing is the growth in corruption (VW a good example). I wonder if this case is the tip of the iceberg. Civilisation will collapse if the masses lose faith in the fairness of the system.