Talk of new FTA between NZ and the EU, inflation weak in China and US, US business inventories flat; NZ$ = 67.8 US¢, TWI-5 = 71.6

Talk of new FTA between NZ and the EU, inflation weak in China and US, US business inventories flat; NZ$ = 67.8 US¢, TWI-5 = 71.6

Here's my summary of the key events overnight that affect New Zealand, with news there might be another free-trade agreement on the cards for New Zealand. 

It was announced early this morning the European Union Commission wants to negotiate separate free-trade agreements with both New Zealand and Australia as part of its trade strategy for the next four years. The Herald reports the caveat is talks will take into account "EU agricultural sensitivities." Agriculture in the EU is still heavily subsidised, even though subsidy levels are being reduced over time. FTA talks may not begin for another two years.

Consumer inflation in China cooled more than expected in September, while producer prices slid for the 43rd month in a row. The Consumer Price Index was up 1.6% year-on-year, and down from 2% in August. While the price of food was up 2.7% year-on-year, the price of milk and other dairy products was down nearly 1%. The Producer Price Index fell 5.9% from a year ago - the same rate of decline as in August, which was the biggest drop since the global financial crisis. China is suffering from having too much capacity and sluggish domestic investment demand. 

Inflation figures out of the US this morning are equally as gloomy. US retail sales barely rose in September and producer prices recorded their biggest decline in eight years, raising further doubts about whether the Fed will raise interest rates this year. Retail and food services prices were up 2.4% year-on-year, and up 0.1% from August. Meanwhile the Producer Price Index fell 1.1% from September last year. These weak reports are the latest suggestion the US economy may be losing momentum in the face of slowing global growth, a strong dollar, low oil prices and an inventory correction. 

In fact other data out of the US shows business inventories - a key component of gross domestic product - were flat in August for a second month in a row. Businesses are working through a stockpile of merchandise accumulated in the first half of the year. Inventories increased by more than $100 billion during this time - a record and unsustainable rise. Inventories made no contribution to the second quarter's annualised GDP growth of 3.9%. 

In New York, the UST 10yr yield benchmark has slumped to 2.00%.

The US benchmark oil price has dropped nearly a dollar over the past 24 hours to US$46.70/barrel. The Brent price is down to US$49/barrel.

The gold price has risen to US$1,175/oz.

The New Zealand dollar has made substantial gains over the past 24 hours. It's strengthened a cent to 67.8 US¢, as data out of the US overnight was weaker than expected. The dollar's also risen a cent and a half to 93.1 AU¢, off the back of a steady message from the RBNZ Governor yesterday and an independent mortgage rate hike by Westpac. The TWI-5 is up to 71.6.

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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Four Horsemen of the Apocalypse.

On-the-run UST yields
US IR swap rates
US 3mth TBill yield
Spot Gold price

I should add the baggage mule: Eurodollar strip

And still many believe "... the OCR won't drop to 2.00%...."

"What happens when ETF Holders all sell at once?"
http://www.zerohedge.com/news/2015-10-14/worlds-largest-leveraged-etf-ha...

As the global economy catches a chill (that may well turn out to be pneumonia), each passing month sets a new global temperature record:

http://www.stuff.co.nz/world/73030055/global-heat-records-tumble-again-a...

Already getting decidedly crispy on the eastern half of the South Island. Guess we will just have to 'adapt' to the billion dollar costs of drought happening every couple of years (the 4th such event since 2007 by my reckoning) - seems a reasonable price to accept for doing nothing about the cause don't you think?

US Atlanta Fed economic forecasting model (which has been pretty accurate recently) suggests US 3Q growth will decay to a near moribund 1%......

http://www.cnbc.com/2015/10/14/consumers-shutting-down-as-us-economy-def...

''Given an increasingly difficult set of circumstances, the Fed will struggle to justify a rate increase.

Forecasting firm Capital Economics, which has been expecting rate hikes going back to March, now believes nothing is likely to happen this year. Paul Ashworth, Capital's chief U.S. economist, cut his GDP expectations for the third quarter to 1.7 percent.

Other expectations are more pessimistic: The Atlanta Fed is projecting 1 percent growth, which is where JPMorgan Chase cut its target to on Wednesday, down from 1.5 percent. ''

Oh dear. Looks like the incessant posturing about 'US recovery is here' we have been forced to endure was just yet more white noise....

Ecan - a democratic disgrace....
http://www.nbr.co.nz/article/ecans-democracy-limiting-bill-introduced-sm...

'Ecan’s own recent evaluation of lakes and rivers in Canterbury shows water quality continues to deteriorate.Immediate improvement is unlikely as the legacy of rural pollution is compounded by an explosion in dairy cow numbers in the region since commissioners were installed. There are now nearly 900,000 dairy cows in Canterbury.'

''Mr Smith sacked elected councillors in 2010 in deference to rural interests and replaced them with his apparatchiks, led by chairwoman Dame Margaret Bazely supported by deputy and former Labour MP David Caygill, ex-judge Peter Skelton, dairy farmer, chancellor of Lincoln University and chair of Opuha Dam Tom Lambie, North Canterbury wine grower David Bedford, Ngai Tahu’s Donald Couch, and Rex Williams chairman of H W Richardson Group.''

In other words the foxes were put in charge of the chicken coop.....

And some people dare to call Fiji a banana republic.

New Zealand is just too cold to grow bananas.

Yeah but turnips flourish in Wellington.