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Fed in tight spot as US inflation remains weak while labour market in good shape, fears of division between Fed policymakers allayed; bank CEOs say Aust's housing bubble won't burst; NZ$ = 68.6 US¢, TWI-5 = 72.6

Fed in tight spot as US inflation remains weak while labour market in good shape, fears of division between Fed policymakers allayed; bank CEOs say Aust's housing bubble won't burst; NZ$ = 68.6 US¢, TWI-5 = 72.6

Here's my summary of the key events overnight that affect New Zealand.

Cheap petrol has seen consumer prices in the US record their biggest drop in eight months in September. The Consumer Price Index fell 0.2% last month and remained unchanged from September last year. However taking energy and food costs out of the equation, prices rose by 0.2% over the month and 1.9% over the year. 

While persistently low inflation poses a major hurdle to an interest rate hike this year, the US labour market indicates otherwise as new applications for unemployment benefits fell to a 42-year low last week. 

New York Fed President William Dudley has come out saying that if the US economy evolves in line with his forecasts, he'd favour lifting rates later this year. Yet he notes recent data out of the US indicates the economy is slowing, and the weakening Chinese economy isn't helping. 

Dudley has also responded to criticisms the Fed is giving mixed messages about what is plans to do with rates, saying policymakers are not as divided as it may appear and are generally operating under the same framework.

As we contend with Auckland's housing crisis, the Aussies are debating whether their housing bubble will burst. The chief executives of two of Australia's big four banks have dismissed predictions of a sharp correction in their house prices.

The Sydney Morning Herald reports that while Macquarie Group, Credit Suisse and Merrill Lynch have all flagged growing risks in housing, the National Australia Bank and Westpac have come out saying there's nothing to worry about. They say that while the growth rate will subside, it will remain positive thanks to the country's population growth and geography limiting the supply of new houses. Prices in Sydney and Melbourne have climbed around 16% in the past year.  

In New York, the UST 10yr yield benchmark has inched up today, but remains low at 2.01%.

The US benchmark oil price has continued to drop today to US$46/barrel. The Brent price is at US$49/barrel. US crude stockpiles have recorded their largest weekly increase since April. There is a build up of inventories as refiners shut for maintenance after the peak summer season. 

The gold price has risen again to US$1,186/oz.

The New Zealand dollar has continued to make substantial gains today, as a flow of weaker than expected economic data out of the US hampers its currency. The NZD has hit a four-month high against the US, at 68.6 US¢. It's also risen to 93.5 AU¢ and 60.3 euro cents. The TWI-5 is up nearly 100 basis points to 72.6.

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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9 Comments

the FED had two opportunities this year to raise by 25 bs and then sit back instead they have waited and waited for the perfect wave, now the tide has turned and is heading out so there will be no more opportunities for a couple of years.

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I rather think you will be right.

Two more of the important Fed regional manufacturing indices (the Empire and the Philly) came in below expectations last night, and showed 2 and 3 months of continued contraction.......US 3rd quarter growth of 1% here we come?

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They would say that wouldn't they.

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a liquidity crisis
http://www.zerohedge.com/news/2015-10-14/worlds-largest-leveraged-etf-h…

Jared Dillian
Liquidity is terrible. I hear this from my institutional subscribers all the time. You, the retail investor, probably don’t notice a difference, because it costs you the same to trade 100 shares of GE now as it did 10 years ago: about a penny.

But if you are trying to move 500,000 shares of GE, good luck. And we are talking about GE here, not 1-800-Flowers.com.

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Not just a stock market phenomenon.

India's exports fell for the 10th month in a row in September, government data showed on October 15, according to Nasdaq.

Exports declined 24.3% from a year earlier to $21.84 billion, according to data released by the Ministry of Commerce and Industry. Exports fell 20.7% in August.

The value of imports also declined 25.4% from a year earlier to $32.32 billion in September, as lower global oil prices helped cut the country's oil-import bill by 54.5%. Non-oil imports also fell 10.7%. Read more

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Bank balance sheets contracting as well. Losses must be an issue.

Goldman Sachs Group Inc. reported profit that missed analysts’ estimates for the first time in four years as global market turmoil took a bigger toll on its trading revenue than at rivals.

Third-quarter net income fell 36 percent to $1.43 billion, or $2.90 a share, from $2.24 billion, or $4.57, a year earlier, the New York-based company said Thursday in a statement. Earnings adjusted for an accounting gain were $2.64 a share, short of the $3 average estimate of 22 analysts in a Bloomberg survey. Net revenue was $6.86 billion, falling below $7 billion for the first time in two years. Read more

Revenues are falling faster than JPM can pull back resources from those business lines most affected; as you may have guessed, that means largely FICC and the guts of the eurodollar system.

Fixed income revenue fell by 11% in the quarter, which is pretty bad on its own but was actually down by nearly a third when adjusting for disposed “assets.” In fact, the firm’s overall asset balance declined again in Q3, by more than $30 billion which isn’t much in absolute terms but everything since banking is always and everywhere supposed to be growth. With assets cut by almost 5% in Q2, the bank shrunk for the second consecutive quarter for the first time since the darkest days of 2009. Read more

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“The main upward contribution came from housing-related prices, which increased 1.2 percent,” prices senior manager Chris Pike said. "This was mostly influenced by higher prices for local authority rates, new houses excluding land, and housing rentals." Read more

Phew - what a relief - that takes residential property price inflation off the RBNZ's agenda.

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David, have you heard anything about the SFF deal bing approved?

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