Here's my summary of the key events over the weekend that affect New Zealand, with news of Chinese uncertainty roiling commodity markets.
A brutal new year selloff in oil markets deepened overnight with prices plunging as much as -5% to new 12-year lows as more ructions in the Chinese stock market threatened to knock crude into the US$20s.
In fact, Chinese shares fell to their lowest level since September yesterday, with the benchmark Shanghai Composite Index losing -5.3% extending last week’s near-10% loss. The Shenzhen market lost more than -6.2%. Losses are spilling over to other markets.
However, the recent small fall-off in global demand for air freight may be bottoming out, with cargo volumes growing month-on-month in November; that's what the International Air Transport Association reported overnight. Air cargo volumes (measured in Freight Tonne Kilometers) were down -1.2% in November 2015, compared to November 2014 on a seasonally-adjusted basis. Total cargo volumes, however, rose compared to October 2015, and were higher than the recent low point in August. This activity paints a completely different picture to what is happening to international trade than the shipping measures that were used in the 1990s. Demand for ships is down, but demand for freight aircraft remains high.
World trade issues will probably be focused on Auckland in early February for the formal signing of the Trans Pacific Partnership trade deal. A recent World Bank study (reported in the AFR) shows that generally rich countries won't benefit as much as developing countries - except for New Zealand who stands out as a clear winner. Another stark conclusion; those 'in' benefit much more than those who have not joined.
The US Fed has reported its Labor Market Conditions Index (LMCI) at 2.9 in December, up from 2.7 in November and far above economists expectations for a reading of 0.4.
It can be a very profitable business being a regulator. Data out overnight shows that the US Fed paid a record US$117 bln dividends to the US Treasury. That's a lot given the Federal deficit is US$440 bln (and declining).
Back in New York, the UST 10yr yield benchmark has risen in mid-day trading today and is now at 2.18%. Local swap rates fell sharply following the Wall Street lead yesterday so may well rise on today's indications.
And crude oil is still falling and is now just over US$31.50/barrel. Sub $30/barrel now looks inevitable. Given supply will stay high, it is softer Chinese demand and the stronger US dollar that are driving this market.
And the gold price continues to slip and is now at US$1,098/oz. Much of this is also just an 'exchange rate effect' from the rising US dollar.
It's been a variable night for the Kiwi dollar but it starts today at similar levels to this time yesterday. It is now at 65.5 US¢, now at 93.7 AU¢, and at 60.2 euro cents. The TWI-5 is pretty much unchanged at 71.
If you want to catch up with all the local changes on Friday, 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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