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Fed expects US economy to expand at moderate pace; oil price rise buoys markets; oil futures surge 5%; new home sales in US highest since 2007; UST 10yr 2.03%; oil up, gold down; NZ$1 = 65.2 US¢, TWI-5 = 70.8

Fed expects US economy to expand at moderate pace; oil price rise buoys markets; oil futures surge 5%; new home sales in US highest since 2007; UST 10yr 2.03%; oil up, gold down; NZ$1 = 65.2 US¢, TWI-5 = 70.8

Here's my summary of the key events overnight that affect New Zealand, with news interest rates have been kept on hold in the States. 

The Federal Open Market Committee has just announced it'll keep its key lending rate in a range of 0.25% to 0.50%. It says it "remains accommodative" supporting further improvement in labour market conditions and a return to 2% inflation.

It expects economic activity to expand at a "moderate pace" and inflation to remain low in the near term, partly due to low energy prices. While it says it's keeping a close eye on "global economic and financial developments", it makes no mention of the impact of slowing growth in China. 

In other news, recovering oil prices have helped global stock markets cut losses caused by disappointing forecasts from Apple and Boeing. The price of US Crude oil has surged above US$32/barrel, while oil futures have jumped 5% overnight. 

The shift follows talk of Russia and OPEC working together in the face of the global oil glut. Up until now Russia has been unwilling to cut oil output, as it battles for market share with OPEC king-pin Saudi Arabia. 

The rise in futures also comes as US data shows a surprise spike in demand for products such as heating oil, as the country's hit by a blizzard. 

Staying in the US, new home sales surged to a 10-month high in December. In fact, the number of new houses sold over the year soared nearly 15% from the previous year, reaching its highest level since 2007. The US housing market is clearly being supported by tightening labour market conditions. 

A US Mortgage Bankers Association report out overnight shows applications for home loans increased 8.8% last week, as mortgage rates remain low by historical standards.

In New York, the benchmark UST 10yr yield has inched up to 2.03%.

The price of US Crude oil has crept up since this time yesterday, to above US$32/barrel, while the Brent benchmark is up over a dollar to just above US$33/barrel. 

The gold price is down marginally to US$1,116/oz.

Initial reactions to the Fed's decision have seen the US dollar firm slightly. The NZ dollar is now at 65.2 US¢, at 92.3 AU¢, and at 59.8 euro cents. The TWI-5 is at 70.8.

All eyes are now on the Reserve Bank of New Zealand as it reviews the Official Cash Rate 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 ».

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10 Comments

One of the key issues to think about, is whether or not this is a normal business cycle. If it is, then BTFD, and the price of everything always goes up over time. If it isn't, if this is the downwards phase of a much larger cycle, then BTFD isn't such a good idea.
The manager of one of the worlds biggest funds, thinks we are at the top of the debt super cycle, and does a very good job of succintly explaining it.

When there are good spreads — in other words a large risk premia — and those who sold their bonds take their newly acquired cash to buy those assets that offer attractive spreads, bid up their prices and drive down those expected return spreads (ie risk premia) of those assets.

That is where things now stand across the world’s reserve currencies, where the expected returns of bonds (and most asset classes) are relatively low in relation to the expected returns of cash.

http://www.ft.com/cms/s/2/b41813dc-c028-11e5-846f-79b0e3d20eaf.html#axzz...

Talking of spreads, when will the world's reserve currency interest rate swap spreads price in unsecured interbank loan credit risk greater than the Federal taxing authority associated with the redemption of US government debt?

And if not, why not?

On its face, a negative swap spread suggests that the market is pricing more risk in UST’s than private derivative counterparties. That is, of course, not what is happening; instead, a negative swap spread only denotes great financial imbalance within the deeper bowels of bank balance sheet construction. Read more

The price of US Crude oil has surged above US$32/barrel

a few lines later...

The price of US Crude oil has crept up above US$32/barrel

So which is it, crept or surged?

The shift follows talk of Russia and OPEC working together in the face of the global oil glut. Up until now Russia has been unwilling to cut oil output, as it battles for market share with OPEC king-pin Saudi Arabia.

This paragraph just reeks of anti-Russian sentiment. Let me re-write the paragraph for you:

The shift follows talk of OPEC and Russia working together in the face of the global oil glut. Up until now OPEC (king-pin Saudi Arabia) has been unwilling to cut oil output, as it battles for market share with the USA, Russia and Turkey's ISIS-oil subsidiary.

Corrupt US Government Accuses Putin Of Corruption

http://www.paulcraigroberts.org/2016/01/27/38395/

Far more impartial.

Broadly speaking, the price of US Crude has "surged" from US$27/bbl last week, to over US$32/bbl today. 

It's also experienced a "surge" in the last 12 or so hours, rising from US$30/bbl to US$32/bbl. 

It's "crept" up compared to 24 hours ago, when it was just on US$32/bbl.

Apologies for any confusion.  

The graphs on this website

http://www.oil-price.net/

put 'surges' and 'creeps; into context.

The 5-year graphs show collapses of both WTI and Brent..

The 1-year graphs show surges followed by collapses.

The 1--quarter graphs show a bumpy decent.

The 1-month graphs show decent followed by a small climb of a rather erratic nature.

Day-to-day movements indicate almost nothing other than speculation or mood swings. Only a sustained upward movement of oil prices could alter the viability of numerous high-cost extraction operations.

And a significant rise in energy prices would put an immediate dampener on global economic activity.

There is no way out of the oil trap.

parts of the USA are having record snow blizzards, maybe a few ppl think the oil price will climb as a result.

The point is we dont really know with any level of certainty ie proof just what the day to day swings are about, but we can look at the longer terms trend and the factors that will influence it. At least we could look but it seems most commentators would rather make statements to enhance their standing knowing full well they cant be called out.

beware of false prophets...or maybe that is profits...

;]

Almost certianly just noise and speculation.

typical extremely short term vision IMHO.

Corruption in NZ

An interesting article in The NZ Herald this morning. Between 2009 and now we have steadily slipped from 1st to 4th in the transparency ratings.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1158...

The period totally falls within the Key government period and examples quoted are all results of the Key government's actions.
I have always referred to Key as our equivalent of Silvio Berlusconi. (his ponytail escapades take him another step closer also)
It is now official, we are run by a bunch of corrupt crooks. One has to strongly suspect that what we are seeing is just the tip of the iceberg.

damning...

Days to the General Election: 20
See Party Policies here. Party Lists here.