90 seconds at 9 am: China raises currency scrutiny

US inventories rise; Aussie home lending falls; China tightens currency trading; UST 10yr yield 1.87%; oil up, Saudis to borrow; gold down; NZ$1 = 68 US¢, TWI-5 = 72.1

10th Mar 16, 7:09am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news ahead of today's Monetary Policy Statement from the RBNZ.

In the US, data out today shows wholesale stocks unexpectedly rose in January as sales fell. This strongly suggests that efforts by businesses to reduce an inventory overhang could hang around well into 2016 and hold back their economic growth in coming months.

In Australia, (and in contrast to New Zealand) housing finance fell sharply, down almost -4% in January, especially for owner-occupied dwellings.

In China, their foreign-exchange regulator is using a new system to track purchases of foreign funds and has asked banks to reduce foreign-currency transactions. It is focusing on spikes in currency trading, forcing tight scrutiny of fx transactions by businesses, including those of Chinese entrepreneurs investing abroad and Chinese companies paying overseas bills. The initiative is slowing their ability to make deals.

In New York the benchmark UST 10yr yield is up and will start today at 1.87%. The New Zealand swap curve has narrowed.

The oil price rose as well and is now at US$38/barrel in the US while Brent is at US$41/barrel. Saudi Arabia is hurting and is seeking a bank loan of between US$6 to US$8 bln according to unofficial reports. If true, this would be the first significant foreign borrowing by the them in over ten years.

The gold price is down -US$7 in mid-day trading at US$1,253/oz.

The NZ dollar will start today firmer at 68 US¢, at 90.4 AU¢, and at 61.7 euro cents. The TWI-5 index is back up to 72.1.

Join us at 9 AM today when we will have the RBNZ rate decision and we will be streaming the Graeme Wheeler press conference live.

And early tomorrow morning, the ECB will review its official rate settings. If Mario Draghi does not push their benchmark deposit rate further into negative territory, market reactions could be very volatile.

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 ».

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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2 Comments

by skudiv | 10th Mar 16, 7:28am 1457548123

Even the saudis know enough to borrow when rates are cheap. Unlike John Key who would rather sell the family silver, steamrolling democracy in the process (remember the last referendum).

by Stephen Hulme | 10th Mar 16, 8:12am 1457550746

In New York the benchmark UST 10yr yield is up and will start today at 1.87%

This market together with JBGs are exhibiting signs of increasing dysfunction.

The shortage of benchmark 10-year Treasury notes in the market for borrowing and lending U.S. government debt has become so pronounced that uncompleted trades are soaring. Read more

Having documented the unprecedented shortage of underlying 10Y paper as a result of record low repo rates which have been at "fails" for the past week, everyone was anxiously awaiting today's 10Y auction to see just how the market would soak up today's $20 billion in 10 year paper. And the answer, somewhat surprisingly, was lousy because traditionally when there is a massive, and in this case record, short overhang, the auction tends to price through the when issued. Not this time, because moments ago the 10Y printed at 1.895%, tailing by 0.6bps to the 1.889% When Issued.

The internals were outright ugly, with the Bid To Cover dropping to 2.49 from 2.56 a month ago, the lowest since August 2015. The Indirects - aka foreign official accounts such as central banks and reserve managers - stepped away and received just 56.5% of the final allotment, the lowest since January 2015, and with Directs also dropping to just 11.1%, or the lowest since October 2015, this meant that Dealers ended up holding 32.4% of the auction, the highest since January 2015. Read more

It was just yesterday when we observed the record collapse across the Japanese curve when first the 10Y JGB plunged to an all time low -0.10%, followed promptly by 30Y yields dropping 21bps - the biggest absolute drop in over 3 years and biggest percentage drop ever - to a record low 47bps following Japan's 30Year auction on Monday night. As we further noted, since Kuroda unleashed NIRP, the entire JGB curve has been crushed and the Monday night rush for long duration debt flattened the curve to record lows.

Just 24 hours later trading of Japan’s government bond futures was halted for less 30 second after the price of the contracts dropped as much as 0.6 percent. As Bloomberg reports, the dynamic circuit breaker on the Osaka Securities Exchange was activated at 12:32 p.m. and was applied to March contracts according to Masaki Takahashi, who works in the market management department at the Osaka Securities Exchange. Read more