Here's my summary of the key events over the weekend that affect New Zealand, with news attention is turning to some big announcements on Thursday this coming week.
But first, Wall Street ended last week on a bullish note with equities up more than +1.5% with broad-based gains. These followed a positive day on Friday on Asian and Australian equity markets.
This is a week where a number of central banks will review rates, none more important than the US Fed on Thursday. Markets are not expecting a rate hike this time, but they are expecting two more in 2016.
It's also a week where the growth rate for the New Zealand economy will be announced on the same day. Markets are expecting a Q4-2015 rate of +2.1%. And the day before. we will get the Q4-2015 current account result, which is expected to show a -3.3%-to-GDP deficit, unchanged from prior periods. Low, not-worsening, and not-getting-better either.
In the US, official data out late last week shows that their services sector growing well, up +2.1% in Q4-2015 from the same period a year ago. Their IT industry was up a sparkling +4.8% over the same period. Real estate and leasing was up even more at +7.7%, arts and entertainment up +7.4%, education up +4.4%, and the health sector up +3.5%. Laggards included public administration which was down -2.3% and transportation down -1.7%.
In contrast to the US, China's activity data remained weak in the first two months of 2016, with factory output growth hitting the weakest since the global financial crisis, and more policy easing is expected. The latest data shows industrial production up only +5.4%, its slowest growth in 3 years. It also shows weaker-than-expected retail sales growth. The head of their central bank commented that no big stimulus is needed yet, while the newly appointed head of their securities commission said he would act 'decisively' if faced with a similar panic that saw his predecessor dismissed.
In New York the benchmark UST 10yr yield is up yet again and will start the new week at 1.98%.
The oil price is basically unchanged at US$38/barrel in the US while Brent is at US$40/barrel.
The gold price fell sharply on Wall Street on Friday and is now at US$1,249/oz.
The NZ dollar will start the week noticeably higher after a strong finish to last week. The Wheeler rate cut effect only lasted two days. If the banks aren't passing on all the cut and the exchange rate doesn't drop, it is hard to see any practical impact from cutting the OCR. The NZD starts the week at 67.5 US¢, at 89.2 AU¢, and at 60.5 euro cents. The TWI-5 index is back up to 71.2.
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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8 Comments
In New York the benchmark UST 10yr yield is up yet again and will start the new week at 1.98%.
There is an ongoing mess in repo markets and not a lot of straightforward commentary about it. As usual, whenever any repo tenor trades highly special we hear only about the persistence and plethora of shorts betting on rate normalization. Since rates, overall, have done only the opposite going back to June 2014 and the start of this repo mess you would think even the most ardent of Fed believers would have given up on the idea by now. The FOMC has actually raised rates (in name only) and the UST curve remains fully unimpressed if not more bearish still. Read more
One cannot ignore persistent bear flattening in 2s30s, 2s10s, 5s30s and 5s10s. Some entity or someone is being targeted in the outright market.
If the banks aren't passing on all the cut and the exchange rate doesn't drop, it is hard to see any practical impact from cutting the OCR.
One very enlightened journalist ( and female ), at last weeks RBNZ conference did ask the question of the venerable Wheeler if they were simply joining a global currency war. He seemed very perplexed that someone would even raise the issue. Perhaps she should have asked if the RBNZ had been selling NZD after the Friday decision. Sell AUD/NZD cross this week .
Almost there Cowpat......what were the volumes ? anyone know..?I'm sure Fonterra had a signaled punt but Wheeler..? I think the Journo's question wasn't far from right, but its way more likely Wheeler was responding to a call to ease the suffering of falling commodity prices" where feasible " ha ha Id guess he's either said see there I told you its like a bandaid on a gusher..........or he actualy thought the move would have lasting impact,in which case he's clearly incompetent and needs to hand the job back to someone prepared to .....Wait n See..Wait some more...See some more ..ad nauseum.
In which case the much fabled comment "we need to keep some powder dry just in case" just became moot. In effect if this is correct we are now at or approaching the effective zero bound for NZ so have no ammo spare for the "big one" that looks just around the corner.
It will probably take a little while to filter down but sooner or later they will have to drop their rates especially if there are more OCR rate cuts in the future. Shame though that little old NZ is largely controlled by Ozzy banks which doesn't give us much control over our economic future.
Kiwi Bank should really be leading the way on taking up the rate cut, then the others are more likely to follow.
Hoping this gains momentum;
http://www.stuff.co.nz/business/farming/77845332/mccready-wants-to-take…
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