Here's my summary of the key events overnight that affect New Zealand, with news regulators are on the back foot in both China and Europe.
But first, as expected, the US Fed increased its official rate by +25 bps today. They also signaled that they will be raising rates faster in future than they had previously expected. They plan three 2017 rises. You can read there decision and rationale here.
US advance retail sales for November showed them +3.8% higher than the same month a year ago, but level pegging with October and that was lower than expected. It was car sales that took the shine off the month-on-month data.
US industrial production as reported in the Fed survey showed some unexpected weakness, although previous data was revised higher. Capacity utilisation also fell more than expected. These two data releases have shifted the forecast for US Q4 growth down to +2.4% pa.
In China, it is becoming clear that regulators there have been unsuccessful reigning in their shadow banking sector and a renewed spurt in credit expansion from this source is a growing threat to Chinese financial stability.
In Europe, Greece’s creditors have suspended proposed debt-relief measures after the Greek government surprised them by announcing it would boost welfare benefits for low-income pensioners, a sign of escalating tensions over the country’s bailout, a deal that only just been finally agreed on December 5.
And in the UK, they are moving to make loans provided by the "bank of mum and dad" subject to their inheritance tax. This is not a risk in New Zealand because we don't have death duties or an inheritance tax.
And staying in the UK, their central bank is wrestling with the issue where the major banks compute their own risk-weighted capital requirements whereas the smaller banks have to go with higher default levels. This creates a strong competitive advantage for the majors, and is a distortion we have here as well. The Brits look like they want to give the smaller banks the advantage of lower capital levels for mortgages rather that raising capital to more sensible levels for the majors.
In Australia, traditional retailers are feeling the squeeze. Consumers are feeling uncertain following the surprise fall in Q3 GDP and everything is now 'on sale'. The Boxing Day sales markdowns are in full swing in the prime holiday selling period. It is not a good look and reveals a surprising leakage of confidence.
In other news, after a successful rollout in Pittsburgh, Uber has launched self-driving cars in San Francisco. And Amazon has made its first package delivery by drone. In Amazon's case, it was 13 minutes from the customer order to delivery of the goods.
In New York today, the UST 10yr yield has jumped to 2.50% on the Fed decision to go for a faster set of hikes.
Oil prices have fallen overnight, now just under US$52 for the US benchmark, while the Brent benchmark is now just under US$55 a barrel. OPEC has warned that their oversupply situation may remain unless the ouput cuts are deeper than many members are expecting. And oil demand is changing quicker than expected as the components of the world economy change to less energy-intensive industries.
The gold price is up +US$7, now at US$1,163/oz. [ The gold price has subsequently fallen sharply, now at US$1,151/oz ]
The New Zealand dollar is lower on the Fed announcement but up against most other majors, now at 71.9 US¢. On the cross rates it is at 96.2 AU¢, and against the euro up at 67.8 euro cents which is a 20 month high. Against the Japanese yen we are at a 18 month high. The NZ TWI-5 index is up to 77.9 and we were last at this level in May 2015.
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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