The US Fed tightens without rate hikes; US jobless claims fall; US productivity rises; air travel booms; car sales jump; BofE holds; UST 10yr yield at 2.46%; oil and gold lower; NZ$1 = 73 US¢, TWI-5 = 78.1

The US Fed tightens without rate hikes; US jobless claims fall; US productivity rises; air travel booms; car sales jump; BofE holds; UST 10yr yield at 2.46%; oil and gold lower; NZ$1 = 73 US¢, TWI-5 = 78.1

Here's my summary of the key events overnight that affect New Zealand, with news of booming travel worldwide.

But first, it seems that yesterday's non-action by the US Fed on the official interest rate has masked some real, long-term action by the Fed. It was highlighted by a footnote in her January 19 speech, "the most talked about footnote" ever in a Yellen announcement. (See footnote 17 here.) It says that the Fed is tightening monetary policy without raising interest rates by allowing the maturity of their bond portfolio to shorten. She says this will have the same impact as two 25 bps rate hikes in 2017. Rates are going up even though the Fed may not raise their benchmark.

The number of Americans filing for jobless benefits fell more than expected last week to be more than -10% below the same data a year ago, pointing to a tightening labour market that should support their economy this year.

American worker productivity rose for a second consecutive quarter to round out 2016, reversing a long stretch of declines, but the broader trend remains weak. Nonfarm business productivity, measured as the goods and services produced by workers per hour, increased at a +1.3% rate in the fourth quarter. The gain is slightly more than the average increase over the past decade, but is a sharp slowdown from third-quarter’s strong and upwardly revised +3.5% advance.

Around the world, air travel is truly booming. The latest data for 2016 shows it up +6.2% in 2016, led by higher than +10% rises in the Asia Pacific, Europe and the Middle East. International traffic levels grew +6.7%. December alone grew +9.7% for international flights. We are leading that; Auckland Airport traffic grew +13.1% in December.

Not only are we travelling by air, we are buying new cars at a very fast rate too. The January New Zealand new car data is out and a normally quiet month smashed all records for a January. Car sales were up more than +10% from the same month a year ago and broke through the 10,000 level for the first time ever for this month. Local commercial vehicle sales were a record too.

The Bank of England held its benchmark interest rate and all other policy positions, but it did raise its growth forecast for the UK to a lowly +2% in 2017, but less in further out years. The British currency fell on the news.

In New York, the UST 10yr yield is lower in mid-day trading and now at 2.46%.

Oil prices are about US$1 higher today than this time yesterday, now just under US$54 for the US benchmark, while the Brent benchmark is just under US$57 a barrel.

The gold price is higher too, up US$14 and now at US$1,217/oz

The New Zealand dollar is higher as well as the greenback has slipped and now at 73 US¢. On the cross rates we are at 95.2 AU¢, and against the euro at 67.6 euro cents. The NZ TWI-5 index is up slightly to 78.1.

If you want to catch up with all the 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

Select chart tabs »

The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

11 Comments

Comment Filter

Highlight new comments in the last hr(s).

I'm thinking the effect of the FEDS early maturing Bond portfolio , will be upwards pressure on longer term rates..
This may widen the yield curve...??
Because Banks borrow short and lend long ... I suppose they will be happy...
This may encourage Banks to lend more..??

The slow path to normalization..... Maybe a small window of opportunity for the FED to unwind its massive balance sheet.....to some extent..?? ( I've often wondered how...or even if, they will do this, without causing liquidity issues ???? )

What's LIBOR already anticipating other than a rate hike?

Tenor Publication Time* USD ICE LIBOR 01-Feb-2017
Overnight 11:45:07 AM 0.69111
1 Week 11:45:07 AM 0.72150
1 Month 11:45:07 AM 0.78000
2 Month 11:45:07 AM 0.84167
3 Month 11:45:07 AM 1.03456
6 Month 11:45:07 AM 1.35044
1 Year 11:45:07 AM 1.71511

All the above are %

Well... it looks like the FED is forsaking a rate hike.... and instead is going to start unwinding its balance sheet..?? ie... allow long term rates to rise.. eg... 10 yr treasuries.

I suppose that will have an affect on short term lending rates...?? ( as u show )
Will it affect short term deposit rates..??

Yes, that $4 trillion weighing on the FED's balance sheet is getting a bit heavy

Well... it looks like the FED is forsaking a rate hike

Yes Indeed, and US Treasury spread curves remain tentative about forward growth prospects at best, unwinding or otherwise. Read more

Maybe we have liquidity issues being priced in the unsecured Libor lending market, which Fed Funds fail to register due to the state dictated short horizon anchor.

I am not holding my breath for remarkably higher NZ domestic bank depo rates.

Im not sure the FED can unwind its balance sheet ... the world economy needs more debt, not less... So interest rates cant go up for any significant amount or time without causing recession / crash.
But given there is cheap money everywhere and no growth they are hamstrung.

Looks like USA may be going thru another private sector credit cycle....SO...as the private sector gets more active in borrowing the FED can unwind...
Kinda like musical chairs....

The key to deleveraging is that the debt service burden rises at a slower level than income..... and I dont think that is happening.... so at some point it will have to get ugly.......
just my view

New cars and travel booming ... while we update facebook with our environmental concerns.
Im sure it will end well.

I found this a really interesting video.... in regards to Trumps view of environment and Global warming etc... and what he is going to do..
Mentions a new term... " the experteria".... and that Trump winning and also Brexit is a rejection of the socalled "experteria"...... ???
Worth watching.... For better or worse Trump is bringing real changes in direction...??

http://pc.blogspot.co.nz/2017/02/trumps-climate-sceptic-talks-to-uk.html

I see Donald has a lot of respect for Australian Prime Minister, Trumpbell......

http://www.mediaite.com/online/spicer-on-australia-call-trumps-extremely...

... it seems that the Australians , not the Chinese , are purchasing greater chunks of NZ property than any other overseas nationality ... just ahead of Americans ...

Just in case Labour's gun real estate expert Phil Twyford is wondering ; Australians have names that sound like Hogan , Bogan , Grogan & Turnbull ... hope that helps with his racial profiling ....

.... perhaps we should build a wall , to shut them out ... and send them the bill .... Bill ?