Here's my summary of the key events over the weekend that affect New Zealand, with news of 'dangerous' shifts in China as they return from their Lunar New Year break.
But first, the latest US non-farm payrolls report confirmed solid employment growth. But despite the brisk hiring, their jobless actually rate rose in January to 4.8%. However wages only grew at a modest +2.5%, evidence for both Congress and the US Fed that their economy has room to grow before it risks overheating. That space will allow the Fed to raise rates cautiously and also allow the new American administration to push ahead with its big infrastructure renewal plans.
Part of the US Fed's vast reservoir of bond holdings it has built up are mortgage-backed securities. In the past year alone, the Fed bought US$387 bln of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift their key 30-year mortgage rates past 6% within three years. Unwinding QE “will be a massive and long-lasting hit” for the mortgage market. The impact will be felt worldwide
China is back after its Spring Festival holiday. The January non-official readings for their service sector shows that new business continued to grow strongly, though at a marginally slower rate than in the previous month; while input prices and output charges increased at faster rates.
Meanwhile, Chinese overseas deals worth almost U$75 bln were cancelled last year as a regulatory clampdown and restrictions on foreign exchange caused 30 acquisitions with European and US groups to fall through. The figures, which reveal a sevenfold rise in the value of cancelled deals from about US$10 bln in 2015, highlight a waning appetite for global deal making by Chinese firms. And the feeling seems to be mutual; foreign firms are investing less in the country, apparently worried about the currency trap. "There's no return lower than not getting your money back," said one.
And capital flight continues to drain out of the Middle Kingdom. All of this is getting people focused on the trap the Chinese central bank may soon find itself in; some bankers are calling the level of capital flight 'dangerous' even now.
And in Australia, the government there is forcing overseas investors out if they bought land illegally.
And also in Australia, a critical report into lending practices by the big banks to small business has added fuel to calls for a royal commission into the financial services sector.
A look at our soil moisture map shows clearly that it is dry in the North. A medium level drought emergency has already been declared for the rural sector. Now the focus will shift to Auckland's water supply with at least two to three months to go in summer. At the moment, Auckland's largest water reservoirs in the Hunua Ranges are about 80% full, but overall storage is falling at about 2% per week.
In New York, the UST 10yr yield started today at 2.46% and is now at 2.42%, a drift lower as the 'Trump trade' unwinds.
Oil prices are lower today, now just over US$53 for the US benchmark, while the Brent benchmark is just over US$56 a barrel.
The gold price however is sharply higher, up another US$13 and now at US$1,230/oz.
The New Zealand dollar is pretty much unchanged against the greenback and now still at 73 US¢. On the cross rates we are at 95.5 AU¢, and against the euro at 68 euro cents. The NZ TWI-5 index is up slightly to 78.3.
If you want to catch up with all the 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 ».