Wall Street hits record highs; junk wall approaching; Mexico inflation rises; Germany's record trade surplus; China messes with loan drawdowns; UST 10yr yield at 2.39%; oil up, gold down; NZ$1 = 73.2 US¢, TWI-5 = 77.3

Wall Street hits record highs; junk wall approaching; Mexico inflation rises; Germany's record trade surplus; China messes with loan drawdowns; UST 10yr yield at 2.39%; oil up, gold down; NZ$1 = 73.2 US¢, TWI-5 = 77.3

Here's my summary of the key events overnight that affect New Zealand, with news of new Chinese tactics aimed at both their housing markets, and capital flight.

But first, on Wall Street this morning all three main indexes hit record highs amid gains across sectors, led by financial and energy stocks.

The number of Americans filing for unemployment benefits fell last week to lower than expected levels, back to near that 43-year low, and -11% below the same period a year ago.

American wholesale sales came in very strong in December, up +6.8% from a year ago. Inventories were lower.

The drop in the US five-year break-even rate, a market measure of inflation expectations, is the biggest two-day slide since the immediate aftermath of the Brexit vote. Investors have been bidding up prices of Treasuries as a haven asset, and that is behind the sharp slide in wholesale rates. However, we are seeing a bit of a bounce in trading today.

Behind the safe haven debt is a lot of junk. A record US$1 tln of junk debt will mature by 2021, leaving high-risk companies to hunt for new cash at a time when markets are likely to be less welcoming, according a new Moody’s report. Speculative-grade companies have US$1.06 tln of debt maturing between 2017 and 2021, with the bulk of it, US$933 bln, coming due after 2019, they found.

South of the border, financial stress is rising. Mexico's annual inflation rose faster than expected in January to its highest rate in more than four years. It is being driven by higher petrol prices and may lead to higher official interest rates, currently at 5.75%. Inflation in the twelve months through January rose to 4.7%, its highest since September 2012.

Across the Atlantic, Germany's trade surplus hit an all time high last year as the country continued to export significantly more than it imported. According to the figures, German exports climbed +1.2%, while imports rose +0.6%. This left a surplus of €253 bln and higher than the 2015 record. That surplus is a remarkable 21% of exports.

In China, their central bank is clamping down on real estate lending in a heavy-handed way, using moral suasion known locally as 'window guidance'. They are requiring Chinese commercial banks to slow the ability of their borrowers to draw down on their loans. Their aim is to tighten the disbursement of credit to keep property prices in check and prevent capital flight. There are growing numbers of nervous sellers, and frustrated buyers.

In New York, the UST 10yr yield is higher today by about +3 bps, now at 2.39%. Yesterday in New Zealand, local swap rates took a sharp dive with the two year retreating to rates we last saw in December 2016. Given today's Wall Street lift higher, Expect to see a bounce off yesterday's lows today.

Oil prices are marginally higher today, now just over US$53 for the US benchmark, while the Brent benchmark is just over US$55.50 a barrel.

The gold price is lower, down -US$10 and now at US$1,232/oz.

And the New Zealand dollar is sharply lower this morning. It dropped following yesterday's RBNZ comments but overnight the move bas been more about a resurgent greenback. It is now at 71.9 USc, a fall of almost 1½c from this time yesterday. On the cross rates we are down as well but not by as much, at 94.2 AU¢, and against the euro at 67.4 euro cents. The NZ TWI-5 index is now down to 77.3, a full -1 point fall in a day.

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 ».

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Foreign Governments Selling US Treasuries At Record Pace
http://www.otterwoodcapital.com/blog/foreign-governments-selling-us-trea...

2 yr swap rates back to December levels, no doubt Banks will rush to lower interest rates immediately...

Are there signs ( albeit small signs) of panic in the Eurozone ?

Bloomberg has been reporting French Bond yield spreads rising .

Or is it just French politics influencing markets ?

One would hope so , because we dont need a crisis in France which may have a contagion effect