Yellen signals rate hike; US SMEs like Trump; EU growth sags; UK prices jump; China credit in dramatic surge; UST 10yr yield at 2.48%; oil up, gold down; NZ$1 = 71.5 US¢, TWI-5 = 77.1

Yellen signals rate hike; US SMEs like Trump; EU growth sags; UK prices jump; China credit in dramatic surge; UST 10yr yield at 2.48%; oil up, gold down; NZ$1 = 71.5 US¢, TWI-5 = 77.1

Here's my summary of the key events overnight that affect New Zealand, with news credit expansion in China surged dramatically in January.

But first, in her semi-annual Congressional testimony today, Janet Yellen said the US Federal Reserve will likely need to raise interest rates at an upcoming meeting, although she noted there is considerable uncertainty over economic policy under the Trump administration. Benchmark yields rise sharply on the testimony, but the US dollar has shown only a minor strengthening reaction.

Small business confidence is rising in the US; they like what they see in the new Administration and an index that tracks SME confidence is now at its highest since December 2004.

In Europe, the Greek economy unexpectedly shrank in the three months to December. Overall, eurozone growth was revised down in the fourth quarter, partly as a result of slower than expected growth in Germany. And that lower activity is reflected in today's release of the German ZEW business sentiment numbers which have come in lower than last month and lower than expected for February.

And staying in Europe, British consumer prices rose in January at the fastest annual rate in 2½ years, highlighting how the UK pound’s fall since June’s Brexit vote is increasing the cost of everyday living.

In China, the absolute size of their recent credit surge is becoming clear. China added more credit last month than the equivalent of the Swedish annual economy, the world's 34th largest economy. China is revving up growth and supporting prices but also fueling concerns about the sustainability of such a spree. Aggregate financing, the broadest measure of new credit, climbed to a record 3.74 trillion yuan (NZ$760 bln) in January. New yuan loans rose to a one-year high of 2 tln yuan, about double the December levels. Public policy officials have a huge job on their hands controlling this growth and so far they show they are not up to it.

In New York, the UST 10yr yield is sharply higher on the Yellen comments, now up at 2.48%.

Oil prices are marginally higher today and now just over US$53 for the US benchmark, while the Brent benchmark is just under US$56 a barrel.

The gold price is marginally lower and now at US$1,223/oz. Italian police have arrested 11 people for running an international gold laundering ring that may have melted down more than 750 kgs of gold and sold it for at least NZ$37 mln. This volume amounts to about 1% of monthly gold bar trading, worldwide.

And the New Zealand dollar is marginally lower as well. It is now at 71.5 USc. However, on the cross rates we are at 93.6 AU¢, and against the euro at 67.6 euro cents. The NZ TWI-5 index is at 77.1 which interestingly is a four week low.

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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7 Comments

"China added more credit last month than the equivalent of the Swedish annual economy.."

Sounds sustainable

Yeah right! Can't wait for the pressure to come on and some of that debt to be called in, or alternatively the interest rates to go up. That house of cards collapsing will be spectacular, and will likely take some international investments with it. Another good reason for the Government to be wary of foreign investment.

Be careful what you wish for. China has been the world growth since 08 ... without debt growth, the financial system & world trade will soon unravel ..

LOL , China really worries me ............ a lot .

They are a big economy , but they are digging themselves into a hole with all the debt they are incurring .

When it goes pop , its going to be a spectacular fireworks display , on a scale we have never seen before .

Yip - its a big worry. China has massive overcapacity amid weak global demand .. When bad debt contagion starts here, no-one will be able to stop it.

https://ourfiniteworld.com/2017/01/10/2017-the-year-when-the-world-econo...

"China’s slowing economic growth is likely to make its debt problem harder to solve. We should not be too surprised if debt defaults become a more significant problem...."

[Chinese] Public policy officials have a huge job on their hands controlling this growth and so far they show they are not up to it.

The Chinese raised short term interest rates during the New Year holiday, the first increase since 2013.

A bit of inflation for the UK is not a bad thing , certainly better than widespread deflation