Yellen ready for a March rate rise; China sets revised goals; China's banking system now world's largest; commodities in favour; UST 10yr yield at 2.49%; oil unchanged, gold lower; NZ$1 = 70.5 US¢, TWI-5 = 76.1

Yellen ready for a March rate rise; China sets revised goals; China's banking system now world's largest; commodities in favour; UST 10yr yield at 2.49%; oil unchanged, gold lower; NZ$1 = 70.5 US¢, TWI-5 = 76.1

Here's my summary of the key events over the weekend that affect New Zealand, with news China's banking system has scored another dubious benchmark.

But first, Janet Yellen spoke over the weekend and her message was clear; the Fed will raise rates next week, baring any unforseen situation. It was a surprisingly clear signal from her: usually such guidance is couched with all sorts of vague caveats. She directly said "the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016". The end of easy money is near, at least from the US. Analysts now see three rate rises in 2017, taking the current US benchmark of 0.75% (upper bound) to 1.50% by the end of the year.

In China, the "news workers" are pumping out the official stories from the Chinese Communist Party's big meeting over the weekend, setting goals for the next five years. But through all the spin, what has been revealed is that growth targets are being lowered - to 6.5% for 2017 - policies are being relaxed to 'welcome foreign investment', and new policies to raise domestic demand are on their way. And it should be noted, President Xi gets relatively low marks for meeting his stated goals over the past five years.

And the FT is reporting that China’s banking system has grown passed that of the Eurozone to become the world’s largest by 'assets'. But it is a sign both of the country’s increased influence in world finance and its reliance on debt to drive growth. Chinese bank 'assets' hit US$33 tln at the end of 2016, compared with US$31 tln for the eurozone, US$16 tln for the US and US$7 tln for Japan. The value of China’s banking system is more than 3 times the size of the country’s GDP, compared with 2.8 times for the eurozone and less than 1 time for the US. In New Zealand, the ratio is 2 times. This massive size in China is a sign of an economy overly dependent on bank-financed investment, beset by inefficient resource allocation, and subject to enormous credit risks.

However, the direction the Chinese are taking their economy will be 'good news' for Australia, even New Zealand - in the short term at least. The focus on holding up relatively high growth levels, even with all that debt, will keep demand for iron ore and dairy products high in the plannable future.

And commodity prices are enjoying their best run up since 2013, fresh evidence that investors are betting on a pickup in the global economy after years of sluggish growth and scant inflation. Oil and natural-gas prices are rising again, even if fitfully. Precious metals like silver and materials like lumber have scored big gains in recent weeks. But this rise in prices have attracted new producers, flooding markets for everything from oil and gas to aluminium and wheat.

In New York, the UST 10yr yield is now at 2.49%.

Oil prices are pretty much unchanged to start the week, at just over US$53 for the US benchmark, while the Brent benchmark is just under US$56 a barrel.

The gold price is also a lower however, down another -US$7 at US$1,225/oz.

And the New Zealand dollar has stayed at its lower level over the weekend. It is now at 70.5 USc. On the cross rates we are down at 92.8 AU¢, and against the euro at 66.3 euro cents. The NZ TWI-5 index is down to 76.1.

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 ».

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So more interest rate rises here soon once the FED goes up

Good for savers

"The focus on holding up relatively high growth levels, even with all that debt, will keep demand for iron ore and dairy products high in the plannable future"

This is exactly the point - someone somewhere needs to be going on a debt binge so that commodity prices can hold up to "viable" levels. The Chinese have been binging hard since early 2000's... if they stop demand for all commodities will crash - possibly for good. The question becomes how long can they sustain their debt binge.

It's like running down a steep hill; you have to keep going otherwise you end up face-planting the business end of the ground.

The cost of money is finally set to go up , hopefully back to some kind of realistic level ( like around its 20 year average would be good)

I should be so lucky !

Clearly the demand for money is increasing and economic activity is stable to robust .

the cost of money can't go up - and certainly not for long.
You can't fix weak global demand with higher interest rates.

Is is about Global demand , or American demand ?

Americans consume around a quarter of the world resources... so the American consumer drives a good chunk of it

Is is about Global demand , or American demand ?

number of Fed hikes by decade...
60's = 8
70's = 35
80's = 28
90's = 11
2000's = 20
last 10 years = 2

Manakau City would appear to be ground zero for Auckland's property bubble, as Federal reserve about to raise rates.

Yep Manakau is being hit with a double wammy. Local Kiwi Investors that are selling off housing stock in the poorer areas as they're likely to loose big time on capital value as the Auckland market recedes.

And then there's the wealthy Overseas Investors that are selling off their housing stock in the more expensive areas due to not being able to get capital out and/or get further funding. Ooops!

Bill English is toast !

He has made a big blunder stating he will reset the NZ Super ( even though its needed)

To even suggest it , he risks a firestorm and could lose practically every voter over the age off 55 ( and there are an awful lot of us ) depending on how he handles this one

I may be wrong but I see Winston as the kingmaker , the person who opens the gate for the next Government to be formed

He's likely to lose the voters over 55, and because the suggested change hurts those 50 and under he'll lose those too.