US house building up, labour stress rises; a new US 'budget' but no revenue plan; China raises rates; Japan holds; UK holds with dissent; Canberra chooses hydro; UST 10yr yield at 2.53%; oil and gold up; NZ$1 = 69.8 US¢, TWI-5 = 74.9

US house building up, labour stress rises; a new US 'budget' but no revenue plan; China raises rates; Japan holds; UK holds with dissent; Canberra chooses hydro; UST 10yr yield at 2.53%; oil and gold up; NZ$1 = 69.8 US¢, TWI-5 = 74.9

Here's my summary of the key events overnight that affect New Zealand, with news other central banks are reacting to the US Fed rise.

But first, American house building jumped in February with the construction of single-family houses to near a ten year high. Housing starts were up +6.2% above February last year and building permits +4.4% higher.

A regional factory report out overnight from the Philadelphia Fed showed some interesting trends. Even though its activity index declined, its new orders gauge hit its highest level since December 1987. Prices paid for inputs and prices charged for outputs hit six year highs. And 60% of firms in the area said they faced labour shortages, almost 70% said they faced skill shortages. These are serious rumblings of inflation, and the competition for available skills is getting serious.

And the new President released his 2018 Budget. It claims to be 'neutral' with a claimed budget deficit of -US$392 bln or -2.3% of GDP. It shows that the deficit persists and will grow to US$443 in 2020 (the same as the current year result). The released documents reveal deep cuts to social programs, rises for defence, and absolutely no detail on tax revenue plans. Without revenue guidance, this document has zero credibility.

In a confused move, China's central bank raised interest rates hard on the heals of the US Fed. It lifted interest rates of two open market operation tools, the six-month medium-term lending facility and the one-year MLF were each up by +10 bps to reach 3.05% and 3.2% respectively. They claim it is not a rate hike, but it does raise borrowing costs.

The Bank of Japan seems relaxed with its policy settings. It is benefiting from global tailwinds and US monetary policy divergence, so it left its policy unchanged when it concluded its two-day rate-setting meeting. 

In the UK, the Bank of England reviewed their 0.25% policy rate and also kept it unchanged. That is not really 'news', but what is, is that for the first time in almost a year there was a dissenter, one who thinks inflation is stirring and wants to raise rates there. That seemed to put a floor under the declining rate sentiment in Europe.

In Australia, the Federal Government is prioritising hydro electricity generation in a big way. In dry years, that strategy by bite their economy, and they are known to have extended periods of low rainfall. And even getting it built might have pitfalls.

In New York, the UST 10yr yield is at 2.53%. Locally we saw notable drops in rates across the board. In fact the two year swap is now at levels we last saw in December 2016; the one year swap is back to levels last seen in September 2016.

Oil prices are fractionally higher today and now just under US$49 for the US benchmark, while the Brent benchmark is just under US$52 a barrel.

The gold price is up sharply by +US$16 to US$1,226/oz.

But the New Zealand dollar lower today at 69.8 USc. On the cross rates the Kiwi dollar is at 90.9 AU¢, and against the euro is at 65 euro cents. The NZ TWI-5 index at 74.9.

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.

3 Comments

These are serious rumblings of inflation, and the competition for available skills is getting serious.

I wouldn't get too excited.

Already 1 month and 3 month TBills are trading through the RRP Fed Funds floor.

And while savers are once again getting the shaft, and major beneficiary of yesterday's Fed rate hike will be... the banks again. Recall that the Fed pays lenders Interest on Excess Reserves, or IOER, which as of today is 1.00%. And since currently there is $2.13 trillion in outstanding bank excess reserves (a number which fluctuates depending on whether banks are using other Fed liquidity conduits at any given moment), it means that as of today, the Fed will pay banks $21.3 billion in interest on reserves every year (assuming the Fed does not hike more), an increase of just over $5 billion from the $16 billion in annualized interest banks were received from the Fed until yesterday. Read more

NBC business news reporting that Mortgage applications are soaring as lenders lock in low rates.