Here's my summary of the key events from overnight that affect New Zealand, with news a major credit rating agency has downgraded all four Aussie banks, including their NZ subsidiaries.
Moody's has cut the long-term ratings of the New Zealand banks, ANZ, ASB, BNZ, Westpac to A1 from Aa3. That is a one-notch downgrade and takes them out of the 'very strong' classification, and into the 'strong' category. At the same time, Moody's has changed their outlook from 'negative' to 'stable'.
This change comes as their Aussie parents suffered a similar one notch downgrade to Aa3 from Aa2 and leaving them in the "very strong" category. A key reason these ratings are so high, says Moody's, is their expectation that each bank would receive strong Australian government support if they encountered any difficulties.
Moody's cited the reason the New Zealand banks get the rating they do is conditional on the expectation the Aussie parent banks would support their New Zealand operations in the event of difficulty. Moody's did not mention New Zealand government support as a basis for their ratings. They also said the new credit rating level is supported by "strong stand-alone financial profiles", "asset quality is currently very strong", and "capital remains robust". They also said all four each have "a strong buffer to withstand rising risks in the housing market as household leverage and house prices continue to rise, increasing sensitivity to employment shocks, or an eventual rise in interest rates."
One analyst says these downgrades will not affect funding costs.
In other news, the head of the NY Fed says that while American inflation is a bit low, it should rebound alongside wages as the labour market continues its improvement. He said the recent patch of weak data is unlikely to derail plans to keep raising interest rates.
In Brussels, the Brexit talks are finally underway. It will be a long process. Interestingly, the UK side is being led by a former New Zealand diplomat and current professor at Lincoln University. His role is 'chief adviser'.
In China, an academic crackdown is underway. “Higher education ... must adhere to correct political orientation,” President Xi said in a high-profile speech to top party leaders and university chiefs. Universities must be transformed into “strongholds that adhere to party leadership” and political education should be made “more appealing”, the president ordered. It is being described it as the latest front of Beijing’s efforts to quell opposition to its rule. It may not be obvious from outside, but clearly there is growing discontent.
In New York, the UST 10yr yield is higher today at 2.19%. The curve inversion in China is extending, with the 2-10 variance now -6 bps.
The price of oil is lower today at just under US$44.50 a barrel, while the Brent benchmark is now just under US$47.
And the price of gold is lower as well, down -US9 to US$1,245/oz.
And continuing the trend, the Kiwi dollar is a little lower too but only against the greenback where it is at 72.3 USc. On the cross rates we are unchanged at 95.2 AU¢, and 64.8 euro cents. The TWI-5 index is still at 76.7.
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 ».