Here's my summary of the key events overnight that affect New Zealand, with news the calm that has settled over the world financial markets in the past two or three years may be about to get tested.
Firstly, markets are showing fear over the escalating North Korea situation. The S&P500 is down more than -1.2%.
And in the US, producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate hike. Markets were expecting a small rise from previous growth levels, so this is a big miss.
Further, the US Federal government ran a US$42.9 biln budget deficit in July, with a deadline looming for Congress to raise the federal borrowing limit and fund government operations for the coming fiscal year. The deficit in the year to July is +10.5% higher than for the same period a year ago. The risk of a US default and shutdown is starting to rise.
Overnight, the Philippine central bank decided to hold its benchmark rate at 3%. And the Mexicans held theirs at 7%.
In Australia, there are media reports that regulator ASIC is considering pursuing a case against CBA, alleging its directors breached their duties to protect the bank's reputation. And that is on top of other reports that lawyers are preparing a class action lawsuit on the same grounds.
New Zealand and China have announced they are updating their 1986 double tax agreement.
And stay tuned for today's REINZ house price and volume data that should be available around 9 am this morning. This may not be 'normal' either.
In New York, the UST 10yr yield is lower again today at 2.21%. However we are still seeing sharp rises in risk premiums. For investment grade corporate debt in the US and Europe they have risen about +10% just since the beginning of the month with most of that rise coming in the past two days. Interestingly, that jump hasn't been reflected in Australasian corporate debt - yet. And despite these changes, local swap rates actually didn't follow the big market trends, after the RBNZ MPS.
The price of oil has is down -US$1 today to just over US$48.50 a barrel, while the Brent benchmark is now just over US$51.50. However, natural gas prices are rising.
The price of gold has continued to rise, up +US$9 to US$1,284/oz. This is up to its highest in two months.
But the Kiwi dollar will start today ½c lower at 72.8 USc. On the cross rates we are also lower at 92.3 AU¢, and at 61.9 euro cents. As a result the TWI-5 index is down to 75.4, a more than two month 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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4 Comments
" ASIC is considering pursuing a case against CBA.... directors..." A timely reminder that a Directorship isn't just about getting a pay-packet in return for non-services rendered, it's about actual responsibility. TheExec/Non-Exec circus of money for jam must end. Cue a raft of partnership 'retirements' ( law firms especially) and a dearth of candidates for future directorship roles.
And in the US, producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate hike. Markets were expecting a small rise from previous growth levels, so this is a big miss.
Nonetheless, Fed talking heads keep promising that which they cannot deliver.
Federal Reserve Bank of New York President William Dudley cautioned that “it’s going to take some time” for inflation to rise to the central bank’s 2 percent target even as he offered a generally positive outlook for the U.S. economy, job market and price pressures.
“Our outlook anticipates a continued moderate growth trend, with some further strengthening in the labor market and an increase in inflation over the medium term toward our objective of 2 percent,” he said Thursday in prepared remarks at a press briefing in New York on inequality. Read more
Nations have historically been the world’s best credits — but since the global financial crisis a decade ago they have been joined by a burgeoning group of supranational organisations.
Syndicated debt issuance by supranationals has more than doubled in the past decade, hitting $265bn last year, according to figures from data provider Dealogic. These borrowers, such as the European Investment Bank, the EU and the International Bank for Reconstruction and Development, are backed by multiple countries and so enjoy the highest possible credit ratings.
Their ranks are set to increase further with the forthcoming entry into the capital markets of the Asian Infrastructure Investment Bank — dubbed by some as China’s answer to the World Bank — and the World Bank’s own planned expansion in fundraising through its subsidiary the International Development Association. Read more
Yes, they credit wrap cheap New Zealand dollar OBR exempt bank funding via swaps which undermines the returns offered to risk exposed domestic depositors.
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