Here's our summary of key events overnight that affect New Zealand, with news some key benchmark interest rates are on the move higher.
Driving those rates higher are the combination of US Fed rate-rise risk because most of the global economy is doing well on an economic growth basis, and the debt-ceiling-extension/Government shutdown risk in the USA.
Today is a key day in Washington DC. Congress is unable to agree on a compromise deal, made more difficult by capricious 'deal-making' positions taken by the White House which seem to change with the President's mood. The blame game has started. They have until midnight Washington time (about ten hours from now) to get something sorted and voted through Congress.
The latest consumer sentiment survey in the US has taken a surprising fall. The reduction was not large, but analysts had expected it to rise strongly this week. But this survey does not really cover the US budget tussle.
Meanwhile, Wall Street seems to be taking it in its stride - expecting as most do that at the last minute the issue will be resolved.
But bond markets aren't so sure. The UST 10yr yield is up at 2.64%, its highest since June 2014 and a +16 bps rise in just two weeks.
Globally, bond market yields are rising too, but for the other reason. Growth and possibly inflation, are turning up - or at least in increasing numbers of professional investors minds, they expect that to happen.
The Aussie Government 10y is up to 2.84%, a +23 bps rise in the past two weeks. The China Government 10yr is to 4.06% bps, a +14 bps rise in the same period. And the New Zealand Govt 10yr is now at 3.00%, a +21 bps jump. These are all meaningful moves.
And local swap rates are rising too. The two year is up to 2.26% (+7 bps in two weeks), the five year is now at 2.78% (+10 bps) and the ten year is at 3.29% (+14 bps). So we are seeing a steepening in the yield curve.
But none of this suggests investors see higher default risk. In fact just the opposite. The steepening yield curve says that is not the case, and NZ Govt credit default swap pricing is now just +13 bps, a record low. The Aussie equivalent is also a record low. Investors are definitely not pricing in risk for a coming downturn.
Gold markets aren't closed yet but the price of gold is up slightly at US$1,333 in New York, although that is a touch lower than the closing price in London.
Oil prices are lower today with the US benchmark at US$63.30/bbl and the Brent benchmark at US$68.60/bbl.
Commodities like iron ore are up, now up over US$76.50/tonne. That is despite 'warnings' recently that there will be an imminent reduction in Chinese demand. It just doesn't seem to be happening.
Even the dairy futures market is signaling another rise at the next auction with WMP indicating a further +3.5% rise, SMP is indicating +4.7%.
The Kiwi dollar is tracking sideways. It has been just under 73 USc for most of the week as the US budget fight developed and the greenback struggled for credibility. A resolution in the US might see it slip back next week. The TWI-5 is now at 74.2, its general level over the past week
The bitcoin price movements have suddenly become very tame. We are little changed since yesterday - the US$11,200 level has been stuck there for more than two days now. The US Securities & Exchange Commission (SEC) have said cryptocurrency funds raise 'significant investor protection issues'.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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19 Comments
To be fair the writers don't seem to have taken into account the value of owning the lease in perpetuity that the crown must buy back. I still think the whole thing stinks real bad but. Hence it's not surprising to see the name Peter Theil appear there.
As to the question of courrption, over nine years of the previous administration there seemed to be an attitude change emanating for the very top that as long as it was legal or if you couldn't remember and no one could prove otherwise then it was all honkeydory. Hence John Keys wish to imitate Swiss bankers and turn a blind eye to money laundering because they couldn't see it was illegal so it couldn't be.
Flipping heck.
How dumb were our dear leaders.
I think they must have had a hand in the till, plowing through all this. Hardly worth the bovver otherwise.
Were real estate agents involved....or just idiot public servants selling NZ out, guided by flipping Politicians.
Though 4% of nowt, is still nowt...aye lads..
Could have built a nation, sold a flipping station,, flogged it to overseas interests, what a platform they must have worked on. Lend Lease...flog low, flip high.
Stupid Taxpayers.
Land Banking..I think not., but I did see a Tui...flying buy...buy...buy...but no one offered it to......me.
Unfortune- ate -lie not....put out to public pasture...methinks.
I would have given em 50% more....plus GST....naturally.
Globally, bond market yields are rising too, but for the other reason. Growth and possibly inflation, are turning up - or at least in increasing numbers of professional investors minds, they expect that to happen. [emphasis added]
Exactly!!!!
After 2008 (and 2011), the banking system realized it needed instead “fortress balance sheets” because, among other things, there was no Greenspan put. Amounting to mere legend, it didn’t do anyone any good in the depths of crisis because legends aren’t often real. Bernanke spent the balance of his tenure actually proving it. The Fed had, starting in 2007, constantly undermined the perceived franchise value of not just Wall Street but really all global banks operating in the same way.
But we are conditioned to think about monetary policy only from the positive perspective; it of “stimulus” and economic aid. It can, in fact, prove to be highly caustic, particularly when used, as in Japan, to instead disprove the foundations of the prior paradigm. As I have written constantly, if you have to do QE twice, or more than twice, it didn’t work. Worse, you’ve actually confirmed that it didn’t work not just to the public but also to those on the inside. It may even advertise that as a central banker purportedly central to everything and everyone you really don’t know what you are doing.
Trust is and has always been the essential part of any monetary system. Hyperinflation, for example, is never really about literal money printing so much as it stems from thoroughly abused trust (to be clear, I’m not saying we are on the road to hyperinflation). It is a huge component of any bank’s franchise value, and its increasing absence the central point of infection breeding financial zombies. I hope Jerome Powell understands Bernanke, both good and bad, as he gets set to take over at the central bank (there are no indications he does).
Nobody really cares at this moment, because so many are convinced the economy is booming again, or at least on the cusp of doing so (yield curve, of course, begs to differ). The blindness is itself blinding, the recency bias that inhabits so many chapters of all good horror stories. Fix the banking system, which is the monetary system in a credit-based regime, fix the economy. Monetary growth is energy and life; lack of growth is the proliferation of the undead where 3% GDP is counted as achievement rather than scorn and alarm. It’s an explosion of zombies (and not just in the financial sector, as the BIS recently explored at a conference in Paris), where at the end of it waits only Negan…and Lucille. Read more and more
10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity: closed at ~60bps today.
Let's not forget that some big players have been selling off their junk bonds. The market has been convinced that the Fed is serious, and that the ECB and BoJ are mildly serious. Interest rates will keep slowly creeping up and money printing (QE is a bs term that we shouldn't use anymore) is slowing.
The ECB is only printing money to buy the bad debts in their banking system. They've told the banks to hold and not write off the debts so the ECB will buy the debts at a later date. It's just emergency liquidity and they have a really large emergency in the EU.
It's going to take a long time for the financial system to return to normal. Outbreak of war is more likely on that timescale.
Commodities like iron ore are up, now up over US$76.50/tonne. That is despite 'warnings' recently that there will be an imminent reduction in Chinese demand. It just doesn't seem to be happening.
Contradictions abound.
Dr.Copper is down for the three straight weeks after trading up to four-year highs, providing cover for the bullish global reflation bet. Read more
That may be arithmetically correct, but the perspective is all wrong. Just look at the data charted to get a better idea of where the "three straight weeks" stand in the greater scheme of things. Copper is back to 2014 highs whatever way you look at it.
I thought you might notice the link to the CME copper futures options trader pundit.
For many years my trading team sat opposite the FX OTC options market making team - two young accountants perpetually writing premium (huge nominal positions) and managing the risk until expiry. Their experiences turned out to be the most fascinating on the job education tutorial in my life. Options are the lead-in instrument to any position hedge strategy. Outright position market makers lifting and resetting option hedges and the subsequent delta hedging undertaken by the options market maker in the underlying accounts for a serious percentage of observed trading volume in any financial instrument.
As I write this watching the senate floor & final vote soon & a likely US govt shutdown soon
Today the DOW was down yet Nasdaq & S&P 500 we’re both up
another example of a weird day today here.
We are awaiting a catalyst for a major market correction and 2018 surely appears to offer plenty of opportunities for this to finally occur
Batten down the hatches down there because when GFC2 hits it will be far worse than previously
The US is rudderless & sentiment need only turn some more here & there may well be mayhem
That will undoubtedly be a response because what else is left but QE ?
It won’t work because there is already a plethora of money sloshing around the system at low rates
Oh ! restructuring the system with WallSt not being bailed would make a nice change instead of Mnuchin foreclosing on homeowners for profit unscrupulously & BlackRock buying them up for a dime.
Cronyism in capitalism needs addressing but of course it won’t be
The mega rich will make sure their money is protected by the same politicians that just handed them fat taxcuts
I rewatched " Inside Job " last night. Mat Damon's excellent investigation of the GFC and aftermath.
Makes the Fed Governors look incompetent fools or worse.
Does little for one's confidence in the integrity of our financial systems.
Well worth watching for those that haven't yet seen this excellent documentary.
As always 2018 is going to be another very interesting year, The thought that T30's are going to revert to their long run 7 % is just not going to happen as the implications are too horrible to contemplate.
Meanwhile the Chinese must be smiling watching the madness in Washington go another round - A credit downgrade if this goes on too long ?
Rising interest rates and the governments efforts to rein in prices
https://www.stuff.co.nz/business/100586473/westpac-warns-house-prices-s…
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