90 seconds at 9 am: US Fed hikes again

US Fed hikes, says 3 more in 2018; US home sales rise with prices, US C/A deficit swells; EU aims tax on digital companies; small WTO members worried; UST 10yr at 2.92%; oil and gold up; NZ$1 = 72.1 USc; TWI-5 = 73.3

22nd Mar 18, 7:27am by David Chaston

Here's our summary of key events overnight that affect New Zealand, with news the US Federal Reserve has raised their policy interest rate +25 bps to an upper bound of 1.75%.

This is their fourth hike since the end of 2016 and their fifth rise off of their GFC setting of 0.25%. Their formal forecasting indicated two more such rises will happen in 2018 but today verbally indicating that it might be three more.

None of this is unexpected by markets and they have taken it in their stride. This is the benchmark change, but much of the market pricing above that is on the move too. Today's official increase takes the US rate up to the equivalent New Zealand rate, which markets don't expect to change in 2018. The RBNZ is reviewing our rate today and no-one expects any changes, or even any signals that the OCR is about to change.

American home sales rose +3% in February from January, but are only +1.1% higher than for February 2017. Holding back transactions are low inventory levels. Their national median house price for all housing types is US$241,700 (NZ$336,500), up +5.9% from the same month a year ago and that is the 72nd straight month of year-on-year gains.

The US current account deficit rose to -2.6% of GDP in December, up from -2.1% just 90 days earlier. A sharp deterioration in the goods deficit is driving the change probably due to companies working to get ahead of signaled tariff changes, which are now expected to be announced tomorrow.

As expected, the EU today proposed rules to make digital companies pay more tax, with tech giants such as Google , Facebook and Amazon set to foot a large chunk of any bill. The heart of the measure is an interim 3% tax on revenues. Just like the US tariff moves, it is a move like to exacerbate global trade tension.

Nearly 50 countries have expressed concern about the “serious threat” to the World Trade Organisation posed by unilateral trade actions, a pointed reference to the US and EU moves.

China has said it will permit foreign companies to access its giant US$27 tln payments market.

In New York, the UST 10 yr yield is higher today at 2.92% after the hawkish Fed statement.

The gold price is up +US$13 today and now at US$1,325/oz.

Oil prices are up another +US$1.50/bbl today and now at just on US$65/bbl and the Brent benchmark now just under US$69/bbl. Interestingly, the US Administration offered for auction the largest-ever option to drill in the Gulf of Mexico, and virtually no-one showed any interest. The auction attracted bids of just US$125 mln for just 1% of the acreage offered.

The Kiwi dollar will start today little changed at 72.1 USc, even after the Fed hike. On the cross rates we are lower at 93.1 AUc and at 58.6 euro cents. That puts the TWI-5 at 73.3.

Bitcoin, which got as high as US$9,158 overnight is slipping back sharply and is now at US$8,790 which is -1% lower than this time yesterday.

This chart is animated here. For previous users, the animation process has been updated and works better now.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

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.

19 Comments

by sharetrader | 22nd Mar 18, 7:44am 1521657896

the hikes should help our dollar drop, which will led to higher imported inflation here in NZ
will be interesting to see how long before we need a hike and if they do

by Jock Silver | 22nd Mar 18, 10:34am 1521668079

Well if inflation does go up here and the RB doesn't raise rates, that will erode the savings base.

by Advisor | 22nd Mar 18, 8:31am 1521660695

This hike coupled with sharply falling fuel inventories in the US has pushed up crude oil prices 7.5% since this time last week. A falling NZD will add further fuel to fire (pun intended) and we should all brace ourselves for a higher inflation rate and paying more at the pump.

by Andrewj | 22nd Mar 18, 8:58am 1521662336

The oil price looks like it's going to flatten out to me. The USA has 100 years of natural gas, trucks are being converted to run on LNG and coal fired stations are converting to CNG. The technology from fracking has changed the industry. High prices have created low prices.

The oil producing countries have lost there clout, OPEC will fracture sometime in the near future. Fuel prices here are expensive her due to tax, that makes electric cars a attractive option until the time the government starts to tax them. In the USA there is a lot less tax on fuel and so not such a big incentive to go electric.

I suspect Putin is worried about the huge gas fields in the Ukraine and the ability for them to pump gas into Europe to compete with them directly, or even push Russia gas out of the market, thats why I think Russia is adding pipelines to the East.

Russia is forced to look at it's other potential exports and move fast, thats why Agriculture is going to become such a big export of Russias, they will continue to push other industries as well because they well know that the energy future, doesn't look like the energy past.

by Foxglove. | 22nd Mar 18, 8:50am 1521661823

Clearly these are “corrective” hikes by the Fed more than strategic. That implies, sort of, that whatever the Trump administration is proceeding, can be measured. Perhaps even, it is positive and in Trump speak, doing good. As always NZ can observe reasonably well from a distance, and take its own measured approach. One hopes though, that we don’t see rates roaring up again as they were hoisted by the RB in the period before the 2008 event.

by frazz | 22nd Mar 18, 9:12am 1521663136

USD dropping..NZD bounce up so unless we raise interest rates cannot see that scenario?

by Foxglove. | 22nd Mar 18, 10:36am 1521668210

Agreed Frazz. There used to be a saying in the markets that the RB arrives too late, does too much, and stays too long. One would hope that any rise in future rate sets will be well signalled not just by the market but the RB itself and that it is not left too late meaning they have to play catch up.

by Jock Silver | 22nd Mar 18, 7:45am 1521657946

I wonder what happens next? Houses get cheaper? Investors pull out of stock market positions to pay back debt?

by Yvil | 22nd Mar 18, 9:56am 1521665789

US Fed back pedals in 18 months due to collapsing economy?

by Foxglove. | 22nd Mar 18, 10:43am 1521668584

Maybe. But the way the Trump administration is going about it, they are just snowballing any problems into the future. Might be sometime before they come back and bite. Trying to recollect, but believe this was a good part of Bush seniors downfall.? It’s the economy stupid etc.

by Roger Witherspoon | 22nd Mar 18, 8:15am 1521659736

China has said it will permit foreign companies to access its giant US$27 tln payments market and they won't get their money stolen, honest. Beingmate was due to a few bad apples, not systematic theft of Western financial and intellectual capital.

by J.C. | 22nd Mar 18, 8:35am 1521660923

A median house prices of USD240K in the US. In suburban NZ and Australia, they can only look and wonder as to how their American cousins wallow in such poverty.

by Solidname | 22nd Mar 18, 8:53am 1521662024

Cos it's all in the land innit.... I mean naturally a country with a population density of 18 per sq km has house prices that are double a country that has a density of 33 per sq km, makes sense because reverse maths and stuff, demographic fundamentals, underpinning oscillating prices and the like. THE TIME TO BUY IS NOW!!!!!

by Tim Depositor | 22nd Mar 18, 8:57am 1521662244

A surprise from RBNZ?

by Andrewj | 22nd Mar 18, 9:01am 1521662516

The dairy market is going to flatten as oversupply hangs around some of it due to technology.

Europe top threat to new-found dairy market stability, says Fonterra

https://www.agrimoney.com/am-morning-roundup-email/am-morning-roundup-e…

by Yvil | 22nd Mar 18, 9:58am 1521665913

The patient is still ill, yet the doctor says "no more prescription", how will the patient be in 12 months?

by JB | 22nd Mar 18, 10:11am 1521666718

Just like the dermatologists patients.

They never die and they never get better - Life just carries on as always !

by Bobster | 22nd Mar 18, 10:33am 1521667996

This is no “suck it and see”. I understand 2 more hikes are pencilled in for this year.

The US economy is not “ill”. It’s growing strongly, well within the parameters of what would be called normal. Nor is our economy “ill”. I means, unemployment is low, we have a normal function export sector. This is interest rates returning to normalcy.

by Andrewj | 22nd Mar 18, 10:49am 1521668947

And in a recent interview, former British ambassador to Syria, Peter Ford said:

“Western mainstream media have their narrative and they don’t want to see it disturbed. Any evidence that goes against their preferred narrative – namely that ‘Assad is a butcher, massacring his people’ – anything that disturbs that narrative is simply ignored or mocked. But the truth is beginning to come out... All these crocodile tears being cried by the likes of Ambassador Nikki Haley in New York are disgraceful, trading on sentiment when behind it is just cynical great power maneuvering.”