Here's our summary of key events overnight that affect New Zealand, with news some key inflation data is out.
Firstly, American consumer prices rose +2.5% in the year to April and +2.1% on the "less food and energy" basis. Although this was less than expected, neither were changes from the March rates and are high enough to keep markets believing the Federal Reserve will continue to gradually raise their benchmark interest rates. June and September are assumed by markets, and maybe one more. Recall, the April non-farm payrolls data reported wages rising +2.6% in the same period.
The US Treasury announced it will be selling more than US$100 bln of new debt instruments next week. The pace of issuance needs to rise on the ballooning US Federal deficits. As large as that is, it isn't as large as their US$179 bln auctioned in late February. Jumbo auctions are likely to become the norm.
We should also note that the UST 10yr yield is now 2.97% and that compares with the NZGB 10yr yield of 2.79%. The New Zealand discount to the US is relatively new and partly reflects investor concerns over US debt levels (more than our attractiveness). Even more startling, the New Zealand yield might even be at a discount to the Aussie equivalent. It was very briefly yesterday, but the Aussie 10yr is now at 2.78%; however we have closed in on them quite quickly.
China also released its price data, reporting CPI inflation in April that is lower than expected. It came in at +1.8%, rather than the expected +1.9% and the March +2.1%. Going the other way, China's producer prices are rising again, and were up +3.4% in the year to April. This is the first y-on-y rise in seven months.
In the Australian Budget, as we reported yesterday, cash payments of $10,000 or more are to be made illegal. Today we hear that Aussie Government ministers are already considering lowering that threshold. Cash can never meet anti-money laundering regulations so its time may in fact be nearly up.
As we noted earlier, the UST 10yr yield is at 2.97% down -3 bps from this time yesterday. The Chinese 10yr is at 3.72% (unchanged) while the New Zealand equivalent is at 2.79%, also down -3 bps.
Gold is at US$1,321/oz in New York, up US$9 today.
Oil prices are up a little more today to US$71.50/bbl in the US and over US$77.50/bbl for the Brent benchmark. Some analysts are saying the Brent price could well reach US$90 next year and over US$100/bbl the year after. Shrinking inventories are the culprit if the global economy keeps on expanding.
The Kiwi dollar is slightly weaker against the greenback at 69.6 USc. On the cross rates we are noticeably lower at 92.4 AUc and 58.4 euro cents. That puts the TWI-5 at 72.2. That is how the benchmark interest rate discount will play out; the variance will be felt in the exchange rate and that will add to inflation.
Bitcoin is at US$9,155 and a fall of -1.6% since this time yesterday.
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4 Comments
Orr made this statement yesterday:
“The key risks to a rate cut would be international growth faltering, or more importantly, international financial market conditions tightening,”
In other words, a rise in long-term interest rates, which could feed through into New Zealand lending rates.
DC, anyone else, can I have your opinons on why Orr would consider lowering the OCR if long-term interest rates rise?
Thank you
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