Here's our summary of key events overnight that affect New Zealand, with news rising interest rates are affecting developed countries and emerging markets alike, and not just bond investors.
In the US, home mortgage rates have now hit a seven year high. The average 30 year fixed rate mortgage (a standard American basis that works because the Federal Government agencies back up the financing for such a long term fixed, and one that allows an early exit) is now at 4.61%. A standard variable rate mortgage is now at 3.77%. These represent a +5 or +6 bps rise in just one week. Rising rates have traditionally held back their real estate markets, for both new builds and resales. Americans owe US$15 tln for housing loans, so a 1 bps rise adds US$1.5 bln to their payment load per year. In the past week that has risen by US$7.5 bln pa.
And it is not only mortgages affected by higher interest rates. American student loan rates are on the rise as well. That is a US$1.5 tln loan load affecting 45 million people, an impact much larger than for car loans.
Their trade dispute with China took a tough turn in Congress earlier today. The Republican measures to soften the impact on their farm sector couldn't get the votes in the House to pass based on the enormous deficit-raising cost. Bit of an own-goal here as the party who started the current trade war has been unable to shield itself from its local impacts.
In China overnight, they abruptly ended an anti-dumping probe into imported American sorghum, in the latest signal that Beijing is trying to reduce tensions as Washington seeks a more balanced trade relationship.
In Canada, their CPI inflation rose at the rate of +2.2% in the year to April. That is down from +2.3% in the year to March. Meanwhile Canadian retail sales rose much more strongly than expected, but that was only due to surging car sales. Otherwise they slipped unexpectedly. It is the third straight month Canadian inflation has been higher than the Bank of Canada target.
Meanwhile, the EU trade balance came in almost exactly where analysts had forecast, but that doesn't hide the surge in trade for both imports and exports which is really quite impressive. Their large surplus with the US swelled. Their deficit with China, which is even larger, grew as well. Overall, their surplus shrank a small amount.
And here is a rundown of what is happening in the emerging market economies being bashed around by the combination of a rising US dollar and rising US benchmark interest rates. These are the TIVA economies, and they are all on shaky ground. A couple of them fall over and that could trigger an ugly international reaction.
Firstly in Turkey, investors are pulling back. A plunging currency and sky high debt brought on by a government who "invested for development" based on cheap money is being undone by the interest rate/currency squeeze. And the country's leadership is pressing their central bank to cut interest rates as a solution. No-one, and not even their own central bank, think that is a good idea. The investor flight is likely to pick up as reserves dwindle fast. The IMF can expect them knocking soon.
Indonesia isn't in the same league at all. But it raised interest rates this last week because it has the debt and currency problems of the others, just not to the same extent. It is also in the middle of a resurgence of religious extremism tensions.
The most vulnerable of them all, Venezuela is teetering, a failed state about to descend into anarchy as an "election" looms. High oil prices no longer help it because so much of their infrastructure is down, or creditors are claiming the best bits. The regime could collapse at any point. Inflation is at Zimbabwean levels. The effect on the international system however may be very limited; everyone seems to have written their investments off already
Argentina thinks it has its crisis beat, but no-one believes that - in fact, not even them. Overnight they asked for emergency support, something the US is backing.
The UST 10yr yield is now at 3.06% and up +9 bps from the level at this time last week. But since yesterday, this is a -5 bps retreat. The Chinese 10yr is up to 3.72% (-3 bps) while the New Zealand equivalent is at 2.89% (up +1 bp).
The VIX is back into a normal range at 13.7, similar to where it was this time last week. The average index level over the past year is 12. The Fear & Greed index is near neutral and unchanged in a week.
Gold markets are now closed at US$1,293/oz in New York. That is unchanged since this time yesterday, but down a little this week.
Oil prices are down a little and are now just under US$71.50 and the Brent benchmark is now just over US$78.50/bbl. The US rig count was stable this past week after six straight weeks of gains.
The Kiwi dollar is ending the week down at 69.2 USc and a minor retreat over the week; it was 69.7 at this time last week. On the cross rates we are at 92.1 AUc and 58.7 euro cents. That puts the TWI-5 at 72.1.
Bitcoin is up from yetsreday, but down since this time last week. It is now at US$8,254.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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