Here's our summary of key events overnight that affect New Zealand, with news China is cutting tariffs on nearly 2000 goods in a bid to maintain economic momentum.
But first and as expected, the US Federal Reserve governors have raised their benchmark policy rate by +25 bps to 2.25%. That's the third rise in 2018 and puts it a full +50 bps above the New Zealand policy rate which will be reviewed at 9am today and is not expected to change. This is the largest difference between these two rates ever.
Following this FOMC announcement, the USD dollar fell and bond prices rose (UST yields fell). Wall Street rose modestly. The Fed has left its monetary policy outlook largely unchanged and not suggesting the steady economic growth and a strong job market will turn any time soon. The impact of trade war concerns seem to not feature in their decision or forecasts. Markets see one more hike this year and at least two more next year.
Sales of newly built homes in the US rose in August, following two months of declines. They rose +12.7% above the level of the same month a year ago and far more than analysts were expecting.
China's corporate debt is on the rebound, rising from 160% of GDP in Q4-2017 to more than 164% of GDP in Q1-2018. That is a faster jump than expected and shows the 2017 period of corporate deleveraging inspired by Beijing policy pressure has ended. The same data shows that total debt (not just corporate debt) in China is now more than 261% of GDP. This compares with New Zealand at 202%, Australia at 238%, the UK at 280% and the USA at 251%. But none of these are moving as fast up as China.
And China says it will make more cuts to tariffs on imported goods, as it seeks to combat a slowing economy amid escalating trade tensions with the US. China’s State Council announced broad details of the cuts, without saying whether they would apply to U.S. products.
In a somewhat surprising analysis, the ECB says the United States would have most to lose if it started a trade war with other countries, while China would be better off after retaliating.
In Australia, UBS analysts expect further credit tightening there, and given the RBA's lack of willingness to cut rates, they expect to see the longest house price downturn in decades. They say there's a risk that home loans could fall by as much as -30%, potentially seeing credit growth fall to zero.
The UST 10yr is down -4 bps and now at 3.06% while their 2-10 curve has slipped as well to just under +24 bps. The Aussie Govt 10yr is at 2.74%, down -1 bp, the China Govt 10yr is at 3.68%, down -2 bps, while the NZ Govt 10 yr is at 2.71% and unchanged.
Gold is down -US$5 at US$1,196/oz in New York.
US oil prices are lower today at just over US$71.50/bbl with the Brent benchmark at just under US$81.50/bbl. An unexpected rise in US crude stocks was behind the fall.
The Kiwi dollar is firmer after the FOMC decision and before the RBNZ decision at 66.8 USc. On the cross rates we are little changed at 91.6 AUc, and at 56.7 euro cents. That puts the TWI-5 at 70.3.
Bitcoin is now at US$6,529 and +2.4% higher than this time yesterday. This rate is charted in the exchange rate set below.
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The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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