Here's our summary of key events overnight that affect New Zealand, with news equity markets are falling in a sharp case of risk aversion due to rising interest rates.
Overnight, New York Fed President John Williams said he expects the Federal Reserve to return its target interest rate to normal or neutral levels within “the next year or so.” He said that once rates were at a normal level, then the Fed would be well positioned to respond to surprises - either inflationary, or a softening in the economy - that may require raising or lowering rates. But he didn't suggest what the 'normal' rate range is.
While the Fed may not be artificially stimulating the American economy, Congress certainly is and at a faster rate. US Federal deficit for the full year to September has come in at an enormous -US$900 bln, 35% higher than the -$665.8 bln in the previous budget year. The political will to control these exploding deficits has evaporated. For perspective, the US federal deficit has risen from -3.4% of GDP in the year to September 2017, to -4.3% in the year to September 2018. This debt binge is unprecedented, accentuated by large corporate tax cuts. At the current rate of deficit spending it will be -5.5% of GDP in twelve months, and rising. Almost certainly it is past a sustainable rate with interest payments now taking a bigger slice of their spending than even what is spent on Defense. And of course, rising interest rates just exposes the issue to a bigger, earlier shock. Confidence could leak away quickly when markets take fright.
American producer prices rose +2.6% in the year to September, just marginally lower than market forecasts. That is down from +2.8% in August.
Meanwhile data on wholesale trade came in pretty much as expected, but wholesale inventories have been revised significantly higher and for August showed the biggest jump in nearly five years. Inventories rising faster than sales means there will be a production pullback soon.
In the giant US home loan market, rates for a standard 30 yr loan topped 5% last week and a new seven year high. More, the rate jumped +9 bps in a week. But demand was down with new applications falling.
In China, they are about to expand the list of too-big-to-fail companies and financial institutions. That will require them to raise much larger capital buffers, and comes as concerns mount about the resilience of those institutions in their economy.
Yesterday, the Shanghai stock exchange index eked out a small rise. That is in stark contrast to what is happening on Wall Street this morning where investors are fleeing risk and the S&P500 has tumbled -1.9%, the NASDAQ more than -2%. Earlier, European markets all dropped about -2% as well.
In its latest Global Financial Stability Report issued overnight, the IMF has fingered Australia for risks to their economy from bulging household debt and high house prices. But New Zealand doesn't get any mention of that concern. When New Zealand does get mentioned, it is about our low government debt levels compared to most other countries.
The UST 10yr yield is higher today at 3.23%. Their 2-10 curve is now at +33 bps. The Aussie Govt 10yr is at 2.77% and down -1 bp from this time yesterday. The China 10yr is at 3.63%, down -2 bps, while the NZ Govt 10yr is at 2.69%, unchanged.
Gold is at US$1,189/oz this morning, another small +US$2 rise overnight.
US oil prices are down by about -US$2 today at just over US$73/bbl. The Brent benchmark is now just over US$83/bbl.
The Kiwi dollar is starting today at 64.7
64.9 USc having firmed a little in the past 24 hours. Oddly, we aren't yet a victim of that risk aversion this time around - so far at least. It is the greenback that has fallen. On the cross rates we are at 91.2 AUc and at 56.1 euro cents. That leaves the TWI-5 at 68.8 and unchanged since yesterday.
Bitcoin is now at US$6,528 and that is a tiny slip of less than +1% overnight. This rate is charted in the exchange rate set below.
This chart is animated here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».