Here's our summary of key events overnight that affect New Zealand, with news markets are turning quite sceptical the current growth is going to continue.
In the US, their economy slowed less than expected in the third quarter of 2018 as a tariff-related drop in exports was partially offset by the strongest consumer spending in nearly four years. Strong defense spending also helped boost the result, up +4.7%. Their headline growth is "+3.5% pa" but on the basis the rest of the world uses, Q3 grew +3.0% while the year to September 2018 was +2.8% higher than the same period one year ago. (New Zealand won't release its Q3 GDP data until late December; our Q2 growth was +2.7% pa.)
US personal disposable income (that is, after taxes) was up +5.2% but their personal expenditure was up +5.5%. Despite the strong rise in incomes, personal savings growth rose just +0.6%. On a per capita basis, it fell.
Perhaps that is one reason that a key measure of consumer sentiment fell more than expected, even in the face of the 'strong' GDP outcome. This measure is now -2.1% lower than a year ago. The headline gains are starting to look a bit hollow.
Markets have been unimpressed by the American results and Wall Street fell almost -2% on the news although it has clawed back a little since, now down -1.7%. In fact, they have now dipped into "correction" territory, being more than -10% lower since the recent peak. Benchmark bond yields have fallen sharply too, down to just 3.08% for the UST 10yr benchmark.
But more interest rate rises are on the way. The Federal Reserve's Vice Chairman confirmed the central bank’s plans to gradually raise interest rates and pinpointed the behavior of inflation as key to deciding when to stop. The new Administration appointees to the Fed are leaning firmly against the President's outbursts against Fed policy and their steel is strengthening.
In China, a different sort of anger is building. Developers in some Chinese cities have cut prices by up to -30% as demand for new housing plummets. Public anger has poured onto the streets despite official figures showing a still-healthy property sector.
In Singapore, manufacturing output unexpectedly fell in September, with output falling -3.9% year-on-year and suggesting their economy was finally beginning to feel the chill from trade tensions and slowing growth elsewhere.
The UST 10yr yield is ending the week sharply lower at just 3.08%, a -12 bps drop in a week. Their 2-10 curve has dipped further to +27 bps. The Aussie Govt 10yr is at 2.60% (down -1 bp overnight and down -10 bps over the week), the China Govt 10yr is at 3.55% and down -1 bp overnight and down -3 bps for the week, while the NZ Govt 10 yr is at 2.57% and down -2 bps overnight and down -12 bps over the week. New Zealand swap rates are unchanged this week for durations out to three years, but have slipped and flattened for longer durations. In fact, our 2-10 swap curve is now under +80 bps for the first time since November 2016. In between it had gotten as high as +127 bps.
The VIX has risen again this week and is now at 26, up from 20 last week. It is way above its average over the past year of 12 and showing that volatility has returned to the markets. And the Fear & Greed index has moved even further to the extreme end of the 'fear' side. In fact, it will be hard for it to get even more extreme.
Gold is up overnight at US$1,234/oz and that puts it up +US$8 for the week, the same movement as for the pervious week.
US oil prices are little changed today at just under US$67.50/bbl. But the Brent benchmark is up +US$1 to US$77.50/bbl. But both are pullbacks from this time last week. The Brent price rise may be because of some Chinese moves which will resonate here. The US rig count had another small rise this week.
The Kiwi dollar is ending the week noticeably weaker at 65.2 USc, and down almost -½c in the past seven days. On the cross rates we are also lower at 92 AUc, and unchanged at 57.2 euro cents. That puts the TWI-5 at back at 69.6. We should also point out that the Chinese are continuing to let their yuan depreciate against the US dollar, getting ever closer to 7 over the week. At the current rate of depreciation we thing it will reach the 7 level before the end on November.
Bitcoin is now at US$6,437, and almost exactly where it was at this time yesterday and this time last week. This rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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