Fed holds; Canada housing starts drop; Mexico inflation cools; China posts jump in exports; EU data soft; AU banks warn on regulatory overreach; UST 10yr at 3.22%; oil and gold fall; NZ$1 = 67.8 USc; TWI-5 = 72.1

Here's our summary of key events overnight that affect New Zealand, with news the big Aussie banks are warning of the risks of regulatory overreach.

But first, the US Federal Reserve has left its federal funds rate unchanged at 2% to 2-1/4% as expected, citing "realized and expected labor market conditions and inflation."

Canadian housing starts fell -5% in October as groundbreaking on multiple unit urban homes climbed +17%, but were more than offset by a bigger drop in single-detached urban starts.

In Mexico, they are reporting a dip in their inflation rate below +5% in October from September. A year ago that inflation rate was +6.4%.

Another month, another strong Chinese export performance, another round of claims this is only because American importers are trying to beat tariffs. The problem is, those tariffs became effective on September 24, 2018 and this data is for October. China’s exports surged again last month, up more than +15% year-on-year and the largest gain of 2018 on the back of resilient demand, defying many economists’ expectations for a slowdown from the trade fight with the United States. Additional American tariffs kick in at the start of 2019.

Things aren't so good in Germany, with their trade balance slipping on a slip in exports, slightly more than expected. The data released overnight was for September.

In fact, the EU says their economy will cool in 2019 and the coming years as global demand for the bloc’s exports wanes, with a sharper slowdown possible if the American economy overheats or trade tussles escalate. And ECB President Mario Draghi urged eurozone governments to pay down their national debt to build resilience against potential economic shocks, such as the looming Brexit.

Overnight, the Swiss reviewed their official interest rate settings, and like the RBNZ indicated its level isn't going anywhere soon.

In Australia, the big four banks have launched a strong defense of vertical integration, lending benchmarks and executive bonuses, in response to the Hayne royal commission interim report. You can read their arguments here. (ANZ, CBA, NAB, Westpac.) Basically they are saying making it harder for consumers to get loans from banks will push consumers into unregulated shadow banks, and make the issues much worse.

The UST 10yr yield is firmer at 3.22%. Their 2-10 curve is now just on +27 bps. The Aussie Govt 10yr is at 2.77% (up +4 bps), the China Govt 10yr is at 3.51% and down -1 bp, while the NZ Govt 10 yr is now at 2.81% and up +4 bps too.

Gold is down -US$5 overnight to US$1,223/oz.

US oil prices have fallen sharply today, by more than -US$1/bbl to under US$61/bbl, while the Brent benchmark is now just under US$71/bbl. These are seven month lows and should start showing up at the pump soon. When crude oil was last this low, we were paying NZ$2.13/L at the pump, discounted. (But of course an Auckland +11.5c new tax has been imposed since then.) In fact, the drop in crude oil prices is more than -20%, so this commodity is in a bear market.

The Kiwi dollar is starting today at its new higher level of 67.8 USc. On the cross rates we are at 93.1 AU, and at 59.4 euro cents. That leaves the TWI-5 at 72.1 and where it was this time yesterday.

Bitcoin is now at US$6,436 which is down -1.4% from this time yesterday. 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 ».

Daily exchange rates

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The 'TWI' chart will be drawn here.
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The '¥en' chart will be drawn here.
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The '¥uan' chart will be drawn here.
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End of day UTC
Source: CoinDesk

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From the man who gave us "Whatever it takes!" and as much 'free' money as we could swallow, we now get " ECB President Mario Draghi urged eurozone governments to pay down their national debt "? Words fail me....


My thought was "with what"?.

Exactly! And with the Fed on hold today, and probable % rate rises in the US coming in Dec, if I still ran a trading room, it's 'Today', that I'd be asking the guys to 'Sell it all!:". A big call to make so late in the year when the whole year's bonus' are at stake if it's wrong, but with the market having staged a recovery to 'record' levels, Now, I reckon, is the time to press the button :)
(NB: How do you repay debt in an environment of stagnant productivity and inflated asset values? Sell the assets...)

With a Euro devaluation?

"The euro area's general government deficit is projected to continue declining relative to GDP this year, thanks to lower interest expenditure. This decline is set to come to a halt next year for the first time since 2009, as the fiscal stance turns slightly expansionary in 2019 before turning broadly neutral in 2020."

How much are some of these massively leveraged countries just masking themselves as the interest payback is artificially lowered? What will happen when these countries have to start paying higher interest? Doesn’t sound like an option to me…

When the soft Brexit deal is done, as I always believed it would be, it should strengthen the outlook for the EU, and of course strengthen the pound against all other currencies. If you need to buy pounds don't leave it to late people. Englishman living in NZ.

Why the certainty of a soft Brexit?

The UK government went into these talks referring to themselves as Great Britain, but were quickly reminded that the EU along with the rest of the world refer to them merely as Britain.

We just don't know enough about shadow banking/Eurodollars

The narrative seems to have died a little of late on the risks of the shadow banking system. I would be interested in where you draw the line as to what shadow banking is? If i understand what Snider says the Eurodollar more or less IS shadow banking.


Lunch with my daughter yesterday. She is on a new project as the commissioning engineer overseeing construction of a couple of apartment towers in Auckland. So a proud dad here having a daughter that builds stuff. But the irony is she can't afford to buy a house in the city she builds. Another year or two and she will head offshore to get her teeth in to some serious projects.

“with news the big Aussie banks are warning of the risks of regulatory overreach.” I feel their stellar record truely justifies this critique!

Now with Trademe siting at 13313, it's starting to get scary..

14232 on Realestate.


They are circling the wagons, preparing for the onslaught that their own misdeeds have brought on. Regulation is what is required, lots of it and firm. These are private organisations with far, far too much power and influence. they represent greed and arrogance in bucket fulls. They are not above society, but a part of it, they do not rule although they clearly think they should, and above all they are subject to the law, and normal moral and ethical behaviour mores, although again they clearly think that these should not apply. I think the Aussies were very right to hold the Royal Commission, and our authorities negligent for failing to probe deeply into our banks in light of the information from the RC, but then corruption takes on many forms.

I think Mayer Amschel Rothschild said it best: “Permit me to issue and control the money of a nation, and I care not who makes its laws!”

The banks can hire the best brains. They influence the bureaucrats by emphasising the academic research which downplays their excessive privilege. The bureaucrats pass this on to the politicians, who, not understanding the subject, follow the bureaucrats' advice.

Point being, you may be right, but while serious change is possible, it is unlikely to happen, or last long. We need banks, the structure of our society revolves around banking. They will take advantage of this to the fullest extent they can while maintaing their social license.

So says the anchor who threw his lot in with Russia Today (a Kremlin-owned propaganda channel) !! (And did that for money to pay for a divorce settlement.) Beyond irony.

Russia Today (a Kremlin-owned propaganda channel)

By the same token, the BBC is a Westminster owned propaganda channel. I'm not sure why we (rightly) point this out with Russians, but give the British a free pass. They're no fans of free speech.

The Beeb is not flawless and nor is the rest of the UK media. But compare the number of UK journalists beaten up and murdered to the number of Russian journalists beaten up and murdered.

And if any UK journalists were murdered, even odds it was by the Russians.

So David - you prefer "argumentum ad hominem"...interesting. Interest has its inclination....

And who's behind Zero Hedge and what's their agenda?

My experience with Zero Hedge is that is is about conspiracy theories regarding why their commentators and readers keep losing money.

Masher. Definitions as follows : Britain = England and Wales. Great Britain = England, Wales and Scotland. United Kingdom = England, Wales, Scotland and Northern Island. The latter is the only definition relevant to Brexit. I believe it will be a soft Brexit because the majority of interested parties need it to be so.

The British Isles are an archipelago off the NE coast of continental Europe. By convention the largest island in a group is called 'Great' so geographically Great Britain would exist if Scotland had home rule. The term Great Britain is rarely used not because of the decline of the Queens empire but because of the existence of Northern Island.
Wikipedia: "The British Government is the government of the United Kingdom. Its official name is Her Majesty's Government of the United Kingdom of Great Britain and Northern Ireland. "

I see the home team are still very busy pulling the levers. When it goes, as surely it must, it may not be such a big deal for them, as most of them are dirt poor to begin with. I'm referring here to the other billion, not the point three of a billion at the top.