Fed ups policy rate to 2.5%, signals fewer in future; US home sales rise; US population growth slows; China adds new stimulus; Italy gets EU deal; UST 10yr at 2.86%; oil stabilises, gold up; NZ$1 = 68.3 USc; TWI-5 = 73

Here's our summary of key events overnight that affect New Zealand, with news of a small change of course by the Fed.

The US Fed was expected to raise its benchmark interest rate by +25 bps to an upper bound of 2.50%, and they delivered on that long-signaled indication - despite the political pressure and market concerns. Their forward rate hike projections are not as dovish as many assumed, although further increases in 2019 may not be as frequent. Markets [initially] liked the forward indication and are up strongly today on the equity side. The bond rally faded.

Meanwhile, American existing home sales rose more than expected in November from October. Most analysts were expecting a small pullback in sales from the prior month, but in the end they were up at the rate of +1.9% pa on a seasonally adjusted basis. However, that really can't mask that November sales volumes are -7.0% lower than the same month a year ago. The median existing single-family home price was US$260,500 (NZ$380,200) in November, up +5.0% from November 2017. Their benchmark home mortgage rates have fallen to 4.63% after reaching 4.94% a month ago.

The US Q3 current account deficit came in right on expectations at -US$125 bln, or -2.4% of GDP. That is up from -2.0% of GDP in Q2 and is their largest quarterly dollar deficit since 2009 - but on a %-of-GDP basis is among their smallest in twenty years. (Remember, the NZ Q3 GDP deficit came in at -3.6%.)

Ahead of the Fed's release, the S&P500 had recovered +1.2% in trading today. Following the release it held its gains. Update: It has since lost them and is down on the day. (Maybe they are looking at the page 3, 2019 indications here.)

A later update: 9:40am NZT. After absorbing the Fed news, the bond market has started selling off hard with the UST 10yr yield down to 2.77% and the 2-10 curve down to under +13 bps. The S&P500 is now -1.8% lower on the day. The USD is rising.

And staying in the US, their population grew in the past year at its smallest rate in over eight decades, as more people died and fewer were born. The country’s population rose by +0.6% to 327.2 mln people. That was the lowest rate on record since 1937, even though they 'welcomed' almost +1 mln migrants.

China is to pump another US$52 bln into new rail infrastructure as an economic stimulus measure to counteract their slowing economy. This is a backtrack on their part, but not unexpected.

Overnight, Italy and the EU have agreed a budget compromise, one that seems to be a 'win' for the new Italian government, permitting them to produce a -2.04% 2019 budget deficit. It's a deal that avoids the EU imposing fines on Italy for the breaches.

Argentina is in recession after its economy shrank by -3.5% during Q3 2018. It fell -4.0% in Q4. GDP is now -1.4% lower from January to September compared with 2017 and the IMF says it expects an annual fall of -2.6% in 2018 and another -1.6% in 2019.

In Australia, regulator APRA has scrapped its interest-only home loan limits as their housing downturn accelerates, resulting in a sharp drop in mortgage lending. These interest-only regulations were not fully implemented by some banks even though they came into force in March 2017. The laggards have been rewarded; those who respected the policy are now at a disadvantage.

The UST 10yr yield is now at 2.86% after the Fed indication that more rate hikes are coming. Their 2-10 curve is up to just under +18 bps. The Aussie Govt 10yr is at 2.39%, down -3 bps, the China Govt 10yr is at 3.38% and also down -3 bps, while the NZ Govt 10 yr is at 2.47% and down -1 bp.

Gold is higher again and is now at US$1,253, another +US$4 rise today.

US oil prices marginally higher today and now just under US$48/bbl. The Brent benchmark is now just over US$57/bbl.

The Kiwi dollar is lower after the Fed rate hike, now at 68.3 USc. On the cross rates we are at 95.6 AUc, and at 60 euro cents. That puts the TWI-5 at 73.

Bitcoin is now at US$3,812 and an impressive gain of +8.5%since 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

Select chart tabs »
The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

20 Comments

But did the Fed really raise rates?! ( sarc/off)

"The German news magazine Spiegel has been plunged into chaos after revealing that one of its top reporters had falsified stories….The media world was stunned by the revelations that the multi award-winning journalist Claas Relotius had “made up stories” He had….won numerous awards for his investigative journalism, including CNN Journalist of the Year in 2014.”

I think this is almost funny. But having said that, I suppose that this probably shouldn't occur in financial news.
Very often when I read a news item I think to myself "This is bullcrappo". More often than not when the media is taking a feminist/ anti-men line. And when the Ak Council is producing spin.

I guess Donald was right, CNN officially distributes "fake news" but you only need to watch it for 5 minutes to work that out for yourself

CNN once so respected, now tabloid news

Clinton News Network.

With GDP numbers out this morning,will our highly attuned economists complete an inept year of forecasts?

You are right. Story updated. But they have only 'lost' today's earlier gains, not down on yesterday's level - yet at least.

*poke* are we there yet? :P

Well, the Oz banks that kept issuing interest only will have more on their books. So in a more severe downturn will actually be in a weaker position than the more prudent ones.

But, but, but, the Aussie banks are Unquestionably Strong and more importantly, highly profitable. Lots of profits means lots of loss absorbing capacity. There is a view that profitably is much more important than the silly capital ratios and attendant smoke and mirrors. Anyway, we must all bow down and serve our chosen masters, feeding them a cut of our lifetime earnings, it is the modern way.

True.
I'm sure that the RBNZ knows well that once dividends are paid then that money is gone, lost, history.

So the US population grew by 2 million in one year (seems like a lot when you state it that way). Even at this "lowest rate on record" their population will crack half a billion in 70 years' time. The rate needs to come down further I would have thought.

Dow now 400 down and looking decidedly uneasy. Someone needs to say something, soon...

Howdy

well, my SPY puts are trading nearly 30% up from what I paid for them yesterday... so I'll say "Hooray!" :)

“In Australia, regulator APRA has scrapped its interest-only home loan limits as their housing downturn accelerates, resulting in a sharp drop in mortgage lending.”
Well at least we know where APRA’s priority lies and it’s not “developing and enforcing a robust prudential framework” as they purport.

Interesting, thanks!

Interesting all right: a chartist view, but.

The FT's person of the year - George Soros - https://www.ft.com/content/2bd12012-01e4-11e9-9d01-cd4d49afbbe3