US durable goods orders rise; US construction flat; Japan machine orders drop; equities rise; RBA finds new systemic risk; bond markets weaken; UST 10yr 2.61%; oil and gold up; NZ$1 = 68.5 USc; TWI-5 = 73.1

Here's our summary of key events overnight that affect New Zealand, with news world equity markets may be up, but bond markets are taking a starkly differing view.

First, US durable goods orders rose more than expected in January, but the bar was low. They rose far less than the December gains, but the rise from January a year ago was healthy (although that January 2018 result was unusually weak).

American construction spending in January was flat on a year-on-year basis, even if it did beat estimates.

In Japan, core machinery orders fell more than -7% in January as companies pull back from investing over growing uncertainty about where the Chinese economy may be heading. Export orders fell -18%. That makes it the third straight month of declining orders for Japan's capital equipment manufacturers.

Global equity markets are stronger today. The S&P500 is up more than +1% in afternoon trade in New York. That follows gains in Europe overnight of about +0.5%. But Asia yesterday suffered big falls, exceeding -1% in most major markets.

In Australia, the RBA has made a 'landmark change by labeling climate change a 'systemic risk' to the Australian economy. The implications are unclear at this stage.

New Zealand wholesale swap rates tumbled yesterday, down across the board about -4 bps, following even larger falls in Australia of about -7 bps. It seems the Kiwi falls are being driven more as collateral damage from Australia than local data. The resilience of Aussie consumer confidence is being questioned as house prices and housing construction falters, and bank lending follows it down.

The UST 10yr yield are staying low and now at 2.61%. Their 2-10 curve remains at +16 bps while their negative 1-5 curve is at -10 bps. The Aussie Govt 10yr is down -4 bps to 1.97%, the China Govt 10yr is unchanged at 3.16%, while the NZ Govt 10 yr is down -5 bps to 2.07%.

Gold is stronger, up to US$1,308 and an +US$11 rise since this time yesterday.

And US oil prices have jumped more than +US$1 to US$58/bbl while the Brent benchmark is just over US$67.50/bbl. An unexpectedly large fall in American crude oil stocks is behind the jump.

The Kiwi dollar is at 68.5 USc and marginally softer from this time yesterday. On the cross rates we have also drifted slightly lower against the Aussie and now at 96.7 AUc. Against the euro we are off a little bit at 60.6 euro cents. That puts the TWI-5 at 73.1.

Bitcoin is little-changed at US$3,844. A BIS review of cryptos has had no impact on prices. 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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On RNZ this morning, Ryan is interviewing Kate Raworth.

Her 'Doughnut Economics' is one of the few - perhaps the only - examples of an economist addressing the physical limits to growth, including energy flows. It's an important treatise. Whether Ryan understands enough to get a cogent story to emerge, is another story.....

Ah, I always wondered, powerdownkiwi, where you got your nonsense from - now I understand.

I do my thinking from physics and first principles.

Puts me ahead of every economics commentator on the planet. That's just how it is.

She happens to be one unblinkered enough (or perhaps not income-dependent for long enough) to have questioned her own discipline. That's a bigger shift than my simple cognitive evolution, and I salute her.

Actually, there are a few commentators I respect. Chris Martenson (comes from an engineering background, but) Gail Tveberg (an Actuary) and Steve Keen - but there are only a handful.

In theory there are limited resources - in practice no. We as humans will never get to the point where there is not enough energy; either no more oil (Mad Max style) or we can't afford energy and the economy collapses. We will find new energy sources well before oil runs out and we will come up with new ideas for the economy. This is the same stuff that was said about food in the 1940s - then we had the green revolution. The economy is really powered by ideas and ideas are not limited at all.

We already know about the 'new energy sources' - varieties of atom-bashing - but are simply too invertebrate to use 'em....

A an innovator and inventor I get sick of hearing from people that are not innovative how we are going to innovate our way our of a crisis. The only innovation happening right now is in financial trickery. Put it another way, we have been inventing ways of using cheap energy for 250 years, now we are trying to invent the energy. I hope you can one day see the distinction, and thus understand how wrong you are.

That's just silly.

As silly as those who think technology will 'save us'.

Ideas, like technology, can only help us use energy more efficiently. I though that Julian Simon nonsense died with him. Take a look around you NoFax - your whole society is churning through another day, using the infrastructure it's built aroung fossil energy. And today it will burn up one hundred million barrels of oil - as it will tomorrow. How long do you think that lasts?

actually NoFax, Powerdownkiwi is correct in his view in the long term.

If you think about it eventually human population will have to peak and then start to decline (unless we destroy the planet 1st) until sustainability is found. In a declining population negative growth may still be growth per capita.

And that is something TR Malthus talked about more than 200 years ago and is something that all economist are aware off. It is discussed in most introductory economic books. If population growth depletes resources (including energy) at a faster rate than those resources can regenerate, then there will a point that the population will need to significantly decrease (famine, war, etc).

10.05. It's worth the listen, as the book is worth a read.

that illusionary growth is getting pushed further out

'As of today’s session, before the close, the UST curve is absolutely ridiculous (again). The 5-year note is now trading almost equal to EFF (effective federal funds) once more, eleven bps less than the 52-week bill. The yield on the 5s is now significantly (4 bps) below the equivalent yield on the 3-month'

Update on Venezuela from Richard Fernandez (Belmont Club) - end-stage socialism with a distinct possibility of contagion....they've finally run out of OPM, and electricity.

The inability of the Maduro regime to restore power supplies to more than an intermittent fraction of Venezuela's population has provided the 21st Century with its first glimpse of what a network collapse can do to a modern society. The EMP Commission Report anticipated civilization's increasing dependency on electric power, telecommunication, banking, fuel, transportation, food distribution, water supply and emergency services grids. They concluded that if these crashed our seemingly solid world could come tumbling down faster than we think.

Just ask an SA business - their entire grid died in late September 2016 as well as diverse smaller events before and after, and the blackstart capabilities failed.

They [the AOC dreamers in the US and elsewhere] haven't quite grasped that the region is on the hook already. The external resources needed not only to "blackstart" Venezuela's power grid but salvage the country itself can come from nowhere else but other people's money:

Reenergizing a dead grid, a process known as a black start, is challenging any under circumstances ... "The challenge with black start is always just knowing specifically what happened," says Nathan Wallace, director of cyber operations and a staff engineer at secure grid companies Cybirical and Ampirical Solutions ... If the procedure for black start is not accurately representing the state of the system, there can be problems."

Rather negates the old saw 'More rubble, less Trouble', don't it?

Update on the update re Venezuela and the difficulties of black-starting an aged and ill-maintained grid. In particular, read Lance's comments in the thread - this is a real power engineer, not a politician or a Green Dreamer, but RTWT anyway....

The primary problem is that everything that was connected to the grid when it crashed is still connected. So essentially, the Load is a “Dead Short” from the perspective of Generation. Every inductive load (induction motors) takes 6 times the normal running current to start each and every one. In terms of real and imaginary (complex) power components, the Load appears to be almost purely inductive with a Real component vector of nearly zero. Essentially, Generation must provide 6 times the power it was providing when the grid failed and that reserve simply doesn’t exist. So energizing a substation is an explosive event.