Here’s our summary of key events overnight that affect New Zealand, with news some key benchmark interest rates are on the move higher.
Driving those rates higher are the combination of US Fed rate-rise risk because most of the global economy is doing well on an economic growth basis, and the debt-ceiling-extension/Government shutdown risk in the USA.
Today is a key day in Washington DC. Congress is unable to agree on a compromise deal, made more difficult by capricious ‘deal-making’ positions taken by the White House which seem to change with the President’s mood. The blame game has started. They have until midnight Washington time (about ten hours from now) to get something sorted and voted through Congress.
The latest consumer sentiment survey in the US has taken a surprising fall. The reduction was not large, but analysts had expected it to rise strongly this week. But this survey does not really cover the US budget tussle.
Meanwhile, Wall Street seems to be taking it in its stride – expecting as most do that at the last minute the issue will be resolved.
But bond markets aren’t so sure. The UST 10yr yield is up at 2.64%, its highest since June 2014 and a +16 bps rise in just two weeks.
Globally, bond market yields are rising too, but for the other reason. Growth and possibly inflation, are turning up – or at least in increasing numbers of professional investors minds, they expect that to happen.
The Aussie Government 10y is up to 2.84%, a +23 bps rise in the past two weeks. The China Government 10yr is to 4.06% bps, a +14 bps rise in the same period. And the New Zealand Govt 10yr is now at 3.00%, a +21 bps jump. These are all meaningful moves.
And local swap rates are rising too. The two year is up to 2.26% (+7 bps in two weeks), the five year is now at 2.78% (+10 bps) and the ten year is at 3.29% (+14 bps). So we are seeing a steepening in the yield curve.
But none of this suggests investors see higher default risk. In fact just the opposite. The steepening yield curve says that is not the case, and NZ Govt credit default swap pricing is now just +13 bps, a record low. The Aussie equivalent is also a record low. Investors are definitely not pricing in risk for a coming downturn.
Gold markets aren’t closed yet but the price of gold is up slightly at US$1,333 in New York, although that is a touch lower than the closing price in London.
Oil prices are lower today with the US benchmark at US$63.30/bbl and the Brent benchmark at US$68.60/bbl.
Commodities like iron ore are up, now up over US$76.50/tonne. That is despite ‘warnings’ recently that there will be an imminent reduction in Chinese demand. It just doesn’t seem to be happening.
Even the dairy futures market is signaling another rise at the next auction with WMP indicating a further +3.5% rise, SMP is indicating +4.7%.
The Kiwi dollar is tracking sideways. It has been just under 73 USc for most of the week as the US budget fight developed and the greenback struggled for credibility. A resolution in the US might see it slip back next week. The TWI-5 is now at 74.2, its general level over the past week
The bitcoin price movements have suddenly become very tame. We are little changed since yesterday – the US$11,200 level has been stuck there for more than two days now. The US Securities & Exchange Commission (SEC) have said cryptocurrency funds raise ‘significant investor protection issues’.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».