Australia mulls a 15% GST; RBA mulls a rate cut; China PMI's wobble; Fed tightens capital rules; US GDP soft; UST 10yr yield 2.15%; NZ$1 = 67.8 US¢, TWI-5 = 72.9

Here’s my summary of the key events over the weekend that affect New Zealand, with news – while you were celebrating a great All Blacks win – the rest of the world was showing a few wobbles.

But first in Australia, their government looks like it is considering raising their GST from 10% to 15%, with parallel reductions in income tax rates. And New Zealand’s track record on GST is being used to support the case.

Well before any of these decisions are taken, the RBA will be assessing its cash rate, tomorrow. Markets are unsure what will happen. But the odds reflected in their swaps market have quickly strengthened to a 44% chance of the cut, compared with 28% before last Wednesday’s CPI data and Friday’s PPI data. Still, that is not yet a 50/50 chance. Betting analogies are appropriate given it will be decided on Melbourne Cup day.

Activity in China’s factory sector unexpectedly contracted in October for a third straight month, the official survey showed overnight. This is heightening concerns that the Chinese economy is still losing momentum despite a raft of stimulus measures. Adding to this worry, China’s services sector, which has been a few bright spot, also cooled last month. It is expanding but now at its slowest pace in more than six years. The changes to both these indicators are not large; but it is the direction that is raising eyebrows.

In the US, six of their biggest banks will need to raise an additional US$120 billion, most likely in long-term debt, under a rule proposed by the Federal Reserve over the weekend. This is part of their plan to address ‘too big to fail’ issues. The banks will have three years to raise the extra capital, and even tighter rules will apply in a further three years.

Advance data out on Saturday showed that growth in the third quarter in the US was running at a modest +1.5% and far lower than the +3.9% in the second quarter. The slowdown was due in large part to companies running down stocks of goods in their warehouses. Analysts said this impact is likely to be temporary and the economy will get another burst as stocks are replenished. Consumer spending remained fairly strong in this result and that underpins the minimal market reaction to the low growth rate reported in Q3.

The more the Fed looks at its data, the more likely it will raise rates, it is being claimed.

In New York, the UST 10yr yield benchmark rose on Friday is now at 2.15%.

Also gaining was the US benchmark oil price which is now just under US$47/barrel, and the Brent benchmark is just under US$50/barrel.

The gold price fell however, this time by only a small amount, and closed out last week at US$1,142/oz.

The New Zealand dollar starts the week pretty much where it has been over the past three, at 67.8 US¢, but very much higher against the Aussie at 94.9 AU¢. We were last at this level in May when we were coming down off the flirt at parity. We are also at 61.6 euro cents. The TWI-5 is at 72.9 which is a 5 month high.

And finally, Standard & Poor’s say that winning a rugby World Cup is worth a boost in stock values in the weeks after the win. No word, though, on what it does to house prices.

If you want to catch up with all the local changes on Friday, we have an update 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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