Bonds dive as yields rise; eyes on US Q3 GDP; Canada-EU trade deal back on; Sweden still with negative rates, but high asset prices; UST 10yr yield at 1.85%; oil up, gold down; NZ$1 = 71.1 US¢, TWI-5 = 75.5

Here’s my summary of the key events overnight that affect New Zealand, with news of a big move in benchmark interest rates.

It is the story of the day. The ten year is now up to 1.85% which is its highest since May and a 150 day high. The worries about deflation have suddenly turned to worries about inflation. The bond markets are taking a caning today, and on both sides of the Atlantic. Two factors seem to drive the sentiment change. Firstly, Q3 economic growth in the Britain came in better than analysts were expecting, and the Bank of Japan said that it would be comfortable if long-term bond yields to rise.

In the US, new orders for manufactured capital goods unexpectedly fell in September driven by lower demand for computers and other electronic products. But their labour market tightened and pending home sales rose, both at rates that beat analysts estimates. The first estimate of Q3 US growth is due tomorrow and markets are expecting a healthy +2.5% rate, up from the Q2 rate of +1.4%. Any surprises will be market-moving.

Across the border, it looks like the Canada-EU trade deal has been resuscitated. The EU has resolved its “Walloon problem” and the landmark deal looks certain to proceed. That’s just days after I reported it dead!

In Sweden, their central bank, the Riksbank is one of the pioneers of negative interest rates and it held its repo rate at -0.5% overnight. They have indicated a strong change of lower rates in the near future. But these negative interest rates have turbocharged their housing markets with prices up +8% and debt rising fast.

In New York, the UST 10yr yield is sharply higher at 1.85%. New Zealand swap rates charged higher yesterday too, especially at the long end. The underlying market message of a steeper rate curve is that recession prospects are fading. German benchmark rates are at a 5 month high and no longer negative.

The US benchmark oil price is up a tad today at just over US$50 a barrel, while the Brent benchmark is still just over US$50.50 a barrel. A reason for low oil prices may be due to a Fitch report we missed ten days ago. Peak oil may not be the issue some think it is.

The gold price is down a tad at US$1,269/oz. China’s imports of gold through Hong Kong rose last month, the first gain in the past four when outflows were recorded. Still, this gain was tiny.

The New Zealand dollar is just a touch lower again as well, now at 71.1 US¢. On the cross rates it is 93.7 AU¢, and the euro to 65.3 euro cents. The NZ TWI-5 index is now at 75.5.

If you want to catch up with all the local changes yesterday, 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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for(i=0;i

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