China braces for extreme financial test, officials rush in emergency support; Greeks vote 'No', Grexit more likely; yields fall; oil and gold lower; NZ$1 = 66.9 US¢, TWI-5 = 71.1

Here’s my summary of the key issues from over the weekend that affect New Zealand, with news of a crisis brewing in China and a mess in Greece.

China’s stock markets face a make-or-break week after their government rolled out a major set of measures over the weekend to prevent an all-out stock market crash. They have frozen new share offers, and brokers there have set up a US$20 bln market-stabilisation fund. These events have shaken China’s aura of invincibility as more than US$2.8 tln in value has been wiped off Chinese share market values in the past twenty days.

Their central bank was also reported to be ready to pump in funds for what is needed to stabilise these financial markets.

It is a very dangerous situation, although Chinese stock markets are not as central to their economy as, say, Wall Street and London are to the economies of the US and Europe.

On top of that, the Greek ‘threat’ to markets just crystalised. The first official projection of their referendum outcome said more than 60% of Greeks voted “no” to creditors’ demands yesterday, an outcome that would set the country on a collision course with the rest of the euro zone.

One thing is likely though; a ‘no’ vote won’t end or resolve anything. ‘Negotiations’ are likely to drag on over what it all means. But it does greatly raise the chance there will be a ‘Grexit’ at some point. A lot will depend on market reactions when they open in New York tonight after their long holiday weekend.

In New York at the end of last week, the UST 10yr benchmark yield fell a little and will open at 2.39%. Local swap rates sank at the short end with the two year rate now below 3% for the first time in two years. The 2-10 curve is approaching 100 bps, something we haven’t seen since March 2014.

US oil markets will start the week very much lower with the US benchmark price now just over US$55/barrel, and Brent crude just over US$60/barrel.

The gold price is also slightly lower at US$1,167/oz.

The Kiwi dollar opens today at 66.9 US¢, and that is almost a six year low, at 89.2 AU¢ which is up almost 1c from Friday as the Aussie dollar is taking the full brunt of the Chinese drama, and 60.3 euro cents. The TWI-5 is now at 71.1, itself a three year low.

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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