China cuts rates, lowers reserve requirements; China wants in on TPP; US new home sales fall; zero deposit house loans; red meat causes cancer; UST 10yr yield 2.07%; NZ$1 = 67.9 US¢, TWI-5 = 72.7

Here’s my summary of the key events over the long weekend that affect New Zealand, with news of major official cuts in rates in China.

China’s central bank cut interest rates over the weekend for the sixth time in less than a year down -25 bps to 4.35%, and it again lowered the amount of cash reserves banks must hold in a bid to keep their economy growing at the planned rate. Monetary policy easing in China is at its most aggressive since the 2008/09 financial crisis, as growth looks certain to slip under 7%.

In the same announcement it has scrapped rules on what banks must pay savers. The change, which has been signaled for months, should allow banks to price loans according to their risk, and remove a distortion to the price of credit that analysts say fuels wasteful investment in China.

But these changes have had no impact on equity market sentiment anywhere.

Also in China, there are major set-piece policy reviews due to take place this week. China’s Communist Party meets and will approve an economic plan for scaling back the role of the state over the next five years, and give important indications clues about Beijing’s appetite for transformative change in the face of slowing growth.

And ahead of these meetings, an official paper has come out saying China should seriously consider joining the Trans Pacific Partnership.

Just how fast China is slowing is getting serious debate. Those who only look at manufacturing see plenty of signs. Those who look at their wider economy aren’t so sure it is that serious. Then again, there is other evidence there may be issues in the service economy too.

The number of new American single-family home sales sold in September  fell sharply from August after two straight months of gains, but a jump in prices suggested that their housing demand remained on solid ground. Sales volumes were up only +2% on the same month a year earlier, but median prices were up +5% to US$296,900 (NZ$471,000).

And here’s something to watch; Ping An, the giant Chinese insurance company, was offering zero-deposit home loans for off-the-plan apartments in Melbourne and the Gold Coast, spruiking the loans to Chinese investors at a conference in Shanghai last week. There is nothing the Aussie regulators can do about this even though it breaks their domestic rules. In fact, it even goes against the policies of the Chinese State Administration for Foreign Exchange (SAFE). But it could easily result in a new flood of Chinese money heading this way.

In a blow for livestock farmers, the World Health Organisation said overnight the processed meats (bacon, ham, salami, etc.) do cause cancer, and that eating red meat was “probably carcinogenic” as well, but there was limited evidence. As a salve they also said that eating red that meat also had health benefits.

The political brinkmanship surrounding the American debt ceiling is rising fast yet again as Congress attempts to push through legislation to raise the limit before November 3 when all the funding tricks the US Treasury uses will run out. Pushing back are lawmakers who have watched Federal debt levels explode under President Obama, now at US$18.1 trillion. When he came into office in early 2005 it was at US$8.2 trillion.

In New York, the UST 10yr yield benchmark slipped slipped slightly to open the week at 2.07%, so far unaffected by the debt ceiling risk.

The US benchmark oil price is also slightly lower at just over US$44/barrel, with the Brent benchmark just under US$48/barrel.

The gold price is unchanged at US$1,167/oz.

The New Zealand dollar starts the week stronger. It is currently a little higher against the greenback at 67.9 US¢, lower against the Aussie at 93.5 AU¢, and up against the euro at 61.4 euro cents. The TWI-5 is up overall to 72.7.

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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