China shares bounce, but still overvalued; Fed targets big banks; IMF downgrades growth; UST 10yr yield 2.27%; gold and oil low and stable; NZ$1 = 67.2 US¢, TWI-5 = 71.7

Here’s my summary of the key issues overnight that affect New Zealand, with news of a bounce in Chinese equity markets.

Share prices in China rose in trading yesterday after a series of government measures appeared to have their intended effect. But many analysts are warning that markets could well have further to fall because the valuations of many small companies are still too high. The Shanghai market is still 15% above its level at the start of the year, despite the recent carnage.

In Washington, a senior Fed official pressed the eight large American financial institutions to shrink. “As standards for systemically important firms tighten”, he said they will come to realise “it’s in the best interests of their stakeholders” for them to get smaller. Slowly but surely the regulatory vice may be closing on ‘too-big-to-fail’ banks.

Those same banks are expected to report poor second-quarter results next week, after conditions turned unfavourable for bond traders recently. In fact, things could get tougher for them as analysts see bond markets complacent over the threats rising rates pose to investors. The bite has already started.

In staying the US, the level of jobless claims last week rose to their highest level since February, suggesting some slowdown in American labour markets.

In Australia, their job market looks to have stabilised for now. But some economists still see risks of a rise in their unemployment rate later in the year.

Overnight, the IMF revised down its latest forecasts for economic growth, saying things are slowing in emerging markets, but picking up in the advanced economies. They are bullish on prospects for the US, and say Greece will have little impact on Europe. They are also not worried so about China, despite the recent share market volatility. Still, their overall expectations of expansion are their weakest since the GFC.

Overnight in Europe and Greece, there was only more hot air.

In New York the UST 10yr yield benchmark recovered much of the prior day’s declines, rising to 2.27%. Locally our swap rates were unchanged yesterday, but will likely rise today following Wall Street’s signals.

Oil markets are holding their lower levels today. The US benchmark price now just under US$53/barrel, and Brent crude is just under US$59/barrel.

The gold price is also holding its recent low, now at US$1,160/oz.

The Kiwi dollar opens today marginally firmer against the US dollar at 67.2 US¢, at 90.4 AU¢, and at 61.1 euro cents. The TWI-5 is at 71.7.

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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var tab_titles_arr= ["US$","AU$","TWI","u00a5en","u00a5uan","u20acuro","GBP"];
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// to generate the format for date representation in x axis

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var timestamday = 86400000;
var timestammonth30 = 2592000000;
var timestammonth31 = 2678400000;
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var mm2 = time4.getMonth();
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for(i=0;i

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