Draghi disappoints with minimum action; Yellen upbeat about US economy; air travel growing very strongly; UST 10yr yield 2.27%; oil and gold prices stable; NZ$1 = 66.4 US¢, TWI-5 = 71.4

Here’s my summary of the key events overnight that affect New Zealand, with news markets have been roiled by unexpectedly tame decisions from Mario Draghi and the ECB.

Equity markets are falling, as are bond prices.

Early this morning the ECB announced it has held all rates unchanged except its deposit rate, which it reduced to -0.3% from -0.2%. That is, banks will now be charged 0.3% of deposits they place with the central bank. This action was the minimum expected by markets and is essentially, ‘more of the same’. They were disappointed. It was nowhere near dovish enough for their taste. The euro rose sharply.

At the same time, Janet Yellen was testifying before Congress and she gave a very upbeat assessment of where the US economy is at present.

Overnight data showed American services sector activity expanding faster in November – especially on the jobs front – and the level of jobless claims came in at the expected low level and well below the 300,000 that worries markets and extending a 9 month trend. Later, a rival services survey has the sector expanding at a slower rate.

Around the world, passenger air travel is growing strongly, +7.5% overall year-on-year, boosted by an average 5% fall in the cost of fares. Domestic travel is up, and more importantly for us, international traffic is growing strongly too, especially in the Asia region. But going against these trends, Australia is seeing a reduction in domestic air travel.

In New York, the UST 10yr yield benchmark has raced higher up to 2.27% which is quite a jump from yesterday. We will probably see a similar adjustment to long-end swaps in local markets today.

The US benchmark oil price is up $1 at US$41/barrel, while the Brent benchmark is at US$44/barrel.

The gold price is also up slightly at US$1,058/oz.

The New Zealand dollar has slipped back a bit on the sharp jump in the euro. It is currently at 66.4 US¢, at 90.7 AU¢ and at 60.8 euro cents, a fall of 2 cents. The TWI-5 starts the day at 71.4.

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 ». And don’t forget to vote in the Flag Referendum.

Daily exchange rates

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