Fear grips markets but commodity prices rise; US data mixed; Canada inflation jumps; China's responses have sharp edge; Denmark attacked; UST 10yr 2.81%; oil and gold up; NZ$1 = 72.6 USc; TWI-5 = 73.5

Here’s our summary of key events overnight that affect New Zealand, with news risk aversion and investor pullbacks are being seen everywhere following policy actions in Washington DC.

Locally, our interest rate swap curve has flattened markedly, now well under +90 bps and its flattest since November 2016.

Our currency has shown little reaction, but the Aussie dollar has weakened. The NZD is now priced just over 94 AUc, its highest in eight months.

On Wall Street, they are going to the close with losses that have grown during the session. Most major indexes will be down -2% on the day, the tech-heavy NASDAQ down more than -2.5%. The appointment of John Bolton to a senior Administration role isn’t helping markets feel good about what the future holds.

This is a ‘fear’ phase based on dodgy trade tensions, but commodities are winning with price rises across the board. Go figure. (Although, US soybean and hog prices have dropped.)

American data out overnight saw durable goods orders rise much more than expected. But new home sales fell again, when a good rise was expected, and average selling prices for new homes were actually the lowest they have been for a year. The top end is softer.

In Canada, their consumer inflation came in much higher than anyone expected, up +2.2% in February compared with +1.7% in January and an expectation of +1.9%. That is quite a shift, and a rapid one and will surely see the Bank of Canada action.

And Canada has won a reprieve in a trade dispute with the US. Boeing is sensing it will be a loser in Trump’s trade war plans so has withdrawn its claims against Canada’s Bombardier’s C-Series jets, trying to take some heat out of the growing trade issues. It is a a move that undercuts the Administration. And this is also positive for Northern Ireland.

China is mulling further responses to US actions. Their ambassador to the US wouldn’t rule out the possibility of they will scale back purchases of US Treasuries in response to tariffs imposed by President Donald Trump. If that happened, the expectation is that the fast-swelling US Federal debt will cost a lot more very fast. The US Fed is already on a path to sell US Treasuries, so finding new demand to keep interest rates restrained will be doubly tough. Trump has just signed a US$1.3 tln spending splurge that will see that debt jump. Each time he signs these increases he has a ‘never again’ moment of theatre, but always does. Congress passed the measure overwhelmingly.

China may also be about to unleash a ‘peoples war‘ against US companies, cutting off demand for American brands operating there. This can be very damaging; just ask Korea and Japan. Tight control of media including social media gives the State vast power to trigger such responses.

And Moody’s says its initial assessment of the US tariff penalties is they won’t have much impact on China at all.

In Denmark, they say they have been the target of a cyber attack from a foreign power, targeting their universities. They aren’t officially naming the attacker, but Russia has attacked major companies there before.

The UST 10yr yield has weakened considerably and the US Fed signals have faded in the face of the Trump actions. The UST 10yr yield is now just 2.81% after having hit 2.91% just three days ago. The Chinese 10yr is at 3.76% (unchanged overnight) and the New Zealand equivalent is at 2.84% (also unchanged overnight).

The VIX has moved up today and back at the levels we saw six weeks ago when we had a market bond tantrum. The Fear & Greed index is still at “extreme fear” levels and even more so than this time last week and settling in for as long a pattern as we have seen in three years.

Gold markets aren’t closed yet are rising strongly today (up +US$21) and now at US$1,348/oz in New York. That is +US$14 gain over the past week.

Oil prices are up strongly again today, up about +US$1.50 with the US benchmark now just under US$66 and the Brent benchmark under US$70.50/bbl. The US active rig count is now at its highest level in three years and just under 1,000. These high prices will no doubt push it over in the coming week.

The Kiwi dollar is ending the week up at 72.6 USc. On the cross rates we are at 94 AUc and 58.7 euro cents. That puts the TWI-5 back at 73.5 and still well in its 2018 range.

Bitcoin is now at US$8,684 and up +3.2% from where we left it yesterday afternoon.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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Source: CoinDesk