Fed reveals why it held rates; US jobless benefit claims fall; China's new bond market concerns; US debt ceiling battle returns; UST yields rise; oil up, gold down; NZ$1 = 66.5 US¢, TWI-5 = 70.7

Here’s my summary of the key events overnight that affect New Zealand, with news of gathering worries about bond markets.

But first, today’s release of US Fed meeting minutes for September 18 meeting shows they held off on raising short-term interest rates because they had nagging worries about when inflation would return to 2% after running below their official target for more than three years. Global risks also played their part in caution. If these are their decision drivers, rate increases may be some way off.

Last week’s level of American new unemployment benefits claims came in very low. The raw data shows that the number of people on these benefits is now at their lowest level since April 2000.

Golden Week has ended in China and life there is returning to normal. Almost half the country – some 750 million people – was involved in some sort of travel in the past seven days.

New worries are being raised about the sustainability of China’s bond markets. We recently saw their equity markets fall sharply in a painful realignment; the worry now is that their much bigger bond markets may do the same, and soon.

And worries are also rising over the sustainability of US Treasuries. Another ‘debt ceiling’ battle is looming in Congress. Money will run out in the first week of November and lawmakers are balking at yet another rise. Under President Obama, the debt ceiling has risen about US$7 tln and soon to be more. Under President GWBush it rose about US$4 tln. Under President Clinton it was up just US$2 tln. There is a real political reluctance about endless, increasing issuance. At some point Congress will hold the line and that will cause financial market stress. At this time credit spreads are not really expecting any issue, although things could turn quickly.

In Europe, VW has said that 430,000 diesel vehicles worldwide were fitted with their cheating software and the issue will take years to resolve. It involves models from 2009 to 2015.

In New York, the UST 10yr yield benchmark inched higher again today but not reflecting the debt ceiling issue yet, and is currently at 2.08%.

The US benchmark oil price continues higher, now just over US$49/barrel, Brent and just on US$53/barrel.

The gold price is slightly lower however, now at US$1,145/oz.

The New Zealand dollar has built on its gains overnight. It is currently at 66.5 US¢, at 91.9 AU¢, and 58.8 euro cents. The TWI-5 is at 70.7 and its highest since August.

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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