IMF sees growth spurt; China services sag badly; China fx reserves hold US$3 tln level; German factories buzzing; Thaler wins economics Nobel; UST 10yr yield at 2.36%; oil unchanged, gold up; NZ$1 = 70.7 US¢, TWI-5 = 73.6

Here’s my summary of the key events overnight that affect New Zealand with news that behavioural economics has reached the mainstream.

But firstly, the IMF is saying the world’s economic situation is pretty good. They see a growth spurt underway nearly everywhere.

China is back from its Golden Week holiday and seems optimistic. The Shanghai Stock Exchange index hit a 21 month high yesterday.

However, the latest reading of the Caixin China services PMI makes for uncomfortable reading in Beijing The Business Activity Index came in at 50.6 in September, the lowest since December 2015 and down a sharp -2.1 points from the previous month. Although new business rose at a slower rate last month than in August, input costs and prices charged both increased. Their inability to turn China into a consumption-led economy must be worrying policymakers there.

And China reported that their foreign exchange reserves continue to grow and that is now the eighth consecutive month of gains. They are now up to US$3.1 tln as at the end of September, inching up by +US$17 bln and slightly faster than the August gain of +US$11 bln. These are tiny gains, easily wiped out by a policy misstep. Reserves are barely +3% ahead of the US$3 tln level they rapidly sunk to in early 2017, and it turns out the US$3 tln level will be strongly defended and is a psychological marker for market watchers.

New data out in Germany shows their factory output increased by +3.2% in August from July, and +5.4% year-on-year, the biggest increases in six years. That suggests strong third quarter GDP growth in Germany and more good news for Europe’s largest economy.

And we should note that the Swedish Academy of Sciences has awarded the Nobel Prize in economics to Richard Thaler of the University of Chicago for his work in behavioural economics. It is the second time this branch of economics has been recognised like this. Behavioural economics incorporates the study of psychology into the analysis of the decision-making behind an economic outcome, such as the factors leading up to a consumer buying one product instead of another. Risk tolerance is a key component. Thaler challenged the notion that we are all rational economic decision-makers. “People often make poor choices – and look back at them with bafflement! We do this because as human beings, we all are susceptible to a wide array of routine biases that can lead to an equally wide array of embarrassing blunders in education, personal finance, health care, mortgages and credit cards, happiness, and even the planet itself,” he has said.

With New York closed, the UST 10yr yield is unchanged at 2.36%. Markets there are on holiday today.

The price of crude oil is marginally higher and now just under US$49.50 a barrel, while the Brent benchmark is just under US$55.50. Interestingly, the US is reporting a second consecutive year of reductions on carbon dioxide emissions. In fact, they have fallen in six of the past ten years and believe it or not, are now back to 1992 levels.

The price of gold is up +US$10 today, at US$1,282/oz.

And the Kiwi dollar slipped a little yesterday but has held its level overnight at 70.7 US¢. On the cross rates we are slightly lower as well at 91.1 AU¢, and 60.2 euro cents. Our TWI-5 index is now at 73.6. Election result uncertainty is certainly weighing on our currency.

If you want to catch up with all the changes yesterday we have an update here.

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

Update: An earlier version of this story overlooked that Daniel Kahneman won the 2002 Nobel Prize for work including behavioural economics.

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