Oil prices jump; NZD slumps; Brazil in recession; Japan factory output falls; UST 10yr yield 2.18%; gold price unchanged; NZ$1 = 63.5 US¢, TWI-5 = 68

Here’s my summary of the key events overnight that affect New Zealand, with news Japan has now joined China with some soft data. Even India reported disappointing growth. And that comes after Brazil re-entered recession.

But first, we start today with some of our own tough news to absorb. Oil prices are rising very fast. It is not entirely clear what is driving them, but yesterday’s US$45/barrel price is today’s US$48/barrel – remembering that it was only on Friday that the price rose through US$40/barrel. The Brent benchmark is now at US$54/bbl.

An unexpected dip in US production, plus signals from OPEC that they may cut production seem to have combined to drive crude prices higher. For us, that means pump prices are about to jump higher, just as they had slipped back to NZ$2/litre.

And that jump could be quite high. Our exchange rate opens this morning at just 63.5 USc. That is its lowest level since 2009, a six year low. This has also moved quickly.

Recall it was 71 USc at the beginning of June and 78 USc at the beginning of the year. Worse, we are slipping against both the Aussie and the Japanese yen as well. We start the day with the TWI-5 at 68, its lowest in more than three and a half years. Not only will petrol cost more, everything imported will likely rise in price. This is an effective -14% devaluation since early January, a -4% devaluation during August alone. (That’s about the same devaluation that the Chinese did that rattled markets.)

Our trading partners are struggling too. Beijing late last night issued a raft of decrees to boost state owned enterprise reforms and the stock market, after it ended its worst month in four years. (It also arrested a reporter and extracted a confession for reporting on the market struggles in a way that Party bosses weren’t happy about.) China has also made it easier for their elderly to claim the Chinese state pension when they live abroad.

And, industrial output in Japan unexpectedly fell.

In New York, the UST 10yr yield benchmark is holding today at 2.18%. Our swap rates fell in August, but fell faster at the short end than the long end so we saw an overall steepening of the curves.

The gold price is unchanged today at US$1,132/oz.

The New Zealand dollar starts today at 63.5 US¢ which is a whole cent lower than this time yesterday. It is at 89.2 AU¢ also a cent lower, and 56.6 euro cents. And as noted earlier, the TWI-5 is now at 68.

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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for(i=0;i

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