Talk of new FTA between NZ and the EU, inflation weak in China and US, US business inventories flat; NZ$ = 67.8 US¢, TWI-5 = 71.6

Here’s my summary of the key events overnight that affect New Zealand, with news there might be another free-trade agreement on the cards for New Zealand. 

It was announced early this morning the European Union Commission wants to negotiate separate free-trade agreements with both New Zealand and Australia as part of its trade strategy for the next four years. The Herald reports the caveat is talks will take into account “EU agricultural sensitivities.” Agriculture in the EU is still heavily subsidised, even though subsidy levels are being reduced over time. FTA talks may not begin for another two years.

Consumer inflation in China cooled more than expected in September, while producer prices slid for the 43rd month in a row. The Consumer Price Index was up 1.6% year-on-year, and down from 2% in August. While the price of food was up 2.7% year-on-year, the price of milk and other dairy products was down nearly 1%. The Producer Price Index fell 5.9% from a year ago – the same rate of decline as in August, which was the biggest drop since the global financial crisis. China is suffering from having too much capacity and sluggish domestic investment demand. 

Inflation figures out of the US this morning are equally as gloomy. US retail sales barely rose in September and producer prices recorded their biggest decline in eight years, raising further doubts about whether the Fed will raise interest rates this year. Retail and food services prices were up 2.4% year-on-year, and up 0.1% from August. Meanwhile the Producer Price Index fell 1.1% from September last year. These weak reports are the latest suggestion the US economy may be losing momentum in the face of slowing global growth, a strong dollar, low oil prices and an inventory correction. 

In fact other data out of the US shows business inventories – a key component of gross domestic product – were flat in August for a second month in a row. Businesses are working through a stockpile of merchandise accumulated in the first half of the year. Inventories increased by more than $100 billion during this time – a record and unsustainable rise. Inventories made no contribution to the second quarter’s annualised GDP growth of 3.9%. 

In New York, the UST 10yr yield benchmark has slumped to 2.00%.

The US benchmark oil price has dropped nearly a dollar over the past 24 hours to US$46.70/barrel. The Brent price is down to US$49/barrel.

The gold price has risen to US$1,175/oz.

The New Zealand dollar has made substantial gains over the past 24 hours. It’s strengthened a cent to 67.8 US¢, as data out of the US overnight was weaker than expected. The dollar’s also risen a cent and a half to 93.1 AU¢, off the back of a steady message from the RBNZ Governor yesterday and an independent mortgage rate hike by Westpac. The TWI-5 is up to 71.6.

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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