Here’s my summary of the key events overnight that affect New Zealand, with news of another large fall in Chinese equities.
But first, new orders for durable factory goods in the US rose by the most in 10 months in January as demand picked up broadly. They were higher both month-on-month and year-on-year, reversing recent trends.
In Atlanta, a Fed official warned that banks face challenges managing interest rate margins and risks, especially around their exposure to commercial real estate in the period while US interest rates rise. He worries that that institutional memory about how to deal with rising rates has faded. These remarks are all part of a long slow process of market preparation for US rate hikes.
In China, equities dropped steeply late yesterday, down -6.4% in Shanghai and down -7.3% in Shenzhen. The drop has reversed some of the gains made since the Lunar New Year holiday this month.
At the same time, there is a noticeable change of tone from senior Chinese policy makers. Until a few days ago, they made few public statements about their economic stresses and those they did make offered just gloss and spin. But today we are hearing some real public analysis and guidance on how they will deal with it. They are realising that markets can punish them severely in a communications clampdown. But they have a lot of catching up to do to restore credibility.
One option they are floating is a much higher fiscal deficit; debt funding to maintain growth.
China’s stumbles are having regional consequences. Singapore’s economy grew just +2.0% in the final quarter of 2015 in data out yesterday, +2.1% for the whole year. That’s its slowest growth in over 6 years. There is a silver lining however; the improvement from Q3 was sharply positive and a metric markets noted.
In New York the benchmark UST 10yr yield has recovered about half of yesterdays fall to 1.72%. Yesterday, local swap rates fell late in the day and remain at record lows except for the one and two year terms. Those short terms fell as well however. And yields on New Zealand Government 10 year bonds hit a record low yesterday, dipping under 3% for the first time ever.
The oil price is just marginally softer at US$31.5/barrel in the US while Brent is at US$34/barrel.
The gold price is essentially unchanged today at US$1,242/oz.
The NZ dollar is higher this morning but still in that general range. It is now at 67 US¢, at 92.9 AU¢, and at 60.7 euro cents. The TWI-5 will start today at 71.7 its highest in three weeks.
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 ».