US Fed brushes aside bond concerns; growth returns; services dominant, even in China; UST 10yr yield 2.36%, oil unchanged; gold falls again; NZ$1 = 66.4 US¢, TWI-5 = 71.1

Here’s my summary of the key issues overnight that affect New Zealand, with news we have finally transitioned through the GFC – into a different world.

Financial markets are fretting over the ability of the bond markets to absorb an approaching interest rate rise, but the US Fed has a message for the industry: deal with it. Rising rates have been signaled for some time by the regulator, and market angst will be brushed aside by policy makers. A bump in the road is coming – a big bump for bond investors and others who bet that markets would stay weak for a long time – but both the US and more lately the EU have turned the growth corner. Expansion looks far more likely these days.

Japan and even China – despite recent events – look less risky. It is only the “emerging markets” who still have questions hanging over their immediate future.

What is odd about this, is that the major international economic institutions – the IMF, World Bank, even the OECD – seem to be on the back-foot, seeing the future through a strong reverse lens.

Even locally, it looks like Australia will get through the realignment of its economy away from a dominant minerals sector. And the dairy-induced gloom in New Zealand looks overdone. These transitions will be there but they are not the only things happening. As a local example, few of us realise that dairy is about to be relegated to second place in our export sector as booming tourism takes over.

And with expanding job creation in the US, the engine is in place to drive China, Japan and the EU. And those second-level economies are vital for Australia and New Zealand.

The other large issue we overlook is that Services dominate our economic performance. It is much easier to focus on the traditional ‘goods’ trades, but in most economies these now represent less than a third of economic activity.

This is especially relevant in China. We have always looked at that market as a factory for cheap goods, but we are now wrong in that view. Services and high end products are allowing incomes to rise there in a sustained way.

Tourism-overtaking-dairy is an example of a trend replicated worldwide, dominant in the US, emerging in China – even happening in New Zealand.

In New York, the UST 10yr yield benchmark is basically unchanged today, now at 2.36%.

Oil markets are also unchanged. The US benchmark price is now just over US$50/barrel, and Brent crude is just below US$57/barrel.

The gold price, however, is down yet again, now at only US$1,102/oz. In fact, it got as low at US$1,094 last night at one point.

The Kiwi dollar showed more gains overnight. We are start today at 66.4 US¢, at 89.4 AU¢, and at 60.7 euro cents. The TWI-5 is at 71.1.

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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var chart_title_arr= ["US dollar","Australian dollar","Trade weighted index","Japanese Yen","Chinese Yuan","Euro","British pound"];
var chart_subtitles_arr= ["Daily benchmark rate","Daily benchmark rate","Daily benchmark rate","Daily benchmark rate","Daily benchmark rate","Daily benchmark rate","Daily benchmark rate"];
var tab_titles_arr= ["US$","AU$","TWI","u00a5en","u00a5uan","u20acuro","GBP"];
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// to generate the format for date representation in x axis

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var timestamday = 86400000;
var timestammonth30 = 2592000000;
var timestammonth31 = 2678400000;
var timestamyear = 31536000000;
var timestamquarterly = 7776000000;

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var mm2 = time4.getMonth();
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mm= "07";
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for(i=0;i

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