US Govt deficit jumps; Canada cautious; China producer prices race higher; iron ore prices tanking; UST 10yr yield at 2.28%; oil down, gold stays high; NZ$1 = 69.2 US¢, TWI-5 = 74.5

Here’s my summary of the key events overnight that affect New Zealand, with news Wall Street is down again as the risk-off mood grows.

The American federal government had a -US$176 bln budget deficit in March. It is growing fast. Spending rose +17% from the same month a year ago while tax revenues fell -5%. A year ago in March 2016 the budget deficit was -US$108 bln. For the twelve months to March 2017 the total deficit is -US$653 bln (+12 higher than for 2016), and is now running at -3.6% of US GDP.

In Canada, their central bank left its benchmark rate unchanged, at 0.5% overnight, but it raised its 2017 outlook for the Canadian economy as job growth has impressed recently. But in its Monetary Policy Statement, it tried to hose down expectations, saying it is too early to conclude that the economy is on a “sustainable growth path”.

In China, inflation may be about to spill out to infect the rest of the world. Producer prices in March are up a whopping +10.0% from the same month a year ago. Apart from a brief spike in 2009, that is the highest rate in over twenty years. Back then, Chinese inflation did not matter; it matters now. It seems implausible that Chinese producers can absorb cost increases of this level, especially as they have come fast. This time last year, Chinese producer prices were falling -5.2% pa, so the shift has been huge. (Chinese consumer CPI is up +0.9% year-on-year, but that is only because food prices are down by -2.4%. It’s not their CPI that matters to us, it is that pesky PPI.)

In Australia, prospects for their iron ore mining industry have taken another sharp turn – this time down. Prices have slumped today by another -8.5% and the downward momentum is growing – it is now down -28% since the recent high on February 21. Buyers are pulling back, opting to tap either their own stockpiles or those already at Chinese ports, anticipating prices will fall still lower. It is turning into a bit of a rout.

In New York, the UST 10yr yield is noticeably lower again at 2.28%. This is the lowest we have seen since mid November last year.

Oil prices are down a little today and now just under US$53 for the US benchmark, while the Brent benchmark is now just over US$55.50 a barrel.

The gold price is holding at its new higher level of US$1,274/oz.

However the New Zealand dollar is continuing its slow slide and is now at 69.2 USc. On the cross rates the Kiwi dollar is at 92.5 AU¢ and against the euro is at 65.3 euro cents. The NZ TWI-5 index is now at 74.5 and we haven’t been this low since July 2016.

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 ».

Daily exchange rates

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