US jobless rise, productivity falls; EU and UK cut growth forecasts; junk debt costs ratchet higher; China struggles to attract investment; UST 10yr yield 1.86%, oil and gold up; NZ$1 = 7.3 US¢, TWI-5 = 71.9

Here’s my summary of the key events overnight that affect New Zealand, with news of sagging results in a number of areas

All market eyes are on tomorrow’s non-farm payrolls report out of the US, and markets are slipping in anticipation. A jobs gain of +190,000 is now expected and any undershoot is likely to be fiercely punished. The reason: it will be seen as interrupting the Fed’s plans to normalise interest rate levels and throw in doubt their decision to start a hiking trend.

Overnight, the latest American weekly jobless claims report ticked higher, but not to any level that causes economic concerns.

But there were some disappointing productivity data released in the US overnight. Incomes are rising faster than output. And that could mean cutbacks are imminent.

Overnight the EU cut its growth forecasts, and the Bank of England followed. In Europe, banks are struggling to maintain profitability. Rather than being seen as a ‘good thing’ it is seen as a sign of weakness in the economies they are active in, and there are fears of what might happen if these banks pull back on lending.

But far away from the low interest-rate environment talked about, the cost of sub-investment grade debt is rising fast. This may have a local impact for the debt of Reynolds Group Holdings, the Auckland-based company controlled by Kiwi billionaire Graeme Hart. They have NZ$22.5 bln borrowed with coupon obligations at over 8% at face-value, which will now have been seriously discounted. Here is a huge risk on our back doorstep.

And investors are starting to shy away from opportunities in China. For the first time in a decade, large investment funds are not lining up for China’s investment quota scheme, just as China wants more of them to apply.

In other global news, IATA is reporting that 2015 demand for air travel was its strongest in five years and the growth was widespread.

In New York, the benchmark UST 10yr yield is unchanged from this time yesterday and still at 1.86%.

The US WTI oil price is a little higher today, although the Brent benchmark is essentially unchanged. The US price is now just over US$32 while Brent is just under US$35/barrel. Talk of a meeting among major crude producers helped buoy the price today.

The gold price however has jumped even further today from yesterday, and is now up to US$1,156/oz.

The US dollar is still in a sharp correction mode lower, pushing up our currency which is now at 67.3 US¢ a five-week high, at 93.3 AU¢, and at 60.1 euro cents. The TWI-5 starts today at 71.9.

If you want to catch up with all the local changes on Friday, 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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