Yellen confirms course; Greeks acquiesce but EU still won't trust them; China rout pushes wealthy to offshore property investment; UST 10yr yields rise; NZ$1 = 67.2 US¢, TWI-5 = 71.5

Here’s my summary of the key issues over the weekend that affect New Zealand, with news of a new surge in property investment from China by their frightened wealthy.

But first, Federal Reserve chairwoman Janet Yellen has repeated her view that the central bank is likely to start raising interest rates this year. Recent weak economic data and a call from the IMF to delay a rise until 2016 had dampened expectations of a 2015 increase. She is ignoring them and in a speech over the weekend said that it would be appropriate to start “normalising” monetary policy this year. Bond markets may be headed for a fall this week.

Across the Atlantic, and oddly, the Greek government asked for and got harsh concessions from its parliament – all the EU was looking for and more – to try and stay in the eurozone. They are offering that to get a €54 bln bailout.

But European finance ministers did not agree on a bailout, which would have made it their third since 2010. Following their impasse, the heads of EU governments met and concurred, saying no more money until the Greeks enact key reforms. Meetings are on-going. Basically, no one trusts the Greeks to do what they claim, even when they pass laws saying they agree to bailout terms. They used up all their credibility in the pre-negotiations. Grexit seems even more likely now.

In Asia, and despite two days of stock market gains, the numbers in China make the Greek crisis look like chicken-feed. More than $4 tln in value has been lost, more than $250 bln in margin loans are outstanding. And this is affecting more than 90 mln retail investors. Chinese equity markets are all about retail investors unlike Western markets which are dominated by professional fund managers and pension funds.

The stock market turmoil in Shanghai is having echoes here. Real estate agents the world over are bracing for a surge of new interest in their already hot property markets, with early signs that wealthy Chinese investors are seeking a safe haven from the turmoil in China’s equity markets.

In New York the UST 10yr yield benchmark jumped at the close last week on the assumption the Greek crisis would be resolved, rising to 2.40%. Yields may get a further push higher today on the Yellen comments.

Oil markets held their lower levels on Friday. The US benchmark price is now just under US$53/barrel, and Brent crude is just under US$59/barrel.

The gold price is also holding its recent low, now at US$1,160/oz.

And the Kiwi dollar opens the week essentially unchanged from where it ended on Friday at 67.2 US¢, at 90.5 AU¢, and at 60.3 euro cents. The TWI-5 is still at 71.5.

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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