Global factory activity declines; Fed prepares for rate rises; Greece prepares for vote; oil, gold and UST 10yr yields all lower; NZ$1 = 77 USc, TWI = 78.8

Here's my summary of the key news over the long weekend to keep you up-to-date over these holidays.

The growth rate of the global manufacturing sector continued to moderate at the end of 2014, with production and new orders both rising at the slowest pace in almost eighteen months. The focus is now on the ECB to begin its long-promised stimulus, supporting the EU's mammoth program.

In the US there is a continuing slowdown, although from a high level, as confirmed in two surveys released over the weekend.

In Europe, they ended the year stagnant.

In China, factories are actually contracting now on an overall basis, although there are still some strong pockets. But overall, it is a picture of deterioration.

Back in the US, the fall of initial jobless claims seems to have ended and this data is now tracking sideways, but construction spending in November was +2.4% higher than for the same month a year earlier.

The big issue for the US will be faced by the Federal Reserve - when to start raising interest rates. This may come sooner than some expect and despite the expected ECB stimulus action. The next Fed meeting on January 30 will give important signals although individual Fed governors are giving speeches that are helping markets figure out the timing.

In the meantime, markets will be focused on the twists and turns of the snap Greek elections which are to be held on January 26 (NZ time). It seems likely that an anti-euro party will win there leading to Greece leaving the eurozone. Germany seems less worried about the possibility, although they will hold Greece to its promises. A Greece that really struggles after leaving will be an important lesson to others within the currency union.

The Chinese Three Gorges Dam hydro scheme has become the world's largest hydro power generator. In 2014 it alone produced 99 gigawatt-hours of energy beating a Brazilian facility into second place. That is a lot of coal and oil avoided. The sum of all 93 New Zealand hydro facilities only produce about 23 gigwatt-hours per year and our installed hydro capacity is less than a quarter of the single giant Chinese facility.

In the oil markets, prices are falling again. The benchmark US price is now under US$53/barrel and the Brent benchmark is just on US$56/barrel. Some observers are now picking a long period of US fossil fuel exporting even at these prices.

Gold prices have fallen back over the new year and are now just on US$1,186/oz.

UST benchmark 10yr bond yields have also fallen back, erasing all the rises of the past week. In New York they ended last week at 2.11%. In New Zealand, interest rate swaps also saw yield falls. In fact, the 1-5 curve is now just 24 bps and the 2-10 is just 31 bps. The 1-5 curve level is a new 5 year low.

The NZ dollar is falling too. It starts this week at 77 USc which is more than 1c lower than just two trading days ago, however that is more about a rising US dollar which has reached an 11 year high. We are also at 95.2 AUc and the TWI is at 78.8. But we remain strong against the European currencies (EUR and GBP) as well as the Yen.

The easiest place to stay up with event risk over the holiday period is by following our Economic Calendar here »  Have a fun, safe New Year celebration.