Fed confirms tapering; US payrolls expand; services sector activity very strong; air cargo recovers; China worried about a pandemic winter; UST 10yr 1.59%, oil and gold lower; NZ$1 = 71.4 USc; TWI-5 = 75.1

Here's our summary of key economic events overnight that affect New Zealand with news that Chinese consumers are wary of what lies ahead in a possible Delta winter and household preparations are distorting their retail economy.

But first, at their latest review, the US Federal Reserve has announced the start of its tapering program this month. It said that it is reducing the monthly pace of its net asset purchases by -US$10 bln for Treasury securities and -$5 bln for agency mortgage-backed securities. These are modest reductions in their bond buying, but the plan is to end it by June 2022, a key step toward withdrawing pandemic-driven economic support amid a recent inflation surge. Overall, this is generally as expected.

The October US non-farm payrolls report is due on Saturday (NZT) and a gain of +450,000 is expected following the very weak September result. Today the precursor ADP Employment report surprised on the upside, showing a rise of +571,000 on top of their September +523,000. In October, every sector they monitor reported good gains.

If the jobs report comes in as expected, that will be a good result given that their September factory order data was a very modest improvement over August. But at least it was +14% higher than for September 2020 and +7% over September 2019 pre-pandemic levels.

The more current services sector activity indexes for October were very strong however. The widely-watched ISM one positively glowed at an all-time high and noting that "demand shows no sign of slowing". The internationally-benchmarked Markit one was positive too noting "a steep upturn", just not a record high for them.

The rise of air cargo activity in the US tells the same strong story. But activity in this sector is not impressive in the Asia/Pacific region. And there is little recovery in international passenger air travel, and again the Asia Pacific region remains the hardest hit. But with a children's vaccine now being rolled out in the US, vacation bookings are up steeply in the US.

None of this will be helped by a growing pandemic spread in China, now its largest since Wuhan. Nineteen of 31 Chinese provinces have restrictions of some sort, many of them severe.

And people there are worried, especially as winter is approaching. Household "stocking up" is a growing distortion in China's retail trade, so much so the authorities issued a warning to local authorities to take action to prevent hording staples. Along with this alarm, some major food suppliers are hiking prices sharply. Their stress has all the potential to distort global food supplies and prices.

In Australia, residential building permits fell by a more than expected -4.3% in September from August, driven by a fall in house approvals in all states, and a fall in unit approvals in all states other than NSW where they had a surprising bounce.

And staying in Australia Delta cases in Victoria have dropped to 941 cases reported there yesterday, and less than the day before and the second time in more than a month it has been below 1000. There are now 18,361 active cases in the state and there were another 8 deaths yesterday. In NSW there were another 190 new community cases reported yesterday with 3,180 active locally acquired cases which is lower, and they had another 4 deaths yesterday. Queensland is still reporting zero new cases. The ACT has 15 new cases. Overall in Australia, more than 78% of eligible Aussies are fully vaccinated, plus 10% have now had one shot so far.

The UST 10yr yield opens today at 1.59% and up +5 bps overnight with most of the rise coming after the Fed tapering decision. The US 2-10 rate curve starts today unchanged at +109 bps. And their 1-5 curve is also little-changed at +102 bps, while their 3m-10 year curve is now at +152 bps. The Australian Govt ten year benchmark rate is unchanged at 1.84%. The China Govt ten year bond is up +2 bps at 2.96%. The New Zealand Govt ten year is down -2 bps at 2.54%.

On Wall Street, the S&P500 has opened today down a minor -0.1% in the Wednesday afternoon trade and remaining close to its all-time record high. After the Fed decision it moved to +0.1% higher, so only a minor reaction. Overnight, European markets were higher but mixed with Paris up another +0.4% and a new 20 year high, but London down -0.4%. Yesterday, Tokyo was on holiday. Hong Kong fell another -0.3% and Shanghai ended its session down another -0.2%. The ASX200 ended its Tuesday session up +0.9% while the NZX50 finished flat.

The price of gold will start today at US$1766/oz and down a rather sharp -US$22 from this time yesterday. Silver fell similarly. US tapering brought little reaction.

And oil prices are a very sharp -US$2.50 lower at just on US$80.50/bbl in the US, while the international Brent price is now at US$82/bbl. 

The Kiwi dollar opens today recovering about +30 bps to just under 71.4 US. The Fed tapering decision hasn't really moved currency markets yet. Against the Australian dollar we are +60 bps firmer at 96.2 AUc. Against the euro we are also up at 61.6 euro cents. That means our TWI-5 starts today +40 bps higher than at this yesterday at just under 75.1, and still well over the top of the 72-74 range of the past eleven months.

The bitcoin price has fallen -2.7% since this time yesterday, and now at US$62,076. Volatility over the past 24 hours has been modest at just over +/-1.7%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».