Breakfast briefing: Markets demand rate rises to fight inflation

Economy / news

Hormuz situation worse; eyes on how key central banks stand up to inflation's rise; Canada and India report CPI; China reveals low bank loan growth again; UST 10yr at 4.96%; gold dips, oil rises; NZ$1 = 57.8 USc; TWI-5 = 61.2

15th Sep 26, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news the Gulf Cooperation Council meetings with Iran have been 'postponed'. So no progress there.

That means we need to prepare for more pain at the pump, and aggressive competition for global fuel supplies.

In the US a full +25 bps is now priced in for Thursday's US Fed review which would take their policy rate to 4.0%. In Japan, a full +25 bps is also priced in, taking theirs to 1.25%. If one or both don't deliver these rises where will be strong financial market reactions. And the inflation-fighting cred of both central banks will be in tatters. With no monetary policy resistance to inflation, things would get very messy and rather quickly.

And while we are reviewing these chances, we should note that markets are pricing two chances in three (67%) of an RBNZ rise on October 28, a 75% chance of an RBA rate rise on September 29, and a 70% chance of an ECB rise on October 29.

Meanwhile, Canada's August CPI inflation rate came in at 3.0%, the expected level and unchanged from July. Markets are currently pricing in a 75% chance of a +25 bps hike at the Bank of Canada's October 28 review.

India's CPI inflation rate was reported overnight too, coming in at 4.8% for August and as expected, but notably higher than the 4.4% July rate. Food inflation, which makes up a dominant part of this measure, came in at almost 6%. Their 5.25% policy rate is next reviewed on October 7.

China reported its August new yuan loans data overnight and it was weak again, extending the unnerving trend that started with the unexpected April fall, which was followed up with an even larger July fall. This August data was expected to be a very modest +¥400 bln expansion, but it only came in with a +¥60 bln rise. For an economy as large as China's this is very low. For example, August 2025 recorded a +¥590 bln rise and that was considered low. In August 2024 it was +¥900 bln.

The UST 10yr yield is now just on 4.96%, down -2 bps from yesterday but essentially holding its new highs. It did top 5% at one point however over the past 24 hours. The 30 year yield is at 5.33%, also down -2 bps. The key 2-10 yield curve is now at +34 bps (up +1 bp). Their 1-5 curve is now at +43 bps (-2 bps) and the 3 mth-10yr curve is at +110 bps (-2 bps). The China 10 year bond rate is unchanged at 1.69%. The Japanese 10 year bond yield is now at 3.00%, up +1 bp. The Australian 10 year bond yield starts today at 5.34%, down -2 bps from yesterday. The NZ Government 10 year bond rate is now at 5.04%, down -2 bps as well.

Wall Street has started its week weaker than expected, down -0.3% in Monday trade on the S&P500, also down -0.3% on the Nasdaq. Overnight, European markets were mixed between Lindon's +0.4% rise and Paris's -0.8% retreat. Yesterday Tokyo ended down -0.8%. Hong Kong was up +0.5% but Shanghai dipped -0.1%. Singapore was up +0.4%. The ASX ended its Monday trade up +0.1%. But the NZX50 dipped -0.1%.

The price of gold is now at US$4310/oz, and down -US$40 from yesterday at this time. Silver is at just under US$63.50/oz and down -US$1.

Oil prices have risen +US$1.50 to US$101.50/bbl in the US, while the international Brent price is up the same to just on US$106/bbl. Hormuz transits are still very low today with just seven ships exiting over the past 24 hours, one tankers escorted (0 dark with transponders off) and ten entering for new loads (0 dark). The Red Sea activity is back to about 20 each way at the Yemen chokepoint.

The Kiwi dollar is down -30 bps from yesterday, now at 57.8 USc. Against the Aussie we are down -10 bps at 81 AUc. Against the euro we are also down -10 bps to just on 50 euro cents. That all means our TWI-5 starts today at just over 61.2, down -20 bps.

The bitcoin price starts today at US$78,886 and up +1.9% from yesterday. Volatility over the past 24 hours has been modest at just under +/-1.6%.

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Source: RBNZ

Source: CoinDesk

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41 Comments

by Let me be Frank | 15th Sep 26, 7:36am 1789414596

Whats right with this picture?

"Labour has come out on top in a new political poll – but its 28% support comes amid a historic slump in backing for New Zealand’s two major parties.

The latest The Post/Freshwater Strategy poll, funded by Infrastructure New Zealand, has Labour narrowly ahead of National, which has fallen to 27%."

https://www.stuff.co.nz/politics/361033374/major-parties-continue-histo…

by JimboJones | 15th Sep 26, 7:57am 1789415857

55% for the major parties. Almost getting to the point where they couldn't govern combined.

I guess it's just MMP in action. Looks like a 4 way coalition is fairly likely if opportunity makes 5%

What is interesting with those results is the current coalition won't make it, but if Winnie jumped ship Labour Winnie Greens could. Would he do that? Pretty sure he would.

by powerdownkiwi | 15th Sep 26, 7:56am 1789415814

They are peddling an obsolete narrative.

Not that they are alone in that...

by The Person | 15th Sep 26, 8:38am 1789418319

Nat + nzf+act+tpm

National needs to update those ads to start counting tpm or top taxes on the national lead side of the ledger.

by WinHonourHelp | 15th Sep 26, 9:11am 1789420303

Repeating comment from earlier post. We need to do this MMP stuff better somehow. Too many, rule in, rule outs for meaningful good faith bargaining. It devalues votes and is not a true democractic process. Remind me why we need a party vote? Parliament is an assembly of elected members. Too many of them are not elected!

by mfd | 15th Sep 26, 9:55am 1789422910

The party vote is the reason that hundreds of thousands of voters in safe seats have any reason to show up. No system is perfect, but man was it depressing living under a first past the post system.

by The Person | 15th Sep 26, 11:13am 1789427622

45% of the population currently planning to vote for someone other than NAT/LAB. That's 45% of the population that would be disenfranchised under first past the post.

by Kate | 15th Sep 26, 9:55pm 1789466140

One can always govern via a minority government with confidence and supply (or similar less-than-full- coalition agreements) from others. Ala, Helen Clark.

by Foxglove | 15th Sep 26, 8:01am 1789416097

Quite a battle of the bunnies isn’t it.

by middleman | 15th Sep 26, 8:16am 1789417018

How many people tell fibs to pollsters though.

by powerdownkiwi | 15th Sep 26, 8:20am 1789417209

That's on a different scale.

By some orders of magnitude.

by middleman | 15th Sep 26, 8:41am 1789418468

Not 100% sure what your comment is saying but if you share my suspicion that this time there is a particularly high level of gaming the pollsters going on, I suggest it probably indicates reversion to approximate status quo of parliament's makeup after voting. I'd be tempted to colour my responses to a pollster to send a message.

by Kate | 15th Sep 26, 9:58pm 1789466315

Why? - to send an anonymous shot-across-the-bows of whomever you intend to vote for? Or some other reason?

by JimboJones | 15th Sep 26, 8:37am 1789418244

Also how many won't turn up? I always think the result will be 1-2% right of the average poll as old people always vote. So at this stage I still think the coalition will make it. But plenty of time still to go so any result possible

by Let me be Frank | 15th Sep 26, 8:52am 1789419150

Any result is possible but we can safely say that no matter the result our next government will be led by a group that can barely muster support of a quarter of the (voting) population

by Marcus Traddles | 15th Sep 26, 10:11am 1789423879

In the UK Labour won a huge majority (400 plus seats out of around 650), on 33% of the vote, and 20% of those eligible to vote. The reason - millions of Tory voters, disgusted with 13 years of a Tory Government, did not vote. They are now regretting that decision, but still hate the Tories for what they did over 2010 - 2013. The problem was and remains - a failure of the right to unite as together they command 50% plus of the vote.

by Let me be Frank | 15th Sep 26, 10:44am 1789425852

Id suggest the failure was to recognise that the system as constructed was rejected and yet was retained....we face the same problem.

by KKNZ2025 | 15th Sep 26, 1:23pm 1789435399

In a democracy, people who don't vote get the government they deserve.

NZ has made a decision 30 years ago to have proportional representation (STV would have been better than MMP). This was after National achieved a Parliamentary majority in 2 previous elections under FPP, despite losing the popular vote. So, the undemocratic electoral seat boundary gerrymander was obvious to all.

by The Person | 15th Sep 26, 11:16am 1789427775

the didn't vote? Did turnout really tumble that much? Dont you mean Reform split the conservative vote?

by middleman | 15th Sep 26, 8:53am 1789419185

JJ.For sure, this one is delicately balanced. The concerted MSM campaign to change the government appears a bit less less obvious over recent times. They will be pleased about the surge of support for their shiny new Take Our Properties party creation but also mindful it hasn't the depth to withstand serious scrutiny so seem to be giving it less worshipful prominence.

by redcows | 15th Sep 26, 10:22am 1789424554

Yea, cause those other parties already in parliament are sooo deep with so much talent to steer us through.

Really enjoyed the reaction of other parties when Op popped over the 5%.

by Kate | 15th Sep 26, 10:04pm 1789466668

Showing my age - but they all reminded me of Robot running around in circles and flailing his arms shouting "danger, Will Robinson" danger".

by Foxglove | 15th Sep 26, 12:29pm 1789432172

Much of the media have spent much of their time endeavouring to either find or invent a splitting apart of the present coalition. It hasn’t happened but would bet dollars to doughnuts that if the next election requires a four party coalition to form a government the media’s passion for such a falling out will soon be fulfilled. As far as I can see there is virtually no acknowledgement that the last thing New Zealand needs is uncertainty and instability in government given the turbulence and disruptions the world as a whole is currently encountering. Voters need to think about that.

by middleman | 15th Sep 26, 1:12pm 1789434774

FG. I suspect a fair portion of the swing voting cohort that decides our election outcome is incapable of the informed thinking process you describe. For many their calculation will be limited to superficial considerations or based on Tik Tok chatter, or if they TV watchers on who 'won' the debates. A generalisation of course as some serious people remain undecided until the last moment for very good reasons.

by Kate | 15th Sep 26, 10:07pm 1789466853

The uncertainty and instability will come from external shocks.

The real question is what individual has the foresight and decisiveness to take us through those? And better yet, who is actually preparing/thinking/strategising for them?

by KKNZ2025 | 15th Sep 26, 10:31am 1789425073

Repeating my comment from a few days ago:

Labour incompetent socialists driving state dependency to maintain their voter base, Greens & TOP rabid communists policies depending on thieving other people's money, TPM fundamental racists dedicated to an institutional extortion ethnostate, NZF dog whistles & pork barrels to ensure Winston First remains Minister of Overseas Travel, National "nothing to see here" born to rule entitlement & lazyness "but we're better than the alternatives", ACT "some of you may die but thats a price I'm willing to pay"

by Palmtree08 | 15th Sep 26, 8:41am 1789418512

We're in safe hands. Bigly ones.

"the US president has used social media to say the "only control or 'guardrails' that AI needs is a STRONG AND SMART (High IQ!) PRESIDENT"."

https://www.abc.net.au/news/2026-09-15/trump-says-a-high-iq-president-i…

by Yvil | 15th Sep 26, 8:44am 1789418685

😂 we're all doomed then, lol.

by bulls hit | 15th Sep 26, 10:27am 1789424870

10 to 1 Trump doesn't know what IQ stands for

by Yvil | 15th Sep 26, 10:56am 1789426587

I do, I did an IQ test, I was positive.

by Kate | 15th Sep 26, 10:09pm 1789466969

Saw that! God save the USA.

by Yvil | 15th Sep 26, 8:45am 1789418747

I really like today's quote:

"Our life is what our thoughts make it."

~ Marcus Aurelius

by Let me be Frank | 15th Sep 26, 8:48am 1789418932

Or the current one on my screen....

"Only a few know, how much one must know to know how little one knows."

~ Werner Heisenberg

by middleman | 15th Sep 26, 8:57am 1789419449

Yvil. Except not really true in a literal sense though is it. Our lives are very much shaped by the egotists, chancers and the scattering of competents whom we ordain to make the decisions that order our world.

by Yvil | 15th Sep 26, 11:00am 1789426804

Well, that's what most believe and exactly what the quote leans against. I believe you would benefit from seriously considering the value of the quote, without prejudice.

by middleman | 15th Sep 26, 12:03pm 1789430616

Much of who I personally am is built upon Aurelius's premise. Significant aspects of my existence though are determined by the decisions and actions of others over whom I have little control. No matter how powerful or pertinent my thoughts, they do not change that reality.

by Colin Maxwell | 15th Sep 26, 10:09am 1789423797

Meanwhile in the Trump Kingdom...

40.5 SHADES OF RED

The Auditing & Disclosure Debacle

1997: The year the Government Accountability Office (GAO) began its unbroken streak of issuing a Disclaimer of Opinion on the federal financial statements.

29 Years: The consecutive duration the federal government has handed over financial logs so fundamentally chaotic that independent auditors mathematically cannot verify them.

1994: The year the Government Management Reform Act was passed - proving the government has had over three decades to implement compliant software, yet still relies on ancient, incompatible IT systems.

0: The total number of financial penalties, borrowing restrictions, or legal consequences the federal government faces for failing these mandatory annual audits.

0%: The physical or mathematical probability that trillions of dollars in "undocumented adjustables" (that term says it all) can be tracked using standard double-entry bookkeeping under the current Pentagon infrastructure.

The Twin Deficits & Market Distortion

$40+ Trillion: The baseline national debt line of credit the government continues to expand while ignoring its own ledger errors.

2 Distinct Deficits: The Twin Deficits (fiscal and trade) driving the systemic expansion of the national debt pyramid, where new debt is continuously issued just to service older interest obligations.

2 Primary Credit Downgrades: The historic actions taken by S&P Global and Fitch Ratings to strip the United States of its pristine AAA rating, explicitly citing governance decay and refusal to address the deficit spiral.

0%: The political appetite or practical intention within Washington to solve, freeze, or balance the ballooning fiscal trajectory.

The Broken Premise

½ A Brain: The minimum amount of cognitive capacity required to look at the current structural maths and realise that the trajectory is unsustainable.

1 Fragile Premise: The single, unbacked assumption holding the entire global financial architecture together - the psychological belief that the U.S. is simply "too powerful to default," operating a system that would instantly get a company shut down by regulators.

The argument is that these realities undermine confidence is the central focus of ongoing fiscal debates among economists, credit rating agencies, and financial analysts, however, there should be ZERO disagreement that these persistent systemic failures severely damage public/global trust and institutional credibility.

As such the global Western-centric bond markets are in severe danger of a systemic meltdown, and by definition, the fiat currencies built upon this architecture, not to mention the credibility of the reserve and default status of the USD.... blimey, 40 Shades of Red, and without even mentioning the war(s).

by Kate | 15th Sep 26, 10:13pm 1789467223

Yep, anyone not following it and/or not willing to engage in it - is doomed. And I fear NZ's political parties are a flock of ostriches.

by Yvil | 15th Sep 26, 10:40am 1789425620

If one or both don't deliver these rises where will be strong financial market reactions. And the inflation-fighting cred of both central banks will be in tatters. With no monetary policy resistance to inflation, things would get very messy and rather quickly

We're in the midst of a transfer towards fiscal dominance, DC.

by Colin Maxwell | 15th Sep 26, 11:13am 1789427611

One could argue that both you, Yvil, and DC are perhaps missing the more fundamental point.

The debate appears to be whether central banks will still have the freedom to use interest rates to resist inflation, and whether fiscal dominance is increasingly constraining that freedom.

However, I contend that Wernerism challenges the premise underneath the entire discussion - that interest rates are actually a particularly effective instrument for controlling inflation in the first place.

Higher interest rates don't simply suppress demand. They also directly increase the cost structure of the economy - mortgages, business finance, investment, rents and, importantly, government debt servicing. Those additional costs can themselves feed through into prices.

This is not fundamentally different from what happens when the price of electricity, fuel or another essential inputs rise in price - the cost immediately gets transmitted through the economy.

And this is where Richard Werner's distinction becomes crucial. Rather than trying to control the economy principally through the price of credit, monetary policy should be concerned with where credit is actually going.

Credit directed into productive activity that increases the supply of goods and services is a very different proposition from credit flowing into existing property and financial assets, where it can simply bid up asset prices and debt.

And so I think there is actually a vastly more fundamental problem here than fiscal dominance.

We are, in effect, debating how much we can use an instrument that was never suited to its job description in the first place.

The real monetary-policy question should be not simply “How high do we need to push interest rates?” but:

“What is the credit being created for, and is it increasing the economy's productive capacity?”

That is the part of the essential Werner argument that I think is completely absent from this discussion.

Of course, even more essential, is the elephant in the room, escaping the fundamental cause of our ongoing debt-doom-loop and the associated plummeting purchasing power of our fiat tokens - the fact that NZ allows ~$40 billion of capital to escape the domestic economy annually, in the form of unearned economic rent only to line further the vast pockets of the global plutocrats.

by Kate | 15th Sep 26, 10:26pm 1789467960

Yep, all worthwhile points.

And is the answer to where all the credit is going - into driving up the stock market and onto the balance sheets of the profligate 'you-buy-mine-I'll buy-yours' brotherhood? Highly unproductive in that case - as none of these tech darlings are returning profits of any substance, yet they are investing (with credit based on their over-inflated valuations) heavily into one another, I read somewhere. The funders are the owners and the owners are the funders? What a mess.

I have no idea why AI became standardly free? Very hard to pull back from free. Although at least if subscription only - you'd need a whole lot less data centres. Whenever someone generates a picture or a meme using AI - all I can think about is what a waste of energy for a 'fake' bit of 'art'.