Here's my summary of the key events over the weekend that affect New Zealand, with news bond markets fear the end of rising prices.
Wall Street ended its Friday session very much on a 'down' note. Equity prices fell sharply, down about -2.3% on the day and bond prices fell as well, with the benchmark UST 10yr yield up sharply to 1.67%. That's the highest it has been in almost the last 60 trading days. The reason for this reaction is all related to Fed-watching.
As we have been reporting, markets expect the Fed to sit on its hands at Thursday's meeting (September 22). The US election is getting closer - its now only 58 days away - and the recent top-line US data has not really pointed to an urgent need to stop waiting. But there has been a spate of Fed speakers over the past week that have caught attention with a pretty consistent tone to saying that if they are going to hike, the Fed might as well get on and do the next one soon. What is interesting is that those recent voices have been from known 'doves', so the tone is changing. Janet Yellen is a 'dove'. What turned the Friday markets in New York is the unexpected scheduling of a speech today by the Lael Brainard, one of the five members of the Federal Reserve Board and not a regional Fed boss. She has a reputation of being the most dovish voice on the FOMC.
Fed speakers are about to go into a black-out period of no commenting, so this event will be the last clue before the decision. Brainard doesn't speak unless there are important messages to be conveyed, and this is what got Wall Street exercised.
The fear is that it may mark a turning point for the bond markets, the end of endless capital gains. Which could turn into capital losses as yields rise.
Thursday will be a big day this week. It is the day Q2 NZ GDP is reported. The signs and the chatter is for a very good result.
In New York the UST 10yr yield jumped to 1.67% on Friday. And the latest indication of NZ sovereign CDS spreads shows them now at just over 19 bps, which is among the lowest for any sovereign nation. Lower than Switzerland, lower than the US or the UK. Just not as low as the 16 bps for German sovereign bonds. In fact, yields on German 10yr sovereign debt turned positive on Friday, another indication of a bond market turn.
The oil price is lower, with the US benchmark price now just under US$46 a barrel, while the Brent benchmark just on US$48 a barrel. Also worth noting are the sharp rises in demand and prices for coal. Seems odd to me, but it is real.
The gold price also lower, now just on US$1,330/oz.
The New Zealand dollar slipped as well at the end of trading last week. It will open today at 73.3 US¢, 97.1 AU¢ and 65.2 euro cents. The TWI index is now at 76.6.
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 ».
[Updated: an earlier version had a wrong reference to the US Fed and RBNZ rate decisions.]
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Much higher rates coming
(for insurance)
Scientists have been urging action for what seems like forever, but, of course, "Britain has had enough of experts," as arch Brexiteer Michael Gove once said. Does that extend to insurers? It oughtn't to because if they feel unhappy about the potential impact of climate change they will charge us more for cover. Swiss Re knows a thing or two about global catastrophes because its business is to provide protection against them. It insures other insurers and so has to know all about the risks they protect against. It takes climate change very seriously.
According to the company's sigma report, that came out a couple of years ago it, the cost of it could soar to a staggering 20 per cent of Global GDP by the end of this century. Think of that this way: it's one pound out of every fiver in your pocket. British insurers have made similar points. Just last month Aviva's boss Mark Wilson described climate change as "the mother of all risks — to business and to society as a whole."
Mr Wilson isn't a tree hugger, or a detached scientist. He's a hard headed businessman who knows that climate change is going to cost an obscene amount of money if we don't act. It's also going to push insurance premiums through the roof.
Want more? Here's Matt Cullen, head of strategy at the Association of British Insurers: "Insurers pay close attention to climate change and are strong supporters of efforts to restrict rising global temperatures because they, and their customers, have to live with the consequences. More extreme weather events, and increasing uncertainty about climate risks, mean more claims, more volatility and — in the worst cases — insurability problems for consumers desperate to protect their homes and livelihoods".
...http://timesofindia.indiatimes.com/home/environment/global-warming/Insu…
Sadly; unlikely things will change when this is NOW the cost of inactivity to date...
http://www.firstpost.com/living/asia-needs-7-7-trillion-to-meet-targets…
4Mins onwards...
Packistan is going to increase use on coal from 2% to 50% by 2030!
http://www.bbc.co.uk/programmes/p046pd2k
humanity is just too stupid to save itself
And the latest indication of NZ sovereign CDS spreads shows them now at just over 19 bps, which is among the lowest for any sovereign nation. Lower than Switzerland, lower than the US or the UK. Just not as low as the 16 bps for German sovereign bonds.
Calm before the storm - are we sure that a lack of bank balance sheet arbitrage capacity is not the real cause of this currently observed rating, placing us next to Germany?
In New York the UST 10yr yield jumped to 1.67% on Friday.
Hmmmm....
The market influence of central banks will probably wane and not by choice, Allianz’s Mohamed El-Erian declares in a downbeat assessment of their effectiveness.
“The days of central banks delivering win-win-win outcomes to investors — that is: high returns, low volatility and profitable correlations — could well be coming to an end” — and the consequences for investors should be to tread a more cautious path. Read more
Gee - interesting - a US defence think tank report:
Australia 6 weeks from a housing collapse, US report warns
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=117…
6 weeks! Dang.
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