Here's our summary of key events overnight that affect New Zealand, with news the availability and cost of credit may be at risk, both from fallout from the Aussie Royal Commission, and our own reaction to our cattle disease.
Firstly however we should note that Wall Street is closed today for their Memorial Day national holiday. (It's a holiday in London as well.) Other markets are muted but we should observe that the Hong Kong markets rallied strongly yesterday, even it that was not mirrored in either Shanghai or Tokyo.
But in Australia, the main share market index, the ASX200, took a bit of a local beating. It was down -0.5% yesterday and is now down to just on the 6000 index level and its lowest in a month. Lower prices for bank stocks and for miners is behind the weakness. Miners are down because the oil price is slipping. The NZX50 is not suffering the same way and was up marginally yesterday.
In Italy, attempts to form a government have collapsed after the Italian president rejected a eurosceptic pick for the key economy ministry. An interim Prime Minister with IMF experience ("Mr Scissors") has been appointed. Markets are seeing this as inflammatory and haven't reacted well. The most likely outcome now seems to be another election. If that is the case, Italy will again risk another odd result, possible by a low turnout by weary voters.
In Turkey, their President has called on 'patriots' to sell their dollars and euro and buy lira. It is a pretty desperate move, and will probably trigger the reverse. At least, their central bank has recommitted to use normal practices to avert their crisis, although it may be moving out of their control and influence.
In China, a large energy conglomerate has defaulted on a US$350 mln dollar-denominated bond payment. That has triggered further cross-defaults of at least US$650 mln. This is the latest result of tightening credit conditions in China, especially for companies that have had aggressive non-yuan based funding. Some see this series of defaults as a good sign for a more normal corporate bond market in China.
In Australia, their anecdote-focussed Royal Commission races on. So far there is little to suggest that judge-jury-executioner Hayne is looking at anything systemic, rather he is chasing a series of specific mistakes made by the big players. (That's not to say there aren't crucial systemic issues to be remedied; its just that he seems not very interested in those.) One consequence that is looking much more likely is that there will be a general pullback in the availability of credit, especially for small business. Broker-based lending may also suffer. Imposing on lenders the responsibility for borrowers who lie on their applications is almost certainly going to make any new loans very had to get in Australia. And it is likely to keep international creditors wary of lending there as well. That could well mean the cost of debt will rise for their four pillar banks and it is hard to see how that won't affect New Zealand.
And staying in Australia, S&P have downgraded their major telco, Telstra, to A- on the basis that it is becoming less relevant and newer technology marches on. A- is still quite good for a major telco, but it is a drop from an A rating. In New Zealand Spark also has a A- credit rating.
In New Zealand, the cattle disease mycoplasma bovis is getting sudden emergency attention - but risks weren't even mentioned in the Budget. The costs are likely to weigh on our economy. All eyes will be on the RBNZ now and their Financial Stability review tomorrow to see what impact they assess.
The UST 10yr yield is now at 2.93% and unchanged overnight because of the US public holiday. The Chinese 10yr is at 3.64% (unchanged) while the New Zealand equivalent is at 2.74% (up +1 bp).
Gold is up another +US$8 to US$1,297/oz in overnight trading.
Oil prices are down sharply again today and are now just under US$66.50/bbl in the US and the Brent benchmark is now just under US$75.50/bbl.
The Kiwi dollar will start today unchanged at 69.4 USc. But on the cross rates we are firmer at 92 AUc and we are at 59.7 euro cents. That puts the TWI-5 up slightly at 72.5.
Bitcoin is now at US$7,234 and that is -4.8% lower than this time yesterday.
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