Dairy prices up strongly again; US service sector strong; Vancouver housing in doldrums; China trims growth target, taxes; RBA sanguine; UST 10yr 2.74%; oil stable and gold drops; NZ$1 = 67.9 USc; TWI-5 = 72.6

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Here’s our summary of key events overnight that affect New Zealand, with news China has downgraded its 2019 growth aspirations.

Overnight, there was another good dairy auction with prices rising +3.3% overall, and the key WMP price gaining +6.0%. In New Zealand dollars, prices actually gained +4.3%. This is the seventh consecutive rise and brings the 2019 gains to +24%. Volumes offered were normal, and today’s rise bolsters the farm gate milk price forecasts most dairy cooperatives have made recently.

Elsewhere in the US, sales of new single-family homes rose to a seven-month high in December, but November’s out-sized jump was revised lower, pointing to continued weakness in the housing market. The December tally was -2.4% lower than the same month a year ago.

And updates to the services PMIs were out overnight in the US. Both pointed in the same direction. The ISM one said the expansion was growing stronger. And so did the Markit one. Both have the expansion in the US services at a good level. These rises moved the US dollar higher.

In Washington, the Administration has signaled it will scrap India’s and Turkey’s participation in a privileged trading program that allows certain developing economies to avoid tariffs on some exports to the US.

In Vancouver, sales of residential housing has reached its lowest level in more than a decade. In fact, sales are more than one third lower than the same month a year ago.

Mexico consumer confidence rose much more than expected and to its highest level since this metric has been measured in a record that goes back 18 years.

Amid slowing growth, China’s premier has announced that they will spend about +10% more on rail infrastructure in 2019 as part of its growth-enhancing stimulus program. That involves a spend on these rail projects alone of NZ$175 bln.

And that slowing growth has brought another unexpected boost. They are to cut taxes and fees by NZ$440 bln to prop up growth by encouraging more economic activity. A cut was expected but this is larger than most analysts estimated.

Both measures are part of Beijing’s plan to lean against their slowing economy, one they themselves forecast to grow by “between 6% and 6.5%” in 2019. That would make it the slowest rate in 30 years, and down from the 6.5% target they had in 2018.

In the EU retail sales came in higher than many expected. After a weak December, January retail grew by +2.2% above the same month a year ago, and satisfyingly higher than inflation.

In Australia, a $120 mln residential mortgage bond made up of Suncorp mortgages suffered defaults to a trigger level where investors may not get all their money back. It is being described as a ‘canary’ moment. But only time will tell. However, it is probably the first ever such event across all RMBS in Australia. Most of the mortgages in this bond were from Queensland.

Meanwhile, the RBA has left the official interest rate on hold at 1.5% for the 31st month in a row. Many other analysts think it is just a matter of time before they will need to cut their official rate but the central bank still sees 2019 growth at about 3% as their labour market remains strong. And they only see the fall in Melbourne and Sydney house prices as an ‘adjustment’. It was a relatively upbeat assessment.

The UST 10yr yield is marginally firmer today at 2.74%. Their 2-10 curve is still at +18 bps while their negative 1-5 curve has vanished. The Aussie Govt 10yr is down -2 bps to 2.16%, the China Govt 10yr is up +2 bps to 3.23%, while the NZ Govt 10 yr is down -3 bps to 2.20%. Local swap rates rose marginally yesterday.

Gold has fallen again, down to another -US$5 to US$1,283/oz.

US oil prices are little-changed today at US$56/bbl while the Brent benchmark is just on US$65/bbl.

The Kiwi dollar is at 67.9 USc and a little lower from yesterday. On the cross rates we also a little lower at 96 AUc. Against the euro we are little-changed at 60.1 euro cents. The TWI-5 is now at 72.6.

Bitcoin is firmer at US$3,821 and a rise of about +3.3% since this time yesterday. This rate is charted in the exchange rate set below.

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

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