Fed speakers sound caution but minutes do not; Canada holds but cuts forecasts; EU jobless rate falls; World Bank downgrades China; UST 10yr 2.72%; oil and gold up; NZ$1 = 68 USc; TWI-5 = 71.9

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Here’s our summary of key events over the holiday that affect New Zealand, with news of a more gloomy mood for international trade.

Fed speakers are out today adding to the idea that rate hikes from them may be slower in coming that previously indicated. All are saying they will follow the data – and markets take that as meaning hiking may be done for a while, although 2019 may still bring two rises.

The Federal Reserve’s release of its December meeting minutes makes no mention of ‘caution’ about 2019 rate rises.

Meanwhile, the latest US MBA mortgage approvals data shows them rebounding +23% from one week earlier, making them +4% higher than a year ago. The same survey reported that their 30-year fixed-rate mortgage declined -10 basis points to 4.74%, the lowest since April 2018, and other loan types saw rate decreases of between -9 and -20 basis points.

There is still no official data being released due to the US Federal Government shutdown and the latest to be missed is the US trade balance for November. The talks in Beijing have wrapped up this stage with both sides talking up the prospects for an agreement, but both are still far apart. The US’s self-imposed deadline is March 1 and it is unlikely anything will be resolved before then – and many expect extensions after that.

The Bank of Canada announced it is keeping its key policy interest rate unchanged at 1.75% in the face of a new, grimmer forecast that shows Canada’s economy is slowing down fast. It is taking a hit from lower oil prices, weaker housing activity, the US-China trade clash, and the decelerating global economy.

But Canadian housing starts came in better than expected today. A dip was expected, but it wasn’t as sharp as most analysts forecast.

None of this is phasing markets. The S&P500 is up +0.4% on Wall Street today. This follows EU markets that were up a similar amount, and Shanghai which was up +0.7%. Hong Kong starred, up a startling +2.3% while Tokyo was up an otherwise impressive +1.1%. Both Australia and New Zealand equity markets ended up more than +1% as well. It has been a good start to 2019 for equity prices but you have to say it all seems based on the expectation of a successful US-China trade deal, one where the US winds back its tarrifs.

In Europe there was something of a (rare) data surprise in their employment numbers. The expectation was that the overall jobless rate would rise to 8.1% from 8.0% in November in the euro area. But it actually fell to 7.9%. In the wider 28 state-EU the rate is 6.7% now with ten countries with rates below 5%. The EU has a workforce of 209 mln with 192 mln employed. (For reference, the US has a workforce of 163 mln with 157 mln employed.)

Yesterday we reported that growth has evaporated from the international air cargo market with volumes in November unchanged from a year ago – and that volumes in the Asia/Pacific region fell -2.4% on that basis. Today we got data on air travel data and that show continuing expansion, even if at a slowing level. International travel grew an impressive +6.6% in November from the same month a year ago, domestic travel a little less. In fact, in Australia, domestic travel contracted -0.7% and the only market reported with such a retreat.

As a point of interest, the Economist Intelligence Unit has reported that there are only 20 “full democracies” in the world, and that Australia and New Zealand are the only two in Asia. New Zealand is ranked #4 by them, Australia #9. Interestingly, the USA is ranked #25 in a big group of “flawed democracies” and that group also includes India at #41. (Russia #144 and China #130 are in the “authoritarian” category.)

But Chinese state control can’t always suppress discontent. One senior academic has warned of the perils of “a great shift” in a long speech. It has since been censored, but not before the video (and translation) were recorded.

The World Bank has lowered its growth forecast for China to +6.2% and has released a fairly gloomy assessment of what is in store for 2019. Consumer confidence in China is also taking a hit.

The UST 10yr yield is at 2.72% and continuing the firming trend. Their 2-10 curve however is little higher at +16 bps. The Australian Govt. 10yr yield has retreated again, back to 2.33%, down -4 bps. The China Govt. 10yr yield is -2 bps lower again at 3.13%, while the New Zealand Govt. 10yr yield is holding at 2.42%.

Gold is up +US$5 to US$1,290.

US oil prices have jumped today and are now just over US$52/bbl while the Brent benchmark is just over US$61/bbl. Both are more than a +US$2 rise in 24 hours.

The Kiwi dollar starts today firmer against the greenback at 68 USc, a rise of +¾c since this time yesterday. On the cross rates we are firmer too at 94.7 AUc, and at 58.9 euro cents. That puts the TWI-5 up to 71.9.

Bitcoin is still just below US$4,000 at US$3,990. 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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