Powell’s comments boost Wall St, undermine greenback; US trade deficit widens; OECD says trade growth ends; BofE warns on Brexit; Hayne targets advice fees; UST 10yr at 3.05%; oil unchanged, gold recovers; NZ$1 = 68.8 USc; TWI-5 = 73.2

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Here’s our summary of key events overnight that affect New Zealand, with news the growth in world trade has stalled.

But first, Wall Street jumped about an hour ago, up about +1.5%, after Federal Reserve Chairman Jay Powell said that their program of gradual interest-rate hikes are meant to balance risks as it tries to keep the economy on track. This new assertion of a rising rate track caught many by surprise. Not only did Wall Street jump, but bond yields fell, and the US dollar fell sharply as well, boosting commodity currencies like the Kiwi dollar.

In the background however are the US Treasury auctions. They are selling US$129 bln of notes in this week alone, up +28% from the same series of auctions a year ago. Now that is a lot of fiscal stimulus, and a heady rise in interest obligation on the US Federal budget.

The Fed has also been assessing financial stability risks to the US economy. They say high asset prices, historically high debt owed by American businesses, and rising issuances of risky debt are the top vulnerabilities facing their financial system. This is the first time they have issued a formal review of their financial systems ‘stability’.

Sales of new single-family homes in the US tumbled to a more than 2½ year low in October amid sharp declines across the country, further evidence that higher mortgage rates were hurting the housing market.

Meanwhile, the US trade deficit got sharply worse in October. For goods alone, it grew to -US$77.2 bln in the month, up from -$67.6 bln in the same month a year ago. Whatever they are doing to fix this just isn’t working. They are on track for an eye-popping US$900 bln goods trade deficit in 2018, and nearly 10% higher than in 2017 and 20% higher than in 2016.

The upcoming G20 summit in Argentina this weekend may be the next place the trade wars play out.

The OECD reports that, excluding large oil exporters, such as Russia and Saudi Arabia, G20 trade was flat in the third quarter of 2018, suggesting that the steady expansion seen over the last two years may have stalled as recent protectionist measures begin to bite.

In Shanghai, their equity markets rose more than +1% in yesterday’s trade.

In the UK, their central bank has warned a no-deal Brexit could send their currency plunging and trigger a savage recession, worse than what they got during the GFC. They said the British economy could shrink by -8% in the immediate aftermath if there was no transition period, while house prices could fall by a third.

At the Aussie Hayne Commission, they are moving on to target ongoing advice fees, so financial advisers, like accountants and lawyers, have to provide service before they can invoice their customers. This comes as many think that product sales commissions will be outlawed.

The UST 10yr yield is lower at 3.05%. Their 2-10 curve has however risen to almost +25 bps as short end rates fall. The Aussie Govt 10yr is at 2.62% (down -1 bp), the China Govt 10yr is at 3.41% and down -3 bps overnight, while the NZ Govt 10 yr is at 2.65% and down -2 bps.

Gold has recovered +US$8 of yesterday’s drop to now be at US$1,220/oz.

US oil prices are unchanged overnight at just over US$51/bbl. The Brent benchmark is now just on US$60/bbl.

The Kiwi dollar got a turbocharged boost against the greenback to be now at 68.8 USc on the Powell speech, up +1c. On the cross rates we are little changed at 94 AUc, and up at 60.4 euro cents. That has put the up to TWI-5 at 73.2 and a five month high.

Bitcoin has also moved sharply higher and is now at US$4,214 which is a +14% leap from this time yesterday. This rate is charted in the exchange rate set below.

This chart is animated here.

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

Daily exchange rates

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USD 

NZD

End of day UTC
Source: CoinDesk

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