US consumer credit grows strongly; Fed officials turn hawkish; China CPI rises; EU sentiment dips; Japan sentiment up; RBA warns local system risks are high; UST 10yr at 2.94%; oil and gold unchanged; NZ$1 = 65.2 USc; TWI-5 = 69.2

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Here’s our summary of key events overnight that affect New Zealand, with news rising inflation risks and economic shock risks are on policymakers minds.

Firstly, a big bounce back in lending by finance companies especially for cars has seen American consumer credit grow sharply in July. It was expected to show good growth, but the data shows growth way above that expectation.

A conference organised by the Boston Fed seems to be arguing that faster rate rises are now called for and that Fed interest rates need to move up quickly to act as a restraint on rising inflationary pressures. The head of the Boston Fed has said he will start voting that way.

In China, inflation is rising. Consumer prices in rose at their fastest pace in six months in August as flooding and African swine fever drove up vegetable and pork prices. Apart from two single food-related spikes, it is now at its highest level in nearly four years, and rising. Meanwhile, producer prices are cooling off, but they are still rising at nearly double the rate of consumer prices. Given the trade risks China faces, officials there have limited tools to deal with the twin threats of slowing growth and rising inflation.

And staying in China, there appears to be steel in policy makers spines to enact a national tax on property soon as a way of reining in housing speculation. It’s a risky move at this time, but such a tax has been declared a priority to be enacted this year. The threat to sentiment will be the thing to watch. Yesterday, both the Shanghai and Hong Kong equity markets fell more than -1%.

The latest reading on EU investor confidence has also seen a fast weakening, driven by emerging market concerns. This index came in way below expectations. If investors follow through, it will become self-fulfilling.

In Japan, a key economic sentiment survey has come in more optimistic that expected, especially for the outlook data.

In Australia. the RBA is warning their households and the financial system are over exposed to an economic shock with their debt levels very high by international standards. And they say the Australian banking system is potentially very exposed to a decline in credit quality of outstanding mortgages.

The UST 10yr yield has settled in at 2.94%. Their 2-10 curve is tighter however at just under +22 bps. The Aussie Govt 10yr is at 2.58% (up +1 bp), the China Govt 10yr is at 3.67% and up +2 bps, while the NZ Govt 10 yr is at 2.58%, up +3 bps.

Gold is little changed at US$1,195/oz in New York.

US oil prices are a little lower and now just under US$67.50/bbl. The Brent benchmark is higher, now just on US$77.25/bbl. The gap between the two is unusually wide at present. Normally it is about US$4. But fears of oversupply in the US is driving their price lower.

The Kiwi dollar is starting today lower at 65.2 USc, as the US dollar rises. On the cross rates we are at 91.8 AUc, and at 56.3 euro cents. That puts the TWI-5 at 69.2 and its lowest since October 2015. We are also at our lowest against the GBP since June 2016 and the Brexit vote.

Bitcoin is now at US$6,268 and down another -1.8% on the day.

This chart is animated here. For previous users, the animation process has been updated and works better now.

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

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Source: CoinDesk

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