US markets stay down; shutdown consequences get complicated; Japan lowers inflation expectations; China tax flows slow; Australia struggles with integrity; UST 10yr at 2.76%; oil holds, gold up; NZ$1 = 67.9 USc; TWI-5 = 72.1

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Here’s our summary of key events overnight that affect New Zealand, with news American markets can’t seem to turn positive.

After nervous weakness yesterday on Wall Street which saw the S&P500 fall a chunky -1.4%, Asian markets shrugged off the signal closing unchanged. Overnight European equity markets were little-changed as well (except London which was -0.9% lower). But Wall Street is back at its losing ways and down -0.4% in mid-day trade although the day’s losses are being trimmed somewhat in the latest trade.

As the US Federal Government shutdown drags on, even the White House is conceding it will take a severe toll on Q1-2019 growth.

And the consequences are getting dizzyingly complicated. Although ordered back to work (without pay), IRS staffers aren’t showing up in sufficient numbers to process tax refunds. That means cash is staying in Government coffers and UST bill auction requirements are much lower which may drive down yields. But when the situation returns to ‘normal’ (?) the sudden new outflow could well precipitate a new debt-limit crisis.

And staying in the US, Boeing has successfully tested its VTOL autonomous air taxi. It is working with Uber to see if it can zip passengers to local destinations by air.

In Japan, their central bank kept its policy settings unchanged and lowered its inflation forecasts – for the umpteenth time.

In China, as we have reported previously, they booked +6.6% economic growth in 2018 after inflation that averaged +2.1% in the year. But their tax revenues rose only +8.3% in 2018, while their government spending rose +8.7%.

And some fascinating new details have emerged about the policy debate that are going on inside the tightly controlled Beijing central government.

In Spain, house prices there are rising and by the most since 2006.

In Australia, the independence and ethics of regulators (a minority) are being challenged – not to mention the behaviour of some large corporates (a minority). Conflicts of interest are a pervasive problem in the financial services world. Maybe Hayne will be addressing some of them in his upcoming Report. There will be implications for the way New Zealand financial services are delivered – especially in insurance and especially by brokers.

And staying in Australia, the heatwave cascading over them is taking a toll on its electricity supply. Two brown coal generators are now out of action and that dramatically raises the risk of power cuts – just when air-conditioning is desperately needed. Victoria and South Australia are especially vulnerable.

The UST 10yr yield is firmer at 2.76%. Their 2-10 curve is still at +16 bps. The Aussie Govt 10yr is at 2.28% and down -2 bps, the China Govt 10yr is up +2 bps at 3.15%, while the NZ Govt 10 yr is at 2.37% and up +1 bp.

Gold is up +US$2 to US$1,285/oz.

US oil prices are holding lower today at just on US$52/bbl while the Brent benchmark is just on US$60.50/bbl. And see this.

The Kiwi dollarhas risen about +¾c and is now at 67.9 USc. On the cross rates, we up strongly against the Aussie at 95.2 AUc and a gain of almost +1c while also firmer at 59.6 euro cents. That puts the TWI-5 up at 72.1 and the same level it was on Christmas eve.

Bitcoin is at US$3,568 and little-changed 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 ».

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