US Fed keeps rates unchanged, but removes 'patient' language. Canada inflation rises. China banking liquidity under stress. Iron ore prices rise.
Kia ora
and welcome to Thursday's Economy Watch where we follow
the economic events and trends that affect New Zealand.
I'm David Chaston and this is the International edition
from Interest.co.nz.
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Today this podcast leads with news the US Fed is backing
Powell over Trump.
At its latest rate review, the US Federal Reserve has kept
its policy rates unchanged. This is on the basis that the
US has a low jobless rate and is likely to stay low, and
most inflation measures are near its target two percent
level. But it did acknowledge that "uncertainties about
this outlook have increased". The decision was nine to one,
with the dissenter a long-time dove.
Having said that, they did remove the word 'patient' from
their Statement, and their dotplot suggests one rate cut by
the end of 2020 and none in 2019 - far slower than many
observers had been assuming. However, this dot plot is
different because the prior one saw more chance of a rate
hike in 2020. But if you actually take a look at these two
dotplots you might find it hard to conclude a rate cut is a
firm part of their thinking.
The US dollar fell. US Treasury bond yields fell. Equity
markets moved from negative territory into positive
territory in a smallish jump.
Overnight European markets were little changed, although UK
equity markets fell on political uncertainty. Yesterday
Asian markets were all up strongly.
In Canada, inflation is rising, coming in at 2.4% and well
above the +2.1% that markets were expecting.
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plans and report returns on a regular savings basis? This
resourse is up-to-date through May and you can find it at
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In China, they are approaching their annual period where
banks face seasonal liquidity stresses. But this year,
these stresses are magnified by the contagion of a key
small bank failure and spillover into the non-bank finance
sector. There is a growing sense that Chinese financial
regulators are losing control of the situation. If they
don't regain it soon and before the annual liquidity
squeeze, financial stability in the Middle Kingdom could
waiver.
In Australia, the iron ore price just keeps on rising and
rising. It is up to over US$106/tonne and that is more than
a +50% rise since the start of the year.
The UST 10yr yield is now just under 2.03% and down 3 bps
from yesterday.
Gold is up US$3 today to US$1,349/oz.
US oil prices are softer today as high American inventories
overwhelm supply tensions. They are now just on US
$53.50/bbl. The Brent benchmark is now at US$61.50.
The Kiwi dollar is firm against a downward adjusting
greenback after the FOMC decision, now at 65.4 USc. On the
cross rates we have risen too to be at 95 AUc. Against the
euro we are up to 58.4 euro cents. That puts the TWI-5 up
at 70.3.
You can find links to the articles mentioned today in our show notes.
Get more news affecting the economy in New Zealand from
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I'm David Chaston. We'll do this again tomorrow.