Swedes ditch negative interest rates

Kia ora,

and welcome to Friday'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.

Today we lead news the first central bank to adopt negative interest rates has thrown in the towel.

But first in the US, existing home sales fell nearly -2% in November from October in an unexpectedly large retreat. But year-on-year they are up +2.7%. Median prices were up +5.4% as the listings available for sale continues to shrink.

The American current account was little-changed in the Q3 of 2019, a deficit of -$125 bln. Exports, imports, investment income and net transfers all decreased, reflecting the American retreat from the global stage.

And there was another regional Fed survey out overnight, this one from the Pennsylvanian region. It reported businesses were pulling back in this industrial heartland.

And perhaps that is matched nationally in the jobless-claims report update. Recall last week we reported a surge in claims. This week the report remains very elevated.

In Canada, their ADP jobs report was unexpectedly positive, with job gains in November more than cancelling out the losses reported in October.

There were central bank reviews overnight in a number of countries. Both the Bank of Japan and the Bank of England essentially did nothing and soon we will get the Bank of Mexico's decision and they are expected to cut its rate by -25 bps to 7.25%. But the Swedish central bank did change, and that change was significant. It raised rates away from the negative levels they were at, saying that the side-effects of negative rates are worse that the issue they were trying to resolve with negative rates.

In China, their central bank pumped US$40 bln of new liquidity into their banking system to juice up their economy. This was the largest weekly injection so far in 2019. But that is less than the American added in this same week; they added more than US$57 bln to ensure their banking system continues to function 'normally'. Both actions were more than markets were expecting.

And on the trade front, question marks about the size of China's ag purchases from the US continue to swirl. The America current account deficit may not get much help from the 'phase one' deal as they assume.

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In Australia, a surge in jobs during November triggered a plunge in rate cut expectations, with the chance of a February cut falling below 50%. But that jobs surge might be temporary according to some analysts.

And staying in Australia, the Chinese ambassador is taking a more aggressive tone by reminding them that China "is solely responsible for their budget surplus" and the Aussies should be more respectful of the position. He also said that hostage-taking without charge of Aussie citizens in China was 'standard legal practice' as part of their diplomatic pressure in the circumstances. And he told the Australians to see their wholesale ethnic detention of minorities as a good and necessary "anti-terrorism" thing.

The UST 10yr yield is at 1.91% and down -2 bps since this time yesterday. 

Gold is at US$1,479/oz and that is a +US$4 rise overnight.

US oil prices have firmed again and are now at just under US$61.50/bbl and the Brent benchmark is still just over US$66.50/bbl.

The Kiwi dollar will start today marginally firmer again at just over 66 USc. On the cross rates we are unchanged at 95.9 AUc. Against the euro we are still at 59.3 euro cents. That puts our TWI-5 at just over 71.1.

Bitcoin is now at US$7,133, up +3.4% and a further recovery after the recent sharp falls.

You can find links to the articles mentioned today in our show notes.

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