US Fed backs Powell over Trump

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.

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I'm David Chaston. We'll do this again tomorrow.