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Hello. I’m David Chaston with Ninety at nine, brought to you by interest.co.nz. This
is where you get everything you need to know in 90 seconds at 9 o’clock, including news
of a big selloff.
Equity markets in New York lost 2% on Friday, bond markets saw yields fall sharply with
the benchmark UST 10yr bond yield falling to 2.72% its lowest since November.
For us that means a sharp dip in swap rates and further flattening of the curve. It also
saw our currency shift a little lower as we were dragged down with the Aussie.
The underlying reason for this selloff is a rush to safety and a rise in risk aversion
all prompted by growing fears emeraging markets like Argentina, Thailand, Russia, Venuzeula
and Indonesia - even Malaysia and South Africa - will all struggle to handle the fallout
from the US Fed's tapering.
And the signs are not good in those emerging markets - they seem to have made little preparation
for the consequences of a rise in interest rates and the end of cheap credit.
This Thursday we will get to know the extent of the Fed's tapering speed. They cut back
by $10 bln per month in December and most experts expect a similar move again this week,
reducing the US$85 biln US stimulus per month US$75 bln, and now to US$65 bln per month.
The bond market rally sort of helps them because they don't have to worry about yields spiking
as they turn off the tap.
The Fed decision will come just before the RBNZ's own OCR decision. The markets rate
it a higher chance of an OCR rise than the experts do, but perhaps the emerging market
turmoil is tempering those market bets.
Over the weekend, ECB boss Draghi said there had been a 'dramatic improvement' in the Eurozones
recovery. The IMF boss however kind of rained on his parade saying she worries about the
fragile nature of the EU improvements and is especially worried about the threat of
deflation.
For something slightly different, the Chinese media has identified New Zealand as a top
holiday destination for their heavy hitters. Despite our currency, our tourism industry
is doing very well at present.
The NZ dollar starts today a whole cent lower at 82.1 USc, 94.5 AUc and the TWI is at 77.8.
I’m David Chaston, and that was 90 at nine, brought to you by interest.co.nz.