RBNZ raises New Zealand’s base rate to 2.75%, whilst many European bond prices fall to record lows

Mar 13 • Morning Roll Call • 1969 Views • Comments Off on RBNZ raises New Zealand’s base rate to 2.75%, whilst many European bond prices fall to record lows

shutterstock_113521615Many analysts predicted that the RBNZ would raise the base rate by 0.25% when they met this Wednesday evening, the impact on the kiwi was immediate and now swing (and or position) traders will await to see if the rate rise will propel the kiwi to greater heights, or if the rise has already been ‘priced in’.

In a relatively quiet day for other news there was some extremely promising data regarding the cost of govt. borrowing for many of countries that are users of the euro, in particular Ireland. Ireland’s 10-year yield fell one basis point, or 0.01 percentage point, to 3.05 percent late afternoon in London after dropping to a record 3.01 percent. The previous low of 3.02 percent was set in September 2005, before it climbed to a euro-era high of 14.22 percent in July 2011.

The average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain fell to 2.438 percent on March 10th, the lowest in the history of the euro area, according to Bank of America Merrill Lynch indexes.

The bond news was welcomed even more due to the poor industrial production data from Europe that was published in the morning session; the negative print caused quite a sell off across major bourses throughout Europe. In January 2014 compared with December 2013, seasonally adjusted industrial production fell by 0.2% in the euro area (EA18) and rose by 0.1% in the EU28, according to estimates from Eurostat.

Reserve Bank raises OCR to 2.75 percent

Statement issued by Reserve Bank Governor Graeme Wheeler. “The Reserve Bank today increased the OCR by 25 basis points to 2.75 percent. New Zealand’s economic expansion has considerable momentum, and growth is becoming more broad-based. GDP is estimated to have grown by 3.3 percent in the year to March. Growth is gradually increasing in New Zealand’s trading partners. However, improvements in major economies have required exceptional support from monetary policy. Global financial conditions continue to be very accommodating, with bond yields in most advanced countries low and equity markets performing strongly”.

Industrial production down by 0.2% in euro area

In January 2014 compared with December 2013, seasonally adjusted industrial production fell by 0.2% in the euro area (EA18) and rose by 0.1% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In December 20133 industrial production decreased by 0.4% in both zones. In January 2014 compared with January 20134, industrial production grew by 2.1% in the euro area and by 2.4% in the EU28. The decrease of 0.2% in industrial production in the euro area in January 2014, compared with December 2013, is due to production of energy falling by 2.5% and durable consumer goods by 0.6%.

Market overview at 9:30 PM UK time

The DJIA closed down 0.07%, SPX up 0.03%, NASDAQ up 0.37%. The euro STOXX closed down 0.88%, CAC down 1%, DAX down 1.28% and the UK FTSE down 0.97%. The DJIA equity index future is up 0.06%, SPX up 0.18% and the NASDAQ up 0.54%.

NYMEX WTI oil finished the day down 1.88% at $98.15 per barrel, NYMEX nat gas down 2.63% at $4.48 per therm. COMEX gold was up 1.49% at $1366.80 per ounce COMEX silver was up 2.38% at $21.31 per ounce.

Forex focus

The yen gained 0.3 percent to 102.71 per dollar late afternoon New York time after appreciating 0.2 percent yesterday. Japan’s currency was little changed at 142.84 per euro. The euro rose 0.3 percent to $1.3907 and touched $1.3914 after climbing on March 7th to $1.3915, the highest since October 2011.

The franc, like the yen a traditional haven currency, advanced 0.5 percent to 87.37 centimes to the greenback and touched 87.35, the strongest since October 2011. It appreciated 0.2 percent to 1.2152 to the euro.

The yen advanced for a third day against the dollar as signs that growth is slowing in China’s economy, the second-biggest in the world, boosted demand for haven assets.

The Reserve Bank of New Zealand increased its key interest rate to 2.75 percent, from 2.50 percent, becoming the first developed nation to exit record-low borrowing costs. The move was forecast by all 15 economists in a Bloomberg survey. The nation’s currency, nicknamed the kiwi, rose 0.4 percent to 85.04 U.S. cents.

Bonds briefing

Ireland’s 10-year yield fell one basis point, or 0.01 percentage point, to 3.05 percent late afternoon in London after dropping to a record 3.01 percent. The previous low of 3.02 percent was set in September 2005, before it climbed to a euro-era high of 14.22 percent in July 2011. The 3.4 percent bond due in March 2024 rose 0.065, or 65 euro cents per 1,000-euro face amount, to 103.01.

The average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain fell to 2.438 percent on March 10th, the lowest in the history of the euro area, according to Bank of America Merrill Lynch indexes. That’s down from more than 9.5 percent in 2011, when the region was rocked by concern nations would struggle to service their debt, risking a breakup of the currency bloc.

Irish government bonds rose, pushing 10-year yields to a record low, as Europe’s most-indebted nations extend their access to funding markets that are thawing as the region’s four-year financial crisis abates.

Fundamental policy decisions and high impact news events for March 13th

Thursday sees Australia’s inflation prediction, expected in at 2.3%. The BoE publishes its quarterly publication, whilst the UK’s RICS publishes its house price expectations for the month.

From Australia we receive the latest unemployment data, the rate is expected to remain at 6% with the drop in unemployment at 15.3K. The RBNZ governor Wheeler speaks, whilst later the year on year Chinese industrial production print is expected in at 9.5% year on year. Chinese retail sales are expected in at 13.5% up year on year. European news centres around the ECB publishing its monthly bulletin.

From the USA core retail sales are published with the print expected in at 0.2% up, the retail sales on the month up 0.3%. Unemployment claims (weekly) are expected in at 334K, with import prices up by 0.6% on the month and business inventories up 0.4% on the month.

From New Zealand we get the business manufacturing index, expected in at 56.2 – similar to previous readings, whilst Japan publishes its monetary policy meeting minutes.
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