RBNZ raises rates, US defaults draw closer

An expected rate hike in New Zealand will be the main regional focus for Asia-Pacific markets on Wednesday, while another day without a deal in Washington on the US debt ceiling is sure to sour sentiment. investors from all over the world.

Wall Street ended sharply lower on Tuesday and U.S. rates soared – an auction for a 21-day Treasury note hit a high yield of 6.2% and the yield on a 1-month note rose. hit all-time highs of 5.888% – as an unprecedented potential US bankruptcy approached.

Positive voices have been heard on both sides of the talks in Washington in recent days, but the result is that no agreement has been reached.

Markets have mostly brushed off the impasse — after all, Congress has acted 78 times since 1960 to permanently raise, temporarily extend or revise the definition of the debt ceiling.

But now they are wavering, and if Treasury Secretary Janet Yellen is right, the government will run out of money next Thursday.

However, US and global economic indicators have been surprisingly positive lately, as evidenced by the flash purchasing managers’ indices for May. The feel-good factor surrounding Japan continues – manufacturing is advancing for the first time in seven months and service sector growth is at an all-time high.

The key event in Asian hours on Wednesday is the Reserve Bank of New Zealand’s expected 25 basis point hike to 5.50%, but the focus will be on whether rates rise more than expected at following last week’s stimulus budget.

On the other hand, after surprising financial markets with a 50 basis point hike to 5.25% in April, the RBNZ is also under pressure to moderate its rate of tightening as the economy teeters on the brink of recession. .

Investors will also be keeping an eye on the US-China trade relationship, which seems to be deteriorating day by day in bans and counter-bans in the chip and cybersecurity sectors.

A senior congressional official said on Tuesday that Washington should blacklist Chinese memory chip maker Changxin Memory Technologies (CXMT) after Beijing this week banned the sale of certain chips by US firm Micron Technology Inc (MU.O ).

Here are three key developments that could give markets more direction on Wednesday:

– New Zealand Interest Rate Decision

– Inflation in the United Kingdom (April)

– Ifo business climate index in Germany (May)