Softer risk tone has dominated so far today...

Asian indices posted moderate losses overnight, European indices are in the red and U.S. futures all point lower...

In FX, the dollar reigns supreme with NZD the biggest loser (one we'll come back to)

🛢 Oil down by 4%

📃 U.S. 10Y yields 1.64%

Top billing goes to Jerome Powell & Janet Yellen today - the Fed chairs past and present will give their testimony to congress and appear before the Senate banking committee tomorrow...

Everyone already knows what Powell's going to say - the prepared remarks were released yesterday...

“The recovery has progressed more quickly than generally expected and looks to be strengthening,”
“The recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.”
(we will use) “our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible.”

That's probably all you need to know - there's plenty of speculation that the Fed will be forced to tighten sooner than expected, but it's unlikely those clues will drop at these hearings today or tomorrow...

Things will really get fun if those CPI prints start rolling in on the high end and unemployment falls rapidly though...

Nordea - 'A Perfect Storm Brewing'

For now, the latest Covid wave (and lockdown) in Europe has put the brakes on the global recovery trade...

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🔥 Hot and 🚫 Not

🔥 Discord weighs potential $10 billion Microsoft sale

Discord is certainly hot property with their +100 million monthly active users, and talks have been held with both Epic Games & Amazon in the past.

It's easy to see why Microsoft would be interested...

“Microsoft possibly acquiring Discord makes a lot of sense as it continues to reshape its gaming business more toward software and services,” said Bloomberg Intelligence Analyst Matthew Kanterman. “There’s a big opportunity to bundle Discord’s premium offering, Nitro, into the Game Pass service to drive more subscriptions from the last reported 18 million.”

Discord was up for sale back in 2018 as well, but Discord felt that its values were best protected by staying independent...

Should they sell? Let's ask an expert...

Not a real expert, but he's probably right

🚫 🥝 The New Zealand Dollar

The kiwi fell by 1.8% after the New Zealand government introduced legislation to curb the rising house prices...

The Backdrop

  • NZ government said that the RBNZ had to consider housing affordability in their policy mandate
  • House prices have risen by 22% in the past 12 months
  • 40 per cent of sales in the final quarter of 2020 were to owners of multiple properties
  • Last year, 15,000 people bought homes who already owned five or more properties
  • New Zealand now ranked the least affordable among the 36 OECD nations

The RBNZ took some action last month 👇

‘You’ll Own Nothing And Be Happy’ - RBNZ
New Zealand house prices are up 20% in 2020, and the Reserve Bank of New Zealand (RBNZ) are increasing the LVR to slow the climb. There’s more to this story though...

And this has now been backed up by government policy...

The Solution

  • Property investors will no longer be able to offset the interest on loans on residential investment properties as an expense against their income from those properties
  • For existing property owners, deductibility will be phased out over the next four years. The Government is looking at exceptions for new builds.
  • The holding period for investment properties (i.e. the bright-line test) will be extended from five to ten years. This will not apply to the family home. New builds will be excluded from this extension.
  • A $3.8bn Housing Acceleration Fund package has being established to assist with the development of infrastructure (such as pipes and roads) to support new housing.
  • There will be additional financial assistance for first home buyers with changes in First Home Loans and Grants settings. Those changes include increases in income caps, as well as changes to regional price caps.

Westpac forecast that these measures will lead to a 10% fall in house prices 'over the long term'...

Soooo, why did the Kiwi sell off on the news?

The government put the spotlight (blame?) on the central bank last month, and traders supposedly began betting that the runaway housing market would pressure the central bank to hike rates sooner than anticipated.

The measures announced today have removed that pressure and coincided with a stronger dollar to amplify the effect.

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