Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies and markets action in their 'Never a dull moment' report, including news a bond auction failure in Germany has deepened the Eurozone crisis and helped drive the New Zealand dollar lower as investors pulled out of risky currencies fearing a slump in global economic growth.
Germany planned to sell 6 billion euros of government bonds and was able to sell only 3.5 billion euros.
"The market interest in supporting German sovereign debt is starting to wane and that is a big issue, because Germany is seen as the safe haven in Europe and if investors aren't interested in buying German sovereign bonds it puts into question the entire European region," Bell said.
Bond yields rose across Europe, including in Austria and Belgium.
Belgium-based bank Dexia also told investors this week that talks for a restructure were in trouble, which called into question France's AAA credit rating, because it is exposed to Dexia's restructure.
The main issue for Europe remains whether the European Central Bank will print money to buy Southern European bonds. France wants the ECB to print, while Germany is opposed to any printing and buying of bonds, fearing inflation and the creation of a moral hazard for both banks and governments.
There is also talk of moves to bring the 17 Eurozone governments fiscal strategies together, but any fiscal union will be difficult to get voters to agree to it.
China, American worries
Bell also looks at the failure of the US Congressional 'Super Committee' to find US$1.2 trillion worth of deficit cuts this week.
"There's going to continue to be plenty of political brinksmanship between the Democrats and the Republicans before we get anything further from them," he said.,
China's Purchasing Managers report also came in at a 32 month low, suggesting a sharp slowdown in the economy that dominates the economic outlook in our region.
"The prospects of a hard landing in China would be the final nail in the coffin in terms of what we're going through and the potential downside for risk."
Ranges
The New Zealand fell to around 73.8 USc late in the week, with support at around 72 USc and the prospects for another 10-20% fall in the New Zealand dollar if the situation in Europe deteriorates further, Bell said.
The New Zealand dollar had stabilised around around 47.5p and 55.5 euro cents.
"We will be less attractive to investors in this current environment with this credit crisis getting worse."
Dan Bell is the Senior Dealer at HiFX, a UK-headquartered foreign exchange dealer with significant operations in Australia and New Zealand. It has a dealing room in Auckland. See more detail here.
(Updated with more detail)
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17 Comments
Earlier last week there was a comment out of the UK from somebody in the sov bond markets that Kiwi bonds were seen as safe and to be grabbed with both hands...on that score the Kiwi would not fall.....indeed it may rise as the Swiss Frank did....! That was before this election result....
I think we will see the Kiwi strengthen this week.
Some crucial viewing about where we've been and what's on the way!
http://www.youtube.com/watch?v=s6bNKS8QAjM
Just something to think about as the world's woes began to encroach...
Britain is prepearing for the Euro Collapse
A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph.
The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”
So after a 10% drop in the NZ$ we hear the most informed commentators saying the Euro Crisis "could" hit NZ. This was always the case, and it became obvious ages ago when we first started using the term "PIIGS", contagion etc. Just because the politicians, and the media has their head in the sand doesn't mean everyone has to.
Plan for the future, not 2 years from now but long term, what does this mean for the economy, and are you reliant on a booming economy to support your lifestyle? Autumn is here and winter is fast approaching, be an ant, not a grasshopper.
I think you are overstating the case. There won't be an Armageddon from this, just a prolonged period of low to no growth and high unemployment. And no one is going to get rich from asset or income appreciation anytime soon so unless you end up doing something pretty amazing, fiscal prudence is the new watchword. No need to build the backyard bunker just yet and fill it with oil and organic lentils in preparation for the long hash winter.
Said the grasshopper to the ant. History would say otherwise. You think this can be contained in Europe, just the PIIGS? I'm seriously not looking at building a bunker, or storing oil lentels whatever. The status quo bias, it's why so many Jews stayed in Germany even though Hitler was rounding them up. They thought it will soon pass, everything will go back to normal etc. Add a couple hundred basis points to our interest rates, drop the fonterra payout to $5, these are both normal occurences, could it get worse then that? I can't see any upside potential for the old way of investing, hedge accordingly.
I'm picking a US exchange rate of 0.72 in the near term, after a possible firming this week after the election result has dispelled any uncertainties over an unfavourable election result. But the dark clouds that are gathering over Europe and the ill wind that blows across America are not going to go away, and eventually they will weigh on the direction of our currency. If things do take a turn for the worst in the West, I can see the exchange rate declining to 0.68, and possibly even beyond.
There is a strong chance that nothing corrective will happen now in the US until 20 January 2013. And China, whose economic miracle is largely built on sand, will have no-one to sell its stuff to if the Europeans and Americans don’t have any money or credit to spend. This will come as a shock to many Chinese as they fully realise that their wealth (and development) has in fact come from trade with the West, it is not home grown wealth. Most Chinese are still relatively poor, and its domestic demand is simply not large enough to pick up the slack from a subdued North America and Europe. North America, Europe, China and Japan will have the determining impact both directly and indirectly (via Oz) on New Zealand’s economic performance over the next three years. Thank god most of the country did the right thing yesterday.
Most of the country - You really say some foolish garbage David!
And you were doing reasonably well until that last statement showed you up again for being stuck in a mind set that is part if the problem the world now faces.
But your team won David - YAY David, you are a winner!
The problem with people like you, Lloyd, is you're a sore-loser. Bitterness is a very unattractive attribute, and those afflicted never advance their lot very far on it. You have your opinions and you as entitled to them as much as I am to mine. And no matter how foolish I may think somebody is for holding the views they do, more so if they have irrational tendencies to being a know-the-real-truth conspiracy theory nut-job, I generally refrain from subjecting them to petty diatribes just because their views are different from my own. Something you could learn I think.
Growth in China will slow, it won't stop. The problems in Europe are being made worst by political incompetence, rather than because the economic situation there has suddenly gotten worse. Many of the northern European economies are quite robust, but won't remain so if they can't get their political act together. That's the real test here.
The US is suffering from low growth which is causing unemployment there to rise. That's because the US consumer who accounts for 70% of the US economy is deleveraging. US businesses are actually sitting on a mountain of cash. They are not the ones who are going broke. On the contrary they are actually doing quite well. Interestingly, Americans are getting bored with austerity, and took a break this Thanksgiving weekend and went shopping! Volatility in global markets will continue to swing wildly between risk on and risk off depending on whether the latest news is good or bad. The latest news out of the US is good, so the markets there will probably rise sharply (risk on) on Monday. However just as in Europe it’s the politics which drives the bad news, it’s American politics in the US which is driving the bad news there.
The BRICS are still growing.
In total there is insufficient economic bad times happening globally to produce a global depression, but a recession in Europe and continuing low growth in the US will impact on global demand, and hence New Zealand’s bottom line. It’s the politics that will make it worse, not the economics. Hopefully the economics will buffer the politics somewhat, but the situation is very dynamic.
We knew three years ago that the walls would be splattered with the debt effluent and look see there it is running down the walls....we know the euro is as dead as can be but on life support to allow the swine time to escape the trap set for the peasants and idiots...no point in running to the Pound....we know also that Key and Co will refuse to accept the game is over, until the coffin lid is nailed down...so enough of this bickering....it's every peasant for themselves...make your own way through this maze of liars and govt idiocy...avoid the banks or suffer for a lifetime...your choice!
Did I not mention the hundreds of trillions in future govt liabilities and current govt debts crushing the 'land of the no longer free'....or the make believe farce in China propped up on a wall of paper money and IOUs.....or the collapsing property bubble across the ditch....or Bollard's haste to bolt together his OBR escape route for the govt...but not for the savers with deposits.....
Do you Dan...? really ...? the N.Z. taking a hit from the state of the Euro.........frig, I'm glad I come here...who would have thought it..?
Now lemmee see here......we take a hit of about 6cents in three weeks or less and you pop a prediction ...geeeeeeeeesus!
HOWS all that parity going for you Wolly you enjoying the view there matey.....?huh...?
Should I pop a few of your post up for a gander......
Hello NZ
On friday many FX traders had gone short as the EUR was been sold off.Everybody is telling you to dump the EUR,the big players dump a few billion into the market an all the Ma n Pa Kettles get cleaned out.
The Yen moved nearly 5 cents in one spike a couple off weeks ago,it seems to be happening more often now.The big banks have turns at dumping trillions into the markets,they don't want the EUR/US under the 13200.So it looks like they will buy the EUR to stop it falling further.Its all good if you can catch one these big moves.
Should make for interesting trading next week.
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