90 seconds at 9am: Dow bounces; Bernanke confident; Spanish bank fears; Aussies less confident

Dow bounces; Bernanke buoyant; Spanish bank fears; Aussies less confident

Bernard Hickey details the key news overnight in 90 seconds at 9am in association with the BNZ, including news US stocks rose more than 1% in late trade on renewed confidence about the US economy.

This followed a speech by US Federal Reserve Chairman Ben Bernanke in which he said the US economic recovery remained intact and he indicated he was less worried than some about a double-dip recession, Bloomberg reported. 

Meanwhile, Australian business confidence fell sharply in May, particularly in the country's mining and construction sectors, ABC reported. Kevin Rudd's mining 'super tax' appears to be hitting confidence.

In Europe, the turmoil continues. The Swiss National Bank was reported to have intervened to sell the Swiss franc and buy the Euro to try to avoid the pain for its exporters of a strong franc. Also, there are renewed fears about the Spanish banking system, which pushed up borrowing costs for banks in Europe. Bloomberg reports that Spanish banks may need US$60 billion in fresh capital.

So what?

Bernanke's comments about the US economy are worth watching, but his confidence has been misplaced many times in the past. America is the world's biggest economy and it will take the world with it, for good or bad.

New Zealanders should be watching these worrying signs about Australian business confidence closely, given Australia is our largest trading partner. This mining tax being imposed by Kevin Rudd is causing all sorts of ructions, both politically and economically.

It's also worth keeping a close on the Spanish banking crisis. Spain is the world's 8th biggest economy and its debt problems are on a much bigger scale than Greece's. It is seen as Europe's Maginot line in the banking crisis. If Spain were to fall then Europe would be in a complete mess and the future of the Euro would be in serious doubt. The meaning for New Zealand borrowers is that this is pushing up borrowing costs all around the world for banks.

This interactive chart below shows whats happening with Credit Default Swap spreads for Australasian corporates selling bonds on global markets. This is mostly the big four Australian banks. This chart shows those borrowing costs rising sharply in recent weeks. That will eventually get passed on to us in the form of higher borrowing costs and higher term deposit rates as the banks compete hard for term deposits, given overseas borrowing is more expensive and more difficult.