Here's my summary of the key news overnight in 90 seconds at 9 am, including important news from Australia.
The Australian government has unveiled its 2013 Budget including A$43 billion in spending cuts and tax increases over four years to pay for its key education and disability reforms and to fund a belated return to surplus in what is the last big roll of the dice for the ALP before the September 14 election.
There will be a 2013/14 deficit of A$18 billion.
Two of the big credit rating agencies held Australia’s AAA rating.
But at the same time, prominent economist Ross Garnaut has warned Australian policymakers need to make an "immense adjustment" if the country is to avoid a deep recession brought on by the end of the China resources boom. BHP is cutting back, in an ominous sign. The Aussie dollar is falling quite fast, and the Kiwi is going with it.
In the bond world, the risk scale is tipping towards greed as investors chase yield without concern for risk. 'Animal spirits' are alive and well some might say. Others have suggested a modern update though. 'Market jungle juice'.
In Europe, the appetite for yield was all too evident, and nowhere more so than in Spain. It sold 12-month bills at a yield of less than 1% for the first time since April 2010, and a new 10-year syndicated benchmark bond priced at 278bps over mid-swaps received bids of around €20 billion. And Spanish oil firm Repsol yesterday sold a seven-year bond at a yield of just 2.72%, yet another sign that demand for bonds remains amazingly strong, regardless of the risk. Investors are clearly confident that central banks are no nearer to turning off the liquidity taps.
In the US, the stock market has powered to yet another a new high. It was boosted by data that showed US households have now deleveraged to 2006 levels. US import prices also fell, keeping inflation in check. And as we have noted before, the US federal budget deficit is falling faster than anyone expected.
And finally, the days of key German influence in the EU may be waning. The ECB has clashed with Germany over how the EU will handle struggling banks and whether to create a common agency and fund to manage failures.
The NZ dollar starts today at 81.9 USc tracking the Aussie lower, 82.9 AUc, and our TWI now stands at 77.0.
No chart with that title exists.
15 Comments
Why shouldnt investors chase EU yield when the central bank has in effect commited itself to buying no matter what? ie moral hazard rocks and the "gamblers" know this. Watching Greece for 3? years should cearly show that there is scope to jump in for a decent profit and exit in time. Its really a feeding fenzie with the tax payer, and their children and grandchidren picking up the eventual tab.
Interesting how the OZ $ is dropping and ours is in tandem....might correct itself faster than we want.
regards
''The Aussie dollar is falling quite fast and the Kiwi is going with it.'' I pointed out last week that this would occur off the back of the RBA cuts to their interest rates (when there was that clamour from the usual suspects that the RBNZ should immediately cut rates to follow the RBA - note to dobrydan). The RBNZ can rely on future cuts by the RBA to pull the Kiwi down further in the slipstream of the falling Aussie.
"...and the Kiwi is going with it"
Just the crack in the door that Wheeler must make use of...the single chance he will get to raise the rate..encourage saving...discourage property gambling...avoid damage to exporters...and for once....just this once...make an effort to get the gate shut in time.
Don't hold your breath folks.
and here is a link to an article in the Telegraph which points out the risks they face...no different to the risks here...the RBNZ cut the rate to pork activity and that activity is gathering too much pace in the property sector...shut the gate now or punnish Kiwi families with the consequences of dithering.
Wolly, you need to remember that the OCR is a blunt tool.
It will not encourage savings because most Kiwis have mortgages and an increase in rates simply puts more money on the Aus banks. It is a direct, substantial, withdrawl from our economy.
It will damage exporters, it will directly hit their bottom line, can't see how you don't get that one.
It will dampen the property market but the price is too high; there are other ways to do this, increase supply, LVR ratios, etc.
You need to move away from the old failed dogma of using the OCR to control everything. In the naughties we had high OCR rates and the biggest property boom in NZ history.
Remember we're not all baby boomers with paid off houses and retirement savings sitting in the bank.
''In the naughties we had high OCR rates and the biggest property boom in NZ history''.
You are guilty of trying to rewrite history I am afraid. During the period 2000-2005 interest rates bounced around between 4.75 and 6.5. Historically these were not 'high rates' by any means. This was the period during which the house price boom started revving up and when the RBNZ was asleep at the wheel. They really should have acted and got rates up to 8% to stop the boom in its tracks during this period. It was not until late 2007/early 2008 that they finally acted (far too late) and got rates up to 8%. The succeeding fall in the housing market of anything up to 15% was the consequence (and proved the effectiveness of the interest rate tool, when finally used properly). By 2009 the GFC had panicked the RBNZ into slashing rates and this in turn saved the housing market. You can forget all this supply/demand waffle - its the availability of cheap credit which stoked the boom. You make debt cheap and kiwis will grasp for it and stuff it into housing.
Oh yes rising IRs certainly stop/kill housing booms. Thats why the you will hear various vested interests argue for anything other than this medicine.
Ireland v New Zealand
http://theautomaticearth.com/Finance/if-the-rest-are-only-half-as-bad-a…
4.5million Irish and 4million NZers, similar crazy property ponzi scheme, "Irish property prices have fallen over 50% since 2007." (US drops 30~40%?....) yet it wont happen in NZ....
oh yeah right.
regards
LOL, no and no. I mean, I could sell it at the present GV to someone who isnt a nut job, rather than to you and not take a huge "loss", like duh.
Beyond that, the paper gain Ive made in 20 years is just that, paper, or 1s and 0s. So lets say I sell, where is a safe place to put my money? answer no where, its all at severe risk of loss. Then I'd have to rent and pay $500 a week instead of $50 a week....that just makes so much sense.....not.
regards
its the US $
http://finviz.com/futures_charts.ashx?t=DX
even the £ is going the same way as the
Aussie
http://finviz.com/futures_charts.ashx?t=6B
This is somethign I have seen a bit in financial reporting- there is a tendancy to describe events involving the NZ$ as being caused by local factors. To be fair interest.co.nz can be better than some of the more mainstream reporting, but as a sector you do seem to see a few articles that the local currency moved because of a specific local cause, then find out later a large number of currencies were moving against another one. Financial journalists do not seem to be very good at what the sciences call confounding factors- something exterior to the factors being considered which effects them so is picked up in results.
This from a banking mate didn't help
Hi Andrew,
Yes, the California Dairies are going broke left and right. Our has a great deal of exposure, but their philosophy is to bank the best, so let’s see if their strategy works if the industry is unable to sustain these levels of feed costs with the current pricing program. The US is in process of a major review of it’s Ag Policy and this issue will be at the foremost of the discussion.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.