Here's my summary of the key events overnight that affect New Zealand, with news of a nosedive in financial markets.
They plunged when holiday-mode northern hemisphere markets opened after a near -9% dive in China shares and State support measures failed, but commodities and the US dollar recovered initial losses and Wall Street staged a striking comeback in the middle of the day in a volatile session after European markets closed. The session started badly with the Dow opening an unprecedented 1,000 points lower, staged its comeback, but late in the session the weakness has returned.
The sell-off seems to have little to do with the US or EU economies: it's all about China and 'emerging markets'.
This is where we are at now:
The S&P500 is down -4.2% from where it closed on Friday on Wall Street. This is after it was down -7% at one point.
The oil price is now under US$38, about as low as it has been in the past few days. It's under US$42 on the Brent benchmark. Copper has been another big casualty. But dairy prices only show a small adjustment. These will be worth watching today.
Gold is at US$1,153, and not displaying any additional inverse reaction which seems unusual. Bond demand seems to be taking up the role.
The NZD is at 65.2 USc although it was lower two weeks ago. It briefly hit 62.4 USc and at one point there were no bids for the Kiwi dollar. Things seem to have normalised now although the TWI has settled at 68.9, a three year low.
In New York, the UST 10yr yield benchmark has fallen as investors buy bonds, now at just 2.01%. This is its lowest level since the end of April.
Sharply lower equity prices will have an impact on KiwiSaver fund values.
All this seriously clouds the impending US Fed decision on September 18, although it probably cements in another OCR cut by the RBNZ on September 10.
The New Zealand dollar starts today lower at 65.2 US¢, at 90.7 AU¢, and a lot lower at 56.3 euro cents. The TWI-5 is at 68.9, down -200 bps from this time yesterday.
If you want to catch up with all the local changes yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here »
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46 Comments
huh? Some like Krugman and Keen were saying things pretty outright, but have been ignored. Meanwhile the pollies between their dogma (yes austerity works, yes we've fixed the banks) and back handers (oops I mean campaign contributions) refused to do anything.
http://krugman.blogs.nytimes.com/2015/08/23/nobody-could-have-predicted…
Gold is at US$1,153, and not displaying any additional inverse reaction which seems unusual.
Margin/collateral calls curtail further exposure. Anyway, if markets can be shut when it doesn't suit, best to stay away and nurse liquidity, or as you say seek positive sovereign iou NPV transfers from the less deserving.
Look where the Bitcoins are going
How long until the ingenious central planners in China and their ingenious brothers in spirit in all "Western" central banks will ride to the rescue with the only thing they know: yet more money printing, yet more "stimulus" i.e. yet more unwinding of the market mechanisms which have served us reasonably well over the years? Krugman and Hickey, where are you?
But seriously, it is hard to imagine that the intellectual giants in the central banks and govts will keep their clumsy fingers out this time. More of the same after a bit of sputtering.
Capitalism is market Darwinism. Companies with a dysfunctional business model and countries with dysfunctional governments go broke. QE did not let that happen. Zombie companies, banks and countries are soaking up human and financial capital to eventually fail anyways.
Yes, I do suggest that markets should be allowed to function and central banks should piss off. They had their opportunity for nearly 10 years now and have just made the mess worse.
Good comment, PeterPen. Nobody should confuse stockmarkets with business fundamentals.
Sometimes stock prices and individual company fundamentals align more or less. Every serious analyst, every careful investor, contributes to this alignment.
But stockmarkets - like individual stocks - can move right out of alignment with fundamentals. They froth via created and cheap money - both of which mean unearned money - and the naive enthusiasms and crowd motivations of gamblers.
The froth constantly needs cleaning off. And for every argument anyone can muster - economic, social, environmental, political - we shouldn't be basing our well-being on froth.
This whole thing was not unexpected , maybe unintended , but not unexpected .
The world is awash with unproductive cash which has found its way into speculative assets like shares and property sending prices into the stratosphere , it was always going to come down again
I am not an economist , but anyone watching this could see it was not going to last forever
So the Fed will be raising rates eh?
Haha, yeah, that's right. A Gold Maple is really not money, it dosent produce any return while sitting in the bottom drawer and there's the opportunity cost as well. Oh dear, how silly some people are!
Much better to drag some cash out of the house and have a whack at trying to make some real money. I'm sure there'll be some advisors around who will help out, advise to buy the dips and hold tight when everyone else is running for the door !
Yes, maybe so but it depends on the investor's appetite for risk in a market that is crooked and manipulated to keep the music playing. Not for me ... !
I'm going to load up on Maple Gold. I loooove that stuff. The only good thing to come out of Canada since, well....forever.
http://www.amazon.com/Maple-Syrup-12-Ounce-Glass-Bottles/dp/B001EPPQFO
Is there a crisis in the Chinese leadership?
http://www.businessinsider.com.au/xi-jinping-faces-internal-challenge-2…
I got out of BHP, Boral Caltex Australia and Rio Tinto starting in January , and had exited fully by July .
Just in time it seems , except I don't know where to put the money now and my broker says money market or Bonds .
I don't like that idea , maybe the plain old ANZ bank short term fixed deposit is a good place for now
For future reference. It all depends on how the PROC reacts to stem the tide of market sentiment.
http://www.investopedia.com/stock-analysis/cotd/vxx20120626.aspx
have to laugh at this: the people who comment seem to have a firmer grasp on reality than the business editor of the main chatterati outlet.....
.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115…
That link didn't have any comments so I assume you mean this one. Good reading indeed.
http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11502…
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