90 seconds at 9 am: Narev 1, politicians 0

Dairy prices stumble, IMF worried about protectionism in the West; India cuts rate; Aussie politicians fire blanks; Vancouver house sales dive; UST 10yr yield climbs to 1.68%; oil up, gold down sharply; NZ$1 = 72 US¢, TWI-5 = 75.4

5th Oct 16, 7:31am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news a bank CEO trounced his inquisitors in Canberra yesterday.

But first, this morning's dairy auction has brought a disappointment - lower prices are back. They were -3% lower in US dollars, -1.5% lower in NZ currency terms. The price weakness was across the board with almost every product type reporting lower returns; WMP was down -3.8%. This stumble was noticed on currency markets, taking 0.3c off the NZD, which was already weakening from a stronger greenback. But stepping back and looking at the overall trend, today's results only represent a minor correction to a rising track.

Rising protectionism, record debt levels and a continuing economic malaise in wealthy countries will drag on global growth next year despite a turnaround in several key emerging markets, the IMF said today in its October edition of its World Economic Outlook. Anti-trade sentiment will limit world growth to just +3.1% this year and +3.7% next year, they forecast. While it is a first-world problem keeping open trade, it is not one they see in emerging markets and developing economies where they actually raised their trade forecasts by +0.4% to +4.1% in 2017.

In India, their central bank has cut its key policy interest rate to 6.25%, a -25 bps reduction to its lowest level for nearly six years, in some encouragement for their economy away from high financial cost burdens.

In Australia, most observers seem to agree that the CBA boss trounced the parliamentarians in their first attempt to grill a bank boss over culture and scandals. The four hour effort showed up the inquisitors are pretty ineffective, including those from opposition parties. Today, bosses from ANZ are in the firing line. Tomorrow it will conclude with the NAB and Westpac CEO. We are live-streaming these hearings.

In Vancouver, their housing market has tipped to one where sales are drying up fast. The compound combination of a series of local (vacancy tax), state (foreign buyer levy) and now Federal government buyer restrictions (closing a tax 'loophole') has spooked buyers completely and sales volumes are down by a third. Price declines are expected to follow. An inability to sell is crimping many locals, a new experience for them.

In New York, the UST 10yr yield has risen again today and is now at 1.68%.

The US benchmark oil price is a little higher too, now at US$49 a barrel, while the Brent benchmark is now just over US$51 a barrel.

The gold price has collapsed today, down more than US$40 in one session, and now at US$1,269/oz. That wipes out four straight months of slow and steady gains.

The New Zealand dollar is lower today on a rising US dollar and the lower dairy prices. It is now at 72 US¢, and on the cross rates it is at 94.6 AU¢, and 64.3 euro cents. The NZ TWI-5 index is now at 75.4.

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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14 Comments

by InfoWars | 5th Oct 16, 7:52am 1475607134

Can someone explain Vancouver to me? Is it collapsing /slowingdown? Or not?

by Baywatch | 5th Oct 16, 8:18am 1475608724

http://www.zerohedge.com/news/2016-10-04/canada-moves-burst-housing-bub…

"As first reported by the Globe and Mail, Ottawa announced it would close a tax loophole that allows non-residents to buy homes and later claim a tax exemption on the sales.

According to the revision, the government will make sure the principal-residence exemption is only available to individuals who reside in Canada in the year the home is purchased, which immediately excludes thousands of "hot money" Chinese tourists who come to Canada simply to park billions in Chinese cash."

Collapsing and they welcome it! Wonder if JK is watching getting nervous? Scratch that he wouldn't give a hoot.

by PocketAces | 5th Oct 16, 8:53am 1475610820

Consider it scratched

by sharetrader | 5th Oct 16, 7:53am 1475607222

gee so you can put in measures to reduce demand who would have thunk, especially listening to all those with a vested interest that scream its only supply

by OnwardsUpwards | 5th Oct 16, 8:44am 1475610255

Vancouver will remove the tax within the next year. Hold me to it.

by PocketAces | 5th Oct 16, 8:52am 1475610764

Demonstrating perfectly what a marvelous thing it is, because, if needed, it can be re-applied in another year after that. You can't do anything with supply that will affect anything as immediately as a tax can.

by Stephen Hulme | 5th Oct 16, 9:07am 1475611632

In India, their central bank has cut its key policy interest rate to 6.25%, a -25 bps reduction to its lowest level for nearly six years, in some encouragement for their economy away from high financial cost burdens.

Hmmmm....

...low nominal interest rates signify "tight" money conditions, or what would be consistent with significant deflationary pressure. It is and remains a fallacy because economists like those at every central bank around the world have decided instead that low rates are only "stimulus."

To correct this view, Friedman pointed out the basic, non-trivial distinction between a liquidity effect and an income effect. Low rates can be stimulative in the short run (the liquidity effect), but over the long run their persistence means something far different. A yield curve is supposed to be upward sloping given the core time value of money and investing. That arises from opportunity cost, meaning the more plentiful the opportunities the greater the time value and the steeper the curve (the income effect). Yield and/or money curves (the eurodollar curve and even the history of the OIS curve) that collapse and remain that way unambiguously demonstrate that "stimulus" deserves only the quotation marks. Read more

From the US to Europe to Asia and back again, asset prices soar while basic economic needs like jobs and incomes are left far behind; looking more like depression than a historic boom period. Central banks, almost exactly four full years after the official end to the Great Recession, are still implementing emergency monetary measures to get the global economy just moving slightly forward. It is a blatant contradiction that is seeping through into the larger consensus the more this price vs. true value disconnect grows. Read more

by scarfie | 5th Oct 16, 9:39am 1475613583

A steeper yield curve can simply be a matter of the maximum extractive value available in the market place(in our case it was unconstrained when the FED took us off the gold standard - plus perhaps the switch to interest rate targeting, but I think the result would have been similar either way). Once it reaches the peak then it is all downhill from there as the cumulative effects kick in. So yes, persistent low rates definitely have meaning outside the orthodox perspective.

by two otherguys | 5th Oct 16, 9:15am 1475612129

Ian Narev - CBA
I watched some of the parliamentary examination of Ian Narev of CBA

He was good. Very clever. Silken performance. Man of a million words. Impressive how he stepped around the issue of staff "selling product"

If he was selling clapped out second hand cars you would have bought one off him and gone home smiling

by scarfie | 5th Oct 16, 9:34am 1475613281

I had the benefit, but in some ways I consider it misfortune, to hear a division head of a half billion dollar company give evidence to the employment tribunal a couple of years ago. Some thing, silky and slippery. The only thing more alarming was the adjudicator being bamboozled by him and failing to see he didn't answer her questions.

by two otherguys | 5th Oct 16, 11:25am 1475619917

Bamboozle and Mumbo-Jumbo

From Stephen Hulme's "read more" in the post below

"MP Thistlethwaite focuses on (CBA's lobbying request) for removing the requirement that financial advisers act in the “best interests” of clients"

In response, Narev argues the uncertainty of what “best interests” is adding to the cost of financial advice.

Deciphering that bit of mumbo-jumbo

Most wealth management divisions of banks are set up to flog the banks own products. Bank's advisors are product floggers. If Advisors were to act in the interests of the client the bank advisors would/could/should be recommending better products provided by other providers and turnover of bank products would decline markedly

You will note that Narev didn't say that, but that's exactly what it means in simple language

by David George | 5th Oct 16, 9:42am 1475613738

The multi million dollar spiv!

by Stephen Hulme | 5th Oct 16, 9:17am 1475612263

Gotta laugh.

Brian Loughnane is consulting for the Commonwealth Bank

Ian Narev has confirmed that the former federal director of the Liberal party, Brian Loughnane, is consulting for the Commonwealth Bank.

Brian Loughnane is not employed by the CBA. It is a matter of common record that he and a number of other people have helped us generally in thinking through how we respond to a number of issues.

Asked whether that included helping the bank avoid a royal commission, Narev said the advice related to “putting the best foot forward for customers and the families that own us”. Read more

LOL - who is he kidding, other than himself?

by Stephen Hulme | 5th Oct 16, 9:47am 1475614075

Oh oh - taper tantrum.

Fresh reminders that central banks may be starting to map their retreat from extraordinary stimulus measures sent a shockwave through markets, roiling bonds, currencies and equities.

Global bonds declined, the euro rebounded from its lows of the day and equities came under renewed pressure after Bloomberg News reported the European Central Bank will likely gradually taper asset purchases as it ends quantitative easing. Officials who asked not to be identified didn’t exclude that such program could still be extended past the current end-date of March 2017 at the full pace of 80 billion euros ($90 billion) a month. Read more

More to come I guess.

“In the ruin of all collapsed booms is to be found the work of men who bought property at prices they knew perfectly well were fictitious, but who were willing to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit. Read more