90 seconds at 9 am

90 seconds at 9 am: Big Aceh quake; big Italian govt bill sale; record low gas prices; Aussies unhappy

12th Apr 12, 8:39am by David Chaston

Here's our summary of the key news overnight in 90 seconds at 9 am, including news that there have been two big events in Asia overnight that rocked the region. North Korea has started fueling a ballistic rocket in preparation for an upcoming test, and more importantly there has been a major quake in Aceh, Indonesia. Fortunately there are no reports of a tsunami there this time, but it was a huge shake - reportedly 8.6.

In Europe, the Italians sold €11 billion of one year bills is a relatively successful auction. Rates rose of course - they yielded 2.8% compared with 1.4% at the previous auction for government stock of this maturity, so that is double - but not as dramatically as was expected and Italian rates are not yet back to the Berlusconi levels. But local market watchers are worried about the trends all the same. German government bond rates fell to record levels; their 10 yr benchmark bond now only yields 1.63%.

Elsewhere, its hard not be be impressed with the fast flow of news about oil and gas discoveries. Apparently in 2012 more new reserves were confirmed in North America than in the Middle East. Similar rises in reserves are being reported in China. All this new supply is having a depressing impact on prices. Natural gas is now priced below US$2 per mBTUs for the first time. That's 90% lower than the 2005 price. Crude prices are stalled. Much of this may have to do with slower economic growth around the world, but it does seem odd given the Iranian embargo.

Things aren't so great in Australia and the gloomy outlook there is prompting a raft of calls for interest rate cuts. The RBA may deliver as early as next month, but a survey out late yesterday reinforced the mood. That Westpac confidence survey revealed that consumers haven't been this negative since July 2008. In what economists called a ''disturbing' development, the survey said almost half of households thought their financial position had worsened in the last year, while only 14% thought they were better off today.

The Aussies are sneezing; lets hope we don't catch their cold.

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12 Comments

by MortgageBelt | 12th Apr 12, 9:15am 1334178906

Australia will cut.

Trouble is RBA is caught between wanting to dampen house prices and wanting to provide some stimulus to domestic economy.

by Stephen Hulme | 12th Apr 12, 9:37am 1334180230

@ MortgageBelt - Australia will cut.

So you keep saying and just as enthusiastically the RBA refuses to confirm your contention.

There maybe a very good reason for the Australian authority's reticence to follow your well trodden but failed policy directive.

The prospect of the US Treasury announcing the issuance of floating rate notes at next months quarterly refunding announcement could well be that reason. Read more.

by Roelof | 12th Apr 12, 10:04am 1334181886

Stephen.. sadly.. RBA and RBNZ probably will cut their rates if things worsen.

Bollard has mentioned that NZ is fortunate...because we have room to play as our OCR is still 2.5% above 0%.

They are stuck in their policy ways. .. Entrenched and dogmatic in their econometric models.

by Stephen Hulme | 12th Apr 12, 10:36am 1334183773

Roelof - I am sure your suspicions about Bollard's actions are correct.

I am equally confident the Renumeration Authority will move right in behind such actions and raise his and his cohorts salaries to compensate for lower interest returns on previous and future outsize emoluments.

And so the vicious circle tightens upon itself - more borrowings followed by lower rates until....... their pensions and certainly others can no longer be found within the confines of the general fund.

by Roelof | 13th Apr 12, 6:44am 1334256289

Stephen.. Yes..from what I have read one of the most profound unintended consequences of extreme low interest rates ..( as well as the destruction of savers)... it the underperformance of pension funds ...leading to massive unfunded liabilities...

This is in the face of the baby boom bubble..

I've got a feeling That Bollard, and cohorts pension packages are so attractive that they will be unaffected..

As far I can see.. the game ends with inflation... We will increase the money supply so much..that it will eventually spill over into the CPI... At that point Central banks will have their pants down...as their primary reason for existing is "price stability".... and I think they might be reluctant to confront inflationary pressures in the face of a sluggish global economy.

by Christov | 12th Apr 12, 10:50am 1334184608

ta for the link ..Steven H........Singh may well become Siren Sing...I'll drop this little extract in and hope to entice others to a damn good read .

So what is a Treasury to do? Well, unfix the fixed portion, or the cash coupon, so that rapid moves in interest rates are absorbed not by the capital loss to keep the yield higher, but by a spike in the variable interest margin over Libor. That way even if the Fed were to lose control of both the long and the short end, capital losses would be minimized, something of absolutely critical value in a society transfixed with capital preservation.

In other words, the market under the guise of the TBAC will provide the instrument, or product, that will be best suited to buffer a surge in interest rates. Ironically, the very act of rolling out this product is thus the alarm bell that higher rates are a-comin'.

by Christov | 12th Apr 12, 9:33am 1334179987

The question that begs an answer David is who bought the Italian 1 year bills...?

not sure if I really want to know though.

by Stephen Hulme | 12th Apr 12, 9:39am 1334180387

Slog says ECB through indirect action ?

by Andy Rodgers | 12th Apr 12, 9:45am 1334180752

"who bought the Italian 1 year bills...?"

It was the European banks, who have recently borrowed 1 trillion euros at 1% for 3 years from the ECB. That's a nice big interest spread for doing nothing. However the banks are praying that these Bonds don't fall in value i.e. interest rates rise. If that happens they will need another bailout from the ECB and it may well be game over if Germany vetos it.

by Christov | 12th Apr 12, 9:49am 1334180979

Thanks Steven H...AndyR.......and so it's still put another log on the fire over at the ECB Jamboree.

by noponies | 12th Apr 12, 6:34pm 1334212449

Ironic watching Bill the Irrigator throwing cold water on the Parental leave bill as something that can't be 'afforded'. No problems affording a lolly scramble for farmers in Canterbury though.

by Wolly | 13th Apr 12, 8:19am 1334261997

"So here we are. Greece is in default. Portugal and Spain are sure to follow. The only action by the ECB is kick the can down the road.

However, every can-kicking exercise adds debt and it is repayment of debt that is impossible in debt deflation cycles.

The current path does not work, and cannot possibly ever work, yet the only strategy of the ECB and the Fed is to do more of the same with greater and greater force"

http://globaleconomicanalysis.blogspot.co.nz/

Very soon now all those studying the BS to achieve their degrees in economics will face a new course of study which they must master if they are to soak themselves on other peoples money working for a parasite...the new study is oh so easy to picture...a twisty winding road with potholes and killer dogs free to roam...and the student with a can and some made in China 'boots' guaranteed to last just one K..... Kick away fools. This is state of the art economics training.