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90 seconds at 9 am: English signals crisis cloud for a generation and eyes mortgage controls; Spanish debt crisis worsens and safe haven yields hit record lows; NZ$ record high vs euro
Here's my summary of the key news over the weekend in 90 seconds at 9 am, including news from the National Party's conference that Prime Minister John Key has announced plans for loyalty bonus shares for retail investors buying shares in the SOE floats, and that Finance Minister Bill English has said the dark cloud of the Global Financial Crisis could hang over the economy for a generation.
Radio NZ reported English said the global economic crisis may not go away for 15-20 years. He was also reported as saying action would be taken to stop banks lending heavily again.
"We don't want to let the banks get carried away with large growth in lending. We have the tools to limit their ability to do that and those tools are in place and can be used," English was quoted as saying.
Meanwhile, the European debt crisis worsened over the weekend. Spanish bond yields and the spreads to Germany yields hit record highs as fears grew the Spanish government would have to ask for a formal bailout to go with the bailout already agreed for its banking system. The spread between the Spanish 10 year bond yield and the Germany 10 year bond yield rose to a record high 613 basis points with the Spanish 10 year bond yield hitting a record and unsustainably high level of 7.32%. The Italian bond yield to German spread rose to 500 basis points for the first time since January. This indicates capital flight from southern Europe to Northern Europe in anticipation of a Euro zone breakup.
This is despite (or perhaps because of) a new austerity plan unveiled earlier this month. It also followed a request from the Valenica state government for a central government bailout and reports over the weekend that six more Spanish regions will ask for bailouts. The central government has set up an 18 billion euro bailout fund for the regional government that is funded by taking money from a lottery fund. See more here from Reuters on growing protests over the weekend.
Greece may also be back in trouble again as Der Spiegel reported the IMF may stop further tranches of aid to Greece as it is missing its current targets. Greece's Prime Minister said over the weekend the heavily indebted nation was in a 'Great Depression', Reuters reported.
Spanish stocks fell 5.8% on Friday and the Dow fell 1% on the worries about the global economy. See more here at Reuters.
The move to take risk off the table saw appetites for 'riskier' assets such as the New Zealand dollar fall vs the US dollar. The Kiwi fell to 79.7 USc in morning trade from almost 80.5 USc this morning.
The shift to safe haven assets saw US Treasury bond yields fall to record lows. The 5 year yield fell to 0.57% and the 10 year yield fell to 1.46%.
However, the weakness of the euro saw the New Zealand dollar rise to a fresh record high over the weekend of 65.9 euro cents. See more here in BNZ's currencies report.