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90 seconds at 9 am: NZIER shadow board split on OCR cuts; Eaqub sees 0.75% OCR possible; US stocks fall on earnings fear; Firms hoard US$4 trln; NZ$ down to 81.2 USc
Here's my summary of the key news overnight in 90 seconds at 9 am, including news the New Zealand Institute of Economic Research's (NZIER) Shadow Reserve Bank board is saying the pressure is growing on the Reserve Bank to cut the Official Cash Rate (OCR) from its record low level of 2.5% as the global economy slows and the New Zealand dollar remains over-valued.
New Reserve Bank Governor Graeme Wheeler is set to deliver his first OCR decision at 9 am tomorrow.
NZIER Economist Shamubeel Eaqub is even saying there is a 5% chance the OCR will be cut in future to 0.75%, which would imply mortgage rates dropping towards 3%. He sees a 45% chance of a cut to 1.25%. See all the Shadow Board's expectations here.
The New Zealand dollar fell to 81.1 USc overnight from 81.6 USc yesterday as expectations build about lower interest rates and slower growth globally.
US stocks were down as much as 1.8% in late trade with the Dow down 240 points on fears about lower corporate earnings. US companies are well into the third quarter reporting season and Bloomberg reports 60% of firms have missed analysts' expectations for sales, although 70% beat expectations for their profits. The Dow eventually closed down 243 points or 1.8%.
Companies are worried about a lack of demand from households who are still mired in debt and struggling to grow their incomes. Many companies are reacting by building up their cash piles, suspending investment plans and cutting staff and costs, thus creating a vicious cycle of cash hoarding and depressed consumer demand.
Grant Thornton reports a slump in business confidence globally and that companies have US$4 trillion of cash hoarded. The confidence survey reports companies want governments to ramp up spending and cut taxes to juice demand in the global economy, although many governments are now mired in austerity plans to try to reduce their deficits and debt loads.
US stocks fell after 3M and Dupont reported weak results and investors focused on uncertain outlooks. See more here at Bloomberg.
Meanwhile, growing expectations about a slowing global economy forcing through deflationary pressures saw the gold price fall a further US$20/oz to US$1,706/oz overnight and the indicator for inflationary fear is down from US$1,793/oz since October 5.
(Updated with Dow closing down)