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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

Posted in News Updated
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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)

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24 Comments

 0.75% OCR  ??? - again the

 0.75% OCR  ??? - again the good old savers are penalised by a majority of Kiwis, who cannot handle money properly.

..... you're referring to the

..... you're referring to the government there , Walter ? .....
 
Agree with you on that .... think our politicians must've been to " Richmastery " seminars or summit .....

Agreed. There will be next to

Agreed. There will be next to no stimulation of new business or growth, it will be cheap credit spent on imported goods or extended mortgages and a resultant increase of existing house prices. Household debt continues to increase until one day the interest payments can't be met.....

Interesting 90 at 9 in a

Interesting 90 at 9 in a strategic way.
Gold drops, does that mean ppl are finally realising its not inflation we face but deflation? (finally?)
OCR at 0.75%, yes I think thats where is should be myself.....certainly way lower than 2.5%.  With CPI let alone core at 0.9% but councils typically rising rates by 4 to 6% that means other sectors must be deflating significantly to compensate to get 0.9% overall.
Funny of course as the banks try to get us to fix....6% is starting to look awfully high.....I wonder if punters can sue...pity we dont allow class actions, I think we should....sue them for bad advice.
Sales down, wow what a surprise....decimate jobs and cripple ppl with high fuel costs, healthcosts, neg equity a poor medium and long term outlook and shock horror they go catatonic...
Hows that dead cat bounce in the share market looking I wonder GBH....
regards
 
 

The interesting question is:

The interesting question is: What will happen when/if that '4 trillion' got spent ?
 
I suggest that there isn't the physical 'stuff' there to assuage that (at currently-understood 'value') so it will have to dissipate in inflated values of stuff that does exist.
 
Bubble-time, here we come

Lots of Qs around it. Romney

Lots of Qs around it.
Romney wants to give US corps a tax break so that they can bring it home......Ok....whatever.
For asset purchases, sure lets spend that, but it doesnt alter the fact that the returns dont justify the present valuations let alone the inflated ones brought about by such "auctions". 
On top of that of course those revenues and profits are based on a fossil fueled economy....so the returns will be actually even lower in the future. So really we are looking at massive losses as the money paid for "assets" can never be returned as income....never, ever....unless they are lucky enough to find a bigger fool and I cant see that....not unless its Govns....god I hope not.
So the Q is does this bidding flow through into (say food) prices as you suggest ie inflation for you and I.....I cant see how it does myself.....I'd contend that its more likely to cause an implosion of the share market....sure OK bubble time, but really tahts bye bye our pensions and the rich's "wealth"
vapourware at its finest IMHO.
regards
 

Only in Ostralia : After only

Only in Ostralia : After only 4 months , the finance minister's budget is shot to hell , and he's seeking remedial actions in his " mid-year review " ..... so Swannie has decided that second and third babies are only worth 60 % of a first baby , and he's cut the universal baby bonus from $A 5000 , to $A 3000 for sprogs 2 and 3 .... ah , universal middleclass welfare is such a wonderful political foot-ball ...
 
..... also , and this has got business owners sorely pissed off , Wayne Swan has decided that all companies with turn-over of $A 1 billion or more per year , will have to do the accounts monthly , not quarterly , from now on , and send their " fair-share " of tax to the ATO 12 times per annum ..... one can see how the supermarket operators are quickly going to pass this extra burden onto shoppers in the form of higher prices !

Interesting tactical shift

Interesting tactical shift from the rabid right....no longer claim that such things will damage the rich's ability to provide jobs but will actually hurt joe blog's pocket in the super market.
You assume supermarkets will be able to pass on costs, everything points to, no they wont be able to, consumers cant pay.
Plus of course even if that happens then its an alternative to having to raise PAYE taxes, that will hurt no ifs or buts.
 
 

steven: Rabid Right? This is

steven: Rabid Right? This is Labour doing this. The Radical Left.

Muldoon's

Muldoon's "cold-hand-from-the-grave" reaches out yet again.
 
Muldoon introduced "provisional-tax" some time in the 1970's. In 2001 when Australia introduced (copied) GST it also introduced at the same PAYG (pay as you go) quarterley provisional tax payments. They have now sped that up to monthly. Thanks Muldoon.

Yep - I remember Muldoon's

Yep - I remember Muldoon's words "Just this once we need to bring in self employed tax in advance".
 
These days if you estimate incorrectly they almost fling you in jail
 
Thanks Muldoon!

yes, Swan is painful, but Joe

yes, Swan is painful, but Joe Hockey is even worse! Hockey can hardly string a coherent sentence together, and criticising the cut in the baby bonus was disingenious given he has been ranting on recently about reducing entitlements
can't escape incompetent, scheming and downright dishonest MPs wherever you go!!!!

That sadly seems to be very

That sadly seems to be very true.
regards

..... had Wayne Swan decided

..... had Wayne Swan decided to attack negative gearing , he'd have saved $A 5 billion from the government's budget , annually ...
 
As one economist noted , investors' using borrowed money typically purchase established houses , so " ring fencing " interest payments from personal income would have negligible effect on the house building industry .
 
.... Hawke & Keating banned negative gearing for two years ( 1985-87 ) with no discernable rise in rental prices nor in house prices .... they re-instated negative gearing just in time to win the next election ...

Not all of us are struggling

The alternatives to

The alternatives to petrodollars - via ZH of course.
 
The money shot:
 
"And there you have it: a perfectly counterparty free system, in which a transaction is done, and no traces are left behind. More importantly, this is the blueprint for the future, as more and more countries evade the subjugation of the petrodollar regime so ubiquitous for the past century, and which is slowly but surely being shifted to benefit those countries who are not insolvent, and who actually produce things needed by the rest of the world."
 
Well, we do have Gold in Them Thar Hills.....

The economy is absolutely

The economy is absolutely loaded with inflation pressure and stimulus just waiting to fire.
 
There is no way a sane central banker will lower our interest rates (which of course does mean nothing as Bollard was clearly insane in both 2003 and 2008).
 
With billions in insurance money to be spent, with house building looking attractive again after 5 years of malaise, it really doesn't matter what our manufacturers or exporters are doing - and well ... they aren't in dire straits anyway.
 
Steady as she goes is probably the most likely scenario.
 
And what ever happened to Hickey Hikey - whenever the stockmarket showed a little strength or consumers peaked into their wallets - there he was ranting about 9% interest rates by 2011, ah ... yeah, that worked out well!
 
My view always has been flat for a good number of years then off we go.  The world hasn't ended (although it has changed), we had a contraction far greater than official figures show (thanks to them discounting the effects of the earthquakes) and we are likely to see far greater expansion than predicted.
 
All that is needed is to get the country back on track.  Firstly by fixing the ballsup in Christchurch leadership (Gerry and Roger both need fixed) and then fixing the ballsup in housing (Bill E and JK both need fixed for good measure too).

I suppose there's no way to

I suppose there's no way to predict where those billions of insurance dollars will be spent though? with record level exodus to Oz, the "pressure" may not exist in NZ?
Didn't realise house building was looking attractive yet... an interest rate drop would make it pretty though

Very good point.

Very good point. midgetk.
 
Housing is generally regarded as an illiquid investment - hard to sell quickly for an acceptable price/return.
 
But the effect of buying up red-zoned areas (Gummint $) and paying out for replacement (insurance $) has suddenly (and temporarily, I might add) made Housing of certain dispositions, in certain areas, a much more liquid investment.
 
So where to spend that dosh now sitting in your until-lately-sad-looking bank account?
 
Where, indeed?
 
There's a well-known dynamic in software:  if the supporter of the incumbent application presses too hard or too unsubtly for the Upgrade that will Fix all yer Problems, the customer will simply wander out into the market and say 'What can ye sell me, folks?'
 
So with the cashed-up denizens of Christchurch, the whole world beckons.  Where indeed will that luvverly pile of pesos be spent?
 
What can ye sell me, folks????

A campervan and a

A campervan and a forest.
 
Freedom camp around the country before holidaying on the south coast of France for a year or two - return and build your own log cabin.  Store the balance in a hollowed out tree.
 
 

We got our cat fixed - not a

We got our cat fixed - not a great deal of behavioural change - and JK's already been done (announced at one of his more amusing press conferences - or was it in Parliament when expressing unconditional love for Bronnie and Moonbeam.. I can't recall) - anyway, not sure that'll help if indeed the other's haven't been done yet.
 
 
 
 
 
 
 

dead right - thats what I

dead right - thats what I saw on the WINZ kiosk too

thanks for the heads up

thanks for the heads up crystalball-gazing-banker-man Grant :)