90 seconds at 9 am: Oil, gold fall

90 seconds at 9 am: Oil and gold fall; dairy up; G20 talks tough on currencies but does nothing; NZ$1 = US$0.844, TWI = 76.8

18th Feb 13, 8:43am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news that basic commodities like oil and gold have taken quite a tumble over the weekend, and currency policy is in focus at high-level international meetings of governments.

Oil fell from almost US$98/barrel on Friday to nearly US$95 earlier today following disappointing US and euro data.. Gold fell below US$1,600/oz in late trade over the weekend although recovered to just above that mark.

In contrast, the latest readings for dairy prices on Friday showed a extension of the rising trends we have seen since July last year, rising in both US$ and NZ$.

The business media is currently somewhat obsessed with talk of 'currency wars'. G20 finance ministers sharpened their criticism of governments trying to influence exchange rates as they sought to dampen the prospects of a global currency war, but they stopped short of singling out Japan for criticism. The G20 is more focused on this than the G7 mainly because the G7 are taking the actions many in the G20 object to. Most of the rhetoric has been that massive QE is a deliberate currency devaluation to get an export advantage over others, and is seen as a zero-sum game.

But others are pointing out that far from being zero-sum, QE has a positive-sum outcome. While commodity producers may suffer as their assets get caught up in deflation, QE is the best way to raise employment and build demand for everyone.

In China, retail sales during the week-long Lunar New Year festival rose at the slowest pace in four years as a crackdown on extravagant spending by officials and state-owned companies limited outlays on food and drink. It is a stark reminder just how widespread such activity is in China. One thing the Chinese are doing more of in their Lunar New Year holiday is international travel, and we are seeing many more of them here.

Today is Presidents Day in the US and markets will be quieter than normal today and tomorrow.

The kiwi dollar starts today within its recent narrow range at 84.4 USc, 82.0 AUc, and the TWI is at 76.8.

No chart with that title exists.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

8 Comments

by Andy Rodgers | 18th Feb 13, 9:11am 1361131901

"QE is the best way to raise employment and build demand for everyone."

If money printing is the solution to the current financial problems, then every Government could just print itself to financial health.

by steven | 18th Feb 13, 10:01am 1361134861

Andy, the world isnt so simplistic, so why reject it as such? The Austrian economic model is frankly a load of poo, I mean just where after 4 years is the hypre-inflation? no where. On top of that gold is dropping, while I pay no attention to gold's short term price change you have to wonder why if there is a clear many month trend (its been dropping since Oct.).

In the situation of a zero bound trap and when you have the OCR at 0.25%, keynesian economics say that Govn's have to step in and spend where private ppl and companies are not OR a serious recession or even a Great Depression results. This model however is only proven in specific circumstances, the one we are in now. When its been used to generate employment is been an utter failure and yes we got inflation.

Except with an OCR of 2.5% NZ isnt in it so should NOT print...

What has caused the problems? well the quasi-austrian/monetary/rand economic model Govns have followed for 30~40 years. Looking at the mess we are in, the "free market" test has been an abject failure, now we'll take another 10 to 20 years to recover.

regards

by Banksterbasher | 18th Feb 13, 10:35am 1361136945

A couple of points steven, the wizards that pull the strings of power are in no way austrian! If they were we would in the last 4 decades there would have been attempts to of balance the budget at some point, allowed the market to set interest rates, and pulled the banks back from creating as much new credit as they did.

To be fair, absence of hyperinflation at this point dosen't disprove Austrian theory. Austrians believe with such a long and sustained abuse of the $ and without further restraint, at some point collective confidence will be lost in the $. What do you think would happen if the $ became the fear trade?

Btw, what free market?

by steven | 19th Feb 13, 8:55am 1361217336

Ah well I guess we could split hairs....maybe quasi-austrian then. Certainly when you look at the drive to balance budgets when right now that would be a bad idea (as per keynes) then yes its in the "poo" IMHO.

NB Clinton I think actually balanced the budget.....

Lets look at the chief financial/economic architect of this mess Alan Greespan, a libertaerian/austrian/randist. Who then in order to stop the corrections (recessions) from his freedom of markets employed quasi-keynesian techniques. The point is in doing that he should have corrected the cause, he didnt he just can kicked.

"long and sustained" abuse, well so does Keynes and minsky and monetary.

To be fair, uh no...we have been in the zero trap for 4 years which is well discussed by Keynes complete with "fix", trouble is we have not done the fix. After 4 years of austerity and austrian economics drive, (now we could argue that ab it but the overall thrust us to "balance the budget" which correct me if Im wrong the Austrian view....it certianly isnt the Keynes view when in the zero bound trap (which Im not aware austrian economics even mentions?)

Now I will conceed that when Keynes wrote his solution he did qualify it with (paraphrase) we have enough resources to get out of this (Great Depression) this time we dont however...

"collective confidence" oh the confidence fairy argument....well commented on elsewhere.

"what free market" effectively the market has been made more and more free for the last 40 years and its ended in this huge abuse and mess. Yet there are still large numbers of ppl who want to make it even freer...honestly for me thats an oxy moron....making it freer will just allow even further abuse...

Take a step back but for me such systems are there for society, and that society has to include virtually everyone. So just like totalitarian markets are logical "left" extremes and have failed, so have free markets of teh etxreme right....

Somewhere in between is a fair and equitable balance, that needs to be restored.

regards

by meh | 18th Feb 13, 5:49pm 1361162962

All economic models are poo IMHO, especially when central banks and govts try to manipulate the "free market". Even the idea of a free market is poo and has to be regulated to some point to prevent monopolies. duopolies, cartels etc, and exploitation of natural and human capital/resources.

The fact that civilisation revolves around "economies" and the monetary/financial system and we constantly bicker/debate about what tinkering and manipulation of the current system needs to be done "grow" instead of questioning the very system that has been created just shows how brainwashed and deluded the masses are.

by steven | 19th Feb 13, 9:04am 1361217884

Yep, well said.

regards

by starfish1 | 18th Feb 13, 10:06am 1361135165

It will take another 5- 10 years for a complete collapse of the financial system. Any drop in oil and gold will be good buying accept for countries like NZ as our currency will be even stronger against the dollar.

by steven | 18th Feb 13, 10:47am 1361137644

I dont think the financial systems will collapse totally for ever. It will un-ravel to a simpler, local model, yes.

NB How do you own physical oil? I mean gold is easy and makes some sense.

The US is seen as a safe haven so in large and bad events ppl are expected to run to the USD deserting currencies like the NZD...

Also and this is the kicker, like Ireland we are heavily over-invested in bubble property, when that bursts our economy will be trashed. If our Govn does an Ireland and steps in to stop our banks closing our dollar will be worthless.

So dont think NZ looks so rosy IMHO...

regards