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China factories slow; Greeks get EU's back up; Russia does u-turn; Australia shows intolerance for reform; UST 10yr yields fall; oil and gold jump; NZ$1 = 72.4 USc, TWI = 76

China factories slow; Greeks get EU's back up; Russia does u-turn; Australia shows intolerance for reform; UST 10yr yields fall; oil and gold jump; NZ$1 = 72.4 USc, TWI = 76

Here's my summary of the key issues that affect New Zealand over the weekend with news the Aussies renew their intolerance for change or reform.

But first, China's factory sector unexpectedly shrank for the first time in nearly 2½ years in January and major manufacturers are seeing more softness ahead, an official survey showed and mirrored an earlier survey of mid-sized companies. It also raises expectations that policymakers will take more stimulus action to forestall a sharper slowdown. However, we should also note that their services sector is still expanding quite well.

Staying in China, following last year's spate of food safety issues with dairy products, China moved to register importers. It turns out more than 1,800 have now been granted registration with New Zealand representing a tiny proportion.

In Greece, their radical rhetoric does not seem to be working with its creditors. German Chancellor Merkel ruled out yet another debt writedown for Greece over the weekend, and an ECB member threatened to cut off funding to Greek banks if Athens does not agree to renew its bailout package. The calls for a rollback elsewhere will not be helping. Greece is hoping socialist France will be its big brother friend.

Over the weekend the Russian central bank has done a sudden u-turn, cutting its official interest rate from 17% to 15% just a week or so after it raised them to defend the ruble and tame inflation stoked by international sanctions related to the Ukraine conflict. There is real confusion in Moscow on how policy makers should respond to their crisis, and there seems to be panic in the business community.

Over the weekend, Croatia forgave all the debt owed by its poorest citizens. The NZ$40 mln program will go to those whose incomes were less tha NZ$200 per month.

In Australia, the size of the stunning election result in Queensland on Saturday night has only emphasised that the country has no appetite for economic reform, or any change that might involve a 'cost'. They are becoming the poster-child for can-kicking. And Fairfax have headlined their 2015 Economic Survey, "Australia Adrift".

In New York, benchmark UST 10 year bond yields are at 1.64%, down -10 bps on Friday. It is likely we will see a reactive shift locally when New Zealand swap markets open here.

The oil price rose dramatically at the end of last week, up to US$48/barrel with Brent crude at US$52/barrel. There seemed to be two reasons; an upsurge of ISIL activity near one of Iraq's main oil-producing centers, and a sharp rig count fall in the US, the most since records began in 1987.

Gold rose sharply in late trade on Friday - in fact after the London markets closed and is up to US$1,283/oz. The recent volatility in the gold price sort of suggests markets don't really know how to price it in the current environment.

We start today with the New Zealand dollar holding last week's lower levels. It is at just 72.4 USc, at 93.6 AUc and the TWI is now just under 76.

If you want to catch up with all the changes on Friday we have an update here.

The easiest place to stay up with event risk is by following our Economic Calendar here »

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8 Comments

The EU's 'muddle through' policy is finally bearing fruit.  Thankfully it is financial reform, not neo nazi golden dawn.  It looks as though the Troika has lost all its leverage, its reforms have made the situation worse for Greeks, and not much likelyhood of a turnaround anytime soon.  They have no good options, but it's not hard for them to blame the Troika for the current mess they are in.  The Troika took control of the Greek economy, and are therefore responsible.

 

Things are moving pretty quickly now, and we will be very lucky if we can avoid the fallout.

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The Greek situation is certainly interesting. Who will blink first, the Greeks or the Germans?

The four outcomes that seem theoretically plausible to me:

1) Greece pays the money back in Euros as per the schedule- actually not plausible under the current scenarios.

2) Greece leaves the Euro, specifies a starting exchange rate pre an inevitable massive devaluation, and agrees to the debt based on new Drachmas at the artificial exchange rate. Best outcome for Greece. Bad for Germany.

3) Germany agrees for the ECB to print money on Greece's behalf, with the money being instantly forwarded to the German and other banks that have loaned the money. Banks kept whole, debt somewhat written off in practice. Most likely scenario. The Spanish, Italians and French will want similar responses. Quite a bit of the trillion euros or two to be printed, will in my view go down this channel.

4) Greece sells a lot more assets- basically sells what it still has left to the Germans. No doubt Germany's favourite scenario, but politically unacceptable

It seems to me the Germans have more to lose with a Euro breakup, given it would take away the prime pillar of their artificial competitiveness, so will likely concede some solution that does not involve a Euro break up. They could do without Greece, but Italy/ Spain following would be a disaster for Germany. The Greeks have little left to lose, so why wouldn't they hold out?

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I find this fascinating to watch.

So The greek voter doesnt want 1) or 2).

if 2) happens I assume the Greek banks go toes up and any debt they have with the EU banks is defaulted on as well.  Just how Greece survives this is going to be watchable.

3) Isnt possible in the constitution? besides which it lets off investors scot free, and Greece, others pay for it I can see that going down well.

4) Not viable I suspect.

So in effect having eliminated the first four that leaves............

oh, um...

I know one thing if I was a voter in one of the other 4 piigs and Greece gets away with this I'd be voting out the present Govn as well.

Comes down to human personalities as always I suspect.  I think you are right on the Greeks, they have nothing left really to lose in staying in. The new greek PM has a mandate to act. No, an imperitive really to clear the debt, the only way I can see happening is 2) for Greece to exit.  With an exit the other 4 piigs cannot ask for new terms so will shutup, comes down to swallowing the smallest  amount of doggy doo doo  and who IMHO.

This is way better than TV...

 

 

 

 

 

 

 

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1&4 are off the table, I have always thought Greece has to leave the Euro, their situation is far worse now then when they first attempted to have a referendum.  They don't have any viable options other then being a tourist destination for Europe, and the best way to make that happen is with a drastically lower currency.  They can't pay the debts, they can't cut spending and as for printing money, it should be self evident but it seems not many people get it.

You can't solve a debt crisis with more debt!

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Yep, agree, but the EU had lots of nice handouts and jobs.

They wont leave willingly.

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It looked like things were moving pretty quickly last time and not a lot happened. 

"Troika responsible" dont be silly, they wont pay or be sent to jail..probaly not even a wrist slap let alone job loss.

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I don't expect any legal responsibility, but they have already been tried and found guilty by the Greeks, soon to be joined by the Spainards.

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Kangaroo court then.

Let the  one without guilt throw the first stone,  The Greeks abused the system and are now paying for it.

ditto spain etc, there is no free lunch.

 

 

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