Here's my summary of the key issues from overnight that affect New Zealand, with news from Europe today.
In Europe, the ECB has begun its long-awaited bond buying plan, lifting the price of government debt and upping the pressure on private investors to take on greater risks in search of returns. Yields are falling in Europe.
The head of euro zone finance ministers urged Greece on Monday to "stop wasting time" and buckle down to serious talks on implementing a reform program to secure urgently needed fresh funds from its international creditors.
German factory output rose but exports fell by the largest amount in five months in January, dropping more than forecast and putting a slight damper on the outlook for Europe's largest economy, though economists said the weakening euro and cheaper oil would help in the months ahead.
In Australia, former Treasurer Paul Keating has slammed the idea of dipping into retirement savings for a first home purchase. He says its a bad idea, "certainly not an innovation and is not responsible enough even to be considered a thought bubble". Consider yourself 'told'.
If you have a few minutes today, this FT piece is worth a read - about what Fed members think of Chinese data and Chinese policy positions.
The UST 10yr yields had a -5 bps correction in New York earlier today and are now at 2.20%. Local wholesale rates raced higher yesterday and steepened sharply. But going against this rising trend is local minnow bank SBS who this morning announced a 'special' 4.99% five year fixed home loan rate. If wholesale rates keep rising, it probably won't be in the market long at that rate.
The crude oil price was fairly stable overnight and is now just on US$50/barrel and the Brent crude price is now at US$59/barrel.
The gold price is also basically unchanged at US$1,166/oz.
The New Zealand dollar starts today holding at its new lower level against the US dollar at 73.6 US¢, at 95.5 AU¢, and the TWI is down to 78.3.
If you want to catch up with all the local changes yesterday, 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 Qs are and not one Ive seen answered are,
a) what (if any) are the side effects of a (lot) lower OCR? and are there ways to mitigate them? One is the supposition that people will borrow more, but see b).
b) If the OCR is lowered will it matter? When banks say they hide behind the OCR, what happens when they can no longer do so, but their wholesale rates are then too "high"?
I suspect JK wants a) some inflation to cancel some of the debt but hopefully b) he sees the risk of deflation and it becoming in-baked as a risk to his Govn. Since these statements are in the public domain I wonder how long Wheeler has.
In fairness of course JK's govn could and should be acting as well. If he cut incomers by 50% and banned foreign non-resident ownership of residential properties he could propbably buy some considerable time.
I suspect JK wants a) some inflation to cancel some of the debt but hopefully b) he sees the risk of deflation and it becoming in-baked as a risk to his Govn. Since these statements are in the public domain I wonder how long Wheeler has.
Debt default comes in many flavours:
A sovereign can inflate away debt if the average interest rate on the debt falls below the growth in nominal GDP. (It doesn’t matter whether it’s volume growth or inflation driving GDP.) It's called covert default. Source.
Liquidation of government debt - mandatory reading
Latest NZ Nominal Ann. GDPE Growth: ~7.62%
Current NZ Government Debt Average Interest Rate: ~4.97%
Everyone is insolvent,
If you have a few minutes today, this FT piece is worth a read - about what Fed members think of Chinese data and Chinese policy positions.
Maybe the Fed should restrict it's deliberations to benefit domestic cohorts?
The transformation of the American Dream, most broadly manifested in popular folklore as the aspiration of the US middle-class to own a home (even if it means agreeing to a 30-year loan with one's friendly neighborhood TBTF bank), into the American Nightmare, in which an entire generation (the Millennials) is locked out of purchashing a home due to over $1 trillion in student loans hanging over every financial decision, an abysmal jobs market (for everyone but college educated "waiters and bartenders" whose hiring is on a tear), and banks' unwillingness to lend money to anyone that can fog a mirror, and forcing millions of Americans to rent instead of buy, has been duly documented here before. Read more
So do you take zerohedge seriously or just read it for its giggle factor?
The debt and lack of good jobs etc is right on though. Worse these encumbrances doesnt even take into account a shrinking global GDP that will occur when the oil output drops per day.
http://www.amazon.com/The-Impending-World-Energy-Mess/dp/1926837118
So as oil output falls at say 2~4% per annum so will GDP 9roughly unity). Coming to a world near you in but a few years. Meanwhile we can all be rich working in the services industry, never mind its just churn, or being rentier Landlords, bound to end well, "let them eat cake".
Do Hirsch' energy resource predictions stack up? He called US natural gas already peaking in 2005 at 70 tcf, today it's 90 tcf and the EIA have it booming out past 2040+ at roughly double the production of his 2005 geological "peak".
"U.S. natural gas production has peaked and moved into geologically controlled decline."
I guess he never took ingenuity into account.
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