Here's my summary of the key issues from over the weekend that affect New Zealand, with important news from China.
A few hours ago China's central bank cut interest rates for the second time this year and the third in six months, amid a continuing economic slowdown.
"China's economy is still facing relatively big downward pressure," the PBOC said.
It lowered its benchmark rate one year lending rate by 25 basis points to 5.1%, saying the move was aimed at boosting development.
The cut has come after weaker-than-expected April trade and inflation data. In fact, with inflation at 1.5% their new lower benchmark deposit rate of 2.25% is still showing a positive real return for Chinese savers. And in the detail this 'cut' came with more flexibility on what banks can pay actually depositors, a switch that could create a drag on how fast rates really fall.
All may not be so rosy in India either. The Indian currency weakened to a 20-month low against the US dollar at the end of last week as foreign investors pulled funds out of the country. There is increasing concern that disappointing economic policy and rising oil prices could hurt growth in Asia’s third-largest economy. The Modi miracle is still just a wish.
In the US, American job growth bounced back up in April and their unemployment rate dropped to a seven-year low of 5.4%, suggesting underlying strength in their economy after a tepid first quarter that could keep alive prospects for a Fed rate hike later this year.
In Europe, tomorrow night is a key point in the current Greek debt saga. The Greeks need to pay the IMF €770 mln and there are reports that the Greek governments attempts to corral many Greek institutions to hand over their 'spare' cash is facing stiff resistance. The Athens government itself does not have the funds and whether it can come up with them will be a close run thing. In the meantime, it is boosting their public payrolls.
Across the Tasman, all eyes are on the next budget from the Australian Federal government. One thing that will be closely watched will be how they respond to profit-shifting by multi-national companies, and whether they will bring in any new measures to protect their tax base from international e-commerce - a 'Google-tax'. New Zealand is very likely to follow any Australian initiatives.
On Wednesday, the RBNZ will deliver its assessment of New Zealand financial stability.
In New York, the UST 10yr benchmark yield gave up quite a bit of its gains and is now at 2.14%, and that is despite the relatively good employment data. Basically the bond market's doubts about a 2015 rate hike rose.
The US oil price also fell and is now at US$59/barrel, while Brent crude was lower too at US$65/barrel in Friday's trading. Still-surging supply is undermining price growth.
The gold price is at US$1,187/oz. And readers following the price of copper will have noted a +20% rise in the metal since late January and prospects for the red metal seem improved just as those for iron ore seem to sink.
The New Zealand dollar starts today marginally higher at 74.9 US¢, lower against the Aussie at 94.2 AU¢, and at 66.8 euro cents. The TWI-5 is at 78.2.
If you want to catch up with all the local changes on Friday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here »
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11 Comments
Greece has a mathematical possibility of paying off its debts. Adding debt onto existing debt doesn't work
-2 billion + -1Billion = -3Billion
However if instead of adding to the debt, they multiply the debt, the problem is resolved
-2Billion x -1Billion = +2Quadrillion
Or alternatively they could use quantum physics where the charge of the debt is unknown until it is observed, and the expectation of the observer influences the result. Obviously the Troika is expecting a negative charge on the debt, but if they could just replace the Troika with a more positive observer, the Greeks could discover that there debt is actually a credit.
I don't think you really want interest rates to fall as that would signal poor GDP growth and low returns on investment.
OCR I see as something that follows rather than leads, its a reflection on whats happened in our economy and we could go like Japan with lost decades, decades of no growth in what is essentially a very wealthy country.
(HT Stephen Hulme)
: Asset-based Credit rests on the ongoing inflation in asset prices. It is, after all, a real challenge to leverage an asset declining in value. As was experienced in 2009, faltering asset markets incite a self-reinforcing contraction of Credit and asset values. More generally, a system comprised largely of market-based finance rests upon ever-rising security market prices.
http://creditbubblebulletin.blogspot.com/2015/05/my-weekly-commentary-e…
Asset-based Credit rests on the ongoing inflation in asset prices. It is, after all, a real challenge to leverage an asset declining in value.
The sharp rise in bond volatility over the past week or so is reminiscent of the VaR shocks of October 2014 in US rates and April 2013 in Japanese rates. The common feature of these rate volatility episodes was that there was no clear fundamental trigger. Instead, positions and flows experienced a sharp swing making these VaR episodes appearing more technical and unpredictable in nature. In October 2014, a violent capitulation on short positions at the front-end of the US curve had caused a collapse in UST yields. In April 2013, profittaking in long duration exposures post BoJ's QE announcement caused a sharp rise in JGB yields that started reversing two months after.
What is causing VaR shocks and why are they happening often? We argued before that one of the unintended consequences of QE is a higher frequency of volatility episodes or VaR shocks: investors who target a stable Value-at-Risk, which is the size of their positions times volatility, tend to take larger positions as volatility collapses. The same investors are forced to cut their positions when hit by a shock, triggering self- reinforcing volatility-induced selling.(my emphasis) This, we note, is how QE increases the likelihood of VaR shock. Read more
Fuel Prices
At the current Brent crude price, allowing for our exchange rate, GST and other fuel taxes, the price of 91 petrol should be $1.70 per litre based on the last 15 years average oil company margins. On a drive to Auckland we saw prices up to $2.08/l. The fact that we were able to purchase it in Takanini for $1.80 less our 12 cent Farmlands discount = $1.68 per litre confirms that the $1.70 figure is correct and that generally most people are being ripped off at the more common prices that are getting up to over $2.00.
Alibaba results: What China slowdown?
Is China’s economy really slowing down?
Alibaba just told Wall Street and all the pundits decrying the economic slowdown in China that they were just looking in the wrong place. It was almost as if Jack Ma, the founder and executive chairman of Alibaba, stood at the head of the room and addressed the naysayers claiming China’s economy was about to enter a recession:
“Hello, boys and girls,” he’d say. “The economy is no longer where you’re looking. The economy is over here, ” and he’d be pointing to his mobile device.
The giant Chinese e-commerce site shocked Wall Street Thursday with a 45% surge in revenue for both the fiscal fourth quarter and year ended March 31. For the quarter, revenues jumped to $17.43 billion, compared with $12.03 billion for the same quarter last year. Total sales for fiscal 2015 also leapt 45% to $76.20 billion.
It appears the Chinese love to shop on their smartphones and tablets. Why should they be different from anyone else?
http://atimes.com/2015/05/alibaba-results-what-china-slowdown/
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