Here's my summary of the key issues overnight that affect New Zealand, with news of a bounce in Chinese equity markets.
Share prices in China rose in trading yesterday after a series of government measures appeared to have their intended effect. But many analysts are warning that markets could well have further to fall because the valuations of many small companies are still too high. The Shanghai market is still 15% above its level at the start of the year, despite the recent carnage.
In Washington, a senior Fed official pressed the eight large American financial institutions to shrink. "As standards for systemically important firms tighten", he said they will come to realise "it's in the best interests of their stakeholders" for them to get smaller. Slowly but surely the regulatory vice may be closing on 'too-big-to-fail' banks.
Those same banks are expected to report poor second-quarter results next week, after conditions turned unfavourable for bond traders recently. In fact, things could get tougher for them as analysts see bond markets complacent over the threats rising rates pose to investors. The bite has already started.
In staying the US, the level of jobless claims last week rose to their highest level since February, suggesting some slowdown in American labour markets.
In Australia, their job market looks to have stabilised for now. But some economists still see risks of a rise in their unemployment rate later in the year.
Overnight, the IMF revised down its latest forecasts for economic growth, saying things are slowing in emerging markets, but picking up in the advanced economies. They are bullish on prospects for the US, and say Greece will have little impact on Europe. They are also not worried so about China, despite the recent share market volatility. Still, their overall expectations of expansion are their weakest since the GFC.
Overnight in Europe and Greece, there was only more hot air.
In New York the UST 10yr yield benchmark recovered much of the prior day's declines, rising to 2.27%. Locally our swap rates were unchanged yesterday, but will likely rise today following Wall Street's signals.
Oil markets are holding their lower levels today. The US benchmark price now just under US$53/barrel, and Brent crude is just under US$59/barrel.
The gold price is also holding its recent low, now at US$1,160/oz.
The Kiwi dollar opens today marginally firmer against the US dollar at 67.2 US¢, at 90.4 AU¢, and at 61.1 euro cents. The TWI-5 is at 71.7.
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 today is by following our Economic Calendar here »
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11 Comments
Germany finally concedes that Greece needs a debt haircut
what about spain Italy Ireland
http://www.reuters.com/article/2015/07/09/eurozone-greece-debt-schaeubl…
Greece already had a debt haircut, now it will have another.. And later another until they realize that it's not a problem of not wanting to pay but a problem of not being able to pay.
Creditors will have to agree to link repayment with GDP growth if they want to get money back and EU will have to start protecting the interest of a union of countries rather than a union of creditors.
Spain and Italy must go next.
I know Spanish situation very well and the situation is unsustainable.
For 1 Euro of growth it requires 7.3 Euro of debt.
In only 3 years the Popular Party government (something like National here in NZ) has increased the debt more than in the last 33 years. Yet some media call it recovery..
There is no recovery in Europe, mediterrean countries go towards collapse and if the situation hasn't exploded yet is because ECB has been extremely "generous" lending invented money to banks so banks could buy public debt (ECB cannot lend directly governments) while deleveraging. It's all a nonsense and it only takes the risk premium to increase due to a shake in Greece to bring it all down.
But the big bomb is France. Keep an eye on France.
The pedant in me can't resist pointing out it's the 30 year anniversary. Nevertheless most of us have presumably moved on. It does seem the French have tried hard to keep the Greeks in the Euro, and that seems well intentioned, even if in my view a Grexit may have been the better medium term option for Greece itself.
and its not just a problem of being able to pay - Greece, Spain, Portugal, Italy and a few others - have all massaged their figures to be in or stay in the euro - whilst spending way more than they earn and borrowing huge amounts they cannot hope to pay back - and probably never intended to.
If Greece does get forced out -- there will be some very very nervous countries in Europe - and a possible grand contagion.
All of these countries appear to have poor work ethics - and terrible track records in productivity - so its hardly surprising that they have failed to compete in a global marketplace -
Not likely to get better until someone applies an only spend what you earn solution - and given that after all the massive cuts they have already made - and the next 12 billion they are promising they will still not be in surplus - the pain will only get greater for those countries
And yes - France with its 35 hour week - and still French banks have the largest amount of exposure of any country to greek Debt!
If Greece gets forced out the Euro won't last even a year. Imagine the lack of confidence in the Euro as a currency, think of how long would it take for Spain, Italy or Portugal to follow the same path (and Greek economy is too small compared to Spain or Italy for example). And imagine that Greece does better outside of the Euro than within it (and it could happen).
I personally don't see Germany allowing Greece to get out. It's Germany the country most interested in keeping the Euro alive.
Have a look at this graph about Germany/Italy,Spain and France current account since the Euro.
http://www.elconfidencial.com/archivos/ec/201112227grafico1.jpg
The surplus in Germany is huge, and the deficit in Spain Italy and France is very evident.
Now about competitiveness have a look at this graph that compares Spain with the rest of the countries since year 2000.
http://www.elconfidencial.com/archivos/ec/2011122280grafico3.jpg
There is no lack of competitiveness between Spain, Italy and Germany (however France does loose)
The common mistake to find an answer on this was to think that salaries were the problem. But the truth is that what has happened is that German companies have done much better than the other countries because of their strong investment in I+D and opening new markets at the expenses of foreign companies.
However the measures for southern Europe have been decreasing salaries and killing productive investment. That has been the mistake.
The EU policies (Germany policies) have been wrong and have made the situation worse in southern countries. It's no surprise that nothing done so far has helped. The only result is more debt. And everybody knows that this debt cannot be paid. Ever.
Euro has been a problem since the beginning, only now we see the consequences.
Also let's remember that the industry in Spain or Greece was seriously damaged when joining Euro. Greece and Spain were very sophisticated in navy industry, clothes industry. But all the levies/concessions were removed, the industry was sacrificed in exchange of cheap credit from German and French banks.
Funny fact, EU never allowed Chinese cars to enter the European market. No surprise German industry didn't suffer the way southern industries did.
Now all the plans designed in Europe are meant to pay creditors, not to help industry or recover productive investment.
There is always the Russian option
http://www.forbes.com/sites/kenrapoza/2015/06/29/russia-cant-save-greec…
I want to repeat what I wrote last night. Margin calls and restrictions on selling in China will force Chinese wealth funds and other major players in that market to sell wherever they can around the world. The Greek tragedy playing out in Europe does not help. It may help Treasuries in the short run, but stocks remain extremely vulnerable.
China and the world will learn that it cannot insulate itself from its insane bubble promoting policies by forbidding selling. It's a big world, and the big China players have access to it. China's markets are imploding and could take the rest of the world down with them. We got a taste of what happens when Chinese wealth funds face a cash squeeze and can't sell at home in June of 2013. That was a tiny taste. This time follows an epic drunken bacchanalian feast of margin and mindless speculation. With Shankhigh virtually shut down, Tokyo, New York, and London will be the vomitoriums.
Lee Adler
a series of government measures makes it sound usual
china embraces the market
Here is a brief sample of some of the measures the Chinese government and the PBOC have unleashed in just the past ten days to prop up the crashing market include:
1 a ban on major shareholders, corporate executives, directors from selling stock for 6 months
freezing more than half (1400 at last count per Bloomberg) of the listed companies from trading,
2 blocking fund redemptions, forcing companies to invest in the market,
3 halting IPOs,
4 reducing equity transaction fees,
5 providing daily bailouts to the margin lending authority,
6 reducing margin requirements,
7 boosting buybacks
8 endless propaganda by Beijing Bob.
http://www.zerohedge.com/news/2015-07-09/china-soars-most-2009-after-go…
market
ˈmɑːkɪt/
noun
noun: market; plural noun: markets
1. a regular gathering of people for the purchase and sale of provisions, livestock, and other commodities.
or
The government steps in, ploughing billions of dollars into the hands of stockbrokers to bail out customers that borrowed to buy shares. And when that doesn't work, it just halts share trading in almost half the country's listed companies.
It is bizarre to contemplate, but that is precisely what is going on in China this week.
http://www.smh.com.au/business/comment-and-analysis/the-chinese-stock-m…
think of other markets that have been embraced?
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