Here's my summary of the key events over the weekend that affect New Zealand, with news the RBA is warning banks of the risks of their too-high profit targets.
But first, in the US consumer confidence fell for the fourth straight month in April amid growing concerns about weaker economic growth. There was also more confirming data pointing to a manufacturing slowdown, similar to those we reported on Friday.
Washington is also moving to force some sunlight into 'shell company owners'. Additional moves to reveal hidden ownership behind trusts can't be far behind, for the same motivations.
Worldwide and just beneath the surface there is a desperate scramble for yield occurring. NZ sovereign and similar issues (LGFA) are at the margins of this but are definitely gaining in popularity. US Treasuries are also beneficiaries. The underwriters of these huge regular auctions are needing to take less and less as investors from negative interest rate markets pile in aggressively.
Over the weekend China’s central bank relaxed its control over credit-card lending rates, in a move to grow the use of credit cards and encourage consumption. The People’s Bank of China said in a notice published on its website that it would allow banks to offer up to a 30% discount on the credit-card lending rate, which currently stands at 18.5%. It also reminded them that they can’t charge more than that rate on credit-card borrowings. At the same time they raised the limit credit-card holders can withdraw in cash from the country’s ATMs to 10,000 yuan (NZ$2,200) daily, from 2,000 yuan.
Also over the weekend, Indonesia’s central bank said it will change its benchmark policy interest rate. The new benchmark - which is the interest the central bank pays to borrow from commercial lenders and is currently 5.5% - will replace the 12-month reference rate of 6.75%. They were at pains to point out that this doesn't actually represent a change in rate or policy, just an updated benchmark.
And on Friday, the Reserve Bank of Australia warned banks that their return on equity targets - about 15% - encourages poor lending judgment and compromises risk and culture in trying to hit such targets (see p. 39). They say shareholders need to lower their profit expectations to maintain the safety of the banking system. We should note that ROE for these banks is actually just as high in New Zealand.
In New York the benchmark UST 10yr yield is lower today at 1.75%.
The oil price dropped over the weekend. It is now US$40/barrel in the US, while Brent is now at US$43/barrel. As expected the OPEC effort to restrain output has failed and for the reason expected. Rivals Saudi Arabia and Iran can never seem to agree on anything.
The gold price went the other way, up to US$1,234/oz.
And finally, the NZ dollar starts today at 69.2 US¢, at 89.6 AU¢, and at 61.3 euro cents. The TWI-5 index is now at 72.1 and still tracking within the range it has held all year.
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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