Here's my summary of the key events overnight, with news of the New Zealand dollar taking a hit with the Aussie, further to the Reserve Bank of Australia cutting interest rates to a record low.
The RBA cut its the official cash rate by 25bps to 1.75% yesterday, as it prioritised the threat of deflation over high house prices. The cut comes less than a week after a shock drop in core inflation to well below the central bank's 2-3% target band. Most economists expect a second cut before the end of the year.
The question is, how will the RBA's move affect what the RBNZ does when it next reviews rates next month? A number of economists are expecting to see a cut to 2.0%
Australia's 2016 Budget, released last night, shows its Treasury remains upbeat on the economy. It expects households, supported by more jobs and lower petrol prices, will continue to invest and save, and that non-mining investment will pick up. It also forecasts lower inflation over four years, and GDP to grow at 2.5% for the next two years, before picking up to 3%. Reporting a deficit of $37 billion, it has pushed out it expectations for a return to surplus well into the future.
The Budget marks a win for small businesses and companies, which will benefit from tax cuts. High income earners will also benefit from tax cuts, yet changes in superannuation will see them hit hardest. Treasury has taken a hard line against corporate tax evasion, introducing a "Google tax" that will see a 40% penalty tax rate on profits shifted offshore. The Budget's also seen New Zealand residents given a streamlined path to permanent residency.
In other news, there hasn't been much movement at the fortnightly GlobalDairyTrade auction overnight. The index has fallen 1.4% to US$2,203/kgMS, while the price of Whole Milk Powder has increased 0.7% to US$2,175/kgMS. Looking at the results in New Zealand dollar terms, the index has actually risen 0.2%. The weak result during the seasonal low for GDT supply, coupled with the strong NZ dollar, is concerning and will put pressure on Fonterra’s milk price forecast at the end of the month
In New York the benchmark UST 10yr yield has dropped to 1.79%.
The US oil price has also dipped from this time yesterday, to just below US$44/barrel, while Brent is at US$45/barrel.
The gold price has fallen to US$1,287/oz.
The NZ dollar has been treated as collateral damage from the RBA's rate cut. It's fallen nearly a cent over the last 24 hours to 69.2 US¢. Yet with the Aussie dollar taking an even bigger hit against the US, the NZ dollar has strengthened to 92.4 AU¢. It's weakened to 60.1 euro cents, while the TWI-5 index has dropped to 71.9.
We can expect to see the NZ dollar shift with Statistics New Zealand releasing its quarterly unemployment report later today. ANZ believes the figures will paint a reasonably solid picture, with the question being how will the unemployment rate behave following the surprise plunge last quarter to a near seven-year low.
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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15 Comments
The RBA cut its the official cash rate by 25bps to 1.75% yesterday, as it prioritised the threat of deflation over high house prices.
I don't believe so - redistributing wealth to foreign bond traders such as Pimco sucks money out of society today and yet leaves the taxpayer liable to fund future coupon payments that just got capitalised yesterday.
Australian government bonds rose, sending one-year yields to an all-time low, after the central bank cut its benchmark interest rate to a record.
Twelve-month yields declined 15 basis points to 1.747 percent as of 3:57 p.m. in Sydney, according to data compiled by Bloomberg. They fell as far as to 1.744 percent. The previous record was 1.753 percent set last year, the lowest in data going back to 1983. Read more
Score: asset owners, 1, society, nil - who does the RBA really represent? Read more
So in other words, nothing happened.
Or did it? Our beloved leader has made it known that he is planning to misapproriate yet more of our money. Here the sums published by the competition: 49 mio NZD for Key's special Syrian guest quota, 58 mio NZD p.a. for Key's ongoing resettlement program of 750 Muslims (mostly) p.a., 21 mio to refurbish Key's guest house in Mangere. Add Key's anti-patriotism beach towel stunt and we are looking at a whopping 150 mio NZD of misappropriation. The point? He just announced that he wants to extend his taxpayer funded problem importation scheme.
Not worth a mention in a newspaper that goes on about the 20+ mio seeming benefit of Key's buddies'-trust-fund-what-not-scheme to "our" economy?
It is not ok, even in a newspaper with an economic focus, to ignore irrational government policies at this kind of scale. Btw, the presence of certain communities also has a bearing on real estate prices in the affected areas, if some encouragement in that direction is needed.
Exactly - Reporting a deficit of $37 billion, it has pushed out it expectations for a return to surplus well into the future.
Past and present budget management skills reek of government incompetence, unless of course they had outside help?
Moody's suggests as much.
“Despite rising debt levels, the government’s fiscal strength is supported by high debt affordability. However, a slower pace of fiscal consolidation will leave public finances vulnerable to negative shocks, in particular a potential marked downturn in the housing sector and a reversal in currently favorable external financing conditions.” Read more
Yep, the money lenders will get you every time - the road to penury.
AU Banks are scared of a Royal Commission into their activities
CBA, NAB, WBC, BOQ all promptly passed on 25p rate cut, in full
Michael West @MichaelWestBiz
https://twitter.com/MichaelWestBiz/status/727415223972323328
No mention of ANZ
Great (funny) video.
http://www.esquire.com/news-politics/videos/a44531/jimmy-kimmel-sarah-p…
Just F**king watch it.
'Australia's ......Treasury remains upbeat on the economy. It expects households, supported by more jobs and lower petrol prices, will continue to invest and save, and that non-mining investment will pick up. It also forecasts lower inflation over four years ..... Reporting a deficit of $37 billion, it has pushed out it expectations for a return to surplus well into the future.'
'The RBA cut its the official cash rate by 25bps to 1.75% yesterday, as it prioritised the threat of deflation over high house prices'
'War is peace, ignorance is strength, freedom is slavery' and western societies become more Orwellian by the day, as governments and their acolytes become ever more detached from reality. Or maybe it's all just propaganda now.
'A glut of mis-information. This is unacceptable because it leads to wrong policy decisions and has ultimately damaging economic and financial consequences.'
http://crudeoilpeak.info/australian-public-broadcaster-abc-unable-to-lo…
What will RBA policy be when it has dropped the OCR to 0.25%, an average house in Sydney costs A$3 million, and the Australian economy is still going down the drain? ZIRP, and then NIRP?
Ditto NZ.
So we will end up with money that does not even buy us a house to live in. Many people will be able to survive, but will not have a good life in the traditional sense.
What will the reaction to a broken social contract be? Probably social unrest, political upheaval and in the end a reset. Pity the world does not learn anything from history.
The IMF lowered its 2016 global growth forecast for both 2016 and 2017 by 0.2% and 0.1%, respectively. Specifically, it is worried about the drop in oil prices, a sharp economic slowdown in China, rumblings about trade wars and tariffs, disease epidemics, refugees crises, and military conflict.
The Merchandise World Trade Monitor tracks global imports and exports in two measures: by volume and by unit price in US dollars. So far in 2016, world trade is down by 0.4% on a volume basis and down 3.8% in dollar terms.
“Both import and export momentum became more negative in the United States,” said the Merchandise World Trade Monitor.
The latest JPMorgan-Markit global manufacturing purchasing managers index (PMI) showed the weakest quarterly performance in years.
Markit noted that “conditions remained lackluster in the three main industrial regions covered by the survey” and “manufacturing production was near-stagnant in Asia.”
Industrial production was down 2.0% in the month of March. That’s bad enough, but this is the seventh month in a row that it has declined on a year-over-year basis. The US economy has never seen industrial production drop for seven months in a row without being in a recession.
The bad news, however, is that stock prices are sky-high. The S&P 500 is now trading at the highest price-to-sales (PS) and price/earnings-to-growth (PEG) ratios in the history of the stock market.
Tony Sagami
Mauldin Economics
C'mon Bernard - why the silence?
Another episode in the Key-Whitney soap opera
This is how we do business - it is common practice
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116…
It's a real wonder Whitney even has a shingle to hang out
Oh - that's right - he relinquished his law registration
Was he dis-barred?
But JK keeps holding him out as his family lawyer
..the integrity of a laon shark..
"When approached by the Official Assignee, who was probing Mr Nielsen's bankruptcy, Mr Whitney twice failed to respond. Nine months after the initial request, and faced with a threat of summons if he failed to comply voluntarily, Mr Whitney said he had no information.
Justice Wylie, in commenting on the level of disclosure, said: "Whitney did not disclose the existence of the Rosebud Trust to the Official Assignee, notwithstanding the breadth of the initial request in October 2009, the further request in July 2010 and the more pressing demand on 19 August 2010. Nor did he volunteer that [Nielsen and his wife] had been appointed discretionary beneficiaries of that trust."
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