Here's my summary of the key events overnight that affect New Zealand, with news that huge new Japanese financial stimulus is on the way.
But first up, the US Fed has upgraded its assessment of the American economy reflecting improvements in its recent performance. It said the immediate risks have diminished and that leaves the door open to raise rates later this year, possibly as early as September. It is a Statement where the only issue seems to be the persistence of low inflation holding them back. Jobs, growth and the global background are now being assessed as no current worries.
But a month or two ago, the global worries were an issue, and that showed up in June data released today for durable goods orders.
The US dollar rose and equity markets recovered some earlier losses when the Fed statement was released. Benchmark bond yields didn't react at all.
Now the focus will shift the the RBA next Tuesday. Markets are expecting a cut in their rate then.
In Japan, the Government there is about to announce a huge new fiscal stimulus program, perhaps more than NZ$375 bln in its latest bid to help its domestic economy emerge from deflation. They are expected to increase public expenditures on infrastructure building as well as accelerate efforts to boost farm exports and attract more foreign tourists. This fiscal plan will no doubt put some pressure on the Bank of Japan, who meet tomorrow, to support the Government action with easier monetary policy. It all looks a bit desperate in Japan at the moment from a policy perspective but the country's economy is still actually ticking along ok, even if it is not setting the world on fire.
Back in New York, UST 10yr yields are lower at 1.54% having fallen earlier in today's trading session.
The US benchmark oil price keeps on slipping, today by more than $1 and is now just under US$42/barrel and the Brent benchmark is just under US$43/barrel.
But the gold price is slightly higher, up to US$1,326/oz.
The NZ dollar will start today a little lower from this time yesterday despite a night-session flurry. The Fed induced stronger US dollar has caused the change of tack. It is now just on 70.2 US¢, at 94.4 AU¢, and at 64 euro cents. The TWI-5 index is now at 74.4.
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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17 Comments
Can anyone explain how their derivative exposure alone is the size of global GDP? http://www.zerohedge.com/news/2016-05-24/derivatives-market-about-implo…
The biggest systemic risk in world finance right there!; The euro's achilles heal.
I think it's unbelievable that people continue to buy the FOMC forward guidance - they said they were raising rates in 2010. Why aren't they...
- because $15T in QE on a S&P PE of 24 = $USD360T in phony value to be wiped out,
- because $550T in derivatives are priced on the US 10-year; Black Scholes variable.
- because the real economy worldwide is so weak - broad money velocity at all time lows.
The only reason they may increase rates is to align the crash to the political cycle so next president can be a hero.
Universally business is not obliged to pay it's workers, which is a fundamental, but ignored factor in the deflation story.
Britain has suffered a bigger fall in real wages since the financial crisis than any other advanced country apart from Greece, research shows.A report by the TUC, published on Wednesday, shows that real earnings have declined more than 10% since the credit crunch began in 2007, leaving the UK equal bottom in a league table of wages growth. Read more
Unfortunately, fiscal policy in general has lagged but sensible political change provides hope. Europe's dichotomy of austerity in the south & ECB carrying out monetary experiments stinks.
Re deflation; the evidence shows that as you approach the zero bound & beyond, slashing rates doesn't get people to spend partly because when rates are low, people feel insecure as savings earn nothing, so they save more.
Brace yourself for another six sigma event.
Only if you speculate and buy at a bottom ...
http://www.interest.co.nz/charts/commodities/precious-metals
Always buy gold when it is on sale! but to supercharge returns buy a leveraged miner; - a 4% move in the underlying is equivalent to ~20% move in a good miner as relative to "all in costs" - marginal return over coast scenario. Stay clear of the notional EFT market which is over 100X the underlying so massive counterpart risk & not exchangeable for the real thing.
Generally Gold is a speculative short term play (http://scholar.harvard.edu/feldstein/publications/gold-good-hedge) but with the ECB, FOMC, BOJ fiat policies it is a no brainer. Druckenmiller knows it. Greenspan knows it. JP Morgan knew it. The nixon mistake of 1971 has taken time to digest.
While the media wishes to avoid the subject, durable goods even provide a direct clue as to the overriding economic problem – and it isn’t overseas. The primary source of economic weakness, as if political unrest weren’t enough of a clue, is and has been US consumers. The evidence is found in numerous places across a number of separate data series; the Commerce Department’s durable goods data matches the Federal Reserve’s index for Industrial Production and its consumer goods subcomponent. Global economic weakness starts right here exactly where it “shouldn’t.” That sentence, far more than the one quoted above, explains everything. Read more
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