Here's my summary of the key events overnight that affect New Zealand, with news Obamacare is hanging on an even thinner thread.
The US House of Representatives has voted 217-213 to pass a Bill repealing Obamacare. But the Republicans still have to get through the Senate to claim victory on their long-standing battle, which would cause millions to lose health insurance.
The Reserve Bank of Australia’s governor has issued a stark warning about household debt, New Zealanders best take note of. Phillip Lowe is more concerned about what might happen to consumer spending, rather than banks’ balance sheets, if property prices fall and interest rates rise.
He says Australian banks are “resilient and soundly capitalised”, so won’t collapse if there’s a severe property market correction. Rather the impact this may have on households’ spending power is the concern.
He says: “Given the high levels of debt and housing prices, relative to incomes, it is likely that some households respond to a future shock to income or housing prices by deciding that they have borrowed too much… An otherwise manageable downturn could be turned into something more serious.”
Asia-Pacific is continuing to lead in the charge in terms of demand for air travel. Passenger traffic numbers among airlines in the region jumped 9% in March compared to March last year. The global increase was 7% according to the International Air Transport Association. It says the uplift has been pushed along by prices falling by around 10% in real terms over the past year.
Could we have a Trans-Pacific Partnership with just five countries? This is an idea the Japanese media says is being floated by negotiators. If the 11 countries currently debating how to form an agreement without the US can’t come to a consensus, those most keen - Japan, New Zealand, Australia, Singapore and Brunei - could join forces.
In New York, the UST 10yr yield has inched up to 2.31%.
The US crude benchmark has sunk more than US$2 overnight to a near six-month low of US$45.40 a barrel. The Brent benchmark has dropped to US$48.25.
The gold price has plummeted by around US$20 to US$1,225/oz.
The New Zealand dollar remain relatively weak at 68.7USc, 92.7 AU¢ and 62.5 euro cents. The TWI-5 index has dropped to 73.4.
If you want to catch up with all the 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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20 Comments
Low Volatility and the Risks of Crowded Trades
https://www.bloomberg.com/view/articles/2017-05-02/low-volatility-and-t…
Japan, New Zealand, Australia, Singapore and Brunei would make a brilliant trade group with real reasons to work together on both economic and strategic levels. I love it. Japan needs resources and food, Australia has the resources and we have the food. Japan is the world's leading machinery manufacturer (in my personal view), and Australia and New Zealand need machinery. Singapore and Brunei are also highly succesfull economically and socially and add strength and diversity. All these countries are developed modern economies with a high standard of living and well developed social institutions. What's not to like? Far better than the TTP which was always going to be dominated by US, and thus unbalanced, ineffective and probably a complete waste of time.
I didn't realise the scale of damage done to Nth Korea in the Korean war, the USA flattened the place.
Actually it was Chinese troops, support the North Koreans who force the allied forces back to where they are now. Today it is openly acknowledged that the Russians had advisers there, but I don't think they put troops en mass into the conflict. They had pilots gaining combat experience though. The US had already decided to stop at the Chinese border. It the war had stopped then the peninsula would be a very different place today. Chinese intervention is what created the mess we have now.
General MacArthur wanted to use nuclear weapons against the North Koreans and possibly Chinese as a direct result of Chinese intervention and UN retreat, but was overruled. Truman also wanted no incursions into Chinese territory.
The Korean War is also the only conflict in which Chinese and New Zealand soldiers have fought against each other.
The Reserve Bank of Australia’s governor has issued a stark warning about household debt, New Zealanders best take note of. Phillip Lowe is more concerned about what might happen to consumer spending, rather than banks’ balance sheets, if property prices fall and interest rates rise.
Not to worry - just a matter of poor private sector choices and their consequences.
Turning now to why the ratios of housing prices and debt to income have risen over time.[2] A central factor is that financial liberalisation and the lower nominal interest rates that came with the lower inflation of the 1990s increased people's ability to borrow. These developments meant that Australians could take out larger and more flexible loans. By and large, we took advantage of this new ability, as we sought to buy the housing we desired.
We could, of course, have used the benefit of lower nominal interest rates in the 1990s and the increased ability to borrow for other purposes. But instead we chose to borrow more for housing and this pushed up the average price of housing given the constraints on the supply side.
Let's hope the socialised costs of these choices doesn't extend beyond below risk adjusted deposit returns for the majority, who never enjoyed the leveraged upside returns.
The increased risk to deposits of rising banking system stress that is now being added to the low interest rate environment, is forcing revision of conventional portfolio management theory. Spreading deposits addresses some of the OBR risk but for larger portfolios it's sometimes not possible to achieve the recommended weighting to fixed interest without accepting some default risk. Offshoring of cash is part of the answer but also not without attendant risk.
Michael Hudson on Steve Keen and debt with obvious implications for us and the Aussies:
Explaining why today’s debt residue has turned the United States, Britain and southern Europe into zombie economies, Steve Keen shows how ignoring debt the blind spot of neoliberal economics – basically the old neoclassical just-pretend view of the world. Its glib mathiness is a gloss for its unscientific “don’t worry about debt” message. Blame for today’s U.S., British and southern European inability to achieve economic recovery thus rests on the economic mainstream and its refusal to recognize that debt matters.
Mainstream models are unable to forecast or explain a depression. That is because depressions are essentially financial in character. The business cycle itself is a financial cycle – that is, a cycle of the buildup and collapse of debt.
http://www.defenddemocracy.press/the-economics-of-the-future-by-michael…
From the "you couldn't make it up" file out of China the newest loan collateral - naked selfies!
"Hundreds of photos and videos of naked women used as collateral for loans on a Chinese online lending service have leaked onto the web, highlighting regulatory problems in the fast-growing peer-to-peer marketplace.........Lenders told female borrowers that if they failed to repay the loans, their nude photos would be sent to their families and friends, whose information was also required for some transactions".
https://www.yahoo.com/news/naked-selfies-used-collateral-chinese-loans-…
It is hard to believe that the world's largest democracy's (and I use that word dubiously) leadership will actually take action that effectively denies health care to a significant portion of their population.
This just goes to show how self-serving, self-entitled and corrupt they have become. One must ask where they think their constituents rights sit amongst their obligations and responsibilities?
The US spends more on health care than any other OECD economy - in absolute terms and on a per capita terms. The US healthcare system is completely dysfunctional to say the less. People in NZ should stop thinking Obamacare is our public health system. Rather it is another clumsy bureaucratic mess built on top of another mess. Obamacare is collapsing as fewer and fewer insurance companies participate.
Precisely.
The US health care (sick care) system is a complete mess with clear implications for the whole concept of the privatisation obsession being rammed down our throats - education, prisons, water supply and so on.
The cost is double comparable countries, lower life expectancy and a constant anxiety to all but the very well off. Obamacare may have bought in cover for a few more but the whole thing was written to maintain the status quo as far as the three headed monster (big business pharma, insurance and medical) were concerned.
A bit like the way the wall street looting operation was left to carry on after the GFC. Change you can believe in! Yeah Right!
I'll take the Australian' banks are resilient and soundly capitalized ' with a grain of salt, and somewhat presumptuous given that the resilience has not yet been tested. I totally agree with his comments , that its the distribution of debt that matters. Auckland is testament to this statement, with average household debt/income stretched over 300 percent way beyond the national metrics, yet even within this metric , the band is further stretched for a number of demographics. However its the comment of the scenario of falling property prices and rising interest rates that truly is the worry. What would lead to such a scenario. As Bill English suggested during the week the NZD at 70USD is about right for Bill. Why is 70 USD suddenly OK What happens if and when the NZD falls to 50 or even 40 USD cents.There is a price for everything, whether it be property or currency, most of the time its an opinion , however the accumulated debt is real .
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