Here's my summary of the key events overnight that affect New Zealand, with news China is wavering on 'reform', choosing 'stability' instead.
But first, American interest rates being kept too low for too long could cause financial instability in future and stronger market expectations for a rate rise are "probably good", said St. Louis Federal Reserve President James Bullard who is a voter on the FOMC.
Meanwhile, the American latest factory PMI reading for May is pretty lackluster. It shows expansion in this sector, but only just. The output component fell for the first time since September 2009.
Meanwhile in Europe this same measure is much more upbeat, even if it did slip to a 16 month low. It is solidly in expansion. Even France pushed back into expansion in May for both factory activity and services.
The Greek parliament has passed their new budget cuts and tax rises two days before a Eurozone meeting expected to unblock much-needed bailout funds worth about NZ$140 bln. The vote was 153 to 145. The struggle now shifts to one between the IMF and Germany. The IMF is insisting on substantial debt relief for Greece; Germany is resisting.
In China, reports are emerging that their central bank has lost interest in letting the market determine the price of its currency. It can't give up control of the process or stomach the risks of the transition. They have opted for 'stability' as their primary focus. The manipulation will continue. 'Reform' is only a word in China, not a policy followed by action.
They may need more 'stability' soon. China's construction of office buildings is running so hot it is far outstripping demand. A severe and painful correction must follow this building binge.
In New York the benchmark UST 10yr yield is basically unchanged at 1.85%. Locally, swap rates rose and flattened yesterday. In fact, the 2-10 rate curve is now its flattest in almost a year. Back in late May 2015 however, wholesale rates were about 100 bps higher than now.
The oil price is a little lower today with the US benchmark just under $48/barrel and the Brent benchmark just over US$48/barrel.
The gold price is also a little lower at US$1,251/oz.
And finally, the NZ dollar will start today unchanged at 67.7 US¢, at 93.7 AU¢, and at 60.3 euro cents. The TWI-5 index is now at 71.6. A remarkable thing about the Kiwi dollar is that it is approaching a year in this general range. No longer can you say it is 'strong' or 'weak' at this level. It is now 'normal' at this level.
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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10 Comments
Its interesting that the Chinese Central Bank don't want to allow the currency to correct downwards . Under normal conditions , a market adjustment downwards would be a good thing , as it generally stimulates exports, and shelters citizens from more pain later
Problems will arise when the market overtakes the Central Bank , the currency is too strong , and its forced to adjust by a much wider margin . The consequent rise in food and transport (fuel) costs may cause social unrest
What if the PBOC is faced with sourcing much needed dollar (eurodollar) funding, which is currently in short supply - by default delivery of such funding to domestic Chinese banks' NY accounts necessitates the offsetting purchase of CNY?
@Ralph , agreed , China is in my view a giant Ponzi scheme , where inventory ( which has not been fully paid for ) is used a collateral for further borrowings .
Chinese debt levels have , in 16 years have multiplied 25 times, whereas in the US they have doubled in the same timeframe.
Its a huge accident waiting to happen , which will make the previous Asian Financial crisis look like a Church fete in comparison
In China, reports are emerging that their central bank has lost interest in letting the market determine the price of its currency. It can't give up control of the process or stomach the risks of the transition.
Did the Fed ever give up control by other means?
Federal Reserve Chairman Ben Bernanke on Monday defended the central bank's aggressive easing of monetary policy, saying while it was aimed at bolstering the U.S. economic recovery, it was helping other countries as well.
The Fed's asset-purchase programs, aimed at keeping long-term borrowing costs down and spurring investment, have been criticized overseas for their adverse impact on emerging market currencies.
But the Fed chief, fresh from a grilling from Congress on the potential domestic risks of his quantitative easing measures, countered the rhetoric about "currency wars," though he did not use the term specifically.
In prepared remarks to a group of academics in London, Bernanke said the integrated nature of the global economy meant the whole world benefits from a sturdier U.S. outlook.
"Because stronger growth in each economy confers beneficial spillovers to trading partners, these policies are not 'beggar-thy-neighbor' but rather are positive-sum, 'enrich-thy-neighbor' actions," he aid. Read more
Glasgow now has a significantly lower male life expectancy than Vietnam (71 years against 75, in case you were wondering), but it doesn’t make much sense to re-classify Britain as a “developing” country just because some bits are very poor. There are similar pockets of deprivation within most advanced economies.
For all the talk of global poverty and inequality, the world has been making remarkable progress towards higher levels of prosperity. Take the World Bank’s extreme poverty measure, which it defines as living on less than $1.90 a day. Thirty years ago, that covered close on 40pc of the world’s population. Now it is less than 10pc. That is a dramatic shift in a relatively short period of time.
http://www.telegraph.co.uk/business/2016/05/23/why-the-title-of-develop…
Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.
http://www.oftwominds.com/blog.html
Borrowing from the future to fund today's keg party, worthless college diploma, particle board bookcase, stock buy-back, etc. (oops, I mean "investment")--a.k.a. deficit spending which is a polite way of saying this unsavory truth: stealing from our children and grandchildren to fund our lifestyles today.
Could it be more destabilising?
Total debt among more than 2,000 nonfinancial companies swelled to $6.6 trillion in 2015, dwarfing the $1.84 trillion in cash on their balance sheets, according to a study released Monday by S&P Global Ratings. The ratio of cash to debt is the lowest it's been in about 10 years, or just before the global financial crisis.
As financial markets came to grips with the prospect of higher rates ahead, corporate America went on a debt bonanza. Debt grew 50 times that of cash, with companies rolling up $850 billion of new IOUs compared to just $17 billion, or 1 percent, cash growth. Read more
'Could it be more destabilising?'
Yes, we could destabilise atmospheric chemistry, ocean chemistry and critical ice sheets as well as destabilising the financial system.
Whoops, we already have!
Daily CO2
May 22, 2016: 408.97 ppm
May 22, 2015: 403.58 ppm
Up 5.39 ppm date-to-date (versus an average of 2.11 ppm per annum for 2005 to 2014, and 0.7 ppm per in the 1950s).
And the Arctic meltdown continues:
http://nsidc.org/arcticseaicenews/charctic-interactive-sea-ice-graph/
Yes: 'stealing from our children and grandchildren to fund our lifestyles today'
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