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HiFX's Dan Bell reviews the week's global currencies action, including the ECB's massive 3 year loans to banks and the outlook for the NZ$ in 2012

HiFX's Dan Bell reviews the week's global currencies action, including the ECB's massive 3 year loans to banks and the outlook for the NZ$ in 2012

Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies and markets action in their 'Never a Dull Moment' report, including surprising news this week the European Central Bank (ECB) had to lend over 500 European banks almost 500 billion euros to ease pressures in the European banking system because of the sovereign debt crisis.

Bell talked about the potential for a 'carry trade' where European banks borrow from the ECB at 1% and then lend on to struggling Southern European governments at 5% or more.

This, in theory, would help the ECB effectively fund struggling governments without having to directly buy bonds and boost both the profits and capital positions of struggling banks.

Bell said some banks may choose not to buy the government bonds, particularly as they look to keep their balance sheets liquid ahead of a difficult year of having to roll over large amounts of debt.

"European banks in the first quarter of next year need over 200 billion euros in additional funding. If you're an offshore investor looking at Europe and considering all the tension and drama and crisis over the last year, you're going to be asked to step up again and fund this situation," he said.

European governments would also have to roll over 800 billion euros of debt in 2012.

Bell said there was the potential for more volatility for the New Zealand dollar next year than this year.

The New Zealand dollar was finishing the year about where it started vs the US dollar, but in the meantime had swooped through a 20% range from a low of 71.2 USc in March after the Christchurch earthquake and Japanese Tsunami, to a high of 88.5 US cents in August before the European crisis worsened again.

This 20% volatility was in line with the volatility seen in most years, but less than the 50% swings seen in 2008 during the Lehman crisis, Bell said.

"If they keep muddling through this drama in Europe and they keep doing enough to keep the wolves from the door and the US start printing money again, then the New Zealand dollar would rise," he said.

"But if we saw continued risk aversion and uncertainty then the New Zealand dollar would fall as the European markets fall and create this contagion impact across credit markets."

Markets would watch the Chinese property market and the prospects for a further easing of monetary policy by Chinese authorities early in 2012.

"What happens in Australia and China next year will have a big bearing for New Zealand."

Bell also pointed to the Australian dollar's move to an all time high of 78 Euros this week, while the New Zealand dollar was not far off its all time highs against the Euro.

Dan Bell returns on January 27.

Dan Bell is the Senior Dealer at HiFX, a UK-headquartered foreign exchange dealer with significant operations in Australia and New Zealand. It has a dealing room in Auckland. See more detail here.

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14 Comments

Prepare to be invaded....by wealthy Americans!.............................. oh bugger

 "Most Americans still have yet to stick a single financial toe across the border, but more and more are considering it. Many, perhaps millions of toes are now twitching at the thought. Their owners want to end their absolute dependence on what happens in the US. They want to prepare for whatever is coming down the road, even though they don't know what it will be. They want to be as ready as possible, even though their worries can only guess at what's ahead."

 http://www.marketoracle.co.uk/Article32276.html

If we are really really lucky.....they will be the stonkingly wealthy and not just the filthy rich....the difference is between the loud and arrogant on the one hand, and the quiet blend in types who don't want anyone to know they are afflicted with the American stamp of culture.

 Be upstanding for the King.....yurk

"As you tuck into your turkey this Christmas, take a moment to consider the plight of pinstriped eurocrats, locked in their offices, staring dejectedly out of the window until they come up with a way to get banks lending and people spending – and generally save Europe. Bank of England governor Mervyn King probably didn’t help their cause yesterday, when he said that the debt crisis is causing a worrying dependence on central banks. King said the crisis had been deepened by what he calls ‘negative interlinkages’ (the way that cross-holdings between banks can mean a problem with one is a problem with all), and that Governments’ dependence on the BoE, the European Central Bank, etc, are a sign that ‘stressed financial conditions are passing through to the real economy’.

King made the comments after a meeting of the European System Risk Board, and just over a day after the ‘Sarko trade’ (so-called because the French president is a big supporter), whereby the European Central Bank lent €489bn (£407bn) to 253 European banks in an effort to increase liquidity. The idea is that when Governments run into trouble, they can borrow from their own banks, rather than turning to central banks for help.

But economists have expressed concerns that while that’s a good short-term solution, making banks lend to Governments that may or may not be able to pay their debts puts them in a much riskier position in the long-term. Markets, though, seemed satisfied, with the French CAC, the German DAX and the FTSE all rising by between 1% and 1.36% (although to be fair, it’s generally accepted that the markets are more fickle than Simon Cowell at a school talent show, so they’re not necessarily reliable).

Still: there are signs that the ECB may have more than one trick up its sleeve, after soon-to-be ex-ECB executive board member Lorenzo Bini Smaghi suggested Quantitative Easing might be the bank’s chosen course of action if deflation threatens to become a problem"

 

 http://www.managementtoday.co.uk/news/1110371/king-were-reliant-central-banks/

GST on all goods and service relating to new builds and consented renovation work expences post Jan first 2012 are to be reduced to 10%.....The thirty % reduction is aimed at boosting activity in a the key building sector of the economy and is thought by Cabinet to be a better policy move than asking Alan Bollard to cut the ocr any lower.

Govt will require Councils to forward consent documentation and for owners to file applications for gst refunds from the IRD.

It is expected this move will lead to an increase in the overall tax take from this sector as more people decide now is the right time to build with gst costs reduced by at least $10,000 on a new house.

Existing unsold new house stock will not be eligible for the refund.

Happy xmas everyone....wake up Bill.....I just gave you a present!

Len's on a junket.....and we are paying.....with any luck he will freeze his a----- off in China.

 "Auckland Mayor Len Brown is being treated to a five-day fact-finding trip to China which he hopes will help his campaigns for major rail tunnels."

 http://www.nzherald.co.nz/super-city/news/article.cfm?c_id=1501110&objectid=10765233

 

I just had to break the Wolly monopoly on this thread.

I'm sorry but 80% is still close enough to a monopoly.  = 3 sides on a monopoly board + railways, and the electric company.

500Bln isn't printing?  Helicopter Ben has printer envy, and just to prove it QE4 will involve buying the entire balance sheet from the ECB!

It's a race to the bottom and he who prints most, prints best.

I hope Bernard is sitting down!

"Baby boomers shouldn’t feel guilty about being better-off than younger generations, because people aged over 50 today saved harder and spent less when they were young than is the case today"

 http://blogs.telegraph.co.uk/finance/ianmcowie/100013939/baby-boomers-with-80pc-of-uk-wealth-shouldn%E2%80%99t-feel-guilty-about-younger-generations-problems/

Wolly: Don't you go stirring Bernard up about BB's again. He's been quiet on that front for a while now. It's a question of priorities. The younger generation consider an iPhone to be far more important than saving a deposit toward buying a home. Do you have an iPhone Wolly? Have a close look at this, particularly where the bill was incurred and how. http://aca.ninemsn.com.au/money/8390425/smart-phone-bill-warning 

Course I have a Phone...it's modern too ...no winding it up...BH had a thing about BBs and now he has to eat humble pie cos the "experts" have said BBs aint to blame....

Oh you mean one of them apple fruity things...well I do have an apple notebook...can't seem to get the colours to show up and the 20 megs hard drive is a bit slow....but it beeps ok...

 

 "Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said." bloomberg

This not good news...no fair play...cut middleman out...heap big savings...save face too!

Harrrrrrrrrrrrrrrrrrhaaaahaaaaaaahaaaaaaaaahaaaaa.....

 "China should reduce its reliance on overseas rating companies by encouraging large financial institutions to strengthen their research and make their own judgments, central bank Governor Zhou Xiaochuan said.

The nation is also considering establishing credit-rating companies backed by the government" bloomberg

Promise to be very inscrootable....first company name to be "Honest Ho's Credit Rating Company"

How much longer and gold and silver prices explode ?

 Worldwide increase in financial/ economic uncertainty.

During a visit to Beijing by Japanese Prime Minister Yoshihiko Noda, the two governments said yesterday that they would encourage use of their own currencies in bilateral trade, which now is conducted mostly in United States dollars. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10775419

There isn’t enough silver for investors to buy (in large amounts) so they have been using SLV as a flywheel.  SLV is over 20 million ounces short on the silver they are supposed to have in the vaults to back the shares which have been issued. 

 http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/12/21_London_Trader_-_There_are_Tremendous_Silver_Shortages.html

 Bernard and team - why not ask the government a few question about “NZgold reserves” ?

 Did (does) New Zealand buy gold as an investment in order to deal with it to lower the account deficit ?

 

No worries here...move along please...

 "Japan, the country with the highest debt-to-GDP ratio in the G7 to Sell Record 149.7 Trillion Yen Debt in Fiscal 2012

Japan’s government said it will increase bond sales to the market to a record 149.7 trillion yen ($1.9 trillion) in the fiscal year starting April 1.

The amount for investors such as banks and life insurers is 4.8 trillion yen more than 144.9 trillion yen in the initial plan for fiscal 2011. Total debt issuance, including securities to replace maturing debt and so-called zaito bonds sold for government agencies, will increase by 4.6 trillion yen to a record 174.2 trillion yen."

 

http://globaleconomicanalysis.blogspot.com/

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Days to the General Election: 35
See Party Policies here. Party Lists here.