Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the New Zealand dollar hit an 18 year low against the Australian dollar in overnight trade of 75.67 Ac. It is now sitting at a 10 year low of around 75.9 Ac.
This followed reasonably strong Australian jobs growth figures yesterday and a downbeat commentary on the New Zealand economy from the Reserve Bank of New Zealand. This widened the expected tracks for interest rates between Australia and New Zealand, increasing expectations of higher rates there while our rates stay low, making the Australian dollar more attractive.
Australian payrolls rose 56,000 in November, more than double expectations. This was the fastest growth in 10 months and comes as Australia experiences its biggest mining boom in more than 100 years. The Australian dollar rose against the US dollar.
The stronger Australian outlook came as the Reserve Bank here issued a downbeat outlook for the economy and interest rates as New Zealanders choose not to add more debt into an overvalued housing market.
The Reserve Bank is now forecasting the 90 day bill rate will rise around 1% over the next two years to 4.2%, implying floating mortgage rates would rise to around 7.2%. Just six months ago it was saying the rate would rise around 3% to over 6%, implying floating mortgage rates of around 9%.
Meanwhile, in global markets the fallout from the biggest selloff in the US Treasury bond market since the Lehman Brothers collapse of 2008 is the main topic of conversation.
US Treasury bond yields have risen sharply in recent days on fear that America can't get its budget deficit under control.
This has pushed up longer term interest rates around the world higher on fears of more stress in sovereign debt markets and on fears that central banks will be forced to print money to create inflation to dig the developed economies out of debt.
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51 Comments
Quick question for someone - Is there a tipping point on the NZD, when the carry trades exit in favour of the AUD, which offers higher rates, currency appreciation and economic prospects? If so, what do you think the tipping point is?
My mother-in-law is Japanese (i.e. Mrs Wanatabe) and I told her 6 weeks ago to exit her carry trades on the Kiwi in favour of the AUD as I am pessimistic about the NZ economy in the short to medium term. So I am in the good books with muma-san for the interim. However, like the markets, the affections of mum-san can change quickly!!!
Just wondering if people out there think that Kiwi will face a tipping point.
G.G. despite the rhetoric out of the RBNZ their are forces on a number of fronts keeping the NZD artificially high....a post by Chris B covered some of this yesterday....add to that the problem of the Big four still looking for hot money offshore which ends up in property back here.
I have suspicions about Fonterra's hedging policy and it's effects.....they remain that for now.
My best guess would be to see any real sustained downward movement of the NZD it will have to break....65....then at this time I think it will go South.
You will need to factor in that with QE2 there may be a new normal for the NZD...and that may be it not seeing the dark side of ..50 in many a year.
disclaimer...
I have been wrong before ....I will be wrong again....
Right at the moment, attempting to price anything in USD is about as useful as pricing in potatoes - who knows what the USD will be worth tomorrow? The Fed have gone rogue and the USD is longer any sort of a long-term store of value....
In this case GG is concerned only about the AUD/NZD/JPY triangle of crosses. My tuppence worth is that NZD will strengthen against AUD over the next few months as a result of headwinds in china and adverse agricultural conditions in Aus. BUT JPY is at the mercy of risk perceptions in the market and may yet get even stronger (against AUD and NZD) if Ireland causes further contagion and/or the US treasury blip gains some traction. But as Christov notes, this is in no way guaranteed and I have been wrong before...
Frankly talking about carry trades right now is a misnomer - its still way too volatile for that and short-term plays are straight-out speculation at the moment. Spin the wheel and take your chance.....
"Frankly talking about carry trades right now is a misnomer - its still way too volatile for that and short-term plays are straight-out speculation at the moment. Spin the wheel and take your chance."..............................................................Agreed.
GG: Being China the mkt mover there you want to look a the seasonal demand for Aussie commodities, the months of Jan and Feb are the worst in the year with a strong pick up in early March So I think that after some more Aussie hipe in the next few days it will fall and sour for the next two months to come back strongly right after that in late Feb early March.
@GG Absolutely , there is a tipping point .
More seriously , right now as we blog, there are some Private Bankers here in Auckland telling their clients to convert to Aus $ to achieve higher returns , even at the au$ price , which in my view has over-run itself .
The real tipping point will come when the average Kiwi with a few dollars in savings realizes he can send his money to Australia and invest it there for a better yield / return quite seamlessly , and without any question by NZ authorities .
Bollard's hand will be forced in due course when treasury needs to raise money and finds it too expensive because the Res Bank have leaned against the wind too long .
At that point , Bernard Hickey's predictions about house prices will come into play . Buyer confidence will be further eroded , Mortgage repayments will go up as will other debt servicing costs , private borrowers will be crowded out by domestic govt borrowing.
Its all worst case scenario stuff.
Luckily , on the upside , we are likely to be rescued by a big injection of cash from Dairy payouts which will help as a buffer.
And we will all survive
Good question GG, thing is there are plenty of sick puppies out there. What happens to the Ozzie if China has a big correction and of course Japan itself looks a bit suspect with massive Government debt and bonds as low as they can go. So maybe the Kiwi isn't the worst of the bunch from here IMHO.
Sorry, not much help but loved your post.
It'll go to the low 70s GG. The GDP figure aint going to be nice...second dip coming...drought on top...quake damage up a billion...psa....oysters having STD...coal export plans down....storm down south....long term rates on the rise overseas....building sector at a standstill....fiscal hole opening up....S&P getting twitchy.....retail xmas trade looking sorry...unions and socialists screaming for 50% boost to benefits.....
Oh dear, what what. The peasants are revolting. Charles and Camilla caught up in the London riots - http://www.stuff.co.nz/world/europe/4444034/Prince-Charles-caught-in-st…
Tertiary education is one area where Key's government seems to be placing the right emphasis on cost control in introducing more accountability from students and universities to produce fully qualified graduates - as opposed to simply funding unlimited enrolments; with a high dropout rates.
The emphasis being on quality not quantity.
Still further rationalisation in my opinion is needed in terms of the number of universities offering the same degrees/courses. The perfect scenario would be a reduced number of national offerings but with a higher level of funding per student (ideally full funding).
Then if they ramped up a good modern apprentiship scheme - which incentivised small businesses to take on trainee apprentices - the prospective students who didn't make the university cut would be able to pursue good trade qualifications instead. Nursing for example should be a hospital educated trade profession - not an undergraduate university degree.
"The Reserve Bank is expected to start lifting the Official Cash Rate in the middle of next year, but a rise late next year may be relatively aggressive and catch some people by surprise, according to the Bank of New Zealand.".......stuff.co
Now this ought to be a warning to idiots borrowing to buy any of the price bloated property....the floating will go up and it could be "relatively aggressive".....and you can bet the fixed term rates will rise and rise as well.
What will a 2% rise (modest...not aggressive) do to home affordability numbers!
This question has little to do with the 90 at 9 - but SKY CITY has had $80m worth of share trades this morning. No notable change in value. Anyone know what has happened here, total trades through the NZX are about $130m this morning already, which is a heap more than an average full day. Any ideas?http://www.directbroking.co.nz/directtrade/dynamic/index.aspx?id=NZ50&e=NZSE&view=security&page=2
NZX : SKC . 25 million shares gone through , in just 15 trades .
As the prices has barely changed , I reckon some institutional investors ( large superannuation funds ) are doing some trading amongst themselves .
With a market cap. of $NZ 1.8 billion , this is a large company . But no doubt attractive to one of the big players out of Australia ( James Packer ) , China , or the USA .
I see they had an investor day yesterday - http://www.nzx.com/markets/NZSX/SKC/announcements/4444820/SKYCITY-Inves…
Yeah but floating rates were suppose to be at 9% already? I doubt OCR will go up aggressivly only because like you said GDP wont be nice, Earthquake has another billion or so to go on the 5 billion estimate (considering most property owners have still not had anyone around), people are'nt going to be spending becuase they are nervous about NZ, and most of them know that they have borrowed a large amount against property which values are falling (As said previously by some people on here very similiar to Ireland).
This is true FCM but you are leaving out the bug in the rug...the red bug in the rug...union pressure increasing and getting organised for an all out assault on the wages rates and benefits pre the election...just the sort of thing the RB hates to see coming...wage cost pressure and fiscal deficit doo doo.
Bolly will be in boots and all with a sharply higher....an aggressively higher ocr.
Meanwhile the bond buyers are giving Bernanke and Timmy and Barry O the big finger....the rising long term rates are not a blip...they are not a chance event...they signal the rising cost of credit across the western world...especially in the deeply indebted western world....hey..that's us!
Back we go to the root of the problem...bloated bubble property prices protected by the low ocr and the freedom given to the banks to pork the market with yet more cheap credit and fishing advertising....continued govt subsidy for landlords to keep rents high and support landlord investment into property....continued tax deductions for landlords against their interest payments on their mortgages taken out to buy property......
If property were affordable, unions would not be screaming for higher wages, pressure would come off the ocr, rates would drop back, we would have a better balanced economy...spare income to save and invest......
"The UK is taking part in the Ireland bailout. That means, indirectly, we're contributing to €40m in bonuses for bankers sheltering in 95% state ownership"
http://www.guardian.co.uk/business/2010/dec/09/aib-bonus-beggars-belief
Haaaarhaahahaha.....oh don't you just love it.
You'd never see the NZ govt doing this sort of thing would you.....would you?
Export led recovery??
http://www.stuff.co.nz/business/industries/4444926/Import-costs-fall-export-volumes-drop
"Just six months ago it was saying the rate would rise around 3% to over 6%, implying floating mortgage rates of around 9%"
And Bernard believed them.
So are you ready to concede defeat on our June 17 2010 wager that you would pour a cup of cold coffee over your head if interest rates weren't over 9% by 2012, Bernard?
As I said previously anyone expecting high interest rates without asset prices (including house prices) soaring, demonstrates no understanding of history, nor any grasp of how monetary policy is implemented today.
In saying that, one consolation for Mr Hickey is that Bollard's crystal ball is clearly just as defective as Bernard's, with colossal errors made 2003, 2008 and now mid 2010 (and in numerous other intervening economic outlooks).
The ex-Parmalat CEO gets 18 years in prison - http://www.businessday.com.au/business/world-business/exparmalat-chief-…
"New Zealand exporters are benefiting from record commodity prices, but a lot of the money is not filtering back into regional economies -- many farmers are using it to pay down debts."nbr
Whaaaat...we can't have this bloody carry on....how can banks remain in business milking the farmers if the debts are paid off....bloody cheek of it....have to have a word to JK about this....and you sods in the front office get onto the media..we need an advertising effort here...some pretty farm views and happy indebted clients doing well...hurry up and get it done.
and rightly those who shut the gate on the banks and built their farm business on what they earned....it is a lesson to the entire farming community. You don't need the parasites. When the next banker arrives in the standard polished new 4wd, in new gumboots sporting a smile....out with the drench gun and down their throat with the pink goo.
Go easy on our banks Wolly, they've been better than the finance companies,whereas many banks overseas outside of NZ and Ausraliahave acted like finance companies.
Also, watching more NFL this afternoon, every game I see is played to capacity stadiums, just another side to the situation in USA.
And the new guidelines for the oio are out......
" The definition for "large" areas of farm land has been set at ten times the average size of any given type of farm. Based on Statistics NZ data, the average dairy farm is 172 hectares, so the threshold will be 1720ha. The average sheep farm is 443ha so the threshold will be 4430ha."
QED...make sure you split the business into smaller chunks beneath the thresholds...and tell the foreigners to establish separate entities so they can buy each chunk with their hot money.....see it's so easy...thanks Bill.
The water also, is over there!
"Parts of Auckland and Northland have had the driest spring since records began more than 50 years ago. Both regions have already had water shortages.
Federated Farmers Auckland president Wendy Clark said she was confident a drought for Auckland, Waikato, Taupo, Rotorua and the Coromandel would be called." herald
Jeez JK, can't you get the govt spin factory to put matters right....you can spin some rain can't you?
Clear evidence here of inflation on the way....and no, you can't escape it if you buy anything made in China. All up you have higher insurance premiums, rising council theft oops rates, higher govt charges and fees, higher gst, rising power bills because the directors want a fat fee increase again, carbon taxes thanks to the greenfly, the energy rise will flow on through the food bill too.
No wonder then that Bollard can see the shite on the way. Keeping the ocr at 3% will not stop this. Demands for income adjustment to compensate look set to become violent in the big centres. Meanwhile the best of the fish stock are being given away to foreigners invited in to pillage for a fee...Oh sorry, you don't buy fresh fish any longer do you!
Holiday reading for lawyers in NZ!
"This will have huge implications for the restructuring industry. It is potentially catastrophic, the decision is totally untenable. For banks and companies, it is an impediment to the rescue culture."
A win for workers!
Interesting comment on UK uni funding,
robertsonjames Today 10:57 AM Recommended by
23 people Too many people clearly don't have a clue about how this situation arose or what the financial choices are.
The tuition fee rise has nothing to do with bankers or the credit crunch (as reliably as Nazis liked to blame the Jews and the BNP like to blame Muslims, so bigoted Socialists can be expected to try to divert attention from hard economic choices by conveniently pointing the finger at bankers). In truth the problem of university funding has been twenty years in the making, since student numbers began to be greatly increased without a viable long-term funding model being created.
The fees themselves were first introduced by a Labour prime minister in 2003 (in breach of his 2001 manifesto, by the way) because of the desperate need for additional funds for universities. An initial cap was set at £3000 but Labour itself eventually commissioned the Browne Report because it was clear that further tuition funding was required. This is why they carefully selected the members of Browne's committee so as to get this outcome. Happily for them it's turned out to be a Tory-led government that gets to handle the inevitable recommendation of a rise to a maximum of £9000: Labour, as usual, is now posturing cynically as an opponent of a policy that it created.
There is no viable alternative to charging the students either through a graduate tax or tuition fees if you want to send 50% of people to university and fund them at the levels that is now accepted by everyone is necessary. (I note that few opponents of the fee rise argue for the alternative of greatly reducing student numbers: in essence they adopt the untenable position of wanting 21st-century levels of mass university participation but entirely funded by the taxpayer like the much smaller elite system of the 1970s.)
Just do the sums, for heaven's sake. Multiply £9000 per annum for each person's tuition by the 1.2m students at any one time: that's already £11bn every year. Most campaigners also want a restoration of the old student maintenance grant: that's another £9bn. Then feed the total, £20bn, into the Treasury's on-line ready reckoner, and you're looking at needing to add 5p onto the basic rate of income tax for everyone or more than 15p onto the marginal rate. No government could survive imposing such a massive permanent additional tax charge on the electorate for ANY form of public expenditure, never mind for free university education, so the cost by default has to fall on students.
Personally I wouldn't have expanded the university system in the first place and have always argued against it. But we are where we are and no major party proposes telling the public that we're going to return to sending just 5% of people to university.
Once you accept that we have to finance nearly half the population spending three years in higher education and see the income tax implications of offering it for free, tuition fees, I'm afraid, because of the even greater practical problems with graduate tax schemes, start to become the least bad among several very ugly options.
"The 24-year-old German man was knocked unconscious and had his wallet stolen during the incident at 3am on Saturday. Police say two men, aged 24 and 21, were arrested on Saturday afternoon following assistance from the public and the examination of closed-circuit television footage."rnz
More for periodic detention and a good telling off. Who's the next victim!
…and I see a high number of young people walking the street doing nothing – recession ?
...and I see Ministers Joyce and Brownlee saying: All imported, because it is cheaper.
...and I see more idiots saying the same. ...and I see more young people walking the streets doing nothing.
...and I see young people getting together forming gangs - not working gangs constructing our most needed infrastructures in factories - but destructing.
… and I see Joyce/ Brownlee saying in parliament we do need more police.
…and I see the public saying – Yes, we do need more police.
….and we do have more police. …and we do build more prisons.
…and we build more prisons not factories.
...and I see Joyce/ Brownlee saying in parliament we do need more money.
..and the public says; Yes, Joyce and Brownlee are right we do need money.
… and the recession is here and we are stuffed as a nation – because there is no money !
Without having the younger generation working in skilful jobs – there will be always recession.
If one follows Wolly's story ( IRD , above ) to the NZ Harold , you would be forgiven for believing NZ to be a police state already . The zeal with which IRD are bankrupting businesses , to get " their " money , for the government , is quite appalling . This is government at it's worst , not here to serve & protect the citizenry , but here to bleed the people dry , to feed the governmental bureaucracies .
We had have 11 years ( beginning 1999 with Michael Cullen's Labour ) of greedy , rapacious government . National are continuing this sad slide into big brother's dominance of all aspects of daily life in NZ . Only , worse than Labour , they are borrowing from off-shore to continue the centrally planned spendfest .
Unless some new party emerges , or a Gareth Morgan starts bellowing from the roof-tops , NZ Inc is headed for a crash , a 1983 style collapse .
Burma a welfare state then?
Welfare state can - repeat can - have two issues. One is that they lose sght of reality through subsidy-distortion - the Muldoon era comes to mind.
Secondly, they can lose sight of reality in raising expectations above what is deliverable - but then, they have that in common with just about every cornucopian philosophy.
I think police states happen when the populace cease to fight for freedom. Regardless of state of origin.
PDK
I think a democracy in Burma would be a disaster, democracies need a large middle class (from what Im reading about Africa). I think one of the wests failings has been to expect countries to transform themselves into democracies years to soon.
I was thinking about a police state as I watched the students in the UK riot against a loss of what became expected, heavily subsidised education. just one of numerous entitlements we have been promised, without the Govt of the day making provisions for future costs. The people demand more police action and a cycle begins.
Andrewj
If I was paying attention in History lectures (including Neville Bennett) the growth of the middle class is inseparably linked to the development of enduring democratic nation-states. But sometimes this can be reversed quickly, a prime example being 1920s Germany where crippling reparations for World War One and ruinous inflation combined to decimate the middle class and democracy no longer seemed something worth dying for.
Of course each situation has its own peculiarities and it is hazardous to generalise, but I wonder if, in the modern world, where the middle class of many erstwhile "wealthy" countries are being squeezed, what the implications for democracy will be. Do we smugly assume that liberal democracy is an end-state of sociopolitical development, or could it be, as PDK might argue, a blip in history fuelled by massive and unsustainable resource utilisation? The young amongst us might just find out.
Hitler and Mussolini both came to power through democracies. I think unfortunately that PDK may be onto something, its making me wonder what our real level of wealth would be if fuel settled at $150 a barrel.
Chile is a good example of a strong leader creating an environment for a democracy to function. Like it or not Pinochet created modern Chile with a growing middle class and a stable functioning economy for private capital to pour in and create new business and jobs. He just had to ask a handfull to stepp out of the helicopter.
Its interesting that they go on about a few hundred disappearing in Chile meanwhile in Argentina thousands disappeared.
UK's 21st century democracy Today we could read in London's Metro that a gym fan was tried for 2p (two pence) fraud. He used his friend's pass to gain access to the gym and do some exercises.
Only several days ago we could have read that the inquiry into the former Royal Bank of Scotland CEO, Sir Fred Goodwin's behaviour who was ones of those who caused the current financial crisis was dropped by the Financial Services Authority. Little surprise, as expected, since the FSA was at best effectively complicit to the bankers' behaviour.
The ongoing financial crisis is a result of primitive and conspicuous fraudulent practices of the financial industry, regulators and some politicians either by direct involvement or by allowing such a primitive and conspicuous fraud to run for years. The type of this fraud has been well-known for centuries. It is a pyramid scheme. How the pyramid method was implemented by the financial industry in the context of this crisis was described in detail in the first article on this blog: "The largest heist in history". It is nevertheless ironic that for years the crudest of financial crimes has been described by the pundits and the mainstream media as "sophistication of the modern financial industry". This has been public deception on a par with 17th century Dutch tulip mania. This is how historians will judge it in the future.
Thus far the crisis resulted in massive global economic downturn and economic near-collapse of some countries. In Britain it led to massive public spending cuts, increase of taxes and payment obligations by the public (such as the current tripling of the university tuition fees), demolition of traditional pensions schemes and, in fact, savings. And much more is still to come. Don't jump over yet, it will get worse.
Coming back to 2p gym fan's fraud story: if we contrast it with the financiers, regulators and some politicians multi-trillion pound fraud, we have to ask a question: is this what the 21st century British rule of law and democracy is all about? (Ask your local MP.) http://gregpytel.blogspot.com/2010/12/uks-21st-century-democracy.html#c…
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