Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that Standard and Poor's has downgraded Portugal's sovereign credit rating for the second time in a week.
Portugal's rating was cut to BBB-, the lowest possible investment grade and one above junk. It cut Greece's rating another notch to an even deeper level of junk -- BB-. See more here from Bloomberg.
Standard and Poor's said its view changed because the latest version of the European bailout fund makes clear that any country using the fund has to 'restructure' its debt first, meaning bond holders will have to take losses before the rest of Europe bails out the PIGS.
This is essentially a German edict driven by German voters who are sick of bailing out the various sick men of Europe.
This means that the great lark of the last three years --- socialising private debt to stabilise markets -- is about to end. Essentially, German voters are saying they won't pay to protect bondholders and bankers any more. This was the fiction keeping financial markets stable for most of the last 3 years.
German voters are not the only ones. Irish voters and their ministers are about to enforce haircuts (losses) on European banks holding Irish bank debt.
This raises fears of more turmoil on markets, which would make it more difficult and expensive for New Zealand's banks and government to roll over existing foreign debt and raise new foreign debt.
Meanwhile, the public intervention to suppress interest rates in the United States may also be ending. Federal Reserve St Louis President James Bullard spoke overnight about the possible need to reduce the size of the money printing programme (Quantitative Easing) as the economy recovers. See more here from Bloomberg.
He suggested reducing the US Federal Reserve's programme of US Treasury buying to US$500 billion from US$600 billion. This pushed up US Treasury yields sharply. See more here at Bloomberg.
Meanwhile, the European Central Bank indicated it was "highly likely" to put up its official cash rate next month. German inflation figures were slightly stronger than expected.
In America, US house prices fell 3.1% in January from a year ago. See more here at Case Shiller. This will further depress the household sector there.
Reinforcing this, US consumer confidence fell to a three month low there as further falls in house prices and the rise in petrol prices over US$3 a gallon hit confidence. See more here at Bloomberg.
The New Zealand dollar, meanwhile, strengthened overnight to as high as 75.7 USc.
A flood of foreign capital is rushing into the New Zealand dollar for a variety of reasons.
More than NZ$15 billion of reinsurance money is set to arrive from foreign reinsurers in months to come and the government is borrowing around NZ$13 billion to fund the biggest budget deficit in our history. These inflows are pushing up the New Zealand dollar.
Brazil is not sitting on its hands. It has just introduced a new tax on Brazilian companies borrowing offshore. See more here at Bloomberg.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.