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.
73 Comments
Petrol prices are now at record levels, equalling the price on July 18, 2008, according to the latest MED monitoring. But crude is 'only' US$109.82/barrell now, while it was up to US$132.05/bbl back in July 18, 2008. Exchange rates are similar.
That is, crude is NZ$0.15 cheaper now per litre than it was 3 years ago. The reason we are paying record prices is that taxes are 13.25c higher now than then, and the oil company component is 1.7c higher. If it wasn't for those higher taxes imposed on ourselves, pump prices would just be going through $2/litre now.
Lucky bolly...were it not for the quake funds inflow the Kiwi$ would be crumpling and the imported inflation would be gathering steam.
He may get away with his cheaper for longer confidence pork until the election.
However...that will not protect mortgage holders from the arrival of higher rates as it is obvious the game of hide the debts has come to an end in Europe and Bernanke's days seem numbered too.
The questions to look at .....how fast and how high will rates move?...what is the impact of each 1% hike in rates?....the debts are well above 300 billion...so can we say an extra 3 billion will be leaving NZ each year via the banks!...how will this impact on the economy?....what will the property drop be?...which bank is the most exposed?
...not quite correct Westminster. Just have a look at Portugal and Greece. Interest rates are skyrocketing at the same time as asset prices are falling fast. Hence Nationals big, last minute, scramble to try and avoid a sovereign downgrade here.
...au contraire Westminster. Pick up any economic textbook and you'll find most asset prices move in the opposite direction to interest rates. Interest rates go up - bond prices fall, share prices fall and property prices fall. That's why the RBNZ always raises rates (well, used to) to cool off the property market. If interest rates go down - property prices go up etc...
To your point about the low mortgage rate in Portugla etc...interesting...exactly what's happening there I couldn't say. But I do know the funding rate they can borrow at as a country is through the roof, as a time asset prices will be falling.
...good argument Westminster. You are right on the lag effect in NZ. NZ is unusual in that we have had about 80% of our mortgages on fixed rates (other developed countries floating rates are the majority). What happens then is a rise in rates has to be implemented well in advance of an expected rise in property prices, to dampen then it future. So it does often give us both rising rates and rising prices for some time.
I stick to my original point that you argued with Wolly on because I know its correct - interest rates do not have to go up for asset prices to rise. That's a fallacios argument in general, without getting into unusal lead and lag effects or other govenment interventions of different markets.
You see rapidly rising interest rates in this country Westminister, and asset prices will be falling - there's absolutely no doubt! (unless there's some kind of government intervention)
The really bad news...not reported here!...word is the Japanese have a melt down going on. That the fuel has breached the bottoms of the reactors and is heading through the foundations....run.
…we don’t smell it.. we don’t see it, doesn't make waves and it doesn't make a noise - so don’t be so negative Wolly – we are living in clover.
InfactasI wrote yesterdaythe meltdownis everywhere, -but shhhhhhh !
That is the irony, because it is not tangible it does not seem to matter that much. It has become one more brick in the wall of worry. Ouch
How much longer will the reassurance demand the NZD and the AUD ? that is the question
"When plutonium decays, it emits an alpha particle, a relatively big particle that carries a lot of energy. When an alpha particle hits body tissue, it can damage the DNA of a cell and lead to a cancer-causing mutation.
Plutonium also breaks down very slowly, so it remains dangerously radioactive for hundreds of thousands of years.
"If you inhale it, it's there and it stays there forever," said Alan Lockwood, a professor of Neurology and Nuclear Medicine at the University at Buffalo." herald
More to come - how safe are NPP's ???
http://www.reuters.com/article/2011/03/27/uk-japan-activist-idUSLNE72Q00420110327
I know "link article" is speculation, but in the last few years earthquakes increased and are stronger, so another “Flex of Muscles by Mother Earth” and we are in more trouble.
I say that again: Our government should evacuate people, while healthy from Japan now, before the international community will be ask for help to do so. 5’000 construction workers to Christchurch.
She continued: "Growing demand and uncertain supplies will have a profound effect on future generations. And nuclear energy, I believe, is positioned to be a major part of the solution."
Please read article:
Mr. Matsuura (that’s the guy) expressed his sincere gratitude to everyone in the institutes and industries who had participated in this really important international project.
http://www-pub.iaea.org/MTCD/publications/PDF/Newsletters%5CITER-NL-8-6.pdf
gees Wolly, I only just turned 47.....does that mean that I am going to have to be careful for my next hundreds of thousand years?
only for the next two hundred, relax
Wolly - this might interest you:
http://www.huffingtonpost.com/2011/03/27/fukushima-tsunami-plan-japan_n_841222.html"It matters how Japanese calculate risk. In short, they rely heavily on what has happened to figure out what might happen, even if the probability is extremely low. If the view of what has happened isn't accurate, the risk assessment can be faulty."
I guess they might have told us, "it's world best practice" and "there is no alternative."
TEPCO and parts of our government seem to have a lot in common when it comes to risk analysis styles. I wonder what that means for NZ?
Cheers, Les.
So for all those wags who predicted that the NZD would tank big time after Bollard cut the OCR by 50 bp on 10 March:
USD (09 March) 0.7390 (today) 0.7577 (+2.5%)
EUR (09 March) 0.5302 (today) 0.5371 (+1.3%)
GBP (09 March) 0.4567 (today) 0.4696 (+2.8%)
JPY (09 March) 60.94 (today) 62.38 (+2.4%)
AUD (09 March) 0.7311 (today) 0.7356 (+0.6%)
TWI (09 March) 65.41 (today) 66.43 (+1.6%)
We sure ain't gonna get an export-led recovery at those rates so could anyone tell me what Bill's plan is to turn a 9% fiscal deficit into a surplus within 3-4 years?
It did tank neco but we did not count on the inflow of quake loot. !
I believe the big shake was before 10 March so it should have already been priced in. Risk aversion after the Japan quake caused a drop but we're back to happy days again now. Booming commodity prices and we can barely scrape together a trade surplus. Not looking good for Bill's return-to-surplus plans, eh?
Didn't Key's comments the week before the OCR cut, pre-empting it, do the damage before the actual announcement? ( Sell the news; buy the fact). From memory the Aussie was quite a bit above .7400, but I don't have those figures to hand.
So..you think the NZD is undervalued? or about right?
Wait till it reaches 77c and you can say it is overvalued,. Very overvalued.
FYI the video is truncated on Youtube so the last few seconds are missing. We're fixing and reloading now. Our apologies.
cheers
Bernard
Fixed now.
cheers
Bernard
More problems at Fukushima.
This from Andrew via email
http://www.telegraph.co.uk/news/worldnews/asia/japan/8414554/Japan-nuclear-crisis-workers-losing-race-to-save-reactor.html Workers at Japan’s earthquake hit nuclear plant lost ground in the battle to save the plant from meltdown after the radioactive core of one reactor appeared to have melted through the bottom of its containment vessel.So the next question will be how big the (permanent) exclusion zone. Imagine the economic cost of one of these in a highly developed and densely populated country like Japan:
http://en.wikipedia.org/wiki/Chernobyl_Nuclear_Power_Plant_Exclusion_Zone
The 70 plus thousand who may not be allowed to return to their land and homes within 20ks of the meltdown care quite a bit...the whole of Japan cares a good deal...those who eat seafood in the area care also...just to mention a few...but hey..Westminster couldn't give a stuff and thinks the crisis is done and dusted....ignorance is bliss!
that's right Wolly. If the nuclear pollution has entered the sea it will enter the food chain and ultimately we will all be affected by it.
Keep away from the kawahi and bonito for the next few thousand years Westminster.
Don't you take any notice of him W...eat all the Japanese Tuna you can buy!
Goodness, what country lies under Japan Bernard? I think we are under China:)
Let's face it... absolutely nothing brings the $NZ down...good news, bad news, disaster, stock market up, stock market down, threat of downgrade, its all the same.
The yen carry trade incident caused a blip down but that was soon fixed with some orchestrated tweaking.
Bernard's hair looks OK today ........... So that's one less disaster for the $NZ & the world generally , to face .
............. Happy Days ........ Ayyyyyyyyyyyyyy !
Hello Gumster..............always respect a man whose hairline has lost touch with his eyebrows...........it clears the way for that third eye.
Good morning Count : How is it that Fonterrible can still make a profit here in Tasmania , when Coles & Woolies are retailing milk for $A 1 per litre ?
........... And why do giant 400g jars of Moccona coffee sell for $A 16 ....... about the same price as 200g bottles of it in NZ ............ Moccona haft more hmmmmmmmmmmmm , you know !
[ Gummster's travels : DVD with salacious pictures of you & your sister to be released soon ]
Gummy
Looking forward to the pictures...particularly of the hair...
cheers
Bernard
That dear Gummy you would have to discuss with John Boy ...Bolly ...Ferrier the ferret....hedging our game plan recovery in commodities and currency......the whole petrol thingy now the fly in the ointment......probably explains why John boy looked so sincere when advocating Gaddafi's removal/extermination.....vested interest mah boy vested interest.
Woolies and Coles are selling it as a loss leader from what I understand. They will be paying Fonterra more for it than they are selling it for.
prosperopink it will come down eventually either when the commodity bubble bursts or when the "market" finally realises that our fiscal deficit is structural. The risk is of course that we won't be able to take advantage of this because our non-commodity export sector will have shrunk so much by then that we won't be making anything anymore that we can sell overseas.
Bullard..........a voice from the wilderness....a stop and think man to confront Wild Ben's itchy trigger finger...is now finding support.....will it be in time..?as the USD lies tied to the tracks kicking and screaming.....has he got the stuff of heros...or will Wild Ben have a change of heart....? stay tuned.......
Bollard..........a man in a suit....who claims to think independantly of political pressure.....an ant on a cork all at sea.
"Campground owners, hairdressers and funeral directors look likely to be hardest hit by planned increases to environmental health compliance fees.
The Marlborough District Council's environment committee agreed on Thursday to increase annual fees for the first time since 2006.
New charges have also been introduced to meet new standards required under the Food Bill, which is expected to pass into law in July, although businesses will have five years to come up to standard.
The committee's decision will go before the full council on April 7.
Camping ground owners will be hardest hit by the increased fees, with compliance costs to rise from $151 to $230. Fees will jump from $107 for hairdressers and funeral directors to $155 and $175 respectively. High-risk food premises will also pay significantly more, with fees increasing $58 to $370.
Low risk, occasional and food stall operators will pay between $14 and $19 more for total fees of $70 to $165.
New fees will also be introduced to meet the Food Bill standards, including $125 an hour charged for audits or noise consultancy and survey work.
Audits are expected to take up two or three times longer under the new bill.
Travel costs will also be the responsibility of business owners being audited.
The fees, which will take effect from July if ratified by the full council, raised red flags for some councillors." marl express
If QE2 ends early, is this likely to happen?
http://www.marketoracle.co.uk/Article27211.html
Or is QE2 going to run to schedule and QE3 commence not long after?
http://www.marketoracle.co.uk/Article27047.html
What consequences for lil ole NZ either way?
I contend...meh.....as I did to our good Wally a week or two back that QE3 will go on hold (safety latch mode) and i'll stay with that as the rising tide of economic opinon in the States is falling into line calling for an early cessation to QE...and a rethink toward raising interest rates in a slow deliberate way instead of holy sh*t here we go here we go...
as to the NZD......the USD strengthens...our economic recovery gets gasoline hiccups....a bit of rock and hard place if you like....and not an alke seltzer in sight.
Just noticed this paywall headline on NBR this morning:
Budget will bring tax changes - English
could this be the dreaded capitaL GAINS TAX ON SECOND HOMES??
Come on DonnyMac thats pay per view content......so give us the drum eh..?....anyhoo how are you..?fit n well...?.........
Ahs is fine ,massa !
Have been down in sunny,funny Hawkes Bay for the last week checking the locals W.O.F's...am pleased to report the red vino is still mighty fine and not too much strange fruit hanging from the sycamore trees?
mind you the cops down their are pretty mean..they'll shoot you for licking your ice cream the wrong way which brings new meaning to the command to "Freeze?"
tee hee donnymac ....just got back to this...."Drum" cracking read indeed....might go drag it out .
Keep your eyes peeled in the budget for a cap.gains tax on a second home sale..that's what's behind the paywall...you heard it here first cos' i cover the nightbeat for the daily.
rgds
Randy Stone
"Approaching New Zealand's poorest and most indebted demographic for a hand out is not appropriate. This embarrassing appeal not only reeks of the bailiffs, it is even more offensive in that it attempts to hide among the wreckage of a natural disaster in which people lost their lives,"
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10715896
100% agree, no guilt trip should be imposed on NZers whom have left mostly because they can not afford to keep up Loan Repayments, Survive in an now Expensive Nation, Save for a Retirement which will not be state funded, oh and put some money away to pay for overpriced property and maybe have a family. Why not greater incentivise early repayment?
Hows about the Baby Boomers stump up for the years of free healthcare, education and other benefits they have mortgaged the future generations for or for the assets there parents gave them but which they hocked off in the 80's, so as to fund there kiwi lifestyles. Because the current and future generation of kiwi's lifestyle won't be half as good as yours.
Good on you Paul Allen and Hannah Belcher!!
According to the article these two repaid their loans. Is it ok for the rest to borrow and run with no intention of repaying? Decent financial prudence and management would dictate that you only borrow what you can afford to repay and you adjust your lifestyle to achieve this, hence, " I scratched and saved and lived with my parents and got through four years debt free," Mr Allen wrote.
Maybe all those with mortgages should do a runner as well.
Come on meh, how the hell is an 18 year old supposed to get his head around only borrowing what they can affort to pay? They are kids still and really have no idea of what is being thrust upon them. It is all very well for him to talk about working in the freezing works, but where is a high paid option like that available for a student today? With so many in default you really have to say the policy is a failure.
For me, well I have a foot in both camps. If someone had identified my abilities earlier then I would have gone through loan free, so I resent having to take one out now.
I think however that there are too many at university.
I did it as an 18 year old. Fees were much lower back in the 90's but I did what I had to do. I worked part time at the local supermarket and did extra labouring jobs during holidays all for around $4 to $7 an hour - not a high paid option. The loan isn't required to be paid back until you start earning more than the threshhold - back then it wasn't interest free either. I also completed half my degree part time while I worked in the industry I was studying. That allowed me to start repaying earlier and I found ways to pay back the loan much sooner as well.
It comes down to work ethics and not expecting a free ride. We do what we have to do.
The policy may be a failure, the cost of the education is also an issue as is the number of meaningless, pointless subjects on offer that aren't going to provide anything for the future anyway.
Part of the problem is that universities have become businesses. Unitec got into serious financial trouble when they were expending their energy into trying to become a university. With the eye off the ball enrolments of Asian students dropped substantially. They have only been saved by the GFC and the big spike in enrolments that caused. Makes the CEO look successful with the other silly shuffling and restructuring, when in fact it was luck. Caused a lot of unnecessary grief in the end.
Oh and the interesting thing is that I know lots of high achieving students. I also know lots of hard working students, that have part time jobs etc. Trouble is they aren't the same groups. I wouldn't think that those turning up to lectures and tutorials are getting value for money while they are sleep deprived.
Poor Goldenfox...destined to have a lifetsyle fit for a...peasant circa 1700ad....now get back to work and pay those taxes...haha
A nephew aged 30, a quality electrician, advised today: I am of to a job offer on Perth, work 45 hrs, same as 75 hear in NZ. This is a growing answer for many
On the breaking news Bernard......that'll be the hedge against gasoline.....you just know it's gonna blow up in thier faces.......I'll wait for the utube video...damned if they do...damned if they dont....tsk..tsk..tsk.
wait til times get tough,we'll be scraping over chicken bones,the good ole marlborough dist council eh wolly?where would we be without local govt?
another headline from Japan:
sounds familiar?
Japan: Govt. Might Stop Tax Cut, Lift Tax To Pay For Rebuild
Has anyone considered that the Euro crisis might add further support to our property bubble...sovereign debt in Europe will have a higher risk premium, and funds looking for a safer home could be piled into the Aussie banks...
Your comment would have brought a smile to the aussie bank bosses Ricardo...but only briefly...the piigs 'hide the debts' farce will end up giving the banks a bloody good haircut and any other fools buying the junk govt bonds...so they will be desperate to recapitalise before the basel 3 or is it 5 BS begins...and that means attracting loot...which means higher rates...better than the savers could get down under.
I guess its bad risks...or worse risks.....however just who wants more debt?
regards
"The tourism sector will bear the brunt of the Christchurch and Japanese earthquakes, but a short-term plunge in tourist arrivals should be short-lived and largely over by the middle of the year, says new research from Goldman Sachs & Partners New Zealand." herald.....
On the plus side...the inside info I have confirms an increase in buyer interest from Japan for properties on the Millbrook Golf Course near Arrowtown. JK would be pleased with that....!
is this now called wollydisinterest.co.nz ?
Haven't seen many comments on China lately.
Here is an interesting article. http://macrobusiness.com.au/2011/03/chinese-burn/
The video at the end makes interesting viewing.
Includes a comment from one of the interviewees about GDP. We know GDP is an ineffective measure but the comment makes sense. "It's not the quantity of GDP, but the quality".
It will be interesting to watch the smoke and mirrors trick that is the euro unravel. German and Irish voters say they have had enough. Well, in the case of the former, their actions may well come back to bite them in the bum. Two possibilies. One, that many of the banks that will have to take a haircut are the ones they own, hahaha. Two, exports from Germany to PIIGS that have essentially been subsidised by the common currency, will collapse.
The Irish mostly know the dream is over and the situation is so dire that it's time for a revolution. Beware the wounded tiger.
The French and German banks hold so much Irish debt they wont survive sizable (or maybe any) haircuts.
Wounded tiger, indeed and this is just it, its so badly wounded that what the heck I cant see if has much to lose......If I was the irish I think I'd be tempted to call the German's bluff say 50% haircut and 2% interest on the remainder.....take it or sink....
regards
Germany lends to the PIIGS oney so they can buy their products (Trade surplus)and keep their economy going, and when the PIIGS can't pay they get annoyed.
As lenders with a vested interest they got in over their heads and the sooner everyone tells them to get stuffed the better.
What are they going to do?
Invade Ha ha ha
Looks like by Friday (NZ time) the US will have breached it's debt ceiling;
That'll be the ceiling on the floor below the next floor up.... with the new ceiling!
Yeah, :-) you could well be right but that presents an egg-on-face problem for the tea partiers who joined the show after the mid-term elections. They could hold out and then it really gets interesting.
Which I think the Republicans are waiting for.....I think they intend to shutdown the Govn if Obama doesnt do everything they say........so I dont know just what will trigger the Great Depression mkII....the front runners are; Portugal Default, Irish Default, Greek Default or the US Congress......I think Ive given up hope it can be avoided.....to much extremism and stupidity and its too late....
Thanks guys....
regards
Okay Bernard, here's an idea.
How many houses have they built in Christchurch since the September earthquake?
I read somewhere the Japanese were disappointed they had only completed 300 since their quake.
Perhaps a chart of new houses completed post quake per head of population to compare the two, plotted week by week after each earthquake.
Surely there must be a simple measure we can use to see how the powers that be are progressing things.
only a real estate industry practitioner could talk their way out of this :)
Excellent news for NZ....honest!
"Australia is heading for a downswing in population growth that could last for a generation, making it harder for businesses to attract and retain workers, a report predicts.
The labour market is set to contract as migration rates fall and baby boomers begin to retire in increasing numbers, PKF Chartered Accountants and Business Advisers says.
Its third annual Business and Population Monitor, released yesterday, also shows resource-rich states such as Western Australia may face the greatest shortages right when they need extra workers." herald
Excellent because the shortage will absorb the surplus over here in a jiffy...look for training programmes to bend toward what options exist across the ditch and for young men to go west. That will take the pressure off the dole spend and so help balance the budget.....
The govt ought to be planning to take maximum advantage on this break...they don't come often.
At the same time this exodus will push down property prices for those remaining here and we too will get the BB retirement wave.
I expect to see aussie employment agencies over here permanently..and that too will have a positive.
Today is a big bank day for the Irish...!
"The Irish Central Bank will publish its third round of stress tests at 4:30 p.m. tomorrow. The results will determine whether the two can avoid joining four of the country’s biggest banks in majority state ownership after they all logged record losses as the country’s decade-long real estate bubble burst. " bloomberg
Golly gosh...is this the reason for the cheaper for longer gameplan in NZ!
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.