Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that China's central bank tightened monetary policy overnight for the fourth time in six months.
The People's Bank of China raised its one year lending rate to 6.31% from 6.06% as Chinese authorities try to contain a surge in inflation surge, in part created by very loose lending in 2009 and 2010 and the US Federal Reserve's near zero interest rate and money printing policy over the last three years. See more here at CNN.
China's currency is very closely connected to America's currency so it virtually shares its monetary policy, meaning inflation is exported from America to China.
New Zealand should watch what happens in China closely because China is now the second largest buyer of our exports and is the largest buyer of Australia's exports, which in turn is the largest buyer of New Zealand exports. If the policy tightening were to slow the Chinese economy too quickly, that would slow the economies on both sides of the Tasman.
Meanwhile, Moody's has downgraded its credit rating for Portugal for the second time in a month, pointing out that it is now likely to seek a bailout from its partners in the European Union. Portugal is one of the PIGS (Portugal, Ireland, Greece and Spain) group of countries running huge budget deficits that are blowing out their public debts. See more here at BBC.
Financial markets have been pushing up interest rates on the PIGS' sovereign debt in expectation that they may eventually not be able to service those debts. If financial market turmoil in Europe continues to worsen that will make it more difficult for New Zealand's banks and its government to roll over its foreign debt relatively cheaply.
Meanwhile in Australia, Labor Treasurer Wayne Swan has indicated he will reject the A$8.4 billion takever bid for the Australian Stock Exchange by the government-controlled Singapore Exchange. Swan said the Foreign Investment Review Board had concluded unanimously that the bid was "not in the national interest." See more here at The Australian.
The NZX has a limit on shareholdings which means no one shareholder can hold more than 10% of its shares. That would have to be lifted for anyone to launch a bid for the NZX.
Meanwhile the Reserve Bank of Australia (RBA) left its official cash rate on hold at 4.75%, pointing out the Queensland flood and Japanese quake/tsunami would deliver temporary hits to the Australian economy. Economists don't expect the RBA to start tightening again until later this year. See our article from late yesterday.
Again, we care about what happens in Australia as it is our largest trading partner.
Meanwhile, the New Zealand dollar briefly spiked to 77.2 USc overnight, but is opening around 76.8 USc. See our interative chart below.
The Dow first firmed and then fell on concern the US Federal Reserve may start withdrawing its monetary support through either stopping money printing or increasing interest rates. See more here from Bloomberg.
Minutes from the US Federal Reserve's monetary policy committee showed they were divided about when to reverse its stimulus. See more here at Bloomberg.
Also US service industries grew less than forecast in March. See more here at Bloomberg.
It's also worth watching growing talk that a showdown in the US Congress between new 'Tea Party' Republicans and Democrats could leave the US government without sufficient funds to keep operating.
A government shutdown, the first since under President Clinton 15 years ago, could start as early as the weekend. See more here at Bloomberg.
No chart with that title exists.
34 Comments
This from Zerohedge sums up nicely what the Fed has achieved:
We have now gotten to the very limits of the market, where any even modestly bad news (Services ISM) even if of a secondary importance nature, sends the market surging higher as expectations that QE3 is inevitable, hit 100%. Then when good news comes, and QE3 is deemed to be impossible, the market plunges. Bizarro world, where bad news is good news and vice versa, has won. Thank you central planning.
http://www.zerohedge.com/article/qe3-qe3-bizarro-world-wins-hatzius-threatens-lowering-forward-gdp
Something's going to blow up big time soon.
...so true Neco. See link, stocks expected to fall if QE2 ends....a bizare world indeed
http://www.businessinsider.com/morgan-stanley-end-of-qe2-stocks-2011-4
how do we cause a paradigm shift so that ceo's seem awesome for delivering sustainable profits, high employment, and environmental stewardship, rather than it just all being about return to shareholders?
ceo's are driven by the expectations of their peers as much as the rest of us, but it's quite clear that the people running the world of finance actually don't know what's happening any more
something I got from the Insidejob doco was how involved the big business schools were involved in influencing the thinking of ceo's/vip's/pos's how do we get them to engage a more useful world view?
...here's an attempt at it Vanderlei. Michael Porter (one of the top strategists in the world) thinks business should focus on "shared value"
http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/1
Jonlivesey
I think what we are seeing here is an interesting process in motion. Banks have two kinds of assets; cash deposits, and other assets such as Bills, Bonds, Mortgages and other loans. Banks are required to set aside some of their cash assets as reserves against losses on the non-cash assets. The level of reserves depends on the quality of the non-cash assets. You don't have to set aside as much cash against AAA Bonds as against BB Bonds. What's happened in the past two years has been pretty horrible for peripheral area Banks. As Bonds, including sovereign Bonds, have been downgraded, the amount of cash they need to put aside has risen, but at the same time there has been deposit flight, so they typically have less cash to play with anyway. For example, Irish Banks lost a third of total deposits in the past year and a half, and lost another 3% of deposits in February alone. To lose cash at this rate and also see the rating of your remaining assets fall is a "perfect storm" for a Bank. So what Banks do is to apply to the ECB for liquidity, putting up Bonds as collateral, but the ECB applies - or rather used to apply - minimum credit rating to determine if Bonds were good collateral or not. Two weeks ago it announced that it would accept Irish sovereign or guaranteed Bonds as good collateral *no* *matter* *what* their rating. I think that in time the process that affects Ireland will overtake Portugal as well. A spiral will develop in which asset quality will decline, then deposit base, and finally the ECB will have to apply special measure to ensure liquidity to prevent the Banking sector from getting into real trouble. And that will be when Portugal is obliged to accept a bailout, which will cost the Portuguese taxpayer plenty.
http://www.telegraph.co.uk/finance/financialcrisis/8430209/Moodys-cuts-…
gold futures surge to a new high..hang onto your hats GBH
Taxes on petrol (U91) now exceed 90c/litre for the first time, and the oil company component is up to over 37c/litre. All as pump prices reach $2.189 per litre, the highest level ever recorded.
We keep hearing about the Fonterra auction prices (i.e. what the product SELLS for) but we never see data on what it COSTS to produce. It is after all the MARGIN that counts and that doesn't seem to be that flash given that agricultural debt is hardly declining as predicted. Is there any running data on NZ dairy production costs? Are our dairy producers responding to rising/falling margins (as opposed to Fonterra auction prices) or are they on a mission to increase production no matter what?
Also found this link about how US dairy production responds to margin changes interesting.
MAF provides information on farm production costs on an annual basis including breakdowns by region. Production costs have increased steeply but are likely understated in recent years due to underspending on maintenance - both fertiliser and plant. DairyNZ also provides some data on farm production costs.
What you won't find is any public information on processing costs. Up till the formation of Fonterra this information was detailed.
Processing costs if you could identify them have remained relatively flat but still remain high relative to potential efficiencies - in part due to fat overheads. High processing costs apply beyond NZ, and irrespective of whether processors are co-operative or corporate.
I think you will find many dairy producer's production levels are dictated by their bankers. This is a problem for the industry because most bankers have few clues about even basic agricultural production economics.
Currency destruction !
The government seriously has to watch the development carefully - I think.
Before the share market crashes and worldwide currency destruction accelerate everyone takes the bulls by the horns and try to sell off everything - buy Gold.
US$ 2’000 p/oz by end of May - even earlier.
http://www.youtube.com/watch?v=DlxuFenX8oA
Walter - that's pure speculation. I know Dr. Jeff, but that's what the gut is telling me.
What are the NZnational gold reserves in tons or - hmm - maybe kg's ?
Just try to find out here : http://www.rbnz.govt.nz/statistics/extfin/e1/description.html
I coudn't but..
.....For the second era of globalisation, however, New Zealand was more exposed to a currency crisis than the average country because of its weak fundamentals. Our out-of-sample prediction for New Zealand suggests that improvements in many of the policy areas (mismatch, debt to GDP, international reserves, etc.) in the more recent period meant that New Zealand faces much lower risk of a currency crisis today than a decade ago. However, the global business cycle can still exert powerful effects on small open economies like New Zealand even if they follow basically sound……….
Interesting reading anyway:
http://www.rbnz.govt.nz/research/discusspapers/dp09_17.pdf
Kunst, I believe NZ inc has a very small amount.. zero
http://goldsurvivalguide.co.nz/how-much-gold-does-the-reserve-bank-of-new-zealand-have/
This guy is a big wig, we should take note of what he says, he was involved with the formation of Opec and a chief negotiator for Saudi's. I posted it on yesterdays 10 @10 but late. I think he is giving us a warning thats needs to be taken seriously.
http://uk.reuters.com/article/2011/04/05/yamani-idUKLDE7340MU20110405
LONDON, April 5 (Reuters) - Oil prices could rocket to $200- $300 a barrel if the world's top crude exporter Saudi Arabia is hit by serious political unrest, former Saudi oil minister Sheikh Zaki Yamani told Reuters on Tuesday.
Yes – recent disasters caused by megalomaniac’s behaviour have clearly demonstrated – what is recommended and what’s not. I wrote a few weeks ago the world is on a tipping point, striving for growth is critical, the risk of “planet destruction” increasing.
Often what makes massive profit for big co- operations/ companies – a few, leads into a massive burden for taxpayers and the next generation.
Small nation need to think smaller with bigger ideas - a 100% pure NZeconomy – living within our means. There are plenty of NZresources gold, fresh water, etc. which should be industrialised, but in a sustainable way.
My thoughts: As a young, inventive NZlad- it is certainly not a bad idea to start up a small business on the Westcoast. The world obviously needs fresh water and gold.
Have this with your corfee Westminster...it's all about how your 'buddies' in the US govt and at the fed are nothing but a load of BS failures....bet you aint able to read the lot....!
The Economist - who rate New Zealand house prices as >20% overvalued, and Australian at >56%. That Econmomist, who previously also predicted the US property market fall ?
"Here kitty kitty kitty...come on pussy ...Bolly wants to give you a big hug"
"Premier Wen last month described inflation as “a tiger” that once set free will be difficult to cage, and also as a potential threat to social stability. “Exorbitant” house price increases in some cities are a top public concern, he said"
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