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 put America's AAA credit rating on negative outlook, warning the world's biggest economy may not be able to fix its fiscal problems before 2013.
The US government is currently running a budget deficit of almost 11% of GDP and more than 40% of its spending is funded through borrowing, some of it from the US Federal Reserve through its money printing programme. See more here at Bloomberg.
The Dow fell as much as 1.4% on the ratings outlook. The change was somewhat surprising, given the position of America in the global economy and its ability to use its status as holding the global reserve currency to effectively force growing amounts on of debt on the world's savers. See more here at Reuters.
Meanwhile the Euro fell sharply and the the FTSE 100 and DAX stock market indices in Britain and German slumped after new problems emerged in Greece.
The IMF was reported to have recommended a restructuring of Greek debt, bowing to the inevitable after almost a year of bailouts. Many fear restructuring will force European banks and pension funds to book big losses and seek new capital, again stressing the global financial system.
The Greeks have denied they need a restructure, but financial markets are now pricing in a 65% chance of a default unless a restructure happens. See more here at Bloomberg.
The 2 year Greek bond yield rose to 20% and Spanish bond yields rose, raising fears that the biggest domino in Europe's Sovereign Debt Crisis may fall.
Also, surprising Finnish election results also unnerved markets. The True Finns party, which was against the Greek bailouts, won 19% of the party vote in elections over the weekend. See more here at Bloomberg.
Turmoil on global markets matters for New Zealand because it makes it more difficult and expensive for New Zealand to roll over its short term foreign debts, which are currently running at around 50% of GDP.
The New Zealand dollar fell back towards 79 USc overnight as markets looked to reduce their exposure to 'riskier' currencies and after lower than expected inflation figures here saw wholesale interest rates drop slightly. See Alex Tarrant's article here.
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