Bernard Hickey details the key news over the weekend in 90 seconds at 9 am in association with the Bank of New Zealand, including news the New Zealand dollar is opening up at around 81. 6 USc, just below its post-float high of 82.1 USc set in March 2008.
However, Moody's announcement of a downgrade of New Zealand's big four banks late on Friday afternoon took the top off the currency. See our article here.
Moody's said the weak New Zealand economy and the reliance of New Zealand's banks on short term wholesale funding were factors in the downgrade, which followed a similar one for their parents in Australia.
The move cements in the higher funding costs seen for the banks since the Global Financial Crisis. These higher funding costs have widened the margin for much lending vs the Official Cash Rate and has increased the margin between term deposit rates and the OCR.
Meanwhile, one reason for the higher New Zealand dollar was a move upwards in market expectations for the Official Cash Rate. Markets now expect 60 basis points of rate hikes over the next year, up from 50 basis points a week ago. Higher inflationary expectations are a factor in the move. See more here in Mike Jones' currencies commentary here.
However, respondents in an ASB survey see rates being relatively subdued. The survey found 11% actually see rates falling in the coming year, while 46% see higher ates. See our article on ASB's housing confidence survey here.
Elsewhere, Fitch has downgraded the outlook on its sovereign credit rating for Japan. See more here at Bloomberg on Fitch's ratings move.
Der Spiegel has reported the International Money Fund believes Greece will fail to hits its fiscal targets and it may have to withhold a tranche of funds. If this happened, it would cause major new turmoil on European financial markets. However, MarketWatch reported the IMF said the report was untrue.
In America, consumer spending in April was well below forecasts and existing home sales fell a surprising 12%. See more here on weak home sales at Bloomberg.
See more here on slow US consumer spending here at Bloomberg.
These fresh signs of a moribund US economy are expected to increase calls for further money printing by the US Federal Reserve, which would in turn further weaken the New Zealand US dollar.
(Updates to correct US dollar for NZ dollar in last paragraph.)
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11 Comments
The basic argument put forward by the "growth is good" gnomes and the importation of foreign capital is "good for growth" .. one only needs to examine the US experiment closely .. the US is running an annual trade deficit with China of $200 bn per annum, PLUS an annual deficit with middle-east-oil of $400 bn per annum in petro-dollars .. which end up in US Treasuries .. which is in effect the importation of $600 bn per annum into the US of foreign capital .. and it just doesnt seem to be working for them.
Telegraph on BOE changes - shame there's not more detail.
"It's a grand experiment in macroeconomic management the like of which has never been tried before. In addition to its existing powers to set interest rates and manage the money markets, the Bank of England will acquire responsibility not just for banking supervision but for controlling the credit cycle in the round – a function known as "macroprudential regulation".
Greece in a bad way....
"Three-month T-bills yield about 6%, the 30-year bond yields about 10.8%, and the big spike is at two years out where the yield is about 25%."
25%!
http://theautomaticearth.blogspot.com/2011/05/may-29-2011-honey-i-swapp…
""contagion in the CDS market"
http://online.wsj.com/article/SB100014240527023036548045763497415790952…
regards
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