90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: US markets weaker despite debt deal as doubts set in and manufacturing weakens; NZ$ off highs; HSBC cutting 30,000 jobs

2nd Aug 11, 9:03am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news US stock markets were weaker overnight despite initial relief that Republicans and Democrats have agreed on a way to raise the US debt ceiling and avoid default...for now.

The deal included US$911 billion of spending cuts over the next 10 years and plans to find a further US$1.5 trillion through a bi-partisan committee by the end of the year.

In return, the debt ceiling would rise by US$2.1 trillion, which would be enough for US President Barack Obama not to have to ask for another increase until 2013, after the Presidential elections.

However, the deal has yet to pass through both houses of Congress and there are many Republicans unhappy about that the spending cuts are not enough and many Democrats unhappy there are no tax increases. See more here on the vote prospects at Bloomberg.

Also, the deal does not include the US$4 trillion of improvements needed to keep America's credit rating, although some think it is unlikely to affect demand for US Treasuries that much. See more here from Bloomberg.

Stock markets fell overnight (see more here at Reuters) after data showed US manufacturing expanded at its slowest pace in 2 years, increasing fears America is sliding back into recession right at the time the government will be cutting spending. See more here at Reuters on the manufacturing slide.

However, US Treasury yields fell to 2011 lows on concerns about the economy and receding fears about inflation. The US 10 year yield fell to 2.74%. See more here at Bloomberg.

Fears about the slowing growth saw appetites for riskier currencies wane.

The New Zealand dollar fell from its highs and was down around 87.7 USc in early trade.

Meanwhile, global banking group HSBC announced 30,000 job cuts and plans to exit 20 countries. See more here at BBC.

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23 Comments

by Andrewj | 2nd Aug 11, 9:08am 1312232880

Italy in eye of the storm as cash runs low

Fears of a double-dip downturn on both sides of the Atlantic have set off fresh mayhem in Southern European bond markets, dashing hopes that Europe's summit deal in late July would contain the escalating crisis.

http://www.telegraph.co.uk/finance/economics/8675928/Italy-in-eye-of-th…

JP Morgan warned clients that Italy has a thin margin of safety and risks running out of cash to cover spending as soon as September. "Italy and Spain will run out of cash in September and February respectively, if they lose access to funding markets," said the bank's fixed income team of Pavan Wadhwa and Gianluca Salford. Worries about Italy's immediate cash level risks leading to "a self-fulfilling negative spiral."

by Andrewj | 2nd Aug 11, 9:12am 1312233175

That Which Is Too Fearful To Speak: The Demise of the Consumer Economy

by Roelof | 2nd Aug 11, 9:25am 1312233959

AndrewJ.... great link.

I tend to agree with the author..

by Andy Rodgers | 2nd Aug 11, 10:15am 1312236927

AndrewJ - Charles High Smith is one of the most insightful commentators regarding financial matters. This is probably because he is not an economist. Have you read his latest book

An Unconventional Guide to Investing in Troubled Times

by Andrewj | 2nd Aug 11, 10:29am 1312237773

Ive just downloaded it onto my kindle but Ive about 5 books on the go, just got to finish, 'Empire of the clouds, when Britians aircraft ruled the world'by james Hamilton -Paterson, and I will be onto it.

by steven | 2nd Aug 11, 10:39am 1312238377

His first paragraph,

"The next 20 years will not be a simple extension of the previous 20 years. Everything that is currently seen as permanent--the Savior State, the financialized economy, cheap energy-- is visibly unsustainable. Status Quo personal finance strategies--"buy and hold" and global diversification--are doomed by their reliance on increasingly unstable global markets and a myopic focus on the rearview mirror--the recent past is no longer an accurate guide to the future."

Totally agree, personally.

regards

by Plutocracy | 2nd Aug 11, 12:26pm 1312244779

Shhhhh...

Don't start gonzo or David B!

by goNZ | 2nd Aug 11, 12:44pm 1312245846

too late ! the Aussies arent caving into the Greens and thats with a Leftie as PM !

The AA also wants our Government to follow Australia's lead and not burden motorists with a carbon tax.

Julia Gillard has confirmed the new Australian carbon tax won't apply to fuel for individual motorists.

This country's Emissions Trading Scheme imposes three cents per litre at the moment, but is likely to rise to six cents per litre by 2013.

AA PetrolWatch spokesman, Mark Stockdale, says we're lagging behind.

"Their prices are much lower than New Zealand's so Kiwi motorists are really suffering and if it's good enough for Australian's to exempt fuel from the ETS, it's certainly good enough for New Zealand."

SORRY AA BUT WE LEAD THE WORLD , WE'LL SAVE THE PLANET,(yeah right)

by steven | 2nd Aug 11, 10:30am 1312237816

Yep......

regards

by Andrewj | 2nd Aug 11, 9:19am 1312233563

http://mondediplo.com/2011/08/02iceland

by steven | 2nd Aug 11, 10:38am 1312238333

Steve Keen's view on the RBA's probable rise of the OCR today.

http://www.debtdeflation.com/blogs/2011/08/01/high-noon-tuesday-at-the-…

"That’s if you believe that the Taylor Rule actually describes reality—I categorically don’t. The only arguments in the Taylor Rule are the policy interest rate, the inflation rate (actual and target) and the growth rate (actual and target). Like all neoclassical models, it ignores the role of private debt in the economy. Now that private debt is falling from unprecedented levels in Australia, two factors that aren’t even considered by the RBA’s exclusively neoclassical economic models are really determining the economy’s direction: the level of debt that is constraining consumers, and deleveraging by both households and firms that is reducing aggregate demand.

Pulling the interest rate trigger may blow the economy’s (and the Sheriff’s) brains out."

regards

by Andrewj | 2nd Aug 11, 10:53am 1312239191

http://www.telegraph.co.uk/finance/comment/jeremy-warner/8675955/Whats-…

by scarfie | 2nd Aug 11, 11:14am 1312240471

I don't know if anyone has been following the IPONZ/Dominion Breweries/SOBA case over the use of the term Radler, but here is an amusing story of one of the small guys fighting back.

http://www.nzherald.co.nz/lifestyle/news/article.cfm?c_id=6&objectid=10741738

Just the sort of kahunas required in these times I believe.

by steven | 2nd Aug 11, 2:44pm 1312253053

I wasnt impressed they had tried to or indeed had corner "radler"

Love the piece above.

regards

by John Kelly | 2nd Aug 11, 5:48pm 1312264124

Yep, been following it and it doesn't put IPONZ in a good light. Radler means cyclist and the reason it's so called is that lots of cyclists like to drink it. I've done quite a bit of cycling in southern Germany, and it has been one of life's great little pleasures along the way. In England, lots of trampers drink shandy, so presumably that's the next trademark. Silly, silly IPONZ. Oh, by the way, Radler is shandy. except when DB make it. Another word Someone might care to trademark is panache, (with an e acute).

by meh | 2nd Aug 11, 12:28pm 1312244908

An interesting analysis.

How Deep is the Global Economic Rabbit Hole?

http://www.marketoracle.co.uk/Article29610.html

by steven | 2nd Aug 11, 1:11pm 1312247466

Peak oil, tight for 2012?

"Goldman Sachs Group Inc. has, in a recent report, said that oil supplies would become "critically tight" in 2012. Analysts of the bank predict that oil prices could go even higher as spare production capacity and inventories are "effectively exhausted."

"Prices and returns will rise further later this year and into 2012," a report from the bank said, predicting that Brent crude would average at $120 in six months and $130 in 2012. An EIA report estimates that the oil demand will surpass production by 1.16 million barrels per day this year. The reports also suggests that the oil demand around the world to rise by 1.6 million bbl/d in 2012, a gap of 0.5 million barrels per day (only with increased production). The IMF, for its part, in the updated World Economic Outlook (WEO) for 2011, puts the assumed price for oil based on futures market at $105.25 in 2012. Analyst Hussein Allidina, from Morgan Stanley, said "We remain bullish on oil, particularly in the second half, and expect inventory draws will prompt OPEC to increase production, at the expense of spare capacity".

http://oil-price.net/en/articles/tighter-oil-supply-in-2012.php

regards

by OMG | 2nd Aug 11, 3:24pm 1312255462

From the WSJ yesterday.

BY ALEXIS FLYNN

LONDON—Most European major oil companies posted a surge in quarterly profits last week, but their results were overshadowed by a trend that continues to trouble Wall Street and corporate boardrooms: Nearly every major oil company reported year-to-year oil-and-gas output declines, often in the double-digits.

Big Oil is throwing huge resources at the problem with more open embrace of unconventional petroleum developments, high-risk exploration in frontier areas and corporate restructuring. But even if these strategies work in some cases, there is little doubt that anemic petroleum output signals a long-term challenge confronting the sector.

by steven | 2nd Aug 11, 3:48pm 1312256884

All of this screams very expensive oil....I really think theppl buying Z will find it bad news......

Outside producing oil, big oil has never been able to make money on other energy plays, its not efficient at it, its fat and lazy as making money off oil is easy. So the future isnt big oil...now sure, fat profits...in 10 years? not sure at all.

regards

by Wolly | 2nd Aug 11, 2:25pm 1312251927

Wages not keeping up with inflation.....which means the RBNZ has failed...if inflation runs ahead of incomes the outcome is obvious....I wonder if Bill English has woken up to the fiscal outcome!

Either Bollard gets the inflation rate down below 1.5% where it belongs, if not lower, or the fiscal deficit will grow larger as real govt tax revenue shrinks...meaning Bill must borrow more.!

See the thing is, Bill's infrastructural splurge will expand by the rate of inflation...but silly Kiwi will be spending the same amount if not less as the belt is tightened.

Watch carefully as the Sir Humphreys in Wgtn are given fat salary increases and how they in turn decide the mps deserve fat salary increases....sooooo much back scratching!

by steven | 2nd Aug 11, 3:11pm 1312254679

Actually in terms of low employment which I would argue is amongst the most important factors to consider, nearer 3% is where it belongs....Also globally everyone see's inflation in CPI at the same time, result possibly a net zero?

Im also pretty sure that some ppls wages has always fallen behind inflation as some ppls exceeds it, if the NET was higher teh RB would act. So....all you are possibly seeng now is yours is/has....so Wolly wants pork barrel just like everyone else, suck it up mate.

regards

by kiwipete | 2nd Aug 11, 2:49pm 1312253342

I read that Italy has a massive amount of short term government lending expiring in 2012, we are talking billions or trillions.

I think the whole of Southern Europe is just a ticking timebomb. It's only a matter of time before one folds, starting a domino effect. Will hopefully mean a return to their old currencies and cheap holidays to Southern Europe once again!

by John Kelly | 2nd Aug 11, 5:32pm 1312263141

Yep, really looking forward to those sundrenched beaches on the Costa Notalotta. I have promised Greece a visit within a year of them quitting the smoke-and-mirrors euro.