90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Dow closes up on renewed talk of QE III after weak economic data; Swiss National Bank slashes rates to 0% to weaken franc; Gold at record high

4th Aug 11, 9:07am 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 there was barely disguised panic in European financial markets overnight as fears grew about Italian and Spanish sovereign debt.

Prime Minister Silvio Berlusconi tried to reassure markets near the close, but failed to stem the tide. Italy must re enter the bond markets by September to replenish its coffers.

See more here at The Guardian.

Bond market vigilantes continue to beat up interest rates in Europe, causing European Commission President Jose Manuel Barroso to comment that such high yileds were 'unwarranted'. See more here at Reuters on the inability of Europe to contain the contagion.

Concerns about slowing growth in the United States added to the pain in Europe.

Data out overnight showed US services sector growth was the slowest since February 2010 and worse than expected. See more here at Reuters on slow growth globally in the services sector.

Markets will now be watching key US jobs figures on Friday night with trepidation.

However, the S&P 500 closed up 0.5% overnight on renewed talk the US Federal Reserve will try to act to restart America's economy with a third round of quantitative easing (QE III). See more here at Bloomberg.

As if to emphasise concerns about US money printing driving the US dollar lower, the Swiss National Bank shocked markets overnight by intervening to try to drive the Swiss franc down from record highs.

The Swiss central bank slashed its interest rate target to 0-0.25% from 0-0.75% to try to drag the currency down. See more here at Reuters.

There is also growing talk that Cyprus will need a European Union bailout. It is closely connected to the broken Greek economy.

All this drama and nervousness on international markets saw investors take risk off the table.

The New Zealand dollar fell to 86 USc and the gold price rose to a record US$1,675/oz. See more here at Bloomberg.

(Updated with more details, links)

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17 Comments

by Wolly | 4th Aug 11, 9:19am 1312406377

QE3...hahahaharrrr what a standing joke the fed has become..how soon now before Barry invokes the shitty US law to steal gold from the citizens game enough to hide their property from the thieving govt.

by michael | 4th Aug 11, 10:03am 1312408998

Long time wolly, it is all a big laugh, what do you make of the Swiss Fr, a lot of eurozone mortgages going under water line due to the increasing value of the Swissie. Euro housing mkt in real danger. Unless the G7 comes to the rescue there is nothing that the SNB can do.

by HAPPY RENTER | 4th Aug 11, 10:20am 1312410044

As if we don't have any problems here. Soon we will probably see 0% here in NZ, just to keep the asset values up and exports flowing. They did the same thing in the US. They raised rates to 5.25%, sufficient to start the real estate market crashing, then proceeded to drop it to 0% (after realizing they went too far too late), where it has been for the last 2 years.

Other countries are merely following suit, Aussie won't be far behind, now that their high mortgage rates are sufficently killing the real estate market there, having ripple effects accross the pond here. We'll know soon enough. Our currency being so high makes for fewer exports. That means deflationary Depression for us, and inflatonary Depression for them. Which is worse? They're both bad.

"People go bankrupt slowly, and then all at once." -Ernest Hemmingway

by FCM | 4th Aug 11, 10:02am 1312408965

At what stage do you think they will rename the US dollar to the US peso?

by michael | 4th Aug 11, 10:06am 1312409208

FCM... what is your problem with the peso ?

by FCM | 4th Aug 11, 11:08am 1312412888

My point being with QEIII you going to need a lot of USD to buy that burger....a bit like the Peso...

by steven | 4th Aug 11, 11:19am 1312413586

Hmm, so you see hyper-inflation? After three years and QE1, QE2 and Obama's small stimulus, just where is core inflation? something like 1% and heading down....that means deflation.

QE3 will do like the QEs before it, little....its not getting out into the real world.....and US unemployment is 20%, so 20% that cant afford a burger and are fighting to work there. You miss I think the size of the black hole created from consumer demand collapsing and that these stimulu's are too small by a factor to fill it.

regards

by iconoclast | 4th Aug 11, 2:46pm 1312425961

The problem for the Federal Reserve is it's Balance Sheet is so heavily laden with toxic assets from the TARP plus the expansion due to QE1 and QE2 it is doubtful if it has the capacity to do another round. It's Balance Sheet is now close to $4 trillion of dead money that isn't going to be reversed anytime soon. The only option is to inflate it all away.

by kiwipete | 4th Aug 11, 11:17am 1312413454

Bring on the currency wars. Each nation desperately trying to lower the value of its currency at once to keep its exporters and economy moving.

The problem with this is - not every country can run a trade surplus at the same time. Somebody must run a deficit. So is it going to turn into a competition of who can print the most money? After all, once your rates are at basically 0% then you can't go any lower... unless we are going to see negative rates soon?

The PIIGS economies are being decimated right now as they cannot devalue the Euro. When are they going to wake up and realize this? Spain, Italy, Greece, Portugal and Ireland are better off having their own currencies, they are better off positioning themselves as the fabulous toursit destinations they always were.

Greece cannot grow its way out of this recession. America can actually achieve a lot by devaluing the USD, it will reviatlise its manufacturing industry. They really have no other choice.

When the US devalue the USD they indirectly force other countries to devalue too to keep their Fx rates down and their exports competitive. So they are exporting inflation around the world. It's no wonder commodity prices have taken off the way they have done.

by steven | 4th Aug 11, 12:10pm 1312416605

"who can print the most money?" yes basically....or as someone said the race to the bottom....

However you have to have something to export.....looks like the US has uh debt.

Once at 0% you start QEing which is money printing in all but name.

PIIGS, Greece is stuffed it has nothing ppl want IMHO, at least Ireland has exporters, though with EU a basket case just who will be buying is teh Q. Anyway its now on Italy and they are about 7% and climbing. Add in the stuff Ive seen suggests investors are running out of the EU to the US as they see a blow up, and also italy is to big to save and so is Spian probably and I cant see how it can last....

"When the US devalue the USD they indirectly force other countries to devalue too to keep their Fx rates down and their exports competitive. So they are exporting inflation around the world. It's no wonder commodity prices have taken off the way they have done." yep....and of course the US banks are awash with money given under QE 1 and 2 for almost free....so they are buying like crazy....

Every day now I wake up and I wonder if I wont see a specticle on the TV like 9/11 where the EU is collapsing around their ears....at which point Im going to run to the shops and banks and get as much food and money as I can.

regards

by Wolly | 4th Aug 11, 12:14pm 1312416853

I wonder who will get the Speaker's boot up the bum today!..the precedent has been set....could be quite a fun show.

by Wolly | 4th Aug 11, 12:18pm 1312417136

I suspect somebody at St Paul's Cathedral in Dunedin will be going through the historical accounts right now!

by Wolly | 4th Aug 11, 12:26pm 1312417569

"INVESTORS are betting the Reserve Bank will slash interest rates by almost 50 basis points before Christmas, amid fears that a financial storm threatens world markets."

http://www.theage.com.au/business/market-bets-on-rate-cuts-20110803-1ibov.html

Meanwhile over this side of the ditch....the market is expecting the ocr to go up by 50 basis points!

Do I smell parity with aus before xmas!

by Frazcam | 4th Aug 11, 12:57pm 1312419448

Who can follow what is happening - Aussie and here raised rates too quickly and are now paying for it. However, our banks are starting to raise rates for loans - if not TDs. I hope Mr Bollard doesn't make the same mistake again and follow the hue and cry of the raise rate lobby and act too soon. It is still extremely fragile here, in all senses, and businesses are suffering big time. The best way to stop wasteful spending would be to leave the OCR alone and bring in stricter credit lending criterior, then stopping the wanton lending of money for consumer debt. Low loan rates are necessary for business, but not for TVs etc (I would like to add that when I say TVs, I mean televisions and not Transvestites - as they are entitled to as much debt as the rest of us).

by goNZ | 4th Aug 11, 1:32pm 1312421557

better slash the OCR pretty quick , maybe 20% devaluation too Mr Bolli - its all getting a bit ugly

by Gareth Vaughan | 4th Aug 11, 2:31pm 1312425114

I have asked the RBNZ ostrich and here's the answer: "As you’re probably aware, the Bank does not comment on such things."

by Wolly | 5th Aug 11, 7:22am 1312485775

Is this the time to grasp the falling knife?.....only if you wanna cut your fingers off...time for new song sheets for the media market sprookers cos the old faces and old tunes don't cut the mustard no more...Dow and other rubbish in full retreat...QE2 was a failure...QE1 was insane...QE3 is being born.

Meanwhile the ECB is trying to bullshit the markets promising to throw the printing press at the debt hole...only nobody sees it as a solution so the pain in Spain etc etc

Bernanke has lost control of the RB bosses where it matters...he cannot QE3 his way to a lower currency anymore as the other key players will print as well. The endgame is here and now. That will not stop him proving what a fool he is.

Funniest of all is the flight to US Treasuries..but I spose the point is, where else can aymericans run to...property?..ooops no....gold?...maybe but they know Barry will move to steal it from them.

So they buy govt IOUs backed up by the weak and useless govt.! go figure

Next step in this trainwreck?....worldwide market collapse? back to 08 let's not be late...haha