90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Merkel and Sarkozy fail to deliver Eurobond hopes and instead eye financial transactions tax; Dow down; NZ$ firm after solid Fonterra auction

17th Aug 11, 8:57am 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 that German Chancellor Angela Merkel and French President Nikolas Sarkozy met overnight in another attempt to calm down markets roiled by fears about European sovereign debt.

Markets had hoped they could agree on a plan for new common Eurozone bonds and a common fiscal policy to go with the Eurozone's common monetary policy.

Instead, Merkel and Sarkozy said the Eurozone was a long way off being ready for common Eurozone bonds and instead suggested a vague plan for closer budget integration, including more strictly-enforced deficit limits and bi-annual summits.

Europe already has budget deficit targets, but they have been widely ignored.

The leaders of Europe's two largest nations also agreed to resubmit plans for a financial transactions tax in September. This tax has been rejected once before. It is often referred to as a Tobin Tax or a 'Robin Hood Tax' and would involve a very low tax on all financial transactions. See more here at Reuters.

The announcements from the Sarkozy-Merkel summit came after European stock markets closed. The Dow closed down around 77 points or 0.7% and the S&P 500 ended down 1% on some disappointment about the lack of European action.

Also, news emerged overnight of very weak economic growth in Europe in the June quarter. Growth in Germany stalled. Oil prices fell overnight on the news of weaker growth and a likely weakening of demand. See more here at The Telegraph.

Meanwhile, in America, President Barack Obama has pledged to come up with a new 'specific' jobs plan next month. See more here at BBC.

Also, Fitch affirmed America's credit rating at AAA. See more here at Reuters.

The New Zealand dollar was relatively firm overnight at around 83.6 USc despite the weakness on Wall St.

Fonterra's fortnightly GlobalDairyTrade internet auction of milk powder saw prices fall just 0.9% in the first sale since the latest bout of economic and market turmoil. See more results here.

However, milk powder prices have now fallen 21.9% since peaking on March 1. Over the same time, the New Zealand dollar has risen 11%, delivering a double whammy to the New Zealand dollar earnings of Fonterra.

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24 Comments

by SimonP | 17th Aug 11, 9:23am 1313529818

Anyone want to pick a date for when the Euro will be dissolved and countries will go back to their own currencies?

Either Germany et. al. bail out the indebted countries or they let them leave the Euro so that they can depreciate their currencies to a point where they are competitive again.

You can't have currency union without fiscal union in a severe recession.

by Wolly | 17th Aug 11, 9:33am 1313530384

Don't know about a date SP but it will not happen until the pollies and bankers and other shites involved have moved their wealth out of harms way.

by Nicholas Arrand | 17th Aug 11, 9:33am 1313530425

21st December 2012...of course..!

by kiwipete | 17th Aug 11, 10:51am 1313535070

There was a very interesting interview with George Soros recently where he said (about Germany having to support Euro-bonds) ....

Soros: There is simply no alternative. If the euro were to break up, it would cause a banking crisis that would be totally outside the control of the financial authorities. So it would push not only Germany, not only Europe, but also the whole world into conditions very reminiscent of the Great Depression in the 1930s, which was also caused by a banking crisis that was out of control

I can see that Greece and Portugal will leave the Euro, but the others will stay in. Germany has no choice but to support Eurobonds or face the prospect of a severe recession/depression. After all - if all those countries went back to their own currencies (which would plummet in value) - what would that do to Germany's exports? How many of them would be able to afford BMW's and Audis after that event?

by me | 17th Aug 11, 9:45am 1313531147

Not too sure of the year, but it will be on 1 April

by Wolly | 17th Aug 11, 9:48am 1313531311

"It's all filtering down from the bigger picture, the recession and the wineries not being able to pay the vineyards properly and the vineyards not paying the contractors and so on and so on.

"It's not just here; it's everywhere. It's all over Marlborough I think."

They had listed their vineyard for sale, but vineyards were not selling, she said

http://www.stuff.co.nz/marlborough-express/5452140/Protest-reflects-wine-industrys-web-of-failed-payments/

by scarfie | 17th Aug 11, 10:16am 1313532977

Haha, I have mentioned before the conspiracy with RE agents over vinyard listings. They don't put all those available up officially as listings, or it would spook the market because there are so many. I would be interested to know if many have sold in the last 2-3 years.

by Andrewj | 17th Aug 11, 11:10am 1313536234

Montana are retiring a large area, they will pre prune and watch to see what happens in the next year. The indians around here are out of work, I drove past a big apple orchard yesterday and was surprised to see two big diggers ripping everything up, this orchard is beside a big Mr Apple orchard that was SCF. It looks to me as if the industry will slow motion implode and we will be left with a few medium wineries and not much else. Costs have been going up at %10 a year and no industry can take much of that, the dairy indiustry is where the real action will happen. I would think you could by any vineyard you wanted to around here, just name a price. Savi-blanc is really in trouble people have gone of the green taste and they will get hammered, productiuon needs to fall %50 and even that may not be enough. A friend in Chile is struggling to sell wine at any price in this market, and they have significant price advantage over us, he thinks that we are stuffed.

by steven | 17th Aug 11, 11:20am 1313536812

Which begs how will the council rates be paid (if nothing else). In marlborough, the council apparantly sets the ratesper acre based on grape returns. Farmers were saying to me that they were being forced to grow grape as a result. So if this wine industry collapses, and i think it will, the income from the councils will also collapse...etc etc...

regards

by Wolly | 17th Aug 11, 11:26am 1313537199

Shhhhhh....you're not supposed to ask damaging questions about the way councils farm the ratepayers.

by speckles | 17th Aug 11, 1:08pm 1313543305

Same deal in Oregon and Napa USA. The smart players have been trying to get out for the past five year...too much new world wine...only have a few clients in the industry now...all for sale.

by Gareth Vaughan | 17th Aug 11, 10:12am 1313532759

Fletcher Building has released its annual results and its outlook isn't particularly upbeat:

“Market conditions have been tougher than we anticipated at the start of the year, with no recovery evident in New Zealand, and Australia showing clear signs of having slowed in the second half. Looking ahead, we remain uncertain around the timing and pace of a recovery in the New Zealand construction industry, but are well positioned for the upturn when it comes”, CEO Jonathan Ling said.

"In New Zealand, the outlook is for a very gradual improvement in housing starts, but from a very low base. In addition, the rebuilding of Christchurch is expected to gain momentum throughout the year (to June 2012) which will boost the construction industry overall. Leaky homes remediation is expected to accelerate now that enabling legislation has been passed. The commercial outlook remains patchy with increased activity in some sectors but limited growth in aggregate. Infrastructure is expected to remain robust, underpinned by central government spending."

"In Australia, an improvement in the housing and alterations and additions sectors is not expected in the near term, with demand expected to stay at its current reduced levels. The short term outlook for the commercial sector is also seen as being subdued. The continued strength in the mining sector, and ongoing government investment, should underpin infrastructure spending."

"Trading conditions in both North America and Europe continue to remain flat with no recovery of significance expected in these markets in the near term. Recent external economic forecasts have been downgraded and expectations and timing of any recovery continue to remain uncertain. Conversely, China, South East Asia and Taiwan are exhibiting growth and the outlook remains positive for this region."

by scarfie | 17th Aug 11, 10:17am 1313533054

We won't ever see good housing in New Zealand while Fletchers is still a dominant force.

by Andy Rodgers | 17th Aug 11, 11:11am 1313536307

That's very true. The quality of housing throughout NZ, even new builds, is exceptionally low.

by steven | 17th Aug 11, 11:15am 1313536512

Proof? URL(s)?

regards

by scarfie | 17th Aug 11, 11:19am 1313536793

YOu don't need to far past Frank Lloyd Wrights Usonian houses to see what good affordable housing should bel like, compare that to the often quoted Levittown tripe.

by steven | 17th Aug 11, 11:24am 1313537044

"Despite Frank Lloyd Wright's aspirations toward simplicity and economy, Usonian houses often exceeded budgeted costs."

http://architecture.about.com/od/franklloydwright/g/usonian.htm

regards

by scarfie | 17th Aug 11, 6:36pm 1313562974

Don't Architects always run over budget. Lol.

He had to drop his commission on Usonia 1, which was 10%. Still it was a vastly superior house to anything that Levitt did. As I explained to PhilB the other day, Bill Levitts brother Alfred served as an apprentice under FLW for a year. Didn't help him much, particularly when you consider he worked on usonian houses and lived at Taliesin.

by Matt in Auck | 17th Aug 11, 6:51pm 1313563863

the usonians are of elegant design, however they are not all that simple, at least within a "modernist" context of simplicity

by steven | 17th Aug 11, 11:31am 1313537519

I think there will be great opportunity to look at re-designing surbubia etc....The last 50 years has been an anomaly, cheap and bountiful energy has created an unfeedable monster...I dont think NZ has suffered as badly as the US in this respect but is sur elooks like the likes of HP would like it so.

Interesting thing is PDK's house, I must ask if he has plans to look at.

regards

by Matt in Auck | 17th Aug 11, 6:48pm 1313563730

have you seen Stonefields Scarfie? The houses look pretty well built and solid, but the actual aesthetics of the housing design is pretty mediocre. And the detached houses that front the main road are separated from each other by about 2-3 metres - horrible little shaded "nothing spaces" between the houses. Terraces / duplexes would have worked far better. Its a busy / noisy main road too - don't understand the apparent popularity of the houses, which are far from cheap.

by scarfie | 17th Aug 11, 6:56pm 1313564208

I actually did a Tech assignment on one of the houses there, so I agree with your comments except for the well build bit. Well perhaps they are well built as such, just built the wrong way.

I did a sneaky and got a copy of the geo tech report, which I am sure Fletchers wouldn't have been pleased about. Unlike most Architecture students I know how to read one:)

Quote "the use of rigid claddings are not recommended".

There is a variation in height of up to 10m in the base of the old quarry, which has all been filled in. The engineer expected subsidence and so hence the recommendation. We saw evidence of it around the foundation of the house we were documenting the construction of.

God who would want to live down in a hole anyway, it will be cold!

by Matt in Auck | 17th Aug 11, 6:44pm 1313563442

yes times are certainly tough in construction with little light on the horizon

by John | 17th Aug 11, 10:21am 1313533275

Great Germany calling the shots!!!

Ever looked at Germany as a place to migrate too?