Zero US jobs growth in August; Pressure on Bernanke and Obama to revive economy; US files massive law suit against banks; NZ$ down vs US$
Bernard Hickey details the key news over the weekend in 90 seconds at 9 am in association with Bank of New Zealand, including news there was no net jobs growth in the US economy in August, confirming fears the world's largest economy is sinking back towards recession.
Signs the US economy were stalling drove the S&P 500 down 2.5%.
The onus is now on US President Barack Obama to announce something substantial in his live televised speech to Congress due at 7 pm Thursday US Time (Friday 11 am NZTime).
He is widely expected to ask for an extension of a payroll tax break and some sort of job creation scheme. But he has little room to inject more fiscal stimulus into the US economy given heavy political opposition and worries about the US credit rating.
Meanwhile, the US Federal Reserve has a two day meeting of its main policy-making committee on September 20-21 where it is expected to consider more stimulus. There are doubts however it will be able to agree to a large stimulus including a third round of money printing or quantitative easing (QE III). That's becasue the committee was seriously divided at the last meeting with three objections and with signs of inflation building in America.
Some are talking about a move by the US Federal Reserve to sell short term Treasury bonds and buy long term Treasury bonds to lower longer term rates further. However, households and companies seem very reluctant to borrow more even with record low interest rates.
Elsewhere, the US government has announced a US$196 billion law suit against America's biggest banks, alleging it misled investors when selling toxic sub-prime bonds as the US housing market was beginning to collapse. The details emerged late on Friday and pressure on stock prices is likely through our trading day and into Asia, given US stocks are on their Labor day public holiday overnight.
The New Zealand dollar fell to 84.5 USc after the weak US jobs numbers and the US stock market fall. Our currency tends to rise and fall in line with the US stock market because it is seen as a riskier currency that responds to appetites for risk globally.
However, the New Zealand dollar remains strong against the Pound, the Euro and the Australian dollar. The Reserve Bank of New Zealand is still widely expected to raise our Official Cash Rate (OCR) in December, while the Reserve Bank of Australia is expected to leave its cash rate on hold on Tuesday and may cut its 4.75% rate later this year. The European Central Bank is also expected to have to cut rates again and the Bank of England is expected to print more money.
All these moves widen the gap between New Zealand rates and British and European rates, while the Australian yield advantage with New Zealand would narrow. All these moves make the New Zealand dollar relatively more attractive.
However, the mood on a Kiwi rate hike may be shifting. Goldman Sachs is now saying a March rate hike is more likely, while the NZIER has called for a June hike. The big four bank economists are sticking with a December rate hike forecast.
No chart with that title exists.
4 Comments
The United States must address the issues of debt, spending, tax reform to boost private sector growth and a stalled trade policy," he added (R. Zoellick), warning starkly: "The world economy is entering a new danger zone this autumn."
This is an interesting perspective re the Seripisos property portfolio;
However, most thought that the creditors would opt for an orderly sale rather than force him into bankruptcy and see a flood of mortgagee sales.
One reason for this was that lenders stood to make significant GST gains by an orderly sale compared to mortgagee sales, by which Inland Revenue, as preferential creditor, gets GST on every sale. Mr Scott said a controlled sale was best for the market as the 150 residential properties represented only about one month's average supply.
Here Is the problem Ben. People got too much debt, needs to pay it off. Companies got too much debt needs to pay it off. They can't borrow more cause they got too mcuh debt. They needs to pay off the debt first then they can borrow some more money.
Hows about some inflation to help with the debts, that way the people and the companies can sell the stuff that they bought, for more then they paid for it, then they can pay off the debt and borrow some more money.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.