David Chaston details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that there is an unbelievable rally in risk-correlated assets underway as we speak. It’s ‘unbelievable’ because there is great doubt it can last.
However, US stocks have risen sharply in Monday trading. The Dow was up as much as 2.5% at one stage, although it is off that high slightly now. US oil is much higher today, the highest it has been in three weeks.
Investors seem to be hanging their hats on the latest signs of progress in France and Germany's effort to resolve the euro zone's banking and sovereign-debt troubles. The better than expected US employment data at the end of last week in the US is helping also, along with a growing realisation that the US is not slipping back into recession.
And also helping was news from China that Beijing has intervened to help stabilise shares of the country's battered Big Four banks, pushing them higher and spurring a strong late-day rebound in the Hong Kong market. And China is letting its currency strengthen for a combination of its own policy reasons, and maybe in response to pressure from the US Congress. There are also signs in China that housing price pressures are easing, with falls in home sales during last week’s ‘Golden Week’ holiday period.
But investors seem to be ignoring more worrying European signs. The Germans and French have pushed back their debt crisis summit amid more tensions over Greece. And the Slovaks are the latest to threaten EU unity.
But such details are being ignored by investors today. Commodities are higher; the NZ$ is sharply higher overnight at 78.5 US cents. And gold is treading water still.
And finally a observation about the tolerance of investors for low yields. We have reported here before that the bid-to-cover ratio for NZ Government securities has gotten quite low recently. Well, the same is happening in Australia. After a while investors tire of yields below the inflation rate. Too much ‘safety’ causes your capital to erode, it seems. Perhaps that is another reason we are seeing see-saw demand for risk assets. Investors are flailing about on how to position themselves in this new era of the ‘great repression’.
Bernard Hickey will return tomorrow.
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