90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: NZ$ under 76 USc on market worries about global economy; Markets now see RBNZ cutting OCR; European fears deepen

18th Nov 11, 9:01am 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 the New Zealand dollar has fallen under 76 USc and appears headed for its 7 month low from early October of 75 USc as market fears deepen about a global economic downturn caused by the European sovereign debt crisis.

Financial markets in New Zealand are now expecting the Reserve Bank of New Zealand will have to cut the Official Cash Rate by 11 basis points over the next year. See more here in BNZ's currencies report on our site.

See more here in this Bloomberg chart.

Weak Producer Price inflation data for New Zealand yesterday reinforced those expectations about the Reserve Bank having to cut the OCR from its current record low of 2.5%.

Markets are more worried about the global economic outlook than bank economists, who are still expecting the central bank will have to increase the rate from June 2012 as inflation pressures and economic growth builds with the Christchurch rebuild.

European stocks fell 1% overnight and US stocks were down more than 2% in late trade on growing fear the European debt crisis is spiralling out of control and could spread to America through its banking system. See more here at Bloomberg.

Fitch warned the European crisis could affect US banks and also warned it may cut Italy's credit rating to a lower investment grade.

Spain's borrowing costs jumped to almost 7%, seen as the crucial level beyond which a country often needs a bailout. See more here at BBC.

France and Germany are also increasingly at odds over how to solve the European crisis, with France keen on the European Central Bank intervening massively to support bond markets, while Germany is opposed to such ECB intervention and is more worried about money printing and inflation. See more here at Bloomberg.

Gold fell more than 3% to US$1717/oz and oil fell more than 4% on worries about global economic growth.

Also, there are concerns that Republican and Democrat politicians on a 'SuperCommittee' designed to agree on US deficit cuts are struggling to come to an agreement before a deadline next week.

Big automatic cuts in US government spending kick in from early next year unless they can agree, potentially forcing the US economy back towards recession. See more here at Bloomberg.

No chart with that title exists.

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41 Comments

by neco | 18th Nov 11, 9:17am 1321561031

Just in must read from ZH:

"The Entire System Has Been Utterly Destroyed By The MF Global Collapse" - Presenting The First MF Global Casualty

http://www.zerohedge.com/news/entire-system-has-been-utterly-destroyed-mf-global-collapse-presenting-first-mf-global-casualty

by Andrewj | 18th Nov 11, 9:30am 1321561838

makes sense of this

http://finviz.com/futures.ashx

by michael | 18th Nov 11, 10:19am 1321564770

The NZD is in a death by a million cuts mode, instead of droping the rate why don´t you simply adhere to the AUD as the single currency in that time zone and stop the BS.

by Chris-M | 18th Nov 11, 11:45am 1321569945

I used to think that too, but changed my mind. I realised that the strength of their mining industry had increased the strength of the A$ so much that it has completely undermined the rest of their ecconomy. Imports are too cheap for their local manufacturers to compete and their other exports are not compedative with high A$ costs. The so called two speed ecconomy. If we were tied to their exchange rate our whole ecconomy would be similarly distorted. This is the same reason why the European common currency is a completely crackpot idea and the reason why the Brits are glad they kept out of it.

by michael | 18th Nov 11, 12:05pm 1321571111

I see your point, but in reality the NZD is pegged to the AUD in a rising floor range that makes me think that the trading currency is actualy the AUD and not the NZD in theat area. If it was the NZD the demand would make for a totaly different exchange rate. How do you explain that ?

by Chris-M | 18th Nov 11, 1:34pm 1321576484

I guesse that they do tend to move in tandem over a short duration. Particularly in reacting to the momentous overseas swings and that would be logical as not that much has changed between the two countries. However over a longer period it does change and sometimes quite markedly. Generally these differences have been for obvious and logical reasons - stronger exports, higher interest rates. See the attached chart - http://www.xe.com/currencycharts/?from=NZD&to=AUD&view=5Y

by michael | 18th Nov 11, 3:39pm 1321583948

Chris your chart is the same one that I see -AUD/NZD- and the long term trend is strong to the upside, higher highs and higher lows. Has the rate diferential favoured the AUD for the past six years? If it has not then I find this long term trend difficult to explain or understand.

by John Kelly | 18th Nov 11, 12:42pm 1321573363

And while we're about it we could change our name to New Greece.

Cheers

by Stephen Hulme | 18th Nov 11, 10:52am 1321566757

I would get your heads around this and this.

And translate it into how our banks will roll their short term foreign borrowings - no number of RBNZ OCR cut prognostications will help- liquidity crisis visiting our doorstep anyone?.

by Stephen Hulme | 18th Nov 11, 11:03am 1321567427

I would get your heads around this and this.

And translate it into how our banks will roll their short term foreign borrowings - no number of RBNZ OCR cut prognostications will help- liquidity crisis visiting our doorstep anyone?.

The Fed is on to it. Increased central bank liquidity swaps lines from USD 1,848 millions to USD 2,349 millions in latest H.41 release section 2

by Kate | 18th Nov 11, 11:20am 1321568438

And I wonder how our banks might respond if they can't roll over?

- Temporary freeze on all over draft facilities, including flexible loan mortgage type products.

- Steep and swift rises in floating rates.

- As above on outstanding credit card balances.

- Amendment of LVRs for all new borrowing.

- Extreme pressure on rural borrowers.

- Limits on cash/savings withdrawls.

- No issuance of letters of credit

Is this the type of thing we can expect?

by steven | 18th Nov 11, 11:34am 1321569298

Yes....

Worst case.....banks might close their doors.....then we cant use eftpos....so we cant buy food.

Not so bad case,

1) CCs called in? sorry but you owe $2k on your credit card, you have 2 weeks to pay it, in the meantime your cheque account is frozen....enjoy the diet...

2) Houses are now worth 50% of what they were in 2007.....in 2007 you paid $400k with a 95% mortgage.....today that house is worth $200k.....in order to get to the new LVR of 80% you need to deposit $280k into our account immediately...or we will foreclose........in the mean time you have a temporay bridging loan at an annual interest rate of 50% and since its un-secured compulsory insurance of $300 a week.....have a nice day

or in short form, 20% of the population is probably buggered.....and bankrupt....consider that effect on the tax income and consumerism.......7 years bankrupt for a huge % of the population? I wonder if thats that far fetched.

regards

by steven | 18th Nov 11, 11:47am 1321570046

Im not sure yet that the EU crisis as it happens is an immediate problem for NZ.....in the context of that "hot" money now considers the EU not safe...so they will be looking around for somewhere to get interest becaus ethey get none in the USA.....NZ Govn bonds are 5%.....that rate is dropping suggesting considerable interest.....thing to watch is that staying low or going lower I suspect.....ditto our NZ banks.....as long as the housing market doesnt tank our banks are fairly OK....short term......longer term I suspect we will see the housing market fall....so the NZ banks will come under pressure...kiwibank offering 4.99% for high equity owners is interesting....

regards

by John Kelly | 18th Nov 11, 12:47pm 1321573636

Re Kiwibank mortgage rates. This is the first move to where those rates should be, about 2% over OCR.

by John Kelly | 18th Nov 11, 9:30pm 1321605011

Are you a banker or a mortgage broker?

by steven | 18th Nov 11, 11:49am 1321570168

still no [hyper-]inflation....

http://www.calculatedriskblog.com/2011/11/rate-of-increase-slows-for-ke…

(US figures)

"On a monthly basis, the median Consumer Price Index increased 2.3% at an annualized rate, the 16% trimmed-mean Consumer Price Index increased 1.4% annualized, and core CPI increased 1.6% annualized."

regards

by Ralph | 18th Nov 11, 12:02pm 1321570966

I have begun to think of this has the elephant in the room now.

If we accept creating money leads to inflation how can they 'print/create' 2.3 Trillion dollars and have no meaningful increase in inflation.

The obvious answer must be the number of dollars being destroyed is equal or greater to the 2.3 trillion that has been 'created' so there isn't any net increase.

-OR-

The assumption that money creates inflation is not correct.

by Nic the NZer | 18th Nov 11, 12:18pm 1321571885

Or the more obvious answer,

The money banks exchange is different to the money everybody else exchanges. The amount of money available to the real economy in the US is shrinking, because debt is being paid off. Private financial institutions control the amount of money available to the real economy. Yes, this effectively means that money has been privatised. Almost all money available to the real economy is created as debt (somebody must go into debt, before it is created). The QE money is 'bank money' which is why it has vanished. You will never see it because you are not a bank.

http://www.guardian.co.uk/commentisfree/2011/nov/15/money-privatised-st…

As Milton Friedman said, inflation is a purely monetary phenomenon.

by scarfie | 18th Nov 11, 1:17pm 1321575440

Or the velocity of money has declined...... working towards a liquidity trap.

by Nic the NZer | 19th Nov 11, 1:46am 1321620362

As I said,

http://www.positivemoney.org.uk/2011/11/ambiguity-two-tier-money-system/

by Nic the NZer | 18th Nov 11, 9:12pm 1321603956

A 'liquidity trap' is a technical term in economics for, nobody is borrowing or lending money and economists don't understand how this happened. Its the same state as what I just said above but in economic short hand, or incoherent babble.

by 69er | 18th Nov 11, 11:50am 1321570210

Maybe not that far fetched Steven. I remember there was a fuss when people were hocking off their rentals around 2008 and the banks were grabbing the proceeds of the sales without asking to top up the LVR in other properties the vendors had. I could see credit cards removing or reducing the interest free period too.

I don't think the banks would turn around and demand mortgage top ups from home owners as that could deflate the value of the housing stock and give the banks more problems. It it is in their interests to keep home values high. If the housing market took a dive I think you'd see the banks behaving much like they have in the US, ie mortgagee sales being drip fed to the market at a measured rate.

by Andrewj | 18th Nov 11, 12:25pm 1321572339

http://www.golemxiv.co.uk/2011/11/buckle-up-credit-crunch-2/

by John Kelly | 18th Nov 11, 1:02pm 1321574529

Thanks for that. He's a bright guy isn't he.

by Andrewj | 18th Nov 11, 12:32pm 1321572779

Asian powers spurn German debt on EMU chaos Asian investors and central banks have begun to sell German bonds and pull out of the eurozone altogether for the first time since the debt crisis began, deeming EU leaders incapable of agreeing on any coherent policy. http://www.telegraph.co.uk/finance/financialcrisis/8897775/Asian-powers…

by Andrewj | 18th Nov 11, 1:04pm 1321574651

Congratulations Washington: $15 trillion and Counting Washington has finally done it. According to the "Debt to the Penny" website, the United States' gross public debt (net of Washington's assets) has finally passed the $15,000,000,000,000 mark. That's certainly a lot of zeros (just like in D.C.!) Congratulations to all involved! According to the Economist's Global Debt Clock, the United States is now the proud owner of just over 37 percent of the world's entire inventory of sovereign debt. Here is a screen capture from the Debt to a Penny website:

by 69er | 18th Nov 11, 4:43pm 1321587785

Surely there is no-one out there who expects this money to be paid back? Hoover up the money while you can US...

by Vanderlei Luxemburgo | 18th Nov 11, 1:19pm 1321575564

Q: What's the capital of Greece?

A: About €2.50.

by Andrewj | 18th Nov 11, 1:20pm 1321575631

Finally the wheat price has done what it should have done months ago, record havests, competition from Black sea producers and extra planting all over the world should have sent alarms ringing months ago.

>>>>>>>>

Grain prices in 'meltdown' on euro, export fears

Grain prices went into "meltdown" after weak US export data crystallised pessimism over the country's trade performance, and worsened sentiment already soured by heightened eurozone concerns.

Corn prices plunged 4% in Chicago, where wheat futures tumbled below $6 a bushel to a four-month low.

Oat futures tumbled the daily limit at one point to their lowest since September last year.

"It has been a meltdown in the grains today," Darrell Holaday at broker Country Futures said.

At North America Risk Management Services, Jerry Gidel said: "It is another of those 'the sky is falling' days."

Exports falter

The declines reflected weakness in many risk assets, with Wall Street shares trading 1.3% lower in afternoon deals, after a weak Spanish bond auction whetted concerns over the eurozone debt crisis.

Chicago closing prices

Oats: $3.00 a bushel, -5.7%

Corn: $6.14 ½ a bushel, -4.4%

Wheat: $5.92 ½ a bushel, -3.9%

Soybeans: $11.68 ¼ a bushel, -1.6%

Prices for front-month contracts

Spain, which needed a yield of 5.43% to get away 10-year bonds at its last auction, in October, this time required 6.97% - just short of the 7% mark which has come to rings alarm bells on financial markets – and even then sold fewer bonds, by E440m, than the E4bn maximum target.

Prices of many raw materials suffered too, with the CRB commodities index trading 2.5% lower.

However, grains fared particularly badly after a US weekly export report showed sales of wheat sales, at 334,560 tonnes, including a few forward sales for the 2012-13 crop year, short of market forecasts.

Corn export sales, at 208,950 tonnes, were well below even the most pessimistic trade estimate, of at worst a 350,000-tonne figure.

http://www.agrimoney.com/news/grain-prices-in-meltdown-on-euro-export-f…

by prosperopink | 18th Nov 11, 1:22pm 1321575737

Watch Nigel Farage Dance On The Euro's Grave

Vid at Zero Hedge....brilliant footage of squirming technocrats as they get a plastering from

eurosceptic Nigel. Why does the truth always sound so good?

by OMG | 18th Nov 11, 6:49pm 1321595393

Sure wish we had politicians like Farage.

by scarfie | 18th Nov 11, 1:22pm 1321575772

Here is an interesting technical analysis/comparison of the Dow and SPX500 vs the same period in 2008. First 2-3 mins is probably all that is required watching.

Basically he is saying that an orderly collapse is a better sign of a collapse and the panic will come further along, perhaps after a week or two of solid declines based on moderate volume.

by Frazcam | 18th Nov 11, 1:43pm 1321576998

On a brighter note - did anybody see the Shock-umentary on TV1 last night about Plastic Surgery?

by janisa | 18th Nov 11, 4:11pm 1321585871

How safe are our Banks,is it time the Government came out and guaranteed our Deposits I think more than ever we need to know our money is safe otherwise there will be panic and people will be withdrawing their money in hordes ,rather than hearing about Banks freezing our money if all goes to sh---- I feel the people of New Zealand need to know their money is safe otherwise there will be a run on Banks with people putting their money under their mattresses.It seems to me we are in crisis mode with the plebs the last to know the real truth of the monetrary problems and how close are we to collapse.

by 69er | 18th Nov 11, 4:47pm 1321588036

Might be time to store a stash of emergency cash in the freezer!

by the_dc | 18th Nov 11, 5:46pm 1321591590

@ Janisa

NZ banks are in little imminent danger. They have reduced offshore funding reliance in recent years, and are still able to rollover that which they do have at favourable rates, since compared to Europe and some US institutions they are still relatively attractive.

However, if you believe there is still significant house price deflation to occur in NZ, then the banks are at risk of increased losses and a resulting disappearance of offshore buyers of their debt.

Fortunately they have some time to prepare for this scenario (should it occur) and the RBNZ seems to intend to make them do so, but it will take time and domestic sources of funding will only be sufficient with increased NZ savings, which of course will mean decreased consumption and likely less economic growth.

Long answer. The short version is, you can put some money in the freezer if you like, but it's not necessary. Also it would not be a good idea for the government to come out and say "your money is safe" as that would create panic as people think 'why do they feel the need to say this?'

If all you read is zerohedge and interest.co.nz you would feel the need to baricade yourself in your house with a gun and some gold bars, and while the global financial system still has a lot of very serious problems and there could very well be another global recession around the corner, preparing for the end of the world is a bit of a waste of time.

by Stephen Hulme | 18th Nov 11, 6:42pm 1321594933

@ the-dc

I don't believe a word of what you say - took my money out of the NZ banking system except for small transactional balances. History is littered with financial failures and unlike all other modern banking systems NZ offers no guarantee to retail bank depositors and is preparing to line them up for a haircut if all does not go to your plan.

The open bank resolution proposal would hardly be necessary if the RBNZ and it's foreign masters thought events would unfold in an orderly manner.

by Stephen Hulme | 18th Nov 11, 6:42pm 1321594935

@ the-dc

The open bank resolution proposal would hardly be necessary if the RBNZ and it's foreign masters thought events would unfold in an orderly manner.

by prosperopink | 18th Nov 11, 7:27pm 1321597667

I'm with you Stephen. Bank rang us today to ask about rolling over term deposits. I asked them about OBR. Chick had no idea what I was talking about but Googled it as we spoke.

She said "OMG...why would you keep your money in the bank if you thought they would give it a haircut!.

Good question I thought...now Stephen what are we to do with our funds while we are looking to find a house? We have sold and moved and will be cash buyers Can't help feeling the pressure is building and GFC might be coming sooner than later.

by Alexander | 18th Nov 11, 10:08pm 1321607318

An earthquake measuring 6.1 on the Richter scale was recorded 220kms north east of Gisborne tonight.

GNS science reported the earthquake was recorded at 8.51pm at a depth of 40kms and was felt in the eastern North Island.

by Stephen Hulme | 18th Nov 11, 10:38pm 1321609130

@ prosperopink

Read this statement made by Bollard in an article posted on this site as of 14/11/11

Open Bank Resolution

Bollard said the Reserve Bank's so-called Open Bank Resolution (OBR) policy was something recommended by world regulators to avoid 'Too Big To Fail' banks holding entire countries hostage.

"If you were in the unlikely, completely hypothetical situation to have a big bank in trouble then you really don't want to be in a situation where it grabs the government around the neck and it says you've got to bail us out or else we bring you down," he said.

"Anybody who's been a surf lifesaver knows that you've got to be able to deal with a panicking swimmer and stop them grabbing you by the neck and drowning you as well.

"This Open Bank Resolution is one tool in a toolkit that would help this because what would happen is the government would decide to put a haircut on a bank in trouble on the creditors there, guarantee most of it, and leave the rest to go through a court process like a statutory management process," he said.

"By guaranteeing most of it, you'd be able to have a new bank opening up on a Monday morning, just doing core basic stuff, nothing fancy, but still operating through a crisis, with a guarantee on those people's deposits and thus keep the thing going, keep the system going and avoid it leaching into problems with other banks as well."

I suggest for the moment you find a home for your money with an institution and or security with a government guarantee attached.

It is clear to me a haircut might be the financial equivalent of loosing a limb or more if we resort to the governor's use of crude analogies.