Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including surprising news that European stocks rose around 1% overnight despite the widely feared downgrades of Euro zone credit ratings late on Friday night.
An auction of €1.9 billion of one year French government bonds was relatively well received and their yields dropped to 0.4% from 0.45% at its previous auction, which is counter-intuitive given the downgrade of France's sovereign credit rating to AA+ from AAA by Standard and Poor's on Friday night. See more here at Bloomberg.
The European Central Bank (ECB) was an active buyer in European bond markets again, helping to keep yields down. Also, the ECB lent €489 billion to banks for three year terms against much weaker collateral before Christmas and some of that money is expected to be recycled into European government bonds.
European stocks rose 1% and S&P 500 futures rose 0.2%. The main US markets are closed for Martin Luther King Jr holiday. See more here at Bloomberg.
However, not all is well in the European bond markets. The yield on Portugal's 10 year government bond yield spiked to 14.4% from under 13% after its rating was cut to a 'junk' rating of BB by Standard and Poor's overnight. See more here at Bloomberg.
The European Financial Stability Fund's credit rating was cut earlier this morning to AA+ from AAA, as expected. See more here at Bloomberg.
It is backed by the sovereign ratings of Germany and France. Many had great hopes for this bailout fund last year, but it has struggled to raise its own funds and most seem resigned to relying on the European Central Bank for pumping funds into the European banking system. See more here on ECB bond buying from Reuters.
Also, Greece remains a big worry with growing nerves about its negotiations with creditors over restructuring its government debt. Greece needs to do a deal within a couple of weeks to avoid defaulting when it is due to repay €14.5 billion of bonds on March 20. See more here at Reuters.
The European crisis matters for New Zealand because the Eurozone economy is a major buyer of Chinese exports and its banking system is a significant funder of New Zealand bank debt. It funding costs rise sharply and Chinese exports to Europe slump then that could hit our own exports and eventually raise borrowing costs. Less than 10% of New Zealand's merchandise exports go to Europe, although it remains a major source of tourism revenue.
Meanwhile, the New Zealand dollar remains firm just under 80 USc and well over 62 euro cents. Markets will be watching the NZIER's Quarterly Survey of Business Opinion due at 10 am, followed by electronic cards data for December due at 10.45 am.
Then Chinese output data will be viewed just after 3pm, given the potential for a slowing of the Chinese economy, which is crucial for our economic and currency outlooks. See Mike Jones' currencies report from BNZ here.
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