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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21 Comments
"The European Central Bank (ECB) was an active buyer in European bond markets again"
This is the reason why......" 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"
So the market is being rorted by the ECB which has stated publicly that the ECB will not buy piigs debt or any other EU nation debt...which was a total pack of lies.....
This amounts to the ECB funding French splurging...and where does the ECB get the money from?......why they do what Bernanke is doing...they print the bloody stuff.
It gets much better Wolly.
"Market talk is focusing on an even bigger amount to be borrowed at the next 3-year longer-term refinancing operation (LTRO) due on 29 February. GREED & fear has heard guesstimates of up to €1tn!" That's right - it is possible that in its quanto monetary diarrhea (but at least it's not printing, so the Bundesbank will be delighted), the ECB is about to increase its balance sheet from €2.7 trillion to € €3.7 trillion, or a €1.7 trillion ($2.2 trillion) expansion in 8 months! And gold is where again?
This is a laugh a minute. Yet people are trying to save worthless fiat in this enviroment? Stuff that, what value has your money got when they just create Billions every day?
Whilst the money printing point is correct (the Telegraph reports that the ECB balance sheet is now equivalent to 30% of Euro member's combined GDP) the causation might not be as clear as above in terms of the French bond issue - the ECB is still only buying in the secondary market. Germany is stopping "QE" persay by not allowing the ECB to buy bonds directly. This is a sham of course as the LTRO is money printing by another name.
Reduce it down to basic logic and it all makes sense.
Governments borrow because what the people voted for they were unwilling to pay for via taxes. Rather than tell the truth the government then commits fraud upon everyone in the investment community, in concert with the banks (commercial and central) and "sells debt" that they have no intention of ever paying off.
http://market-ticker.org/" Governments borrow because what the people voted for they were unwilling to pay for via taxes."
You've got to wonder how this is going to work out. Take Japan. The government have been borrowing from their own people on a massive scale, such that there is no possibility that they can be paid back honestly. The Japanese pension funds are funding Government ten year debt at 1%PA, so no realistic return there. Or they could print money and destroy it's value. Either way the wall of Japanese retirees are screwed.
Perhaps it would have been better to not have blown the dough they have these past 20years, or taxed the people instead. At least it would have been more honest.
http://hat4uk.wordpress.com/2012/01/16/eurozone-madness-why-the-germans…
Greece has been given up for dead by the IMF. The EFSF has not attracted a single external investor. Italy’s borrowing costs are described as ‘unsustainable’. 14 of the 17 eurozone countries have been credit-downgraded. The Athens haircut needs are now over 60%, with no takers. Spain’s entire property banking sector is hanging by a thread. Portugal is living from hand to mouth. France is massively exposed to Greek and Italian debt. Germany’s growth hit the buffers last month. S&P’s last FAQ release accompanying its downgrades described the Merkozy austerity diagnosis as wrong, and the eurozone structure as fatally flawed. EU State insurance liabilities exceed 30 trillion euros. The exposure of the ECB to EU sovereign debt – even without collateral insurance liabilities – is in excess of 700 billion euros. There is a wide strategic chasm between the two founding members of the bloc. It’s fourth biggest economy is in deep discord with both of them. And Hungary is on the verge of bankruptcy.
Souds like the biggest clusterduck in history. Run for the hills.
When you realise the whole monetary system is based on BS. The 5 stages of awakening.
FYI an email from a reader (Boatman) styled as a letter to John Key:
Dear John
Its clear to most thinking people that 2012 is going to be a bugger of a year. I am sure that with your experience, even you can see that.
Spotting the causes of the likely impending second great financial crisis should not be difficult. The first cause might be a deepening failure of this ludicrous deficit financing by Central banks, keeping interest rates a ridiculously low levels to keep us buying Chinese goods on credit , priming financial pumps to induce consumers to spend and thereby set factories humming….which is all very well if the factories are at home rather than in China.
But as New Zealanders know the factories are not at home . And China is the second cause of the risks we now face. In the 10 years since China joined the World Trade Organisation (WTO), thereby winning access to export markets, swathes of manufacturing industries have been shuttered across the globe. New Zealand’s once reputable and good quality shoe , clothing and textile factories all gone, our fridges washing machines and tumble dryers all creating jobs in Shanghai rather than in NZ.
China, the world's second- largest economy and the world’s largest single-party state, has helped destabilise the global economy, firstly by amassing gold and foreign reserves rather that using trade surpluses to buy others' goods and, secondly, by allowing a property bubble to threaten its own structurally weak domestic banking system
The third cause is the possibility of insidious protectionism, particularly when accompanied by a smokescreen of pious affirmations of adherence to WTO rules.
All in all, it's difficult to see the world escaping a year of further economic decline or even collapse into full-blown depression. Minimising the effects is another matter given that QE is singularly failing.
The US and Europe might focus on the sort of infrastructure spending that characterised the New Deal 80 years back rather than trying to persuade a consumer to buy yet another iPad that puts Chinese fingers to work.
And dammit …. Why should New Zealand not do this too ? That is, spend on infrastructure , and get the unemployed working again, get our factories humming, and see us catch up with Australia .
After WW2 Europe’s bombed cities were rebuilt with borrowed capital at very low rates.
We need to seize the moment, after all there is a lot of goodwill to New Zeeland throughout the world, and we should use it judiciously.
We should be raising 50 year Earthquake Reconstruction Bonds at say 0.40% ( less than half a percent ) denominated in NZ Dollars to rebuild a satellite city 20 kms outside Christchurch on stable ground with a high speed train to the old city .
We can raise cheap money to sort out Auckland’s chaotic road network which, in its present form is making us inefficient, sitting in traffic jams wasting otherwise productive time and burning fuel while idling vehicles .
John, is short we need a plan, a strategy, visionary leadership backed with action , …….. something, because we seem to be drifting and going nowhere, waiting for things to happen to us, instead of making things happen.
We have appointed you as leader and custodian of our land, lets see some leadership, a plan and a vision for getting us ahead and staying out there in front, something that we can “buy- into” and have as a common goal.
Yours sincerely
Boatman
Why should China buy the worlds crap? China is trading, they are buying up all the good stuff, and the developed world is buying their crap.
Globalisation cuts both ways, it's great if you are a poor labourer in China, because you average upwards, if you are a NZ labourer you average downwards. Globalisation averages out the worlds economies, and prices for goods and services. This is slowly happening, and you can't deny that exporting to China is helping a lot of people.
Focus on the monetary policy, don't go blaming China, they are playing the game, except they don't play for money, they play for power. China is improving the standard of living fot its people, in NZ its in decline.
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