90 seconds at 9 am: China drags yuan lower to boost exports after biggest trade deficit in more than a decade; NZ$ down at 81.7 USc as Fonterra cuts payout; Focus on Fed

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the Peoples Bank of China (PBOC) has moved to push its yuan currency lower by the most in one day since August 2010.

The currency, which is controlled by the central bank within a trading band, has been forced 0.5% lower this year after being allowed to rise 4.7% last year, Bloomberg reports.  America and others accuse China of deliberately holding its currency low to benefit its exporters. The New Zealand dollar has risen 12% vs the yuan since November. See the yuan tab in our interactive chart below.

However, China disputes that it is manipulating its currency and has said it is moving to liberalise its currency trade and capital flows to reduce its imbalances. Reuters reported the PBOC saying yesterday it wanted market forces to play a larger role in setting the value of the yuan, but it also said it would use interest rates and the currency to help offset the slowing effects of an export slowdown.

The move lower in the yuan followed the announcement of China's biggest trade deficit in more than a decade in February after export growth was almost half what was expected. Export growth to Europe slumped as the debt raddled region contracted.

How China reacts to the European slowdown is crucial for New Zealand and Australia. Fears that China's own economic slowdown may turn into a hard landing rather than a soft landing have hit commodity prices in recent weeks. China massively stimulated its economy in late 2008 in response to the Lehman crisis, boosting prices of commodites such as iron ore, coal and milk powder. This in turn cushioned the impact of the Global Financial Crisis for Australia and New Zealand.

However, this time around China has less flexibility to massively stimulate its economy, given inflation has risen and local governments are awash with debt. House prices have also risen sharply and are now starting to fall.

Commodity prices fell overnight on worries about China's slowdown, with gold, copper and oil falling as much as 1%.

The New Zealand dollar has also had a weaker tone over the last day on these concerns about commodity prices. It was around 81.7 USc in morning trade, down from over 82 USc late last week. Fonterra's announcement yesterday of a fall in its forecast payout of 15 cents/kg or about NZ$250 million in payouts was also a factor. See more here from Alex Tarrant.

Meanwhile, US stocks and European stocks were broadly steady overnight. Markets are waiting for signals from the US Federal Reserve tomorrow morning (NZ Time) after its key Federal Open Markets Committee meeting about whether it carries out a third round of quantitative easing or money printing.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I just want to repeat this piece linked to by AndrewJ in yesterdays 90@9.http://market-ticker.org/akcs-www?post=203238
It seems he is accurate about how GDP is measured
 PQ", or "price times quantity", is otherwise known as GDP (in nations where GDP is defined as the goods and services sold, not produced.) 
and if that is correct then it gives a good indication of the approach of the RBNZ.


MF Global execs to receive bonus despite robbery of $1.6 billion in customer funds

As key said, "super rich are good."  Is anyone actually suprised?  It's not as if this is anything like the corruption of the Rockerfellers and Ida Turnball.

The fat cats just feed on, at some point the masses will revolt if history is anything to go by, or have we all signed up to dog eat dog?

Not sure how much credence you can put in a "sign in" when it's done with the proverbial gun at your head, but that's been happening for a long time, it's just that now, it's pretty hard to ignore it and pretend it isn't happening. And yes, history does have a habit of repeating itself

Currency control without printing.  If you want to buy some currency (you better have a good reason for doing so), this is the price.

Commodity prices fell overnight on worries about China's slowdown, with gold, copper and oil falling as much as 1%.
Natural Gas Bubble truly burst.
Isn't it time local monopolists were forced to drop prices or at least license competing agents to import CNG?
Or would that upset the local chain of backhanders?

Free trade, yeah right!

"Mathematical Impossibilities

1.Germany wants the rest of Europe to raise exports and become more competitive, while simultaneously protecting its export machine and imposing numerous austerity measures on the rest of Europe. Mathematically, it cannot happen.
 2.China wants to wean itself off an export model but does not want the pain associated with  measures that would actually increase domestic demand. Mathematically, it cannot happen.
 3.Japan wants to raise taxes, increase consumer spending, and protect its export model, all at the same time. Mathematically,  it cannot happen.
 4.The US needs to reduce its budget deficit, rein in pension promises, and fix various structural problems (many associated with public unions - the same as in Greece and Spain), but lacks the political will to do so. Mathematically, U.S. deficit spending is not sustainable."

1.  Europe is not a closed system, meaning Germany (or other EU members) could export to places outside of Europe.  This could be done at the same time as reducing government expenditures.
4.  Government expenditure rose for the first ten quarters of the Reagan economic recovery.  I would be surprised if there were not other examples where deficits rose and economic recovery took place resulting in sustainability.  It's only not sustainable if all things remain equal - which is a poor assumption.

“We paid double for three submarines from Germany,” says an Athenian source...
At last, I've been waiting for this sordid mess to come out into the public arena

and a lot seems to have lined greek pockets...Ive seen enough to wonder just how honest greece is.....more fool the investors who lend to them me thinks.

Look at the filth under the Greek carpet...
"The man in charge of the Defence portfolio in Greece from 2009-2011 was….Evangelo Venizelos. The very same man who, in 2005, authored a law to make all Greek Government ministers immune from corruption prosecutions. "

Makes me wonder if the problem is not universal.
Moody's highlighted problems in the US municipal bond market.
"Although we have seen large entities like Jefferson County in Alabama seek bankruptcy protection, most bankruptcy filings or defaults in 2011 came from small cities struggling to sustain general government services," said Anne Van Praagh, Moody's chief credit officer for public finance. "They include the burdens of non-debt obligations, including pensions, entitlements, and salaries that have grown out of proportion to the resources available to pay for them."
Implacable burdens placed upon the citizens for others benefit pervade all our lives - witness our own LAs 

Re-read what is said I suggest.....Salaries have not grown, what has grown is the disconnect from the income of a county which has dropped against static salaries and services. This is due to US house prices collapsing by what 30%? Unlike NZ  "counties" which set rates based on what needs to be spent (yes OK thats questionable)  USA counties base their income on house prices....so really its one huge ponzi scheme....on top of a ponzi scheme.
So benefit is a q do you want the service or not? if so you pay wages for it.....

where did u get that from Steven..?  
I read... "They include the burdens of non-debt obligations, including pensions, entitlements, and salaries that have grown out of proportion to the resources available to pay for them."

Im pretty sure he was   the father of   Mr  Enormeo Rortsaboundius?

Perhaps the China "slowdown" is somewhat exaggerated.
Whilst the Feb figure alone isn't good the aggregate figure of Jan + Feb isn't nearly as bad:
But then Chinese New Year last year was in Feb - but this year it was in Jan, so it's not surprising it makes Feb look worse in a year on year comparison for 2012.

Anybody else get the "special offer" TD rate 4mth@4.75% from one of the major banks? Maybe anticipating a liquidity squeeze soon... ;-) 

Not that I am looking until next month
But thanks for heads up. Should be safe from Open Bank Resolution haircuts - I think regulatory and IT support for this are behind for previously expected June '12 launch date.
 I hear that one or more banks are paying up in the cross currency basis swap market for NZD funding via the 'Kauri' market. Swap points are currently expensive for 3 yr tenor stuff.   

Prophecising on the Chinese currency is a bit overdone don't you think? How does this really make any significant difference to exports?



























Edit - Sorry Comments don't display tables well.

Hey Bernard  have you cottoned onto the new product to be listed on the ASX allowing investors to go long or to short the Australian housing market ?
.... caught something along these lines on radio ( here in Oz ) last week . Prof. Steve Keen would be staking it all on a mega-fall ...... if he's as good as his words ...
...putcha shorts on , Prof !