90 seconds at 9 am

90 seconds at 9 am: Fed pledges 0% til late 2014 again, but doesn't talk about QE3; US$ rises and NZ$ falls; Dow up after US retail sales rise; Trade tensions with China growing

14th Mar 12, 9:02am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the US Federal Reserve has pledged again to keep its key interest rate near 0% until late 2014.

This would mean US short term interest rates would have been near 0% for 6 years by then. However, the US Federal Reserve's Open Markets Committee statement released around 7.15 am NZT failed to mention any suggestion of a third round of quantitative easing or money printing, which some in the market had been hoping for.

Instead, the central bank said the world's largest economy was expanding moderately and the labour market was improving.

This saw the US dollar strengthen and therefore the New Zealand dollar weaken initially vs the US dollar. The Kiwi fell to as low at 81.7 USc this morning after the Fed's statement from as high as 82.4 USc overnight, but it has firmed somewhat in mid-morning trade.

Unusually for the New Zealand dollar, it moved in a different direction to US stocks. The Dow was up as much as 1.4% in late trade, boosted by news of a JP Morgan dividend increase. See more here at Bloomberg.

Also, US retail sales rose 1.1% in February, which was in line with expectations and followed a revised-upwards 0.6% rise in January, again signalling US consumers appear to be regaining some confidence. This is crucial for the world's largest economy, given consumers are responsible for more than 60% of US GDP. See more Bloomberg.

Meanwhile, trade tensions are brewing on several fronts between China and the rest of the world.

The United States, the European Union and Japan filed a World Trade Organisation (WTO) action against China overnight over its ban on exports of rare earths, which are used in the production of flat screen televisions, hybrid cars and many other high tech devices. They argue China's ban increases world prices and breaches WTO rules. However, China says it is banning the exports for environmental reasons. See more here at BBC.

Barack Obama also announced overnight the creation of a special Trade Enforcement Unit to target breaches by China. This follows news yesterday that China had decided to stop the slow creep higher of its yuan currency. Many of China's trade partners accuse it of artificially suppressing its currency to boost its export sector. See more here at CNN.

Fighting back, China is protesting a European Union carbon levy on airlines flying to Europe. The levy of about 2 euros per passenger flying from China is designed to pay for carbon credits to offset carbon emissions on the flights. China raised the stakes this week when it suspended a deal to buy 16 billion euros worth of Airbus jets in retaliation. See more here at Reuters.

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9 Comments

by Stephen Hulme | 14th Mar 12, 9:58am 1331672291

US Federal Reserve has pledged again to keep its key interest rate near 0% until late 2014.

The Dow was up as much as 1.4% in late trade, boosted by news of a JP Morgan dividend increase. See more here at Bloomberg.

I guess the dividend money is coming from the depositors capital since they get no interest.

How long can that last ? Hardly a conservative wealth enhancing practice for all.

The US regulators need a dose of APRA.

by steven | 14th Mar 12, 10:12am 1331673176

There is no more "wealth enhancing"overall.....all "weath enhancing" is at the most basic level is the conversion of raw materials using energy into a finished good....everything else is ticket clipping....and bad news old chap the raw materials is pretty exhausted and oil production has peaked....so now its decades of "wealth destruction" especially the ticket clippers, hopefully.

regards

by steven | 14th Mar 12, 10:38am 1331674690

"hopefully" By this I mean the real producers/workers will shake off the many parasites....

regards

by President of P… | 14th Mar 12, 10:39am 1331674754

Hi Bernard... can I please send you a copy of the front page of the New Zealand Herald.

http://www.google.co.nz/search?ix=seb&sourceid=chrome&ie=UTF-8&q=10791894

President of Property

by kin | 14th Mar 12, 11:33am 1331678001

6 years at 0%...how is that not QE by another name ?? All they have to do is Banks load up on T bills and pass them onwards to Fed for discounting...how else did the Banks make profits enough to declare dividends ??

Of course in modern monetary term, Money Printing is not longer called such, but fancier names like MMT ?

China and Rare Earth :: Fancy the US consumer in chief of the world asking dirt poor Chinese Labourer to sell more of the highly toxic and radioactive derived RareEarth at cheap prices (that's what More Supply means ) so that Rich Western countries can manufacturer weapons (that's one use for rare Earth) to further threaten them.......(Obama's Pacific Initiative) ....

Rare Earth is not really that rare....you can mine it in almost every country. The problem is its extraction into useable form produces residues that are highly toxic and radioactive. that's why Western Economies no longer mine rare earth. Their Envioromental cost impact raises the cost to uneconomical level....but then the Chinese Labourer works for pittance...so it makes sense for Chinese to do it (even though they are slowly poisioning themselves)....

Australia of course is getting into the Rare Earth business again : Lynas Australia is shipping Rare Earth Ore to Malaysia for futher refining (despite great opposition by local Malaysians at its factory)....Here again we have another perfect example of Western Economiec hypocrisy....."What we won't do in our house we do it in your backyard "....

by andyh | 14th Mar 12, 2:04pm 1331687049

Excellent piece on global energy consumption since 1820:

http://ourfiniteworld.com/2012/03/12/world-energy-consumption-since-182…

by andyh | 14th Mar 12, 2:15pm 1331687752

Oil price shocks and their effects on the economy:

http://www.theoildrum.com/node/9008

''This paper examines the impact of oil price changes on global economic growth. Unlike some of the recent studies, this paper finds that oil price rises have had significant negative impact on world economic growth rates.

A time-series analysis of the data from 1971 to 2010 finds that an increase in real oil price by one dollar is associated with a reduction of world economic growth rate by between 0.04 and 0.1 percent in the following year. Therefore, an increase in real oil price by 10 dollars would be associated with a reduction of world economic growth rate by between 0.4 and 1% in the following year. For a global economy that in average grows at about 3.5% a year, a reduction of this size is very significant.

Moreover, the regressions seem to have suggested that the impact of oil price on economic growth may have increased over the last one or two decades. This is in contradiction with the widely held belief that the global economy has become less vulnerable to oil price shocks.

These findings suggest that if the world oil production does peak and start to decline in the near future, it may impose a serious and possibly an insurmountable speed limit on the pace of global economic expansion.''''

by powerdownkiwi | 14th Mar 12, 2:19pm 1331687972

Great link Andyh. Of course, it was just the invisible hand, not the energy, right?

I liked this bit:

If an economist views the period between World War II and 1970 as “normal” in terms of what to expect in the future, he/she is likely to be misled. The period of rapid energy growth following World War II is not likely to be repeated. The rapid energy growth allowed much manual work to be performed by machine (for example, using a back hoe instead of digging ditches by hand). Thus, there appeared to be considerable growth in human efficiency, but such growth is not likely to be repeated in the future. Also, the rate of GDP growth was likely higher than could be expected in the future.

Wonder how many are left with pennies which have yet to drop?

by Wolly | 15th Mar 12, 5:56am 1331744211

60 seconds at 6am...

"Greg Smith, who is resigning today as a Goldman Sachs executive director and head of its US equity derivatives business in Europe, the Middle East and Africa after 12 years, wrote:

"I can honestly say that the environment now is as toxic and destructive as I have ever seen it. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money."

In a memo to staff, Goldman chief executive Lloyd Blankfein said he was "disappointed to read the assertions... that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm".

In his article titled Why I Am Leaving Goldman Sachs he writes that over the past twelve months he had seen five different managing directors refer to their own clients as “muppets”, sometimes over internal e-mail.

"I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all."

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9142641/Top-Goldman-executive-quits-over-culture-of-toxic-greed.html