Here's my summary of the key news over the weekend in 90 seconds at 9 am, including news that French President Nicholas Sarkozy has become the 11th European leader to be kicked out by voters since the onset of the global financial crisis.
Sarkozy's loss is the first by an incumbent French President in 30 years and signals another voter rejection of the German-led austerity pact designed to keep bond holders happy and keep the euro together. The euro is fast becoming another type of 'gold standard', one that was eventually abandoned by many countries during the Great Depression.
The loss is expected to increase financial volatility and raise doubts in financial markets about the ability of Germany to hold together the austerity pact aimed at crunching budget deficits lower to keep confidence in the euro. However, voters are rebelling against the social pain caused by rising unemployment and cuts in public services. In recent days European politicians have begun talk about softening the German-led push to reduce budget deficits.
All this is raising uncertainty about a return to solid global economic growth. Figures released late on Friday night showing weaker than expected US jobs growth in April also unnerved those hoping for a solid economic recovery.
The S&P 500 fell 1.6% and European stocks fell 2%. This move to take 'risk off ' saw commodity-linked currencies like the New Zealand dollar slide again, extending their losses seen earlier in the week. The New Zealand dollar fell to a fresh 4 month low of 79.5 USc in early trade.
Wholesale interest rates have also fallen in New Zealand to their record lows in recent days as investors see weaker growth and inflation raising the prospects of a cut in the Official Cash Rate in the next six months.
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4 Comments
Bernard, good to know collapsing international commodity prices are not directly impacting the NZD.
Milk Producers Council:
Production continues at record levels – U.S. production of nonfat powders in March exceeded 200 million lbs; California production exceeded 100 million lbs. Exports appear to be weak at this point. International prices continue to fall. Inventories continue to rise. There does not seem to be any way out of this predicament except to increase exports or to reduce production.
The Romanian Government has just gone under,
Once there was a land, sweet and lovely The government in Romania has become the latest casualty in the growing public distaste for fiscal austerity sweeping across Europe. The political noise in Romania had been largely ignored as many had become inured to the 10 no-confidence motions that have failed during past two years. But this changed last week after the Romanian government and the ruling coalition collapsed last Friday. Political infighting is expected to continue through to the November parliamentary elections. In the meantime, the opposition has proposed a new government that is expected to be approved by Parliament next Thursday. Importantly, the designated Prime Minister has assured markets there would be continuity in economic policy and adherence to the terms of Romania’s deal with the EU/IMF (a €20 billion loan that kept Romania from default in 2009). However, the risk of slippage is very high. The proposed government is only offering a six-month plan with little detail, preferring instead to wait for the new government in November. Of the few details provided, the plan includes an increase in public-sector wages and higher pensions (pushing the budget deficit above the EU/IMF target of 2.3%).
Francois Hollande has ten weeks to avert a French bond crisis
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/92495…
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