90 seconds at 9 am: Bright spots

90 seconds at 9 am: Dow and NZ$ up after firm US profits and housing starts; Fed's Bernanke says US 'fiscal cliff' unsustainable; Syria civil war spiralling out of control

19th Jul 12, 9:00am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the Dow closed up 0.8% after better than expected profit results from the likes of Intel and Honeywell and the strongest housing starts growth in four years.

The increased appetites for riskier assets and a rise in commodity prices helped boost the New Zealand dollar to 79.9 USc this morning. Corn and other soft commodity prices, which often move in tandem with meat and dairy prices, are surging because of devastating drought in America.

US housing starts rose 6.9% last month and the 'Beige book' survey of US economic activity showed 'modest to moderate' economic growth in the world's largest economy in June and July. See more here from Bloomberg.

However, US Federal Reserve Chairman Ben Bernanke told Congress the US fiscal situation was unsustainable. US economic activity is set slump at the end of the year unless political leaders can avoid a pre-set 'fiscal cliff' where tax cuts expire and automatic spending cuts kick in to the tune of 4% of GDP. See more here at Bloomberg.

Despite these fears, the 10 year US Treasury yield fell another 2 basis points to 1.48% as investors continue to seek safe havens.

Shorter term Northern European government bond yields have fallen below 0% in recent weeks on fears the euro-zone will break up and they will make money through currency revaluations in those Northern European economies. Germany, Finland, Denmark, Switzerland, the Netherlands and Austria have seen their 2 year bonds go to negative yields in recent weeks. That means investors are effectively paying the governments there to look after their money. See more here at FT.com.

Meanwhile, the situation in the Middle East is deteriorating, helping to drive up oil prices by around 1% overnight.

A suicide bomber killed 3 very senior Syrian officials overnight and there is very heavy fighting in the capital Damascus. See more here at Reuters.

Also, Israel is blaming Iran for the bombing of a bus in Bulgaria that killed six Israeli tourists. Israel threatened a strong response. See more here at Reuters

(Updated with Syrian, Israeli news)

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4 Comments

by Kunst | 19th Jul 12, 9:27am 1342646878

That’s a very positive “90second at 9am” - Bernard. I think I will talk to my bank manager. We desperately need a new car, a washing machine and an extended holiday.

by @tony | 19th Jul 12, 10:43am 1342651414

Yes very positive.

Where was Bernard yesterday... the Beehive "re-education" camp with the Dot Com Judge?

by Roger Witherspoon | 19th Jul 12, 10:51am 1342651905

For all those so very tired Malthusians out there:

http://www.gapminder.org/videos/200-years-that-changed-the-world-bbc/

by meh | 19th Jul 12, 11:12am 1342653156

http://www.zerohedge.com/news/guest-post-bad-economic-signs-2012

There is a strange delayed reaction between the initial exposure of weakness in the financial system and the public’s realization of the truth, sort of like Wile E. Coyote dashing off a cliff in the cartoons only to continue running in mid-air above the abyss below. It is a testament to the fact that beyond the math, there is an undeniable power of psychology in our economy. The investment world naively believes it can fly, even with the weight of endless debt around its ankles, and for a very short time, that pure delirious oblivious belief sustains the markets. Eventually, though, gravity always triumphs over fantasy…

As I have pointed out in the past when explaining the importance of the BDI, crashes in the index are usually made visible on mainstreet around 8 months to a year after the event. That is to say, the economies of multiple nations move into a widely felt crisis event around 8 to 12 months after the BDI crashes.

So, what comes next? According to the path which I predicted back in January, the economy is near a climax event. Perhaps an announcement of QE3 leading to ugly dollar devaluation, perhaps another bankruptcy by a “too big to fail” conglomerate leading to a firestorm in stocks, or perhaps even the exit of certain countries from the EU. Maybe all of this and more. The point is, keep your eyes fixed on the financial sector as we move into fall and winter. There is a bleak harvest on the horizon…