90 seconds at 9 am:

90 seconds at 9 am: ECB signals rescue; 'Whatever it takes'; Dow rises; risk 'on'; China stimulus; record low yields for corporate debt issue

27th Jul 12, 8:45am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the European Central Bank has opened the door to emergency support for the Spanish and Italian bond markets, setting off a blistering rally in markets around the world. Just three words - "Whatever it takes" - uttered by ECB president Mario Draghi in London this morning were enough to spark the rally.

They were interpreted as a shift in stance from the ECB; it is now prepared to intervene in the government bond markets. But sceptics abound in what amounts to a bond 'bluff'. The timing is important however; Europes leaders are basically already on holiday and so a dangerous power vacuum will exist in August, and Draghi has moved to fill the vacant space and reassure markets. The ECB will likely make stuff happen, but all the same it is unlikley to solve any of the underlying issues.

Markets however have reacted positively. Risk is 'on'. The Dow is up 1.6% in late trading. Commodity prices are rising, including oil and gold. Currencies like ours have strengthened as well, and the NZ$ opens this morning at US$0.8020 and AU$0.7720, both appreciably higher. The TWI starts the day at 72.40.

China rolled out measures to bolster growth, their 2012 stimulus plan is to be announced city by city, and markets generally liked the plan. This acceleration in Chinese infrastructure spending and a recovery in China’s housing market is being seen in Australia as protecting their mining boom, and bolstering their two speed economy.

And finally - a bit technical perhaps, but stunning none-the-less - IBM has set a record low for a corporate 10 year bond. They got it away with a remarkable coupon of 1.875%. Fixed interest investors are facing a very low interest rate environment.

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22 Comments

by scarfie | 27th Jul 12, 9:05am 1343336708

Well the currency traders think the green light has gone on for the NZD.

by scarfie | 27th Jul 12, 9:08am 1343336882

Just received some serious news from a friend in San Diego yesterday. The ex-pat has just had her house sold out from under her and wiped her out financially. Highly likely she will return home as the job situation there is still fragile, I can't help wonder how many other kiwi's will return with their tail between their legs.

by Your Landlord | 27th Jul 12, 9:13am 1343337239

You are correct scarfie...and it will contribute to the housing boom getting underway now.

by David George | 27th Jul 12, 9:16am 1343337377

So that's good news, right?

by Your Landlord | 27th Jul 12, 9:42am 1343338950

Great news for the New Zealand economy Kiwidave.

by David George | 27th Jul 12, 11:00am 1343343620

A house price bubble good for the economy? How so Your Landlord?

Bill English certainly doesn't agree.

"The prices you pay for a house are ridiculous and they look that way to 24-year-olds with lots of student debt and the prospect of better pay in Australia," he said.

"The most unfair aspect of it is that there's no housing being built for people in the lowest quartile of income. Like none. That is clearly unsustainable."

It's also a problem for a Minister of Finance trying to return the Government's accounts to surplus.

"If we want to get back to surplus and keep it there, we cannot afford to have the Government providing growing subsidies to a housing market that then flow into higher levels of debt," he said.

"That cycle does not make sense and we intend to break it."

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10822511

by economist | 27th Jul 12, 11:39am 1343345959

Yes well, he should have ring fenced property losses while he had the chance.... that would have largely ended the tax payer subsidies on million dollar plus homes.... but he didn't have the guts to do that...

by Christov | 27th Jul 12, 12:05pm 1343347512

Kiwidave...I would regard Billy Bob's comments with some suspicion ( as in lip service) untill we see some difintive policy directed at deflating or dissuading the property bubbles that have been pressure cooked by favorable policy under his and Bollards watch.

In Auckland, (and lets face it) it's about as hot as you can get a market before the burn starts to kick in......this administration and the previous have actively encouraged hot money from China into the residential housing market wittingly or otherwise.

Investment of this type in N.Z. has been to the detriment of the future generations economic prospects as it clearly disenfranchises them from what once were percieved as achievable goals, and leaves them disillusioned and migrating.

I am a little irked that Billy behaves like this has just come to his attention , or he has just realized the seriousness of the property dilemma....and that for a Finance Minister is a shocking look.

Tents cities in Bombay are not going to solve the affordable housing problem either.

Whatever the Minister may be inferring , you can rest assured it will not include the possibility of offending our new best friends, and so little change in overvalued / overpriced housing is likey to occur.

Far too little Minister and far too late.....the horse is a few paddocks away and your standing there saying .."Oh I didn't see that coming....maybe a gate of some sort..?

by Christov | 27th Jul 12, 12:40pm 1343349643

I would add that Immigration desirability policy need be revised to no longer include having wodges of hot money in your back pocket as a Skill.....

by scarfie | 27th Jul 12, 9:21am 1343337681

I know those in the Auckland market are like a possum in the headlights but I don't think so, she is from a medium south island town that is significantly depressed.

by Your Landlord | 27th Jul 12, 9:43am 1343339018

As you said scarfie, there will be many others.

by scarfie | 27th Jul 12, 9:47am 1343339247

Well the real story behind it is that her job was outsourced to Asia, there will be plenty of that here also.

by Your Landlord | 27th Jul 12, 9:55am 1343339739

Yours was a good point though scarfie. There will still be plenty of people coming to New Zealand as you said.

by midgetkiwi | 27th Jul 12, 11:51am 1343346695

plenty of people who may be financially wiped out coming back.. how will that support a boom? more benefits, less employment, more deficit borrowing/spending, looks like slump to me... OH YEAH, accommodation supplement. Crazy country.

by speckles | 27th Jul 12, 10:11am 1343340707

Certainly is and restructing inbetween. Introduced a NZ cleint, an up and coming hi tech innovator to an ex-pat that heads up a divsion of Sony. The deal was to be signed off this week after negotiations over the past four months. Great for both businesses. The ex-pat contacts me that she is finsihing this Friday plus 4000 others in her division. The deal will be lost as coleteral damage I suspect. Behind the curtain the change going on out there is massive.

by Roelof | 27th Jul 12, 9:15am 1343337329

EcB to the rescue... How predictable was that !!!! The FED will be close behind.... and our Reserve bank will do nothing in the face of another real estate kaboom...

Tell u what...... the economic world makes sense when u can get ur head around the Madness of current Monetary systems and deluded Central Bankers..... and vested interests.

Cheers Roelof

by south paw | 27th Jul 12, 11:19am 1343344773

So they are going to accelerate even faster towards that cliff edge or is a better metaphor that they are aiming for a higher part of the cliff to plunge off?

Modern Debt Jubilee please someone!

by economist | 27th Jul 12, 11:42am 1343346174

well i guess if you were going to jump off a cliff thats 500feet or 5000feet the difference is only academic...

by midgetkiwi | 27th Jul 12, 11:47am 1343346467

almost.. The difference is only academic for the majority without a parachute. for the 1% with a parachute, the difference is telling people to give you enough money to buy them parachutes too before the cliff edge... when clearly they don't have a second parachute

by economist | 27th Jul 12, 12:02pm 1343347331

fair enough, THEFT in other words...

by Wolly | 27th Jul 12, 2:01pm 1343354467

Great news everyone, a new house just jumped in cost by at least $2000....so if you have been saving your pennies planning to buy a franchise box...you have been screwed...by either the Labour dept bosses out to cement in place their importance when the dept and ministry reshuffle takes place...or at the instructions of the Minister who no doubt wants to be seen in a glow of light at Cabinet meetings....or both....whatever....they are demanding scaffolding right round a new house before roofers may fix a roof...or a plumber fit a flue...or the Sky bloke fit a dish...fabulous madness isn't it....

By the start of this week the Lab dept goon squads had closed down 35 building sites...

And you thought the nanny state insanity went out the window with auntie Helen....it didn't....it remains firmly in place inside the labour dept HQ in wgtn....

Apart from the extra cost to have scaffolding put up for just three days...builders need to book in advance and be ready in advance because there isn't enough scaffolding in the country to deal with the slightest increase in new home building...all of chch will be done over for this added building burden plus gst.

The builders in Marlborough were told the new enforcement would be business positive for them...harrrrrrrrrrrrrrhahahaaaaaahaaaaa

Quite the opposite will happen. It is an extra costs that will knock a few more off the list of wannabee owners...look to see consent numbers decline yet further.

Well done dept of Lab...oh but it means fewer roofers will fall off roofs....rubbish...they will fall and grab and crash over or under the scaffolding because they don't need to take as much care any more!!!!....and how about the builders who put up the roof trusses etc..are they also to be forced to have scaffolding....insane...utterly insane.....and what about the scaffolders who fall while putting up all the extra scaffolding...did the Dept of Lab bosses think about that...did they do any thinking at all...!

English said housing affordability was "quite a turn-off for young Kiwis"......Doh

by Wolly | 29th Jul 12, 6:19am 1343499559

"Our small population and a trend over the past three decades of deregulation towards consolidation and economies of scale has put a series of industries into the hands of a few dominant players".........yippeeee, Bernard has finally picked up the baton and is lashing out at the banks..........oh sod....no he's not.....it's drivel about shopping...tisk tisk

Jeez I would have been happy with a lash by Bernard at the manipulation of the rates by the RBNZ...cheap for ever...but not a winky....

Sorry savers...you have to accept that being done over by the RBNZ and the thieving govt is par for this course...they gotta bail out the gamblers and protect the profit fat banks cos they let the banks own the economy long long ago.....

It could have been so much better...saving and prudent lending could have been the keystones of the economy...but political greed for power and banking greed for profits won the day....and you lost.