90 seconds at 9 am: ECB disappoints

90 seconds at 9 am: ECB says planning bond buying, but yet to convince Germans; Eurostoxx slump; Dow falls ahead of key jobs data; NZ$ up to 66.4 euro cents

3rd Aug 12, 9:02am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the European Central Bank's President 'Super' Mario Draghi disappointed stock markets overnight by saying the ECB was still only planning to buy bonds from stressed Southern European governments and had yet to convince the Germans to agree to the plan.

That Draghi is still only continuing to talk the talk but not walk the walk after last week reassuring markets he would do 'whatever it takes' to stop the euro breaking up stunned many investors. See more here at Reuters.

Draghi said the ECB would not intervene until September, and even then would only move in tandem with European rescue funds, which also need the approval of Germany. However, he said the euro was 'irrevocable' and pledged again to protect it. He also left open the option that the bond buying would not be sterilised, meaning it would be ECB money printed to buy the bonds.

The problem is European politicians have been slow to react and divided at most key points, undermining market confidence and triggering massive capital flight from Southern Europe to Northern Europe as investors worried about a euro-zone breakup hope to benefit if their euros are turned into more valuable Deutsch Marks. The ECB had to stop its original bond buying programme in March after German opposition.

See this Reuters video to see how tetchy and flustered Draghi was during the news conference.

Eurostoxx fell 3%, Spanish and Italian bond yields spiked and the Dow fell 0.7%.

Spanish stocks fell more than 5%.

US stock markets also watched closely the problems at another brokerage -- Knight Capital. The firm announced US$440 million of losses after software glitches caused losses and it is now looking for a major investor or buyout to avoid collapse. It is one of the largest market makers in the American market. See more here at Bloomberg.

The New Zealand dollar was solid around 80.9 USc, but firmed to fresh record highs vs a weak euro of around 66.4 euro cents.

Congratulations to Nathan Cohen and Joseph Sullivan, who won Olympic gold for New Zealand overnight in the double sculls with a blistering finish. See more here at Stuff.

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21 Comments

by Kunst | 3rd Aug 12, 9:07am 1343941655

Uuhhh- gold is cheap – today. For how much longer ???

by Bernard Hickey | 3rd Aug 12, 9:11am 1343941875

Kunst

The trouble for gold investors is all the money printing isn't getting any traction. Deflationary pressures are building as economies and banking systems deleverage.

cheers

Bernard

by scarfie | 3rd Aug 12, 9:44am 1343943848

I don't buy the deleveraging story Bernard. Put it in terms of a household. The average home owner with a mortgage is typically leveraged by virture of fractional reserve banking, but it is also normal for a mortgage to push the limits of ability to pay. So how does a person already at the maximum ability to pay deleverage? 50% of the NZ population would have negative equity and be in a position where they have no further ability to pay down debt. I mean it is not as if New Zealand is deleveraging, we are consistently borrow more are we not?

I think there is another explanation, but I haven't figured that out yet. More thinking to be done....

Perhaps the problem is hoarding on behalf of those with the ability to spend. If so then I would expect the next moves to involved rooting out that money and inflation would do a nice job of that.

by Nic the NZer | 3rd Aug 12, 10:00am 1343944855

There is an easier scenario to get de-leveraging out of a whole sector like this. All that needs to happen is new borrowers stop arriving, as almost all mortgage payments pay off a small part of the principal. But there is hardly any need to speculate about this, its visible in virtually all central bank statistics.

Also only buyers in the last 10 years are likely to be mortgaged right up to the hilt. I am sure the others can cut back quite far.

by iconoclast | 3rd Aug 12, 2:25pm 1343960731

De-Leveraging.

ING Considers Sale of Canadian and British Assets

ING, the Dutch financial firm, is reviewing strategic options for its Canadian and British online banks, according to a statement released on Thursday. The firm, which is in the process of splitting its insurance and banking assets, could use the proceeds to repay the Dutch government for a 2008 bailout. http://dealbook.nytimes.com/?src=busfn

The subtext of that statement is that ING is in hock to the Dutch Government for a 2008 bailout that enabled ING to avoid becoming a distressed seller of assets which were subject to debt secured over those assets. It is now 2012. ING still holds those assets and still owes the debt. But is now considering un-winding, or in the parlance "de-leveraging". In other words it is still in bailout limbo, is leveraged, and has been for 4 years.

They are about to pull the trigger now. At last. They're not alone.

by Christov | 3rd Aug 12, 10:29am 1343946599

Ummmm.....about another six months at least Walter.....on about equal footing with debt jubilee at present.

by Kunst | 3rd Aug 12, 9:26am 1343942791

Bernard – I’m not a gold investor. I regard gold as money. Therefore, I think in the current environment the government should pursue : http://www.youtube.com/watch?v=GXC44l942bE in order to protect the purchasing power/ value of the NZ$.

by Casual Observer | 3rd Aug 12, 9:26am 1343942810

The end of the monopoly of the co-operative Canadian Wheat Board is now official. But farmers are divided.

http://www.brandonsun.com/breaking-news/harper-pardons-farmers-for-sell…

http://www.brandonsun.com/agriculture/breaking-news/canadian-wheat-boar…

by Gummy Bear Hero | 3rd Aug 12, 9:54am 1343944497

Why is it that Kiwis have won all their Olympic medals when sitting on their bums ?

......" the Kiwi , a quiet achiever , on the arse of his pants "...

There's an election year slogan , free to some lucky political party !

by Christov | 3rd Aug 12, 10:32am 1343946753

They were sensational GBH....could not help but notice how tiny they were compared to the others on the podium........good tucker over roids eh...?

by scarfie | 3rd Aug 12, 12:57pm 1343955476

Sensational? What so the guys can row a boat? In fact row a boat lots of times probably almost every day for 10 years and now they can row it a few seconds faster than some other guys that have also mindlessly rowed tens of thousands of kilometers over the years. Well I guess I should be happy for them.

by scarfie | 3rd Aug 12, 8:44pm 1343983482

I was of course taking the mickey, but I was forced to play up since I was waiting around for the Friday funny from Count and it still hasn't been delivered! What up Count? Did all the talk of swear words really put you off your pace, surely just an inconvenience for a man of your calibre.

by Casual Observer | 3rd Aug 12, 10:49am 1343947798

Westland Dairy cuts payout. Not looking good for the Coasters. Will Fonterra follow?

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…

by Colin Riden | 3rd Aug 12, 1:11pm 1343956260

Will Fonterra follow?

Unless Fonterra has a $1 billion derivates gain rabbit to pull out of the hat it will need to reduce next seasons payout forecasts - current export prices simply don't come close to supporting their existing forecast. Always with the possibility that it will be lifted later if commodity export prices rise significantly.

Neither would I be surprised if this seasons payout reduces further. The inventory figure in this season's Fonterra's accounts may be interesting.

by Christov | 3rd Aug 12, 11:11am 1343949106

However, he said the euro was 'irrevocable' and pledged again to protect it.

Did he just...? Now I'm wondering who the next Central Bank President warming up in the wings could be....

I mean that, (and it's not the first time he said it ) is an irretractable statement ......

Perhaps if the Germans were faring better at the Olympics they might be more receptive....ah well all work and no play makes Klaus a dull boy.....and we like dull boys around here.

Is it at all possible the Euro could remain in a devalued form, as one of three or four currencies in Europe...? making Mario's statement possible, a collective of the also rans to get another crack at economic union.

by goldenfox | 3rd Aug 12, 11:15am 1343949327

The Right in Australia are coming down on the sale of Agricultural Land to Foreginers.

http://theland.farmonline.com.au/news/nationalrural/opinion/comment/abbott-pushing-foreign-ownership-button/2617144.aspx

by Wolly | 3rd Aug 12, 12:18pm 1343953138

"The Government is eyeing more roles for unregistered teachers in schools across the country" harrrrrrrrrrrhaaahaaaaaahaha

http://www.stuff.co.nz/the-press/news/7404995/Untrained-teachers-wider-role-alarming

Fabulous foolishness from fatheads in the Beehive...

Next up will be more roles for unregistered airline pilots( read unskilled)....and best of the bunch...more roles for unregistered structural engineers....especially in chch....

by Stephen Hulme | 3rd Aug 12, 1:22pm 1343956979

When did we ever have registered politicians? - anything goes and taken to an extreme results in your observations - but no doubt about it - voters deserve it.

To some degree I am happy with the general direction but not necessarily this particular example. Hopefully, we may be witnessing a pre-cursor to breaking the stranglehold teaching institutions and their staff have on the limited resources available to the community.

I favour a return to on the job training - apparently it suits BMW and they never hire raw graduates - they train everybody in house and thereafter the brighter ones are sponsored to a higher education institution, but remain under BMW tutelage. Seems to work and it has here in the past. - overhead costs are distinctly lower in the long run.

by wtf | 3rd Aug 12, 2:09pm 1343959788

But if you leave any sector to regulate itself it will be more efficient didn't you know. Like mine safety to the mine companies, fish management to the fishing companies.... They're all so responsible, logical and interested in the long term sustainability rather than short term gain they'll never crap in their own nest!

by waymad | 3rd Aug 12, 1:59pm 1343959196

NZEI is in Patch Protection Mode, chaps and chapesses. Just like RE types talk their book, teachers are spruiking their deep understanding of life the universe and everything.

How Dare you peasants claim to Know Better? (the answer to LTUAE is of course 42).

Whereas us accounting/IT guys know full well that very little of what is emitted from Places of Higher Learning, counts for much in the real world. Us types do much of the educating, that keeps the practical accounting application wheels of biz turning.

And (shock, horror) we Ain't Registered!

by Stephen Hulme | 3rd Aug 12, 2:26pm 1343960809

Yeah ain't it the truth - I along with everyone else was registered to death as a trader in the UK/US axis finance industry.

The registered results speak loudly for themselves.