Here's my summary of the key news overnight in 90 seconds at 9 am, including news US stocks rose 0.6% overnight and the Eurostoxx 50 index rose 1.7% as investors placed their bets on the European Central Bank convincing Germany to allow it to buy Spanish bonds.
US stocks also rose on growing expectations of a significant easing from the US Federal Reserve on September 13 when its policy making committee (FOMC) next meets. US stocks have risen 11% so far this year on growing expectations of fresh money printing and monetary stimulus in Europe and the United States. See more here at Reuters.
Boston Federal Reserve President Eric Rosengren said in a New York Times interview the Federal Reserve should make unlimited purchases of bonds until it was clear unemployment was falling. Rosengren is not a voting member of the FOMC, but his comments are the strongest yet from the camp within the Federal Reserve system in favour of unlimited money printing to boost the world's largest economy. Previously the Fed has set limits on its first two rounds of money printing to buy bonds, known as Quantitative easing.
Rosengren also pointed out that such unlimited money printing would weaken the US dollar, which would boost America's export sector.
Meanwhile, surprisingly, the New Zealand dollar fell despite the strength on stock markets. Normally the New Zealand dollar rises and falls in tune with appetites for riskier assets such as stocks and commodities, but overnight an interview from Prime Minister John Key with Bloomberg helped drag it down to 81.5 USc and under 66 euro cents.
Key warned against making one-way bets on the New Zealand dollar's rise and pointed out the strong exchange rate gave the Reserve Bank room to cut interest rates.
Here's his comments as reported by Bloomberg:
At some point, currency appreciation would make the economy “splutter and stutter and probably stop,” he said in Christchurch. At the same time, “a rising exchange rate takes pressure off the Reserve Bank. Base rates are still much higher than they are generally around the world -- 2.5 percent. There are options, so let’s see.”
The prime minister signaled that the onus on aiding New Zealand’s growth will remain on the central bank as his administration seeks to return the budget to balance. “The government’s preferred position is not to be stimulatory,” and the central bank has “room to move if they want to,” he said.
See more discussion on the potential for Reserve Bank intervention here in my weekly currencies review with Dan Bell and Alex Tarrant's article on the Reserve Bank's profits from previous interventions.
7 Comments
What I think is a very good piece on Political Economy from George Friedman from stratfor.com. Those familair with the scenario could probably skip to the second half. Reading between the lines the outcome = "Print".
"The investors' problem is that they mistake the period between 1991 and 2008 as the norm and keep waiting for it to return. I saw it as a freakish period that could survive only until the next major financial crisis --……
And so, having lost money in 2008, they could never find their footing again. They now lived in a world where Merkel was more important than a sharp trader…….
Actually, Merkel was not more important than the trader. They were both trapped within constraints about which they could do nothing. But if those constraints were understood, Merkel's behavior could be predicted."
The govenor of the Reserve bank sends an urgent text to the prime minister
"John
Recieved and importand call last night warning me that there was going to be a big buy up of NZ dollars today causing our dollar to go sky high and wipe out our exporters. So i set the alarm clock so i could get up early and print a whole lot of NZ dollars to help save our exporters.
Unfortunately the alarm clock did'nt work and i slept in. Now our dollars value has gone thru the roof.
Help, what shall i doo?"
The prime minister replies
"Don't worry the warehouse have some good alarm clocks on special"
Goodness me - the above seems to imply that Kiwi at 81.5 USc is considered a successful "drag down"? Perhaps for currency traders but our exporters need a whole lot more than a jawbone on Bloomberg methinks.
Reading Bernard's commentary this morning it seems that he believes the actions necessary to solve the GFC are the responsibility of Governments and Central Banks. IMHO I would suggest the truth is that they are the problem not the solution.
I don't see Bernard conveying his beliefs in his summary (I think he's actually torn between what he personally believes should/will happen and how it relates to his beliefs in economic theory).
I read it that Govts. think it's the Central Banks responsibility to take the necessary actions to solve the problem. The Central Banks also think it's their responsibility but trying to do it in isolation of Govt policies, following failed economic theory and bias towards vested interests certainly isn't helping.
I agree that both are the problem and not the solution.
"The significant problems we have cannot be solved at the same level of thinking with which we created them" - Albert Einstein.
http://www.oftwominds.com/blogaug12/perspective8-12.html
Eliminating Elites won't eliminate our structural problems or the reduction in phantom wealth we've all been relying on.
Many finance-oriented critiques start from the position that our problems largely stem from the financial/political dominance of Elitist cartels and cabals. Clearly, the malinvestment, exploitation, predation and disregard for the law that characterizes the rule of political-financial Elites in both developed and developing nations have wreaked havoc on societies and economies around the globe.
Implicit in this critique is a dangerously naive assumption: if all our problems can be traced back to Elitist cabals such as the Federal Reserve and the European Central Bank, then it follows that the subjugation or eradication of these concentrations of self-serving power would remove the cause of our problems.
Alas, that would be a welcome step in the right direction, but that alone would not resolve the structural causes of our devolution. Freeing ourselves of self-serving Elites would certainly create an opening for structural transformation that is currently impossible, but the transformation will require changing much of what the average citizen takes for granted as a "given" or even "right."
For a little perspective on what lies ahead, let's consider the structural problems that remain even if we were fortunate enough to throw off the yoke of the Fed, the corporate cartels, and the entire system of Elitist dominance.
The strong NZD should not surprise anyone , we have a government that is hell bent on returning us to surplus because it can.
We have the USA inflating its way out of a recession.
We have commodity prices returning to normal after have such good times.
People need to protect their money so NZD AUD are safe hedges
there is no high or low values to our currency they are what they are.
It is good to see that we have a reserve bank with some room left to move when europe / USA have nothing left .
New Zealanders finally starting to retire debt good to see
Hold onto your pants cause 2013 is going to be very messy.
Eurostoxx rise on bets The ECB and FED will ease........!
Bet away you desperate dervies, the vacuous hole that services the abyss will gladly take your wager....after all......
Captured money is captured money.
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