90 seconds at 9 am: Euro-zone hit

Euro-zone factory contraction worse than forecast; Eurostoxx rally on Chinese stimulus hopes ahead of Thursday's ECB 'Big Bazooka'; NZ$ under 80 USc, falls with A$

4th Sep 12, 9:03am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including figures showing Euro-zone factory output contracted more than expected in August for the 13th consecutive month with the deepening contraction spreading further into the core of France and Germany from the weaker peripheral nations such as Spain, Italy, Greece, Portual and Ireland.

German and French factory output contracted for the sixth month running, leading economists to revise down their forecasts for Euro-zone GDP in the current September quarter to another contraction, adding to the slight contraction in the June quarter. See more here at Reuters.

However, the Euro-stoxx index of European stocks rose 0.8% overnight on hopes for fresh stimulus in Europe and in China after weaker than expected factory output figures there on Monday. See more here at Reuters.

Markets are on tenterhooks waiting for the European Central Bank to decide on Thursday night NZ time about whether to cut its official rate by 25 basis points to 0.5% and whether to launch its so-called 'Big Bazooka' of unlimited buying of Southern European bonds to push down their bond yields and quash talk of a Euro-zone breakup.

Many are also waiting for a decision next Wednesday (Sept 12) by the German Constitutional Court on the legality of one of the main European rescue funds, which the ECB is hoping to work in tandem with to fire its 'Big Bazooka'. See more here at Reuters.

Legal experts expect the court to give the court to give the green light to the European Stability Mechanism (ESM), but with caveats.

Meanwhile, the New Zealand dollar fell under 80 USc overnight, opening this morning around 79.75 USc.

It fell in tandem with the Australian dollar, which was hit hard by the weaker than expected Chinese factory output figures yesterday and very weak iron ore prices.

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30 Comments

by Gummy Bear Hero | 4th Sep 12, 9:18am 1346707136

What to get Bernard for his going away pressie ? ........ hmmmm ..... a gift voucher to Warren & Tarquain's Salon methinks .....

........ looking very scrofulous at only 9 a.m. big fella .....

Windy morning on the bicycle ?

( a northerly gale , & 20 'c @ 6 a.m. here in South Australia .... winter is munted ! )

by Bernard Hickey | 4th Sep 12, 11:19am 1346714359

Yep. New hair cut required. Windy and wet in sunny (!) Auckland.

I'll still be doing 90 at 9 ....

cheers

Bernard

by Gummy Bear Hero | 4th Sep 12, 9:36am 1346708207

The word is out , here in Austrailer , that Governor of the Reverse Bank Glenn Stevens may have to cut the OCR by 100 basis points over the next 12 months .....

..... though it's doubtful if they'll cut this week ......

But the economy is grinding to a halt , up against the Great Wall of China .....

..... and who didn't see that coming ? ..... finance minister Wayne Swan springs to mind !

by Kunst | 4th Sep 12, 9:46am 1346708795

Gummy – don’t be so bloody negative. There are warm and great beaches over there – far from doom and gloom.

by Matt in Auck | 4th Sep 12, 10:50am 1346712643

beauty of a day here in the big smoke of Adelaide Gummy, 26 forecasted.

Are you going to the footy on Saturday? C'mon Crows!

by steven | 4th Sep 12, 10:05am 1346709930

Interesting graph on UK GDP today and 1930s....(and other recessions).

http://notthetreasuryview.blogspot.co.nz/2012/04/recessions-and-recover…

I'd like to see one for NZ.....

regards

by Neven911 | 4th Sep 12, 11:11am 1346713917

Another way to look at that is that since 2008 has been 12 months decline, 12 months overshoot correction, and *24* months flat, i'd predict another 24 months flat unless we get some more geopolitical instability

by meh | 4th Sep 12, 10:48am 1346712505

http://www.marketoracle.co.uk/Article36184.html - Professor Bernanke’s Terrifying Blindness on the Great Depression

Haven't read all the included links but this is an interesting article.

by steven | 4th Sep 12, 11:21am 1346714517

Its a pity the writer wears blinkers as big as Bernanke's

"These are fractional-reserve banking, bank financing of real estate and stock speculation, and financial fraud."

fractional reserve banking has nothing directly to do with this...

Though the comments of the housing bubble of the mid 1920s is an interesting read in terms of data/info and not coloured opinion.

regards

by meh | 4th Sep 12, 11:49am 1346716180

I don't think he's wearing blinkers, that's a pretty bold assumption on your part. We know there are other factors in play this time around but he is attempting to compare like with like.

"Bernanke doesn’t see or speak of the common features between the latest banking/real estate fiasco and America’s Great Depression nor, for that matter, features common to most other of America’s economic collapses and depressions."

The point being that Bernake (or anyone) didn't look hard enough at the (possible) causes and history effectively repeated itself. Growth is not going to solve the problem this time but planning/adapting for a sustainable future from a financial/cost perspective would be a little easier if the financial system wasn't falling down first.

by steven | 4th Sep 12, 2:00pm 1346724014

I think teh writer can see the issues but he's wearing austrian / libertarian blinkers on the solutions....hence the info is valuable...and where its insight it can be interesting and informative....where it falls down is when it switches to biased solutions.....but at least its obvious on that.

Bernanke didnt look, to quote you, "that's a pretty bold assumption on your part." or he looked at these factors and didnt think they were that relevent (maybe he mentons it somewhere). Lets look at that time frame, its 3+ year in between....seems a bit of a long time....

"Growth is not going to solve the problem this time" well to start with there will be no sustained growth that needs more energy....and then you mix up sustainable with financial costs, sorry but that is an oxymoron IMHO.

"falling down first" thats probable...the Q is is it self-inflicted (finance on itself) or a result of energy price. If energy was still cheap its likely the ponzi game would be continuing for a while anyway....since thats no longer the case its moot.

My crystal ball gazing says nothing....so tits watching as it unfolds and be nimble as you can IMHO....

regards

by meh | 4th Sep 12, 2:18pm 1346725137

"well to start with there will be no sustained growth that needs more energy....and then you mix up sustainable with financial costs, sorry but that is an oxymoron IMHO."

I partly agree there Steven. (Note I said sustainable future not sustained growth).

Just finished reading Richard Weinberg's "End of Growth". Well written but scary.

Problem is, if we're to adapt/adjust as a nation/planet to no growth, there needs to be financial investment in certain types of infrastructure. If we were all to convert to solar power that requires financial investment now. I don't see how any of it can be acheived without use of existing energy sources.

by steven | 4th Sep 12, 2:41pm 1346726513

RW's logic is hard to defeat....if not un-defeatable...the only argument is when IMHO. Scary is what I think, my worry is by delaying moving we make the inevitable far more painful than it neds to be if indeed its even possible...NZ is surely one of the places its very doable.

Financial investment yes now if not some years ago...I dont know about solar power buy annual power for sure....Solar cells are a complex society output, peltic wheels are on teh other hand not. Horses for courses but what's the course.

"existing energy sources" tahts it in a nut shell but to keep those going takes investment and then investment yet again in the new...somewho I dont see the finance sector as willing to finance this, which means Govns have to somehow and honestly I dont know how. If no one does then the result looks bleak and will quicly arrive I think.

regards

by steven | 4th Sep 12, 6:02pm 1346738534

meh, my take on our future.....

2013 Global oil production peaks and starts a 6% annual drop.....oil prices spike.

Black October, the stock market crashes 75%....in one day, by end of year its 10% of what it was. Housing wolrd wide falls off a cliff.....mortgagee sales are 20% and climbing.

In panic as a distraction Romney and the USA invade Iran.....Iranians counter-strike with suicide speed boats and shut the straight of humuz and keep it closed for 3 weeks....copious mines sink 50% of supertankers, the ecological damage is mind boggling....oil spikes at $250USD....mass shortages in petrol and deisel result........food on shelves empties. The global air line industry with no fuel and no income collapses overnight.

Large fuel shortages cause huge commuting problems in NZ but with its high renewables and low population it suffers the least.

2014 Pakistan starts to implode politically, throws its 6 nukes at india. India retaliates wipes pakistan off the map, 100s of millions dead. Europe is aflame, under Romney US implodes into the 2nd dark ages. Saudi Govn collapses.

NZ's GDP has fallen 25% unemployment is 25% Govn follows the rest of the world and defaults on its lending...in order to offset the homeless all mortgages are canceled as null and void by the Govn. Military service for un-employed and those with student debt is compulsory for 10 years.

2020 GDP down 50%, many overseas NZers have returned either they get kicked out or do so of thier own accord....un-employemnt is 40% and PAYE tax is 80%. The unemployed are used in the fields.....With the masses unable to pay rates most councils propped by by central govn now cover the bare essentials, water and waste. Illegal arrivals are a huge problem NZs borders are closed but that doesnt stop ppl arriving. NZ's navy is too small and with little fuel the Govn watches as the chinese trawlers guarded by chinese warships pillage NZ waters. After 9 months however they quit due to to little return after shelling the beehive. Wold population is 5billion and falling rapidly. Romney, el Presidente for life is assassinated by upstart Ryan.....

2025 NZ's GDP has stopped falling at 40% of what it was in 2007. NZ trades with the likes of Saudi, food for oil....much doesnt get through due to pirates and banana govns. "USA" (actually texas, led by PhilBest) arrives and takes Marsden point claiming ownership due to outstanding debt....lasts 3 months then they leave when there is no income being "generated". World population is now 4billion.

2030 Emmissions have continued unabated 600 ppm is now a certainty.....NZ suffers more drys and floods impacting food output, population is now 3million and declining, Australia is 12million, declining. World population isnt known but 3billion is estimated. NZ has little outside contact....

2040 World population is under 2 billion but millions are still starving....

2058 World population is about 1.25 billion NZ population is stable at 2.5million....but global warming is a runaway....

2150 A second superwarm period is now underway, the temp rise is 6.5 DegC, Humans are extinct as are 97% of other species.

regards

by Matt in Auck | 4th Sep 12, 10:48am 1346712528

Great graph. Interesting to see that in previous recessions things started picking up properly about 36/38 weeks after the recession started, the current one is 50 odd weeks in and no sign of pick up

by Neven911 | 4th Sep 12, 11:12am 1346713963

weeks! you'd be so luck months methinks

by ngakonui gold | 4th Sep 12, 11:20am 1346714436

just walked past the local branch of FAST MONEY[ pawmbrokers]

plenty of activity going on there.

yep our economy is on the way out of recession.

by steven | 4th Sep 12, 11:25am 1346714757

only 3 years?

hard to see anything less than a decade.....though 2 or 3 seem entirly possible....an new dark ages heralded in by a Romney win....

Go Romney....

regards

by Matt in Auck | 4th Sep 12, 11:25am 1346714740

yes I had realised my typo and was just about to correct.

So the delay in recovery is now more than 12 months more than the "usual" recovery

I'm very interested in the UK situation with respect to NZ house prices. the link? I believe (no research to back up, would be a good PhD) the UK boom of the early / mid 2000s had a significant effect on NZ house prices through two means. Firstly, cashed up poms emmigrating to NZ with plenty of pounds which with the exchange rate at the time meant big NZ money. Secondly, young kiwis going to the UK and getting lucrative work and returning after 3 or 4 years with good money (again with a favourable exchange rate) to pump into housing.

by steven | 4th Sep 12, 11:54am 1346716493

I work from the size of the property/all bubble....I think we are 50%~60% OTT...in which case a depression is considered a -10% per anum decrease in GDP/assets, so the initial de-leverage looks like 5 to 6 years....of course when communism collapsed they had -25% one year.....really though 3 years is un-imaginably fast....at that rate you have to wonder if society can hold it together....

Think of it as say -10% the first year, say -25% the second but in a death dive like that starting to pull out in year 3 to 10% seems a big ask....it would take hercualean action by Govns and the likes of romeny wont do that....hence I think longer....and maybe even deeper.

So I dont think the grind has really started yet....first the shock and horror....

regards

by powerdownkiwi | 4th Sep 12, 12:59pm 1346720351

NZhtf - hmmm

85 mbpd = 11.7 days to the billion barrels. say 12 days. 365 x 10 (years to end of '22) = 3650.

3650 / 12 = 304 billion more barrels gone. (at present rates of consumption, no allowance for EROEI).

2027 is the mid-range of 'peak coal' guesstimates.

2030 is the projected year that Saudi (the world's last swing producer even now) internal consumption crosses production - so no exportee oilee.

And your energy source for this boom is?

by steven | 4th Sep 12, 1:36pm 1346722613

which is another story.....so many variables....

No matter of course its well known that the USA will be exporting 20mbpd by 2027, GBH says so....

regards

by Gummy Bear Hero | 4th Sep 12, 8:07pm 1346746021

I never said any such thing ! ...... I said that the USA will be self-sufficient in oil & gas within the next 10 - 15 years ..... whether or not they choose to let other nations share in their rich bounty is entirely a different story .........

....... don't tell porkies , steven ..... or we'll have to get a carpenter in to shorten your nose ...

... again ......

by powerdownkiwi | 4th Sep 12, 8:12pm 1346746321

http://www.energybulletin.net/stories/2012-03-24/new-york-times-exaggerates-significance-shale-oil

oink.

by steven | 4th Sep 12, 11:55am 1346716550

http://theautomaticearth.com/Finance/what-the-economic-crisis-really-me…

regards

by steven | 4th Sep 12, 1:31pm 1346722290

Hugh this is out of context and spam

by StanGoodvibes | 4th Sep 12, 1:38pm 1346722717

former Mayor Garry Moore made it clear why the recovery is not happening in Christchurch

No-one cares, Hugh.

by steven | 4th Sep 12, 3:36pm 1346729794

Oh I think many ppl care.

regards

by iconoclast | 4th Sep 12, 1:39pm 1346722758

David Chaston. You should give Hugh his own dedicated page. Spraying his stuff all around the place is becoming counter-productive.

by JackJill | 4th Sep 12, 6:09pm 1346738983

my friends who work in retail say that they get 10-20 times more job applications from Indians than from kiwis or chinese. A lot of chinese and indian/gujarati own their own shops- its seems to be part of their culture to run these small businesses.