90 seconds at 9 am: Investors chase yield

90 seconds at 9 am: Markets expect ECB cut; Spain, Italy debt at lower yields; Japan QE flood not happening; Yuan at record high; good US growth; NZ$1 = US$0.852, TWI = 78.8

26th Apr 13, 8:18am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news that the scramble for yield around the world is behind our rising exchange rate.

Since the RBNZ 'hold' decision on Wednesday, we have seen a sharp rise in our currency and it starts today with a TWI at 78.8, close to its all-time high.

The same thing happened following the 'no-change' decisions in January and March - our currency rose in the next weeks following. In January it rose 2% from 83.4 USc to 85.2 USc; in March it rose 5% from 82.1 USc to 86.3 USc following the Wheeler non-decisions.

Investors like our interest rates, especially as nearly everywhere else is zero, or with a strong threat of reducing.

Nothing shows that like in Europe. There is a widespread market acceptance that the ECB will be cutting rates next Friday (our time) when it meets in Slovakia.

Overnight, amazingly, both Spanish and Italian bonds were sold easily and at declining yields. Investors are chasing yield despite the sovereign risks.

The NZ dollar rose against the euro opening this morning at 65.48 €¢, less than one cent below its all-time high.

Staying in Europe, the British economy surprised many by avoiding a triple-dip recession in Q1 and posted growth above most observers expectations. Meanwhile Spain reported unemployment even higher than markets were expecting. It's now 27.2% of its workforce. In France, it's also at a new high of 11.5%

In Japan, the flood of money leaving following their massive QE isn't happening to the extent expected. Japanese companies are repatriating funds at an impressive rate. But there is still a net outflow and the NZ dollar rose against the yen, opening today at 84.7 yen.

In China, they are working hard to revalue their currency and the yuan is now at a record high against the US dollar - but still fairly stable against the Kiwi.

In the US, it is clear that their Q1 GDP growth will be about at a 3% annual rate, despite the budget and tax shocks their economy received. And Q2 maybe slower but jobless claims continue to fall.and are near a five year low.

And finally, there are growing expectations that the next rate move in Australia will be down, probably soon.

The Kiwi dollar starts today significantly higher after the ANZAC day break at 85.2 USc, 82.7 AUc, and our TWI is at 78.8.

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3 Comments

by Christov | 26th Apr 13, 9:13am 1366924389

Cheers David C... the potential " botch at the Boj " , is a very underestimated financial crisis in the making....with a lot of ..if's...and a fair amount of praying involved I'd wager.....

With the most honerable intentions.......Here horse, look see all this water before you..!..you are thirsty, are you not horse..? Horse..? why you so suspicious horse..?, water is new, fresh, clean .. good for you...! I must insist horse, you wet lips now....

I've selected a coupla pointed bits for those who don't link to the Ambrose piece, but I do think it one to read for future calculations......an earthquake in the making.

Instead, Tokyo's behemoth funds are cashing windfall gains abroad generated by the 20pc slide in the yen since July, rotating the profits into assets at home. "We have looked at the flow data and contrary to high hopes our clients have not bought a single Italian or Spanish bond," said an analyst at one Japanese bank. Marc Ostwald from Monument Securities said profit-taking on foreign assets is unlikely to last long. "Japanese investors can't stay at home because they will be killed as income falters on their holdings of JGBs (government bonds). They will have to hunt down yield abroad," he said. One unstated aim is to push insurers and banks into other assets, fueling a stock and property boom that drives recovery through the "wealth effect". A second aim is to push the money abroad to hold down the yen. The big institutions currently hedge 70pc of the foreign bond holdings on the currency derivatives market. If they reduce their hedge books to the historic norm of 35pc, it could led to a bone-breaking slide in the yen against the dollar, euro, and yuan. Nippon Life Insurance and others have signalled that they might move in this direction. They are not doing so yet. The repatriation effect has major implications for global bonds and stocks. Japan is still the world's biggest creditor with an overseas portfolio of $3.75 trillion, and its actions can at times shape the financial universe. Deary Me.. The determination to smash deflation by the BOJ may just be , by it's very terminology what is scaring the horses. As to inflate , may require a more encouraging tone together with a great big PUMP.

by steven | 26th Apr 13, 10:30am 1366929009

"more encouraging tone together" oh lets believe in the confidence fairy? We have spent 4 years trying to keep that fairy tale alive. Confidence returns when ppl feel safe not because Orwellian leaders tell them they are.

;]

Which is the rub really...yet more growth, more and more please....

tiger by the tale.

regards

by Christov | 26th Apr 13, 11:18am 1366931926

I was being tongue in cheek there Stevo........as in the Boj's sticky situation, hitting it with a big stick will fare little better than the previous methods adopted.