90 seconds at 9 am: Americans confident

90 seconds at 9 am: Bernanke upbeat; US consumers confident; China's house prices rise; Aussie home loan war; China buying local electricity systems; NZ$1 = US$0.806 TWI = 76.3

20th May 13, 8:51am by David Chaston

Here's my summary of the key news over the weekend in 90 seconds at 9 am, including news Americans seemed to have been drinking optimism juice.

Fed boss Ben Bernanke has turned upbeat. At a speech over the weekend he described a future in which competition to produce innovations will yield ever-greater rewards, sustaining and growing wealth.

In fact, Americans generally - not just Bernanke - felt better about their economic and financial prospects in early May as consumer sentiment rose to its highest level in nearly six years, an encouraging sign after other recent data had suggested broader US growth is cooling.

Some better signs from Europe emerged over the weekend too. Firstly, Spain has produced a trade surplus - its first in 40 years. But it is not from booming exports; rather a sharp fall in imports. Secondly, car sales in Europe are growing again, breaking an 18 month losing streak.

China’s new home prices rose in all but two cities in April, with housing values accelerating in key centers including Beijing and Shanghai as buyers defied their government’s latest round of property measures. Something similar may have happened in the US; home sales reports due out this week are also expected to show gains.

The Aussie banks are starting a home loan war across the ditch. For years they just focused on variable rate lending, but times are changing there and the home loan market is getting to look more like New Zealand with its emphasis on fixed rate contracts. Following falling wholesale costs, Westpac is now offering one year fixed rates of 4.79% - but only in Australia.

It may be a portent for New Zealand however as the international money markets Westpac NZ accesses will be the same. The difference though will be the RBNZ core funding limits - in the interests of financial stability banks here must source a growing proportion of funds domestically.

And here's something we should keep an eye on; China's giant state electricity grid operator has a US$50 billion war-chest to invest overseas and it has just made a NZ$1 bln deal to take a 20% stake in Australia's largest power distributor. But ratings agencies weren't impressed. So far they have spent US$5 bln in Australia buying infrastructure. And the Chinese SOE is reported to be currently looking at buying a stake in New Zealand's Powerco.

The NZ dollar starts today quite a bit lower at 80.6 USc tracking the falling Aussie lower and its lowest level since September 2012, 82.9AUc, and our TWI now stands at 76.3.

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5 Comments

by Hevi Groswaite | 20th May 13, 9:51am 1369000295

The questions now is: How low will the Kiwi stoops?

HGW

by dh | 20th May 13, 12:10pm 1369008642

Back around 2004, Treasury was estimating an equilibrium range for the dollar of 40-70 cents against US$. I don't really feel like going through the PPP changes since then to convert it to present day money estimate (but PPP data for international comparisons is publicly available if anyone feels like it). The caveat on the 2004 estimate is that was essentially based on what had been the normal state of affairs, and that kind of basis tends to ignore fundamental shifts to different baselines (but that should be accounted for by following the PPP changes for the TWI countries).

by The best statu… | 20th May 13, 10:30am 1369002655

If the Kiwi tanks it means that we can export at better margins. End of the manufactured 'Manufacturing Crisis'. It looks like the NZD will balance itself without printing money eventually. Another nail in the Labour/Green financial credentials thinking money printing is the way to financial prosperity.

SS NZ is sailing on quite well I think despite negative press from the press/LAB/GRE.

I know who will be better stewards for the NZ economy. It certainly is not Norman Parker:).

by Andy Rodgers | 20th May 13, 10:43am 1369003434

"Fed boss Ben Bernanke has turned upbeat."

Let's see what the great economic forecaster Ben Bernanke has said previously regarding the U.S. economy.

(February 15, 2006) "Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."

(January 10, 2008) "The Federal Reserve is not currently forecasting a recession."

(March 28, 2007) "At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."

(July, 2005) "We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."

(May 17, 2007) "All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable."

"The GSEs (Fannie Mae and Freddy Mac) are adequately capitalized. They are in no danger of failing."

(June 10, 2008) "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."

"The financial crisis appears to be mostly behind us, and the economy seems to have stabilized and is expanding again."

With a track record like that why would anyone ever take any notice of what he has to say? I suppose that he might one day get an economic prediction correct - yeah right!

by Kiwi | 20th May 13, 10:53am 1369003980

I wonder what George Soros is up to.

Is he still shorting the Aussie dollar or did he take his winnings.