90 seconds at 9 am: Aussie drop

90 seconds at 9 am: RBA growth worries trump inflation; fertiliser cartel collapses; China injects more cash; JPMorgan gets huge fine; NZ$1 = US$0.798 TWI = 75.4

31st Jul 13, 8:44am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of a drop in the Aussie currency.

RBA Governor Glenn Stevens indicated that a cash rate cut could come as early as next Tuesday. Currency markets reacted immediately taking 1.5 USc off the value of the Aussie and taking it back to August 2010 levels.

The Kiwi was marked down too although with less vigour and so our cross rate rose to over 88 AUc, its highest since October 2008. Overnight markets went with the new levels.

German consumer confidence rose more than expected in data out over night. The same is true for British consumer confidence, although in their case it is more accurate to say is was less worse than expected.

In contrast, American consumer confidence came in slightly below expectations for July. However, in reality all these survey data are really just bouncing around an unchanged trend.

Overnight, there was a sudden collapse in the Russian-Canadian potash cartel. This will affect New Zealand because almost immediately fertiliser prices started to collapse on world markets. Prices may fall by as much as a quarter, and there is talk of a global 'price war' developing. Farmers worldwide will benefit; we just need to make sure we get our fair share of the readjustments coming.

In China, their top leadership is focusing seriously on how much the government sector owes - they now realise no-one knows. They are flying blind until the survey they launched yesterday is completed.

Meanwhile, they are trying to avoid a repeat of last month's cash crunch, and their central bank injected cash into their system yesterday in a new preventive measure.

The big fines on JP Morgan Chase for electricity market manipulation have been announced overnight - at about half the level of early media speculation. The bank has agreed to pay a bit over NZ$0.5 billion to settle the fraud case.

Markets were quiet overnight. Equities and gold are little changed this morning, but oil continues its 10 day drift lower.

The NZ dollar opens at 79.8 USc, 88.1 AUc, and the TWI is at 75.4.

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5 Comments

by powerdownkiwi | 31st Jul 13, 10:04am 1375221886

"Prices may fall by as much as a quarter, and there is talk of a global 'price war' developing. Farmers worldwide will benefit; we just need to make sure we get our fair share of the readjustments coming".

It never ceases to amaze me, as an energy studier, how much so many don't understand about what does what to what.

Sure, there's 9.5 billion tons of 'resource', sure AT CURRENT RATES OF PRODUCTION that's a long window - but what digs it out, transports it, and spreads it? Where are they on the cherry-pick? That commodity is in crisis-supply mode. Fracking, 3000km train-hauls, deep-sea drilling, are what you do when you can no longer do what you did. You're simply into having to pick the higher-hanging fruit, and the top of the tree is anticipatable. Yet we can comment on the stuff being supplied (with no planB supply mechanism) and suggest it can be/should be 'made cheaper'?

"Readjustments" is too short term; and doesn't take into account the real underwrite, either in absolute time terms, or in comparative terms (opportunity/mitigation obligations to future others being an obvious example). The price should be much, much more, if we were valuing correctly. Prohibitively much more, pretty much.

"farmers will benefit" no, they will simply take advantage, lever off, increase infrastructure. All of which makes the inevitable Seneca event more impactive.

Unfortunately, 50% of the planetary population of one species live in artificial urban surroundings, and seem to have lost the ability to see far past the cafe door, relativitius curtailmentus maximus.

by steven | 31st Jul 13, 10:17am 1375222643

Worth a watch IMHO,

http://www.youtube.com/watch?v=LQaw2fix3q0

regards

by scarfie | 31st Jul 13, 11:26am 1375226810

Their poverty allows them to sell labor cheaply. If the process works and the workers are disciplined, investment pours in to take advantage of the opportunities. Like the investors, local entrepreneurs prosper, but they do so at the expense of the workers, whose lives are hard and brutal. It's not just their work; it's their way of life. As workers move to factories, the social fabric is torn apart.

Friedmand goes on to explain that their lot is still improved, but I don't believe this is the case at all. What is the price of the conversion to souless work?

by Ms de Meanour | 31st Jul 13, 12:41pm 1375231289

What is a "price"? It is, by definition, the level at which a seller is willing to sell and a buyer is willing to buy. If a worker is willing to sell his labour for $x and an employer is willing to buy it for $x, then that is the price of the work.

(You could get a bit more sophisticated and point out that it is actually $x minus tax and plus the opportunity cost of not being able to spend time with his family or use the time for something else and having to forgo any benefits which are available to the unemployed but not to the employed for the worker, and $x plus tax and administrative costs and the opportunity cost of not being able to use the money for something else for the employer. But I am not sure that that adds much to the basic concept.)

Now the "price" of something is different from its "value". The "price" is agreed between buyer and seller, but the "value" is not - it is particular to the individual parties concerned. This has to be the case for a transaction to take place at all. A seller only willingly sells something where the price he gets for it exceeds the value to himself of keeping it. A buyer only willingly buys something where the value to himself of getting it exceeds the price he has to pay for it.

In this particular case, you imply that the worker does not realise the true value to himself of what he is offering in exchange for the wage and therefore that he is not qualified to judge whether his own position is improved by agreeing to the deal.

Maybe he isn't. But who is better able than he?

by south paw | 31st Jul 13, 1:26pm 1375233982

You want to talk about what "price" is?

In the real world the "price" is whatever the Banksters have rigged it to be, as the latest scandal involving JP Morgan demonstrates.

Make countless gazillions rigging energy markets, forex, metals, stocks, municipal bonds, LIBOR, derivatives, commodities. And then call it "Market Making".

Add in all the faked AAA ratings, re hypothecation, front running, wash trades etc etc etc.

Call your clients "muppets" and get a car license plate "2BIG2FAIL"

Pay no taxes while making a 49 billion profit.

Get your former employees into high level government positions.

Advise your employees to arm themselves in case the general population finally goes ape sh!t at you.

Launder billions in drug money.

Funnel billions into ponzi schemes like Bernie Maddof's.

Build a derivative exposure of $70 trillion. No bail out in the world will cover that one when it tanks.

Get trillion dollar secret bailouts - hows that for welfare bludgering?

Welcome to the real Global Economy, muppets.