90 seconds at 9 am: Syria interrupts

90 seconds at 9 am: US housing sales fall; BofE pushes for more bank capital; India's currency falls again; commodities recover; NZ$1 = US$0.779, TWI = 73.7

29th Aug 13, 8:44am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news rising US interest rates are starting to be felt in economic signals.

In the US, fewer contracts were signed in July to buy previously owned homes, a sign that rising mortgage rates are starting to slow momentum in the housing market.

Overnight, the Bank of England moved to boost lending to consumers and businesses by the largest British banks by easing liquidity rules for those that meet capital targets.

They will allow their main lenders to shrink required holdings of low-yielding, easy-to-sell securities, such as government bonds, once they hold capital reserves equivalent to 7% of their risk-weighted assets.

That is a very low threshold, and it says a lot that British banks need incentivising to get to even that level.

The crisis in emerging market India is getting tougher. Its rupee sank by nearly 4% to a new low against the US dollar overnight amid growing concerns about the health of the country's economy. It's currency has lost 20% in total so far this year.

In late trade, gold is pulling back from a high of US$1,430/oz, oil has pulled back from a high of over US$113/barrel - it is now below US$110/barrel. And the Dow has been rising this session, after falling to 14,750 yesterday.

Readers who use the excellent NY Times website will have noticed it has not been available overnight. That is because of a Syrian hack. But the hack has a local component. Melbourne IT provides domain service to the New York publisher and was the way the Syrians got at them. That makes the hack vulnerability very close to home.

Locally, we will be keeping an eye on the RBNZ release this afternoon that will show if the central bank intervened in currency markets in July, and the ANZ business confidence data for August at 1pm.

The NZ dollar starts today pretty much unchanged at 77.9 USc, 87.1 AUc, and the TWI is 73.7. Just as the botulism scare had little impact on our currency's value, the news of the all-clear made little difference either.

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3 Comments

by Stephen Hulme | 29th Aug 13, 9:21am 1377724883

Overnight, the Bank of England moved to boost lending to consumers and businesses by the largest British banks by easing liquidity rules for those that meet capital targets.

They will allow their main lenders to shrink required holdings of low-yielding, easy-to-sell securities, such as government bonds, once they hold capital reserves equivalent to 7% of their risk-weighted assets.

And so necessary to facilitate these same institutions adherence to the new OTC derivative clearing house collateral/ initial margin requirements. Needs must I guess. And spin follows - I wish it weren't so.

by Stephen Hulme | 29th Aug 13, 10:32am 1377729174

Sovereign wealth funds' investing actions are hardly the "poster child" for the masses. Central banks and their affiliates alway buy high, sell low. Very handy for the savvy prop traders, not so much for the taxpayers.

But all could be forgiven if they funded locally or currency swapped their way into the Aussie Government curve a while back.

by Stephen L | 29th Aug 13, 12:20pm 1377735622

India will be very interesting to watch. I found the attached CNBC article showing Some real business effects in India informative; in that the examples don't need much imagination to see how the economy could head into a very negative spiral fairly quickly. They appear to have somewhat wasted years of foreign inward currency flows in terms of infrastructure or reforms, and in particular do not seem to have really ramped up export leading industries- apart from call centres, some software development, and the diaspora remittance industry. With 1.3 billion people, and many of them living on the edge, their options out now become the tough choices. Deep austerity and deflation? Money printing and inflation? If their economy does not have too much of substance, that can turn into hyperinflation. Certainly some infrastructure building- an easyish choice left

So as not to sound too hubristic, their current account deficit is 4.8% of GDP vs our 5%.

It is easier to see what we produce that the rest of the world wants- and usefully in a crisis, producing essential food items is likely to be pretty resilient. Have we though blown years of easy foreign money- I would say yes. In any case I would strongly prefer we wean ourselves off that 5% as soon as practical, before it is forced on us; and in any case to build up some long term wealth buffer.