90 seconds at 9 am: More rate rises

90 seconds at 9 am: Aggressive EM rate raises; Fed tapers as expected; US bond yields fall, investors like inflation-protected debt; ANZ stumbles; NZ$1 = US$0.827 TWI = 78.2

30th Jan 14, 7:26am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 8 am, including news of interest rate hikes worldwide.

Turkey and South Africa follow India in a rate raising round by emerging markets as they fight a bout of fragility caused by foreign investors sceptical of their abilities to withstand the US Fed tapering process. Many see these economies unprepared for a future not supported by the excessive liquidity the Fed provided as the US coped with the GFC.

Turkey raised rates by +4.25% to 12% and South Africa raised them by +0.5% to 5.5%. On Tuesday, India had raised their rates to 8%, as did Indonesia and Brazil earlier.

Unfortunately, early indications are that these rate rises have not halted the sell-off of emerging market assets.

That sell-off has reverberated in New York with equity markets down. Investors have piled in to US Government floating rate debt. A US$15 billion offer was more than five times oversubscribed.

There was nervousness in the markets ahead of the US Fed announcements but that came this morning pretty much as expected.

The Fed confirmed a further taper of US$10 billion to US$65 billion per month starting in February, and they re-confirmed their 6.5% unemployment target.

Following this at 9am, the RBNZ will review our OCR. No change is expected today by most, but some are calling for the wind back of the unusually low rates to start today. We will have more on that decision at 9am on this website.

Elsewhere, in Australia a major glitch by ANZ has seen it refund A$70 million to almost a quarter of a million homeowners who were charged incorrect interest rates through their mortgage offset accounts due to processing errors by the bank.

US oil prices declined overnight on higher inventories. Gold fell a bit. And the UST benchmark 10yr bond yields fell yet again and are now at 2.71%. Bond prices have risen sharply recently.

The NZ dollar starts today little changed so far from yesterday's levels at 82.7 USc, 94.4 AUc and the TWI is at 78.2. Surprises in the RBNZ announcement could change that quickly however.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »

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42 Comments

by waymad | 30th Jan 14, 7:45am 1391021138

Cross-posted from the Roost article comment thread: Dr Housing Bubble and the new feudalism of stay-at-home renters...

by MortgageBelt | 30th Jan 14, 8:05am 1391022358

India's OCR =8% while their floating mortgage rate = 10.25% . Much slenderer margins than NZ.

by Grant A | 30th Jan 14, 9:03am 1391025788

Whats their OCR got to do with the level of their mortgage rates MB ? - do I have to keep reposting pervious posts explaining bank funding spreads that they have to pay over OCR/swaps curve...ask Stephen Hulme and others who understand markets, funding and interest rates. . Do you know what the Indian private sector debt levels are like compared to NZ's, and what funding spreads their banks are having to pay to the market for funds. A bit like futiure inflation projections being the only thing that counts, not today's rate, people who comment about interest on a forum where many are here to learn, have to start learning themselves when the information is repeated consisently here and is fact not opinion.

by iconoclast | 30th Jan 14, 9:28am 1391027297

Hey Grant A, go to the top-of-the-class, you articulated the RBNZ reasoning and why, extremely well last week, spot on. RBNZ holds. You the man. Thanks.

by King of the whiners | 30th Jan 14, 8:48am 1391024929

In other news (which we really ought to try and ignore as it does not fit with the meme of the past few years) - US natural prices surged to a 4 year high today, past $5.50. Given that we have been constantly told that the US is afloat on a methane filled cushion of fracked gas isnt it odd how seemingly supplies cant keep up with a cold spell, to the extent that prices have now risen 200% plus from their 2012 lows?

There was a bit of ill informed comment the other day how supposidly the private sector has all the answers to the woes of oil and gas supply. Strange then to read that bastion of free market capitalism the WSJ lamenting the fact that the more Big Oil pours in the less it gets out.

http://online.wsj.com/news/articles/SB100014240527023032777045793483322…

'' Big Oil Companies Struggle to Justify Soaring Project Costs: Chevron, Exxon and Shell Spent More Than $120 Billion in 2013 to Boost Oil and Gas Output, but Production Is Down....

I am sure there is a message in all of this (but apparently you have to be a whiner to understand what this message is).

by Happy123 | 30th Jan 14, 9:55am 1391028902

Hi K of W, just trying to understand, did you visit this site and decide that there wasn’t enough ultra far left wing whiners? Because if you take a good look there are plenty already, I’m not sure what value you’ll add to the conversation? And your likely to anger some of the others with your choice of alias, in my opinion steven is certainly the king of all whiners and you’ll have to do a lot more to claim that throne.

by King of the whiners | 30th Jan 14, 10:58am 1391032729

Odd that you should conflate posting facts about the energy markets with being ultra far left. Perhaps you need to re-assess your world view?

And who is this Steven of whom you speak?

by steven | 30th Jan 14, 11:24am 1391034262

We all know data has a liberal bias.

;]

Its great when someone like happy123 says something like this though, its a self-labeling of an extremist person/position. You just know then you really are talking to a zealot and wont get through their chanting "free market"...."free market" with real information.

regards

by Happy123 | 30th Jan 14, 12:29pm 1391038162

And steven, what can I say, you'll always be my king of the whiners ;o)

You must be furious at our booming economy, house and stock market. If National win in November I'd bet you'll be inconsolable.

And same question to you, what solutions do you propose that you have personally inacted?

by David Chaston | 30th Jan 14, 12:44pm 1391039044

A reminder to all, please lay off the personal attacks and abuse. OK to challenge the ideas and positions, but no personal insults please.

by Happy123 | 30th Jan 14, 12:21pm 1391037691

See, it’s awash with them already. K of W, meet steven, I’d say you’ll get along swimmingly. I’d say you should meet up and exchange war stories but that would involve driving one of those evil automobiles.

K or W… Let me take a guess… you’re a retired baby boomer, milked the capitalist system so you are now retired on a life style block growing your own vegies. After spending years driving a car, consuming fossil fuels and milking the capitalist system you now feel guilty about it and feel the need to preach to the rest of us to make sacrifices you never did when you were in your 20s? Am I wrong?

by King of the whiners | 30th Jan 14, 12:26pm 1391037977

Almost from first to last, but don't let that stop your ranting.

by Happy123 | 30th Jan 14, 12:31pm 1391038308

In that case can I propose a alias change to king of the hypocrites?

by King of the whiners | 30th Jan 14, 12:35pm 1391038539

Unimpressive approach to problem solving you have there - a variation of attack the messenger rather than the message? Does it get you very far in real life?

by Happy123 | 30th Jan 14, 2:23pm 1391045023

Almost as impressive as your aviodance of my question. What steps do you personally take to resolve the earths problems? What sacrifices have you made? Lets start with the device your posting on, full of rare earth materials, probably paid for with money earned in the corrupt capitalist system....

by PeakEverything | 30th Jan 14, 11:37am 1391035078

Happy, you seem to be confusing the problem with the solution. Whether you are politically left or right Dosn't change the facts just the proposed solution. Oddly most of the far right wing posters on this site seem to think the best solution is to pretend we don't have any problems. It's not anti free market to realise we are running out of cheap oil or that we are causing climate change.

Your personal political view should influence the type of solution you reccomend not whether or not we actually have a problem.

by Happy123 | 30th Jan 14, 12:23pm 1391037839

Peak Everything, yes the world has problems so it's important that healthy and open discussions are had regarding solutions. Please share some of yours... Preferably ones that you have personally inacted, in your early years, so that way you don't sound like a raging hypocrite.

by steven | 30th Jan 14, 1:00pm 1391040044

Yeah I pooed into re-usable nappies when I was a babe.

Dont be silly.

regards

by PeakEverything | 30th Jan 14, 2:54pm 1391046877

As it happens I am in my early 30's. As far as solutions I have shared mine which is for us humans to live sustainably which means leaving the world in at least as good a condition as we found it. Sure this will effect economic growth but as is constantly discussed here you can't have constant growth in a finite world.

Luckily for us I see a world in 20 years with a lot less available energy than now, unless of course we crack fusion which seems highly unlikely in the near term. I say lucky because if we keep burning fossil fuels at our current rate our planet will most likely be uninhabitable in 100 years due to global climate change.

Would I prefer to be able to have a comfortable life with business as usual with no consequences? Of course I would but the reality is this is not the case. I don't have a lifestyle block at the moment although seriously considering selling my house and business and geting some land near a river. Of course it's one thing to say on an internet blog that the world is doomed it's another to sell your house and business and act on the knowledge that takes courage.

by Happy123 | 30th Jan 14, 3:40pm 1391049641

"Of course it's one thing to say on an internet blog that the world is doomed it's another to sell your house and business and act on the knowledge that takes courage." - well put. The irony I'm trying to point out today is that I probably live a more sustainable lifestyle than the whiners on here.

by steven | 30th Jan 14, 4:04pm 1391051069

Maybe, maybe not. Even if that is the case then you are an exception. Most ppl are not thinking this way at all...and then there are the economic impacts.

I think you said you bought an EV? well great I suppose if you have the cash, expect such an option wont be for many. They are un-affordable to most and Im not even sure economic or that Green.

regards

by Ms de Meanour | 30th Jan 14, 1:19pm 1391041140

Do you really think that it is a sign of a markets not working when prices rise in response to increased demand?

by King of the whiners | 30th Jan 14, 1:43pm 1391042581

Aren't you rather ignoring the supply side of the equation? The MSM meme (repeated often enough on this site) has been for at least the last 4 years that the US has so much fracked gas that prices can only ever go down. The fact that prices have risen steadily since mid 2012 (and very rapidly in the last few weeks) rather suggests that meme is flawed, does it not? As I recall bad weather happens every year in the US around now (and in fact some areas are experiencing record HIGH temperatures (California for example)............

by Ms de Meanour | 30th Jan 14, 2:15pm 1391044551

The present price of gas in the US does indeed show that anybody who says that "prices can only ever go down" - in any market - is an idiot. No market is ever so super-responsive as to be able to instantaneously ramp up supply in anticipation of any level of demand increase. Neither is any other kind of economic system.

However, that does not make the US gas price a good argument in favour of the peak oil contention, or against the general effectiveness of markets being allowed to work.

What's your source for "prices have risen steadily since mid 2012"?

by Ms de Meanour | 30th Jan 14, 4:00pm 1391050847

PS: sorry, this post was meant to include this link http://www.nasdaq.com/markets/natural-gas.aspx?timeframe=3y which shows US natural gas prices bouncing around a fairly steady equilibrium since 2012, following dramatic falls from 2009

by King of the whiners | 30th Jan 14, 4:39pm 1391053167

Henry Hub prices:

http://ycharts.com/indicators/natural_gas_spot_price

In case you are wondering what the Henry Hub prices are:

''Due to its importance, it lends its name to the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX) and the OTC swaps traded on IntercontinentalExchange (ICE).''

by Ms de Meanour | 30th Jan 14, 4:54pm 1391054083

Not seeing anything particularly remarkable there.

by profile | 30th Jan 14, 2:58pm 1391047111

You do realise extemely cold weather has a detrimental effect on the transport of gas? So short term demand has increased and at the same time supply has decreased...
How are have gas prices faired in Europe where they haven't bothered to frack yet? Up 50% odd in five years.
Gas in the US is now much cheaper than oil as a transport fuel so the market is adapting by converting trucks and and ships to gas etc.

by steven | 30th Jan 14, 4:07pm 1391051245

Converting some short range trucks and thinking about gas for ships.

regards

by profile | 30th Jan 14, 4:46pm 1391053610

And of course electricity generators switcing from coal to gas.

Check out the charts in this link especially EIA predicted dry natural gas production to 2040.

http://marketrealist.com/2013/11/natural-gas-demand-helped-coal-gas-swi…

The oil to natural gas price is now wider than it has been since the 1970's so people are going to make the switch.

Not too sure what you mean by "short range". From the Volvo link the other day:

"Through advanced high pressure diesel ignition technology – using trace amounts of diesel to ignite the natural gas – Volvo’s LNG engine will deliver a 30 percent fuel efficiency improvement compared with spark-ignition (SI) engines, making it a viable alternative for demanding long-haul applications. The Volvo 13-liter LNG engine will also reduce greenhouse gas emissions by about 20 percent compared with current diesel products." What's not to like?

by King of the whiners | 30th Jan 14, 4:53pm 1391054020

I will spell it out for you profile as you seem to have trouble comprehending.

1) I did mention the fact that it was winter. I am pretty sure that event happens frequently.

2) Notwithstanding that fact, prices on the Henry Hub have risen steadily since mid 2012. they now stand over 200% UP from their lows.

3) We have been told endlessly over the past 3-4 years that fracking was the answer to all the US gas problems, that there was an almost unlimited supply, that the price would stay low for years to come etc etc.

4) Clearly this has not happened. In some people this might give rise to the thought 'I wonder what is happening there?'. In others, clearly, not so much.

5) In fact there is a very interesting explanation of what is going on, that involves factor such as huge depletion rates, rig counts, and the inability of companies to make money when gas falls below a certain level because fracking is not cheap.

6) But isn't is so much nicer and so much more unchallenging to just drift along in la la land listening to the MSM's take on fracking (fed to them by those nice neutrally minded oil and gas companies). Hell if things get unpleasant better to just shout 'left wing conspiracy', rather than try and understand that all is not what it seems.........unfortunately your approach is going to mean you are the successive victim of 'unexpected' unpleasant surprises.

by Ms de Meanour | 30th Jan 14, 5:14pm 1391055255

Your (2): and how do prices stand compared to their highs?

Your (5): yes, of course there is a price below which it's not economical to produce natural gas. Same goes for any product.

by profile | 30th Jan 14, 6:08pm 1391058502

1. Haven't you heard it is a polar votex this year. All the chicken littles are talking about it. Do they happen every year? Extreme cold has a larger disruptive effect on gas supplies when compared to other energy sources.

2/3. No one ever expected gas to stay at $2. Substition from coal and oil, and converting to LNG for export do not support $2. The EIA predicted gas would settle at $5-$6, why pretend otherwise?

I notice you ignored the European and Asian gas prices over the last four to five years. Europe is now 2-3x the US price and Asia 4x times. Now who did the fracking and who didn't? Who is now paying the price in jobs and manufacturing? At least Europe has got some windmills I spose.

4. What is happening is called "the market". The US has cheap gas, Europe has high unemployment.

5. The only people surprised are gloomsters. Jimmy Carter predicted in 1977 that oil would run out in 6-8 years. He is still getting surprised. In that time frame proven oil reserves have gone from 640 billion barrels to 1.5 trillion.

And here is a wee chart for you so you can get a longer term perspective:

http://www.aei-ideas.org/2013/01/julian-simon-still-more-right-than-luc…

by Plutocracy | 30th Jan 14, 8:05pm 1391065553

2) Agreed, in the medium term gas prices are likely to stabilize around $5 USD as this is the current marginal cost. For the record neither windmills nor 'tight oil' have an EROEI high enough to sustain BAU.

4) Low interest rates and printed money have helped keep 'tight oil' and shale gas somewhat viable. A lot of companies have already gone bust as the price is too low (nat gas) to cover drilling expenses. The US also has high unemployment, they are better at hiding this by removing people from the unemployed list. See 'Shadow stats'.

5) I don't think oil will ever 'run out'. Neither do the majority of people who understand the current energy situation. As I've said 'rate of usable energy' available to society is the key parameter. Nice strawman though.

by KH | 30th Jan 14, 12:54pm 1391039661

Interesting. Did the Electricity Commission try to tell a few porkies on power price?

http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11193859

by dh | 30th Jan 14, 1:01pm 1391040078

I noticed the Electricity Authority were having a rather unusual line of argument on morning report the other day. If you listen to the audio you will here the man from the EA saying "If hydro historically had to pay for the water it used then prices would have been a lot higher, so people have been undercharged for their power".

Well, yes, if you use an imaginary past that didn't happen as your baseline, prices should be a lot higher. For that matter, if wind farms had in the past pay for the air they used, prices would in the present be a lot higher.

by steven | 30th Jan 14, 1:05pm 1391040344

Yep sure did IMHO, trying to justify their prices,

a) Even 10% is outragious for a Govn snactioned monopoly IMHO, a guaranteed (ie no risk of loss) rate of return should be in the 6~7% range.

b) It was paid for externally...ergo the company today does not have to meet that.

Bye bye in Nov14 I reckon/hope, assuming Labour win.

regards

by KH | 30th Jan 14, 2:04pm 1391043847

Undereducated analysts at the Electricity Commission I reckon dh, but don't look for any firings to happen.

Take for example dams on the Waikato. My father helped build those, and they were paid for by the taxpayer, built well but not expensively.

There is no need for any 'return' at all on these generators. Repeat. There is no need for any return on these generators.

The only charge for the use of them should be 1. Running cost - on a daily basis compared to what they produce that is almost nothing. 2. Upgrades and maintainance - bit more maybe. 3. And building a fund for eventual replacement. Again very small, these things have very very long lives.

As for depreciation. Wrong word. 3 above covers that.

by dh | 30th Jan 14, 2:43pm 1391046212

I was just looking at the OECD figures for estimated costs of generation, and if the EA figures are correct, NZ needs to rapidly move to any other source of generation because NZ Hydro seems to substatially more expensive than any other form of generation. About half again as much as the maximum costs of any other generation in the whole world. And that includes pricing the carbon emissions as part of the generation.

The OCED estimates I was looking at were:

http://www.oecd-nea.org/pub/egc/docs/exec-summary-ENG.pdf

Either it was a tragic mistake for New Zealand ever to have built hydro dams because it is the worst possible way to generate power in the world (ever), or the EA methodology is "a little questionable"

by rastus1 | 30th Jan 14, 2:51pm 1391046670

No 3 is the killer to low prices. And unlike before, water now has a value. Mimimum levels need to be maintained. Thus if dairying or whatever is drawing too much, there is less water to power the generators. Things are different from when these were built.

by KH | 30th Jan 14, 6:40pm 1391060449

Rastus. maybe you can tell us the sites where there is, or might be in future, significant threat to power generation from other uses of water.

There was a tiff in the Waitaki when the generator got a little upset over irrigation plans. But that seemed to be about notional and very marginal differences, more than an issue with actual supply.

And it this conflict actually existed, why would there be a dollar cost involved anyway?

by KH | 30th Jan 14, 2:54pm 1391046842

EA questionable ? hush dh. It might be true but don't suggest it.