90 seconds at 9 am: New TWI record

Wall Street tumbles, led lower by tech stocks; Fitch raises outlook on NZ; NZ CDS spreads fall; UST 10yrs 2.56%; gold and oil fall; NZ$1 = US$0.87.9, TWI = 81.7

9th Jul 14, 7:20am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news we are at a new post-float high for the NZD TWI.

But first, American stocks fell in a broad sell-off on overnight, dropping for a second straight session in their biggest one-day fall in almost two months as investors pulled back ahead of the start of corporate earnings season. Tech stocks led the tumble.

Interestingly however, hedge fund bets that short the sky-high equity US markets are very light and now smaller than before the GFC. No-one seems to want to bet the rally will run out of steam at this point. Maybe 'irrational exuberance' has returned.

Overnight, yields on the benchmark UST 10 yr bond yield also fell and are now at 2.56%. Both the gold and oil price fell with US oil price at US$103/barrel and Brent is now down under US$109/barrel a level.

Not only is our currency high, interest rate risk for New Zealand is very low. Our sovereign debt attracts just 30 bps of CDS spread, a new post-GFC low. Australia is similarly benefiting and has slipped below 30 bps. Investment grade 5 year corporate spreads are now down to 80 bps which is where bank paper is priced and that is also historically low (although we trade at about a 25 bps premium above US corporate levels).

Helping drive the overnight moves were two things. Firstly, yesterday's lower confidence on the QSBO moved settings to a more sustainable level and did nothing to dispel the realisation that more inflation is on the way. That will underpin the RBNZ's OCR raising track. And secondly, overnight Fitch reaffirmed the sovereign AA credit rating for New Zealand and upped its outlook from 'stable' to 'positive'. The currency rose.

Our domestic swap rates start today higher.

We also start today with the NZ dollar in record territory overall although no individual pair is at a post-float high. We are at 87.9 USc, and 93.5 AUc. The TWI however is at 81.7 this morning which is an all-time high beating the mark set just twelve days ago.

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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Source: RBNZ

Source: CoinDesk

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1 Comments

by Stephen Hulme | 9th Jul 14, 11:26am 1404861961

...Fitch reaffirmed the sovereign AA credit rating for New Zealand and upped its outlook from 'stable' to 'positive'.

They sure did. Reuters presents in depth coverage. NZ is without doubt priced for perfection.

- Household debt at 147% of disposable income at end-2013 is high, but banks are relatively strong on a stand-alone basis and are largely foreign-owned, limiting the contingent liabilities of the sovereign to support the system in the event of need. Fitch omits the reality that the sovereign citizen depositors are legally liable to pick up the bill given diminished capital backing beyond excused collateralised lending offered by the foreign bank owners under the OBR regime.

- The persistent current account deficit, the need for foreign capital and net external indebtedness are longstanding weaknesses of the sovereign credit. These weaknesses are expected to persist, since the fiscal stance alone cannot credibly plug New Zealand's savings-investment gap. Net external debt, already the highest among all countries in the 'A', 'AA' and 'AAA' peer groups, is forecast to rise, but only moderately, to 72% of GDP by 2016, from 65.5% in 2013. Property rights over all we survey is but a distant dream - legitimate asset re-hypothecation scams are the best we can hope for.