Massive ECB speculation; Chinese banks under pressure; US housing starts surge; Canada cuts rates; UST yields firmer; NZD slides; NZ$1 = 75.7 USc, TWI = 78

Massive ECB speculation; Chinese banks under pressure; US housing starts surge; Canada cuts rates; UST yields firmer; NZD slides; NZ$1 = 75.7 USc, TWI = 78

Here's my summary of the key issues that affect New Zealand overnight with news of a shock rate cut by a G7 country.

But first, the shape of the ECB bond buying plan is now subject to intense speculation. Overnight it was 'revealed' that the central bank is considering buying €50 bln per month until the end of 2016, which would make it a massive €1.2 tln stimulus injection. (That is NZ$1.8 tln, or about equivalent to more than eight years of NZ GDP.)

Equities rose world wide, bond yields fell.

In China, their money-market rate climbed the most in a month on speculation banks will start hoarding funds to meet a seasonal pickup in cash demand before the Chinese New Year holidays which start on February 19.

That same banking system will face rising pressure over the next few years from bad loans, narrowing of net interest margins and financial disintermediation due to reforms and the economic slowdown, according to official Chinese state media reports.

In the US, building starts for new single-family homes raced to their highest level in more than 6½ years in December and permits surged; the data was seen as a hopeful sign for their sluggish housing market recovery which has lagged the rest of their recovery.

North of the border, the Bank of Canada has shocked markets with an unexpected rate cut - from 1% to 0.75%. This is in direct response to the lower oil price, which the bank said it expects will recover to around $60 in the medium-term, and it is concerned it will erode growth and inflation for Canada. Oil is a core export for Canada.

Back in New York, benchmark UST 10 year bond yields are slightly firmer today having risen a few bps to 1.80%. But swap rates in New Zealand start today sharply lower. The 1-5 curve is now just 8 bps. The two year swap rate is just 3.69%, its lowest in more than two years.

The oil price is up $1 overnight to about US$48/barrel range while Brent crude is at US$49/barrel. 

On the other hand, gold is down slightly. Its price is now US$1,288/oz.

We start today with the New Zealand dollar lower again, today by more than 1c. It is at 75.7 USc, at 93.6 AUc and the TWI is at 78. US exporters are starting to worry about the recent rise in their currency.

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

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

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Alas Smith and Brown should take a look at the interesting house-building stats out of the US.
 
Just looking at permits issued as indication of intentions it's interesting to see what is happening there. The upswing is in standalone houses whereas there is a national decline in multi-dwelling complexes (townhouses, condos, apartments).
 
The upswing is not across the board. Compared to the same period 1 year ago the strong growth is in the south. The midwest and west are up too while the northeast is still declining.
 
According to Len Brown the US South is unattractive and unpopular because house prices are lower there.
 
Or does the lift in house building indicate the US South is way more popular than Auckland because people can afford to live there?

Very interest stats that i hope will translate into a share price lift for Tenon and by default my long suffering Rubicon shares.
I won't hold my breath.

Perhaps it's more popular because it's warmer?  Just as the population of NZ has drifted out of the once more popular colder southern climes and into Auckland?

Sorry I made my point a bit obscure. Brown's argument is that you have to expect high prices in Auckland because it is a popular "international" city. Clearly this is claptrap because there are cities all over the world that are more popular than Auckland but where houses are still cheaper.
 
Austin, Texas has a population of 1.8m in its metro area at a density of 1065/km2 compared to Auckland's 1.4m at 1300/km2. So they are roughly in the same league of cities.
 
Austin has a population growth rate in the region of 3% p.a compared to Auckland's 2.3%. It is way more popular than Auckland. But what is the median price for a house in Austin? $246,000. In Auckland your middle of the pack house will set you back $613,000. On top of that Austin's median income is actually lower than Auckland's. But after you have paid your housing expenses in Austin you have way more left over to pay for the other things in life than you do in Auckland.
 
The sunshine might be a factor in AUstin's popularity but I suspect there is more to it than just that. BTW Auckland's relative growth at the expense of the rest of NZ began after the Panama Canal opened. Until then the first ports of call for all long-haul transport were Bluff and Port Chalmers.
 
The difference is that some cities around the world have found ways of accommodating their newcomers and Auckland is not one of those cities.

BNZ "we suggest Europes case calls for monetary easing, NZ situation does not".  NZ Herald. 
Last time I checked, we lived in an interconnected global economy where economic conditions permeate throughout investment, exports, imports, currencies differentials etc . 
Canada has cut interest rates.  -  while they have a worse overheated housing market in Vancouver etc than Auckland does.   
It is looking increasingly likely that NZ will be forced to cut the OCR in 2015 to stem long term deflation and low demand setting in. 
 

Quote ' in December and permits surged;'
 
Permits in November 2014 were 1.052 million
Permits in December 2014 were 1.032 million.
 
Exactly in which universe does a month on month fall equate to a SURGE?
 

They've had their own REINZ moment it seems!

The world economy is on the brink of recovery I tell you, any day now... 

As in all things, context is everything. Back in 2006 US building permits were running at 2 million plus (ie twice were they are now). Even in 2001 (not a particularly good year for the US economy) they were running at 50% higher than they are now.
Who is trying to kid who?

DC was only talking about single unit dwellings i.e houses (not apartments , condos etc).
 
The figures there are 667000 (Dec14)  v 638000(Nov14) v 617000(Dec13).
 
Still a bit of poetic licence but not quite a parallel universe.

Give us a break - the one is just a (smaller) subset of the other.
 
 

What you may think of overall US construction performance is irrelevant. You criticised DC strongly for saying something he didn't. No need to get the vapours just because I pulled you up on it.

'Pulled me up on it'? Another comedian.
As for what I think of US construction performance (as measured by permits) - as I pointed out upstream context is everything and the present levels are half of what they were 8 years ago. Enough said.

North of the border, the Bank of Canada has shocked markets with an unexpected rate cut - from 1% to 0.75%.
 
What is it about CB's perpetually rewarding bond dealers? Lowering the carry costs of term bond positions is a heaven sent bonus to start the New Year. View prices 

In Medicine its known as a side effect, if the choice is none and death, which do you do? I know my choice. so take it and put up with the side effect, or give another drug to fix teh side effect.
 
 

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