ECB bond buying program announced; China adds liquidity; UST 10yr yields rise again; NZ swaps fall; oil down again, gold up; NZ$1 = 75.4 USc, TWI = 78.1

ECB bond buying program announced; China adds liquidity; UST 10yr yields rise again; NZ swaps fall; oil down again, gold up; NZ$1 = 75.4 USc, TWI = 78.1

Here's my summary of the key issues that affect New Zealand overnight with news the ECB has fired its bazooka.

The European Central Bank took the ultimate policy leap overnight, launching a government bond-buying program which will pump hundreds of billions of new money into a sagging euro-zone economy.

It will pump €60 bln of new bond buying into markets until September 2016, all up a €1 tln plan. While late, it is bolder and more sweeping than expected, reflecting the reality that the status quo will not do.

The immediate consequences have been local. The value of the euro has fallen against the US dollar. And Denmark is in a fight to maintain its peg to the euro.

But the impact on us? Probably quite small. Japan and the US have undertaken larger bond buying programs and the Chinese stimulus efforts have been big too. This eurozone action doesn't change much for us, other than it is just another one. After all, we export only about 10% of our trade to the area, import about 15%. In other words, somewhere close to 90% of New Zealand's trade is not with the eurozone.

Under the radar overnight China’s central bank injected about US$8 bln in cash into their money markets, spurring speculation that further loosening of monetary policy may be on the way, as their economy grows at a slower rate.

In the US, weekly claims for unemployment benefits rose although the overall trend remains lower.

In New York, benchmark UST 10 year bond yields are higher again today having risen +10 bps today to 1.89%. But swap rates in New Zealand are going the other way and start today sharply lower - and now completely flat. The 1-5 curve hardly exists at just +4 bps. The two year swap rate fell -6 bps to 3.63%.

The oil price slid to under US$47/barrel range while Brent crude is now under US$49/barrel. Oil futures tumbled overnight after the US Energy Information Administration announced the largest build up of American crude oil stocks in at least 14 years. Those stocks jumped four times what markets were expecting.

On the other hand, gold popped back up. Its price is now US$1,299/oz.

And the latest USDA dairy price monitor of Oceania showed prices for milk powders rising modestly, mimicking the trends in the last Fonterra auction.

We start today with the New Zealand dollar a little lower again, today by about ½c. It is at 75.4 USc, at 93.1 AUc and the TWI is at 78.1.

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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Good to see the EU gave lots of time to front run the bond market.
Thus, then, while Keynes was hell-bent on impounding the “unearned” interest income of the “parasitic” rentiers with his left hand, he would inadvertently grant unprecedented capital gains to them in the form of exorbitant bond price with his right. 
http://www.professorfekete.com/articles/AEFBONDSAndLogicPart1.pdf

Andrewj, you could not be more correct in your observations. Unbelievable that Italian 10 yr goverment debt trades at a lower yield than its US counterpart.

AndrewJ
This link would have to be the best one you ever gifted us. Amazing.
Rudderless

This years Europe tour just got a nice discount!

ECB is to buy sovereign debt - illegal; only 20% of its QE to be held centrally, 80% by member states CB's - opposite of financial union. All a big mess.
Ergophobia 

David,
In an interconnected world I think printing a trillion euros will have a bigger impact tthan our relatively low trading with Europe would suggest.
1) The devaluation of the Euro will make Europe more competitive. They are large dairy producers. So they will take market share from us. In everything from tourism to labour to dairy.
2) Japan, China and others will not sit on the fence. They won't stop printing.
3) What will the Germans in particular do with their share of the trillion? Their banks will buy assets that first are available to be bought; then that are safe, and then that might give a return. They could buy Greece, but that probably fails on all counts. NZ meets most criteria. So we get cheap funds again, but at a loss of wealth, and an increase in debt for NZ Inc.

Now self-evidently, the speculators who have ridden the Italian bond down from 7% don’t see any contradiction between Draghi’s pledge of 2% inflation come hell or high water and today’s nominal yield of 1.56%. They don’t care, they don’t discount, and they most certainly do not engage in “price discovery”. Instead, they hover with their finger on the “sell” button ready to unload at any moment their vastly over-priced stash on the stupid apparatchiks who run the ECB.

 

Yes, the above juxtaposition makes all the sense in the world. It is entirely reasonable that a state drifting toward insolvency and/or ruinous taxation should be able to borrow 10-year money at 0.70%. That is, when the fix is in, the central bank printing press is open to buy, the apparatchiks are terrified and one of history’s greatest monetary charlatans is in charge——the speculators have nothing to do but harvest their haul.
So now begins the greatest heist since Bernanke bailed out Wall Street in September 2008.
 
http://davidstockmanscontracorner.com/mario-draghi-charlatan-of-the-appa...

 

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