90 seconds at 9 am: China cuts rates again

China cuts rates again; pressure on RBA; US Q4 GDP revised down, confidence revised up; India goes for growth; euro inflation rises; NZD hits records; NZ$1 = 75.6 USc, TWI = 79.2

2nd Mar 15, 7:15am by David Chaston

Here's my summary of the key issues from over the weekend that affect New Zealand, with news China is starting to get back to work this week after their annual Spring Festival break.

And it has kicked off with a rate cut, making the announcement on the central bank website, It says that the one-year bank lending rate has dropped -0.25 percentage point to 5.35%. This is the second reduction in three months, and it may bolster the case for the Reserve Bank of Australia to further loosen monetary policy at its March meeting tomorrow.

China's manufacturing PMI has come in slightly better than expected but it still recorded a contraction in the factory sector. Any hint that China is slowing more quickly than expected will have a powerful influence in Australia.

Markets are now betting that the RBA will cut rates tomorrow to 2% from 2.25%. The next RBNZ rate review is the following week on Thursday, March 12 when we get a full Monetary Policy Statement.

US GDP for Q4 was +2.2% pa, beating estimates of +2.0% but slowing from Q3’s +2.6%. Growth of domestic demand was a standout given low oil prices, although investment slowed.

US consumer confidence was revised higher to 95.4 from 93.6, and beat the 94.0 estimate. A two-year upward trend has been re-established, and this is despite slightly higher local petrol prices in February.

In India, prime minister Narendra Modi delivered a pro-growth budget although it comes with a larger deficit projection. Subsidies for the nation's poor are retained. He also cut corporate taxes and increased infrastructure spending. India is going for growth in an attempt to follow China and raise living standards in a substantial way. A bout of huge infrastructure spending is coming, one that will likely have the same influence the Chinese one is having on world trade.

Deflationary pressure may be easing in the eurozone. Data for February from Germany, France and Italy showed inflation higher than expected. But the ECB is still expected to downgrade its inflation forecasts later this week.

The UST 10yr yields rose a tick in New York late on Friday and are now at 2.00%.

The crude oil price is range bound at just under US$49/barrel but the Brent crude price has risen to over US$62/barrel.

The gold price crept higher and is now at US$1,214oz.

The New Zealand dollar starts the week at 75.6 USc, has risen to a new closing high against the Aussie of 96.9 AUc and the TWI is back up to 79.3, a six week high. We are also at a post-float high against the euro of 67.5 euro cents.

If you want to catch up with all the changes on Friday, 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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22 Comments

by The best statu… | 2nd Mar 15, 9:52am 1425243120

Austria On Track to Bail in Heta Creditors After Aid Stop

http://www.bloomberg.com/news/articles/2015-03-01/austria-on-track-to-b…

' Austria won’t give fresh capital to Heta Asset Resolution AG, making the “bad bank” of failed Hypo Alpe-Adria-Bank International AG the first case under new European Union rules imposing losses on bank bondholders.'

Interesting to see how this pans out.... Dominos anyone?

by Boatman | 2nd Mar 15, 10:34am 1425245653

Wow , a race to the bottom ....now everyone has resorted to debasing their currency by making it as cheap as possible ...... everyone except us .

The US, Japan and the whole of Western Europe with QE at almost Zero interest rates , and now the Chinese are follwoing suit in a gradual sort of way .

That cheap money from China will wash up here so quickly , while are enjoying the summer , we will not know what hit us as Auckland house prices rocket on cheap Chinese hot money .

And its worth remembering that buying houses in Auckland is the best hedge against economic troubles in China , especially a falling currency .

by @tony | 2nd Mar 15, 11:55am 1425250554

When we have fleesed the re-insurance lot of all the billions for ChCh then drop the currency... no point letting them buy our dollars for peanuts...

???

by frazz | 2nd Mar 15, 10:40am 1425246041

The band have been asked to continue playing..women and children first to the lifeboats

by Mike B | 2nd Mar 15, 11:10am 1425247854

India is now going to compete with China in flooding world markets with cheep goods.

Add to this that Greece, Spain, Portugal need to export to pay off debt. The rest of Europe needs to export to get some growth. Japan needs to export more to get growth. America needs to export more to get growth and so on.

Deflation forever.

by steven | 2nd Mar 15, 11:32am 1425249120

Yes its interesting, "we'll export in order to recover" what they really mean is export deflation/our problems to someone else.

Of course 156? countries all trying to do the same thing must pretty much equal 0 effect unless some can get an unfair advantagee, eg TPPA and become a rentier.

So if that cannot be done, whats next? well that could be that one socio-economic group prays on a weaker one.

"deflation for ever" yes as that is what being in a post-peak oil world dictates, an ever shrinking [world] economy. The resulting structural high-unemploymant, lower life stlye, misery and even murder and mayhem that results from long term deflation is something I for one would never wish for.

by OnwardsUpwards | 2nd Mar 15, 1:16pm 1425255395

Deflation everywhere forever, except for housing.

by Roelof | 2nd Mar 15, 3:59pm 1425265196

For me..... one of the most important deflation indicators is Global wage rate growth....

It is still growing at about 2%...

Not sure Why u guys are so adament about your ..."deflation everywhere forever".. theme.?

Most Countries still have GDP growth..

Where is your ...everywhere ...forever.... deflation..????

SO far.... apart from 2008 -2009 .... there has been NO deflation...????

What are you seeing ..that I am not..???

by Stephen L | 2nd Mar 15, 6:18pm 1425273530

Wages in developed economies have grown 0.1% and 0.2% in each of the last two years. This is down from an average 1-2% even at the height of the financial crisis.

Wages in developing countries have grown at 6%, giving your overall average of 2%.

Labour productivity – the value of goods and services produced per person employed – continues to outstrip wage growth in developed economies, including in the most recent years. This continues a longer trend which briefly paused during the financial crisis years of 2008 and 2009.

The growing gap between wages and productivity has translated into a declining share of GDP going to labour while an increasing share goes to capital, especially in developed economies.

These figures are for 2013, the latest available as far as I can tell. I wouldn't expect 2014 to be any better. Apart from the implied ethical issues, there is a real problem of global supply and demand being built. Global deflation seems very likely this year, and it may not be pretty at all. Capital values you would think would eventually catch up with being a mulitple of what people can pay. And that is not growing.

by Roelof | 2nd Mar 15, 6:40pm 1425274819

Stephen L... I agree with what u say...BUt...

What I'm saying is that Govts. and Central Banks will step to the plate and do whatever it takes.... to prevent a fall into true deflation....

The only thing that will prevent money printing to the moon.... is inflationary pressures....

Thats my view..... and I'm talking in a Global context....

by Stephen L | 2nd Mar 15, 7:56pm 1425279410

Roelof,

I also suspect you are correct. Two questions to me then are:

If global money printing is to be done to keep inflation at least positive, and demand up, is any one country better to participate in that printing/reducing domestic interest rates, or are they somehow better off not? My argument is that we should participate at least to keep inflation 2%+, or we are helping stoke demand for foreign produced goods and services, and not our own- other than real estate transactions. Foreign money will find its way here to buy assets, but not services so much.

Where is NZ in that space? It looks like even the RBNZ has admitted inflation will be negative this year, but they still seem to have the foot on the monetary brake.

by Roelof | 2nd Mar 15, 9:46pm 1425286010

Stephen l,

in a way NZ is still one cycle behind.... What the rest of the world is experiencing is a deleveraging process.... (which was the result of excessive credit growth... )....We have not had to experience that.... yet. The Money printing is one of the policy responses to what would have been a debt implosion ( deflation )

NZ has yet too experience its own version of excessive debt ...and an inability to repay that debt.

AND.... our Reserve Bank has learnt about excessive credit growth... in my view... They will not allow a repeat of the 16% yoy money supply growth of the 2005 -2007 era...

NZ is just not in that positon 9deleveraging )..... We actually have reasonable levels of credit growth... and I think wage growth is 1.6%....

I think they might wait until we get the next recession.... and then they will lower the OCR... but even than I cant see them expanding their own Balance sheet ( printing money)

This whole money printing thing is a big experiment..... I scratch my head and do wonder how it will all play out longer term.... I think it disadvantages ordinary people... big time... In a few yrs .. hindsight will tell us just how godd or bad it was..

We are probably in the middle of what might be the biggest Global asset boom of all time...????,..... and yet the underlying fundamental economies are still on life support.... go figure..??

by OnwardsUpwards | 2nd Mar 15, 8:21pm 1425280908

There is no link whatsoever between "money printing" (QE) and inflation.

by Stephen Hulme | 2nd Mar 15, 8:47pm 1425282455

Those managing other people's money think otherwise. It behoves you to "get in behind".

Pacific Investment Management Co., Invesco Ltd. and Natixis Asset Management are buying bonds that protect against rising consumer prices as confidence builds that the trillions of dollars of central-bank stimulus is finally working.

It’s not that they see a sudden surge in prices, but signs of wage growth are emerging in the U.S., Japan and even Germany. And with the European Central Bank about to flood the region with more cheap cash, investors’ inflation expectations in developed nations have rebounded from four-year lows.

“Inflation might be low, but it’s not dead,” Michael Althof, a money manager at Pimco, which runs the world’s biggest bond fund and oversees $1.7 trillion, said from Munich. “With all central banks around the world working in the same direction to generate growth and higher prices, the case remains for higher inflation.” Read more

ANZ NZ Inflation-Indexed Government Bond Index Summary

2-Mar-15

Coupon   Maturity Date   Yield   Face Value $M    Mkt Value $M

4.5%        15/02/2016        2.9   $1,332                  $2,050

2.0%        20/09/2025       1.8        $5,500              $5,798

3.0%        20/09/2030       1.86      $4,500                  $5,328

2.5%        20/09/2035       1.93      $1,750              $1,938



Please note all the yields of the government bonds are provided by NZFMA

by OnwardsUpwards | 2nd Mar 15, 8:53pm 1425282823

Pimco?!?! You would believe anything from Pimco? LOL. Bill Gross ring any bells?

by Grant A | 2nd Mar 15, 9:31pm 1425285091

Onwards, be careful though - who knows for sure but the tale of markets is that the smart money moves first always to the berating and mirth of the uninformed. PIMCO havent had a great year but they are most definitely the smart money based upon years of experience of investing, and so often they're the ones selling those ultimately losing positions to the ones doing the laughing the outset.

by Stephen Hulme | 2nd Mar 15, 9:45pm 1425285925

Irony - the expression of one's meaning by using language that normally signifies the opposite, typically for humorous or emphatic effect

by steven | 2nd Mar 15, 10:06pm 1425287160

He like a few picked that the game of musical chairs cannot continue for ever so left. Hindsight is 20/20 and we can see he/they exited early. In fact that has been a trademark of a few such ppl. The talking heads? get it right and they (Pimco etc) are gods, get it wrong and they are blasted. On top of that how many Billions is PIMCO worth? quite a few, you dont get to the top of the game unless you are right and right most of the time.

Throw in that more than a few investors (Jim Rogers etc) admit they cant pick tops or bottoms of markets accurately, but get close enough to exit a little early so dont get caught with their pants down.

Then post peak oil and we are in a highly volitile period where everything is changed. Here frankly all I see of ppl commenting/guessing on where the markets are going. Take oil, some in OPEC see the price recovering shortly ie inside 6~9months expect $80. Others say they dont think we have seen the bottom yet expect $20 inside 6 months and low for 2 years. That should tell us I suspect just where the NZ mortgage market looks to be going for 2 years nterest wis, no where.

My take is, across the asset classes its semi-educated guesses based on not much real, there will be tears that I am sure of.

by Boatman | 2nd Mar 15, 11:33am 1425249238

Its not 1st April so try to figure this one out ............ HSBC , CEO Stuart Gulliver has called the actions of HSBC in the tax evasion and possible money laundering ........ " a source of shame "

Apparently his predecessor , Stephen Green has been fingered as being "in the know " and Green is an ordained Anglican Priest no less .

Go Figure !

I still find it hard to beleive

The truth , it seems , is stranger than fiction everything from Libor rigging to currency manipulation to funding terrorism , there is no fiction author on the planet who could have written such stories about the bahaviuors of multinational Banks in recent times .

by OMG_WTF | 2nd Mar 15, 1:22pm 1425255779

Jeffrey Sachs on banksters:

http://youtu.be/hCCr-uiqtAY

by frazz | 2nd Mar 15, 3:16pm 1425262568

Great link...thanks

by steven | 2nd Mar 15, 10:08pm 1425287338

He and Hugh Hendry once sat down in a TV studio and Hendry just owned him, maybe he's still smarting from the beating.