90 seconds at 9am: IMF warning

US job openings rise; IMF warns on aging and productivity; China steel output falls; CDS spreads at pre GFC levels; NZ swaps flat; UST 10yr yield 1.92%; NZ$1 = 74.9 US¢, TWI = 80

8th Apr 15, 7:24am by David Chaston

Here's my summary of the key issues from overnight that affect New Zealand, with news that eased concerns about American labour markets.

Those worries about US jobs growth shifted overnight to a new perspective, one that sees higher wages sooner. Job openings surged to a 14-year high in February but the modest pace of hiring suggested employers are having trouble finding suitable workers; this is the trend that could put upward pressure of wage growth.

In a new report out from the IMF overnight, they say aging populations and sluggish advances in worker productivity are holding back the global economy and warn us to accept lower growth rates. A key downside is that it will harder to pay off national debt levels, they say.

In China, steel production unexpectedly fell during March, changing the usual pattern of a post-holiday jump. The news is not good for Australia's iron ore producers.

In New York, the UST 10yr yield rose marginally in trading today to 1.92%. NZ swap rates fell and flattened overnight. In fact the 1-5 curve is now just 3 bps and the five year swap rate is at its lowest level in almost two years. And international corporate investment grade CDS swap spreads have slipped back to levels last seen before the GFC more than seven years ago.

The US oil price is up today to US$54/barrel and Brent crude is at $59 a barrel continuing their recent rising trend. The US EIA released its April assessment overnight and it saw rising demand and ample supply of energy fuels.

The gold price fell back about $10/oz and is now at US$1,209/oz.

In case you missed it, the Reserve Bank of Australia held interest rates at 2.25% for the second month in row late yesterday. That pushed demand for the AUD higher and off six-year lows, and took the NZD away from technical Mid-rate parity. But we are still at parity at bank Buy rates this morning. India also decided not to change rates.

The New Zealand dollar will start today noticeably lower at 74.9 US¢, still very high against the Aussie at 98.2 AU¢, and the TWI is just on 80.

If you want to catch up with all the local 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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20 Comments

by skudiv | 8th Apr 15, 8:04am 1428437042

Ageing or aging? The IMF has finally realised that it will be difficult for governments to pay off their debts. I think most people worked that out a long time ago, and zero governments have any intention of paying down their debts.

Soc Gen wrote a report around 2010 entitled "We are all Greeks now" and it was quite good, it's dissapeared from the web now, but it gave some estimates of government expenditures and debt levels that while pessimistic have been a bit optimistic. It's pretty obvious though, when debt has a CAGR double that of growth, you are going to have problems. You can drill into the details, but the maths is pretty simple. Understanding that this means a future vastly different from the recent past is also not overly difficult.

by Stephen Hulme | 8th Apr 15, 8:13am 1428437620

The IMF has finally realised that it will be difficult for governments to pay off their debts. I think most people worked that out a long time ago, and zero governments have any intention of paying down their debts.

You are not wrong.

"The Fed is 'ever-interested' in doing something later," Jim Grant notes, explaining why he believes the timetable for rate hikes will be pushed back further as fear of allowing a free market in the "most critical" of prices - that of interest rates - would lead to the "unmasking of the misallocations of capital that will have come about through the levitation of asset prices." Grant further unleashes his verbal attack of truthiness when he points out that the central bank's persistent easy money policies is on display currently in the form of stifling American enterprise and sending millions of people from the workforce "more or less permanently." Read more

Despite being an otherwise staid, traditional news service, the professional banking division of the Financial Times recently released an utterly scathing assessment of the British economy.

It was entitled, “The UK economy is a ticking time bomb,” and the editor didn’t pull any punches in completely shattering the conventional fantasy that ‘all is well’, and that advanced economies can simply print and indebt their way to prosperity. Read more

by Roger Witherspoon | 8th Apr 15, 9:28am 1428442120

The IMF have zero credibility. These are the same idiots who said everything is fine as the world fell apart. They fail to distinguish between hard debts and soft debts.

Government debt levels really, really matter if they are in a foreign currency; eg Greece which has debts in Neu Deutschmarks (ie "Euros"). These are hard debts.

Government debt in a soft currency that it can issue at will is totally different; if you issue too much, by running too big a deficit, your currency will fall and you will get inflation. If you issue too little, by running a sub 2% deficit or worse still by running a surplus, you will find your currency rises and therefore inflation falls. In NZ when this happens we find the RBNZ will keep interest rates too low for too long (following the misguided thought process of the idiots at the IMF) and thus cause a house price bubble, much to their astonishment and surprise.

http://www.amazon.com/Currency-Economics-Modern-Monetary-ebook/dp/B009X…

Am I wrong? You understand far more of the inner machinery than I do.

by OnwardsUpwards | 8th Apr 15, 9:32am 1428442350

You are correct but becareful, most punters here still think a government budget is like a household budget. The IMF is obviously a tool used by the U.S. to help maintain its financial dominance. Just ask South Africa how the IMF 'helped' them.

by DFTBA | 8th Apr 15, 12:23pm 1428452608

Agree, the IMF has much to answer for in South America, Africa, and the former Eastern European Bloc.

Enforced market ideology that we now know to be poisonous

by cowboy | 8th Apr 15, 1:46pm 1428457594

South Africa got helped in the same way credit cards "help" families in financial trouble.

a budget is still a budget, with ins and outs and no gaps in between. Household or government, the main difference is that governments are allowed to misrepresent and hide things, and can used armed force to fill shortfalls.

by steven | 8th Apr 15, 10:13am 1428444791

If you are implying inflation is coming and interest rates are going to go up (and up etc), yes you are wrong.

The thing for me to watch is the tradeables sector which is struggling, you know those small businesses the life blood of NZ's economy. House price stupidity in Auckland is a bomb sure, but the rest of NZ's housing isnt be so stupid.

--edit--

The thing is if inflation comes it can be stomped on quickly, deflation on the other hand cannot be as it is self-supporting.

by Andrewj | 8th Apr 15, 9:36am 1428442583

Employment Train Wreck - An Economy that Needs Ever Fewer Workers and Simultaneously Needs Ever More Consumers?!? http://econimica.blogspot.com/2015/04/employment-train-wreck-economy-th…

by cowboy | 8th Apr 15, 1:47pm 1428457667

exactly. more machinery, higher production, but who pays for it and how !

by profile | 8th Apr 15, 10:01am 1428444117

With steel down and lng down it cannot be looking too flash for Oz coal either.

"...fall in oil prices since the middle of last year and the subsequent decline in oil, gas and LNG prices has dramatically reduced this differential. As a result, gas is now in a position to compete directly with coal."The collapse of the price of gas has completely changed the situation. At current gas prices and spot LNG prices, [using] gas is a no-brainer in Southeast Asia,""

http://interfaxenergy.com/gasdaily/article/15633/gas-now-a-no-brainer-i…

by Andrewj | 8th Apr 15, 12:42pm 1428453755

Aussie exports are up by volume

http://www.miningaustralia.com.au/news/port-hedland-iron-ore-exports-up…

by profile | 8th Apr 15, 12:51pm 1428454294

Different topic but interesting article in Stuff on fodder beet shortening the beef fattening cycle down to 14-16 months. Possibly reduce reliance on PKE and help compete with overseas feedlot beef systems. Though I guess not difficult to replicate elsewhere.

http://i.stuff.co.nz/business/farming/agribusiness/67584816/Fodder-beet…

by Andrewj | 8th Apr 15, 1:04pm 1428455044

Thanks, high beef prices lead to more intensive farming systems, these fall apart when prices normalise, just like other primary producers.

You never know, Fodder Beet could be the future. In the States beef is so expensive that most people have moved to Pork and Chicken which is cheap. Brazil is hoping for access to the USA beef market this year.

http://www.beefcentral.com/trade/competitor-watch-brazil-edges-closer-t…

The USA is exporting lots of beef. http://beefmagazine.com/beef-exports/which-country-topped-all-others-be…

by profile | 8th Apr 15, 2:31pm 1428460277

Live cattle sold to Indonesia out of Darwin are currently fetching around $2.50 a kilogram, but speaking at Friday's Northern Territory Cattlemen's Association (NTCA) conference, Dr Ainsworth promised to "shout the bar" at the next NTCA event if his $4/kg forecast didn't come true.

http://www.abc.net.au/news/2015-03-30/northern-cattle-to-reach-four-dol…

by Andrewj | 8th Apr 15, 2:45pm 1428461132

The hear the Indonesians have 6 week contracts, so it''s a nail biting exercise whether they renew or not every few weeks.

by Mike B | 8th Apr 15, 12:36pm 1428453417

The only thing the ageing populations are going to do is crash the DOW when they all try to collect their supper payments

by Mike B | 8th Apr 15, 12:42pm 1428453765

The IMF says - sluggish advances in worker productivity are holding back the global economy and warn us to accept lower growth rates

Yes those McDonald boys and girls better dish up those burgers much faster. Even faster than the orders comming in

And those people stacking the supermarket shelves better fill up those shelves faster than they are emptying.

Oh, and we had better milk those cows quicker.

When brains were being dished out those IMF people missed out

by steven | 8th Apr 15, 1:03pm 1428454986

The IMF is wrong, advances have really been due to abundant and cheap fossil energy under-writing "business success"

https://www.youtube.com/watch?v=RSXKjH_WjWo

by cowboy | 8th Apr 15, 2:07pm 1428458855

the factor they use for productivity isn't burgers across the counter, it's the price of the burgers. Put up the price of burgers 10% and now productivity has theoretically increased (bby about 6% because as we know from marketing, rising prices has detrimental effect on turnover)

by Mike B | 8th Apr 15, 12:48pm 1428454115

Is our financial media like our news media?

Allways spinning the American propoganda.

Are our journalists embedded in Ameican politics similar to how they were embedded in the American military and spinning the millitary propoganda instead of reporting the news.

Yes, i think we do have an embeddid (in bed with) American political media.