Japan and US agree TPP terms; China's reserve ratio cut; Greeks desperate; HSBC looks at quitting London; RBA signals rate cut; oil rig count falls; NZ$1 = 76.5 US¢, TWI = 81.5

Japan and US agree TPP terms; China's reserve ratio cut; Greeks desperate; HSBC looks at quitting London; RBA signals rate cut; oil rig count falls; NZ$1 = 76.5 US¢, TWI = 81.5

Here's my summary of the key issues from overnight that affect New Zealand, with news of important 'progress' in TPPA negotiations.

A key hurdle in the Trans Pacific Partnership seems to have been overcome with Japan saying they have resolved their difficulties with the US over the treaty.

China's central bank cut the amount of cash that banks must hold as reserves yesterday, the second cut in two months, adding more liquidity to the world's second-biggest economy to help spur bank lending to combat slowing growth. The move has raised eyebrows worldwide with more analysts wondering if China's economy is in worse shape that thought.

Update: China is considering a ban on all advertising for infant formula in a bid to increase breast-feeding rates.

Overnight the Greek government has ordered its public sector bodies to hand over any reserve cash to help it meet a payment due to the IMF due at the end of the week. Orders to private sector bodies may not be far behind. And there are reports Athens is exploring ways to restructure its debt, a move that underscores how close the country is to defaulting. But officials in the ECB no longer fear 'contagion' in the way they did just a few weeks ago.

In the UK, both HSBC and Standard Chartered are looking at quitting London for a new home in Asia because of a big jump in a new tax on UK banks that makes staying in Britain increasingly costly compared with other jurisdictions.

Reserve Bank of Australia governor Glenn Stevens has raised the prospect of another official interest rate cut as early as May 5. He has also talked about being trapped between the need to quell fast-rising house prices especially in Sydney, and the need to support the 'real economy'. And if that rate cut does come, it will likely push the AUD down and the NZD above mid-rate parity. After Stevens speech, the markets started to move.

The UST 10yr benchmark yield is basically unchanged today at 1.88%. New Zealand swap rates rose overnight to their highest level in three weeks although they are still well below the levels we saw at the beginning of the year.

The US oil price has remains at about US$56/barrel, while Brent crude held at US$66/barrel in trading earlier today. The US and international rig counts are still falling.

The gold price fell about US$10/oz and now trades at US$1,193/oz.

The New Zealand dollar starts today at 76.5 US¢, at 99.1 AU¢, and 71.3 euro cents. The TWI is still very high at 81.5 and not that far from its record post-float high of 81.93 which was reached in July 2014.

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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Clearly China's economy is in pretty bad shape, you don't just cut back on imports by 30% when things are humming along. Cutting the RRR can't make things better. You can't solve a debt crisis with more debt. The world has this big idea that if we just treat an insolvency problem as a liquidity problem everything will be fine. While that may help you meet your daily cashflow, it fails to provided the needed capital to be used as collateral. Without unemcumberd collateral you can't get more debt, without more debt you can't grow. If you don't grow, the repayments become unpayable, so you need more liquidity. No way out, as Greece is discovering about 5 years too late.

While John Key is in Europe this week , he should get in contact with the heads of HSBC and Standard Chartered and invite them to establish their primary listing on the NZX and be domiciled here in Auckland .

When I suggested this in the office this morning , someone said we could "never do that to the British "

Well we could , we don't owe the British establishment anything , if anything they have a lot to answer for with respect to New Zealand and its people .

Obviously your in the wrong club, if you were part of the elite you would know that the US and UK come first, in that order.

Does RBA have a different objective to the RBNZ?
It seems like we face the same challenges, yet opposite intentions.

Depends if they are both aware of the consequences of their actions

So, while QE has increased absolute wealth, it has simultaneously lowered relative wealth for a large class of investors. This could lead to the opposite of the desired effect for this group of investors. Lower relative wealth means investors need to save more to improve their funded status, especially where regulations are strict (i.e., divert funds from the business to the corporate pension fund or raise contributions for DC investors), and it results in less consumption and investment, and may not remove the deflationary overhang. Alternatively, investors could try to earn a higher return to improve their funded position. However, from 2003 to 2007 — before the financial crisis — funded status declined for most U.S. funds due to declining long rates, and the data shows it possibly led to an increased allocation to risky assets, which ended very badly in 2008. Depending on the size of absolute and relative investors, the central banks' moves may have no impact or may unintentionally lead to less consumption and investment. Read more

Excellent article. I think we've both been banging on about this for some time Stephen - the deflationary consequences of low interest rates and QE.
The mechanism is not hard to see - more savings required for retirement and over investment in productive assets e.g Shale oil. Add in a massive low wage global workforce, mechanisation and technology improvements and it's almost surprising that we aren't in deep deflation already. The only thing holding it back may be peoples expectations/experience. Once that has evaporated then deflation can become entrenched - Japan. Not such a bad thing unless you're in deep debt or do what they did and pile on more and more debt to fight it. Unnecessary and a total failure - looks like the "cure" is worse than the disease.

The Trans-Pacific Partnership is great for elites. Is it good for anyone else?


Re. HSBC et al. More likely they can feel the Rule of Law noose tightening - shades of Butch Cassidy and Sundance moving operations to South America.

No , mate John Key should really punch above his weight and get hold of Standard Chartered Bank Chairman , SIR JOHN PEACE and invite them to consider relocating their Head office to the Geneva of the Asia -Pacific ............ Auckland.

The NZX would love having a multinational bank with its PRMARY LISITNG in Wellington.

Imagine that ?

We could actually use all our highly skilled commerce graduates instead of them moving to Aus

AND it would be better than drilling for oil or mining the Coromandel

StanChart & HSBC should be invited to be domiciled in NZ . Why not ?

It makes perfect sense , we could be the Switzerland of the Asia -Pacific .

Why why don't we invite them here to be domiciled in New Zealand , we could afford to do it on very favourable tax terms ( and make serious money ) , we have a robust bourse, robust Banking oversight and governance , and are well positioned in the Asia /Pacific ?

We could become the Switzerland of the Asia / Pacific , we have a stable administration , a highly skilled work-force the least corrupt place in the world , ultra fast broadband , and Auckland is almost as nice a Geneva

I worked for Standard Chartered in the 1980's and even then , most of its business was in Asia and the middle east and to a lesser extent in Africa .

It makes sense , if the local domicile is tax hostile as is London , to move to a less hostile welcoming place like Auckland .

We may need to placate our chief trading partner first.

China’s foreign ministry has urged New Zealand and US spying agencies to stop hacking into Chinese diplomatic buildings in Auckland. This follows reports exposing the practice and citing secret NSA files, which were leaked by Edward Snowden.
New Zealand and US intelligence agencies were hacking into a link between the Chinese consulate and their passport office, according to a report by The Herald on Sunday in cooperation with The Intercept, based on the Snowden revelations.
"We are extremely concerned about this report. We strongly urge the relevant countries to immediately stop using the Internet to damage the interests of China and other countries," said Chinese Foreign Ministry spokesman Hong Lei in a statement.
However, the New Zealand Prime Minister John Key was unapologetic and accused Snowden of being a thief and a liar.
Read more

No harm in shooting for the stars. All we need to do is for both parties to adopt a 12% corporate tax rate and there would be loads of high paid jobs here. Obviously not what people want.

Yes Roger , spot on target , we could do with the high paying jobs and a g'teed tax rate of 12% for say 20 years to get us started

Domestic Chinese banks are not so accommodating, which could cause internal defaults.

China's drumroll of policy support for its flagging housing market has met an unlikely foe: banks.
Beijing has tried to revive a flagging housing market as it looks to arrest an economic slowdown, but banks are increasingly worried about bad debts and are not passing on policy steps like interest rate cuts and lower downpayment requirements to home buyers.
The show of independence among state-owned banks comes at an awkward time. On one hand, having banks that lend only when it makes business sense is a coup for China, where reforms are aimed at developing a more market-driven economy.
But the banks' stance means policy is not feeding through to the real economy. And as the housing market accounts for about 15 percent of China's economy, it is crucial to stopping the loss of economic momentum.
Read more

Our old buddy Hugh Pavletich has turned up on Radio Live , talking to Willie Jackson about Auckland house prices !