Here's my summary of the key issues from overnight that affect New Zealand, with news of rising labour costs and falling jobless numbers in the US.
The number of Americans filing new claims for jobless benefits tumbled to a 15-year low last week and consumer spending rose in March, signs the US economy was regaining some momentum after virtually stalling in the first quarter.
Meanwhile, US labour costs rose solidly in the three months to March as wages in the private sector pushed on up a very healthy +2.8% pa, which could put the Federal Reserve back on track to raise interest rates this year.
The job situation is still tough across the Atlantic however, with the EU unemployment rate in March a remarkable 11.3%. It ranged from just 4.7% in Germany to a calamitous 25.7% in Greece.
Greece's government signaled the biggest concessions so far as crunch talks with lenders on a cash-for-reforms package started in earnest on Thursday, but tried to assure leftist supporters it had not abandoned its anti-austerity principles.
Attention is now turning to the next RBA rate decision. Markets are concerned about a deteriorating economic outlook and a resurgent Australian dollar and they now think that will force their reserve bank to cut interest rates on Tuesday, taking the Australian OCR to an all-time low of 2%.
However, Governor Stevens has a regular habit of doing things differently to 'market expectations' so we will need to wait. But an Aussie rate cut is definitely a strong prospect and that will widen the premium for New Zealand yields.
Back in New York, the UST 10yr benchmark yield rose again today and is now at 2.09%, pushed up by the US labour market data. At the long end, we have seen similar rises in the New Zealand swap markets with our 10 yr swap rate now up to 3.86% In fact our rate curves are steepening fast. Our 2-10 curve is up to +37 bps, its highest this year.
The US oil price is still inching higher, now at US$59/barrel, while Brent crude is also slightly higher at US$67/barrel in trading today.
The gold price however fell sharply to US$1,181/oz.
The New Zealand dollar starts today lower at 76.2 US¢, at 96.4 AU¢, and 68 euro cents. The TWI is now at 79.7.
And finally, for those of you that think the RBNZ should get in there and spend to change the level of our currency, just take note of what the happened to the Swiss. For years they have been actively 'managing' the market for the Swiss franc trying to hold it to where they thought it should be against the euro. Recently they found they could not sustain that cost. But it just got even worse; the true costs are coming home to roost. Think we could afford to play that sort of game, as taxpayers?
If you want to catch up with all the local changes yesterday, we have an update here.
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22 Comments
Indeed.
They have printed 500 billion Swiss Francs (USD541 billion) to buy foreign assets. The value of those assets has dropped by $32 billion. They are still to the good by over $500 billion. The usual scaremongers of printing point to its inflationary effects. Switzerland has nil inflation. They are the true rockstar economy of the world. Am I missing something? What is the downside for them? Will they have to pay themselves back the 500 billion? Only if they ever feel like it. What if they have a run on their currency? Then they have $500 billion more foreign assets to protect themselves.
Am very happy for someone to point out the flaw in the argument, as I personally don't understand why a country with a currency that its central bank deems to be materially overvalued, and that has lower than its target inflation, does not follow something like this strategy. I can think of a nearby country that has those variables.
Listen from 23 min in and ask yourself what happens if the US share market tanks?
http://www.cato.org/multimedia/events/32nd-annual-monetary-conference-o…
Calpers are into it up to their necks too.
http://www.mercurynews.com/business/ci_27319198/calpers-posts-18-percen…
And what happens if the US share market doesn't tank?
You should stay away from anything to do with the Cato Institution, formerly called Charles Koch Foundation. It is a 'libertarian' brainwashing snake-oil salesman infested, poor quality research, idiot filled, biased institution funded by the Koch brothers. (My opinion of course)
We all know the Koch brothers are stand up fellows, right?....right?
Brainwashed? So what do you call your own bias then?
FYI I regularly say here that no money supply will work with interest in the long run, including gold. Best thing I have heard Krugman say is that any money supply relies on confidence, also applicable to gold.
However Roger W introduced a term a few weeks back that I had not come across before, Inside and Outside money. Inside money is leveraged of outside money, all the worlds assets are valued in inside money.
I call my own bias - 'The correct bias'.
Just to be clear, gold is not money. I'm not sure if Krugman did say those words, however I would say any money supply would 'rely' on the ability of the government to collect taxes from its citizens. This is what would create the 'confidence' required for people to accept the said money supply to exchange goods.
no, not even close. the money supply is based on the citizens willingness to accept the note for work. governments can print as much scrip as they like but if they can't force the people to use it you might as make a kite out of it. The original purpose of taxes is to force that labour out of people at threat of theft and violence. The people generally don't need the government, but the government is worthless without the people.
OU....one issue that you seem to have over looked is that currency is treated as the property of the Government issuing it.......it is the actual value of the currency that one needs to be monitoring....and when the issuing authority of a currency collects taxes off that same currency then the value has declined......the value declining makes people lose confidence and you can bet you bottom dollar that is why people are buying up houses!!!
JP Morgan is buying up large quantities of silver so obviously they see some value in that.
any "interest" has to match the systems inputs, ie new energy sources. Otherwise the pie has to get sliced into more quanitity of finer slices to reflect the increase in "money numerical supply" - which means all those not receiving the interest are losing value (nless they can find something to store that value in which either is interest immune (eg a paid up farm) or has unearned income to match the falling value of interest (ie property)
I am so pleased I decided to suspend my working career early and support myself with unearned income derived from watered wine, which others claim is money.
Unfortunately, and as per usual, you ignore the billions of unwanted and poorly employed Swiss Francs floating aimlessly around the Swiss economy. I am sure the price and quantity of unproductive assets is surging and yet productive investment remains stalled due to a shortage of those with the brains and willingness to engage.
US farm machinery sales collapse
http://www.agrimoney.com/news/cnh-slashes-machinery-output-as-ag-downtu…
Why?
But the why? should increase demand (falling prices) unless oversupply exists (eg dairy milk). Have the biofuel people stopped buying? Does Texas no long drink Malted beverages?
Those are two very nasty figures.... and extremely nasty for NZ's dairy prices, as wheat and meals that cheap are going to end up in very cheap livestock feed for years to come.
Looks like the effect of cheap money chasing yield. Creates an imbalance in commodity production, like dairy, like whats coming in Beef and Wine ( Wine is in massive expansion on falling consumption)
Wheat futures hit 5-year low on 'major' US export setback
That cancellation early on by Iraq of a wheat import tender proved a taste of things to come.
The bad news for wheat trade continued with the revelation of the worst week ever for US export sales of the grain.
The US, until this season the world's top wheat exporter, sold a negative 449,167 tonnes of wheat last week for 2014-15 delivery.
That is, cancellations of wheat orders exceeded new sales by 449,167 tonnes - the biggest negative figure, on a current season basis, on records going back 25 years.
http://www.agrimoney.com/marketreport/wheat-futures-hit-5-year-low-on-m…
http://www.adelaidenow.com.au/business/oversupply-of-grapes-has-winemak…
http://www.harpers.co.uk/news/us-wine-industry-facing-unprecedented-thi…
with all things being equal cheap money should push up the demand for commodities and machinery (more money to spend).
What this shows is either the cheap money has come (and been invested into production, so now we get the Keynesian surge in production...which in money terms would just be taxed back to cover the initial payment, but in real production terms just creates a depressed price from oversupply).
Or the money has found better returns elsewhere.
A good place to start investing is warehousing by the looks of it ! 449kilo tonne of wheat takes a bit of storing, that's almost a buttermilk lakes worth.
AJ.... I finished reading an interesting book.... "The next Economic Disaster".
The basic premise is that private sector debt levels are a BIG DEAL..
Crisis happens when Private sector debt/GDP gets over 160% AND.... in the previous 5 yrs, that private sector debt has grown by 20%.
What immediately precedes the crisis is a large drop off in consumer spending.
For me, the book has a compelling logic to it.
The Country that is very ripe for a crisis , using the above metrics, is China...
Private sector debt/GDP is over 200%... and the growth in PS debt has been 60% in the last 5 yrs...
the big precursor to a crisis will be ( might be ) a big drop in consumer spending....???
We will see... Maybe we are already seeing it in our exports to China...????
http://www.democracyjournal.org/36/the-coming-china-crisis.php
The poperty splurge continues - gathering speed
The number of foreign buyers of NEW Australian homes tripled last financial year, a new report from the Foreign Investment Review Board Report shows.
China is now by far the biggest foreign purchaser of Australian real estate, splurging $12.4 billion in 2013-14 - more than double the investment from the United States and triple Singapore's outlay.
http://news.domain.com.au/domain/real-estate-news/foreign-investment-in…
If, as we are led to believe, the numbers of foreign investors is insignificant then it shouldnt be such a big burden to require all non-resident purchasers of residential property to make application to the OIO, who in turn can simply rubber stamp them and wave them through, but keep the documentation, which in turn can be passed on to the RBNZ to analyse instead of making stupid estimates. Not too hard. Does not require an enormous system setup
Simply add them up, get a monthly total and publish it in the OIO monthly web report
The OIO administers New Zealand's overseas investment legislation.
The core work of OIO is assess applications for consent from overseas persons who want to ...
OIO and Land Information New Zealand (LINZ)
www.linz.govt.nz/regulatory/overseas-investment/about-oio
Remember Ponytails Key said it was all too hard
Get with the program..
I can sell em an App that will do accounting, summersalts, athletics and play Bingo. Then when the winner shouts House......we can all jump in and have a turn or two.
Unless it is all in a..fffooreign language that is, then it totals up the ayes and the naysayers....John Key amongst em.....and the other blind burghres to the obvious......and comes to a running total....easy peasy.
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