90 seconds at 9 am: Tough talking

Australia talks tough over tax; Greece makes a payment; UK talks tough over the EU; UST 10yr yields jump; gold falls; NZ$1 = 73.6 US¢, TWI-5 = 77

12th May 15, 7:33am by David Chaston

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

But first, in Australia, the government there has said it will introduce a new tax crackdown against 30 multinational corporations today. Without identifying the targets, they said the big corporations were "diverting profits earned in Australia away from Australia to no-tax or low-tax jurisdictions".

The 30 firms targeted will include most of the usual tech suspects, but whether it includes News Corp, a backer of the Abbott government, will be an interesting reveal.

Greece and its creditors are getting ready for another week of deadlines. Overnight Greece made a €757 mln repayment to the IMF but its creditors remain deeply 'unsatisfied' with Greece's reform progress. The context of today's payment is that next month they have a €1.5 bln repayment due and the following its almost €4 bln due. And Germany signaled overnight that it could support a Greek referendum on the 'reform' package that is under negotiation - as a prelude to and 'authorisation' for a 'Grexit'.

The euro zone's negotiation problems with Greece however may soon pale as the British talk tough in their upcoming negotiations with the EU.

In New York, the UST 10yr benchmark yield bounced back up strongly in today's trading and is now at 2.22%.

The US oil price is unchanged at US$59/barrel, while Brent crude still at US$65/barrel. The recent uptick in US shale oil production has surprised some.

The gold price is $8 lower today at US$1,179/oz.

The New Zealand dollar starts today quite a bit lower at 73.6 US¢, lower against the Aussie at 93 AU¢, and at 65.9 euro cents. The TWI-5 is at 77.

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 today is by following our Economic Calendar here »

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

25 Comments

by sharetrader | 12th May 15, 8:20am 1431375611

wont the lower dollar lead to inflation being a high importing country.

by Boatman | 12th May 15, 10:47am 1431384450

Not sure , but if the Greeks either default or exit in the next few months , we are in for one hell of a storm, and we will feel it here too

by sharetrader | 12th May 15, 12:33pm 1431390783

looks like they paid this one in the hope of more loans

http://www.aljazeera.com/news/2015/05/150511192445041.html

by Stephen Hulme | 12th May 15, 9:14am 1431378885

In New York, the UST 10yr benchmark yield bounced back up strongly in today's trading and is now at 2.22%.

Dire projections on the supply front hardly helped and yet a destabilising $trillion demand for US TBills will not be resolved until short rate projections are skewed to the downside.

by Roger Witherspoon | 12th May 15, 9:43am 1431380601

Yes, the equivalent to world stock markets falling 5.77% in a single day, yet it is taken as normal. Presumably because it's not easy to pin a simplistic explanation on. Seems like a major tremor to me, but I don't know what happens next.

by Kate | 12th May 15, 9:52am 1431381158

Surely humans are no longer in control. Algorithms are.

by Stephen Hulme | 12th May 15, 10:14am 1431382461

Indeed, on a general daily basis, but machines need to be curbed by good old fashioned human fear when the machine feedback loops are in need of calibration to a lower risk level

I noted this yesterday.

What is causing VaR shocks and why are they happening often? We argued before that one of the unintended consequences of QE is a higher frequency of volatility episodes or VaR shocks: investors who target a stable Value-at-Risk, which is the size of their positions times volatility, tend to take larger positions as volatility collapses. The same investors are forced to cut their positions when hit by a shock, triggering self- reinforcing volatility-induced selling. This, we note, is how QE increases the likelihood of VaR shocks.

by Kate | 12th May 15, 12:48pm 1431391713

Exactly. Good old fashioned human fear .. I like it.

Aristotle referred to this type of intellect as "phronesis". We have no English equivalent or derivation of the word. Not surprising then, that we've also lost all sight of it.

by Boatman | 12th May 15, 10:45am 1431384347

The rule for stock markets is SELL IN MAY AND GO AWAY ( For the Northern summer )

Okay its urban legend , but there is some truth in the concept , especially if there are profits to be taken

Sure a 5% drop in one day is a bit OTT and I don't know why its not headlines

by sharetrader | 12th May 15, 10:57am 1431385076

Most are picking an end to the Bull market but so far that has proved wrong so then it becomes a case of where you put it next as to what your outlook is and how much cash you want to hold, hindsight is great except in the Money markets.

by Roger Witherspoon | 12th May 15, 12:12pm 1431389536

Sorry Boatman, I misled you there by excess brevity. I was replying to Stephen Hulme who actually understands bond markets, unlike myself. The 10 year US Treasury bond yield went up 5.77%, which is presumably a once in 3 billion year event according to the formulae commonly used in the finance world (I kid you not). All assets are priced off the US Treasury 10 year bond yield as it serves as a stand-in for the risk free rate of return in a gazillion valuation formulae which seek to place a current value on a future income stream. So if the interest rate goes up it means the capital value of other income streams goes down.

by Stephen Hulme | 12th May 15, 12:43pm 1431391403

I think people value extraordinary bond/note losses and profits in terms of bps of capital. Last night's UST10 move equates to a clean price capital loss of 113.5bps, given the yield moved from 2.15% (Friday close) to 2.28%.

The recent moves in German 10yr bunds have been more dramatic since a move from 5 bps to 57bps is a bigger % change and equated to a 510bps capital loss on a dirty price basis. BPV01 (DV01) is an important determinant of risk exposure. Read more

by steven | 12th May 15, 1:28pm 1431394099

Looks like the German Bunds are dropping back again though.

http://krugman.blogs.nytimes.com/2015/05/11/interest-rates-are-still-ve…

by Boatman | 12th May 15, 10:41am 1431384116

Labour in the UK are heading for serious trouble if they appoint Chukka Umuna as the leader .

I will stick my head out with this comment.................

Labour in the UK, like here, is full of academics and left leaning liberals , having moved away from the working class........... those grunty buggers with gnarled hands who actually work, who are their core support base.

For starters , Welsh coal miners will have none of it .

Average middle class and even working class Brits are remarkably similar to Kiwis , we are tolerant of other races on the surface and welcome them here in very large numbers for their ability to add to our GDP , their ability to pay tax , that they behave and stay out of jail , and for their skills , money or willingness to do the dirty-work , but God help a foreigner who aspires to rise about his perceived station in life.

And anyone who thinks a Brit of Nigerian descent could ever be the UK Prime Minister , had best give it a second thought .

by Stephen Hulme | 12th May 15, 10:47am 1431384474

Now now Boatman - take a deep breath and maybe rephrase your thoughts - Obama won two terms with ease.

by Boatman | 12th May 15, 11:24am 1431386676

Stephen , I wish him well , but Britain is not the USA , and having lived and worked in the UK I know there is an intolerant undertone by middle class Brits towards people of colour and "outsiders"

My grandmother was born in London and my Grandfather was a Geordie , and my cousins are seriously parochial ,even I am an "outsider" in their eyes

Its subtle and not overt in any way , but its there .

by steven | 12th May 15, 1:37pm 1431394627

or maybe you have the family trait in IQ?

by Boatman | 13th May 15, 10:06pm 1431511582

LOL I was always a dumb bugger at school

by Gummy Bear Hero | 12th May 15, 11:05am 1431385553

Chuka Umuna was born in London ... his only obvious " flaw " is his age , he's only 36 !

... as for the Welsh coal miners , the " grunty buggers with the gnarled hands who actually work " ... I think you'll find there aren't many of these good fellows left ... the bulk of Labour support worldwide is the chardonnay socialists ... there just ain't so many of the hearts-of-oak chaps at the coal-face chipping away , anymore .... they're in an office somewhere clicking on a keyboard ... bored !

by Roger Witherspoon | 12th May 15, 12:38pm 1431391096

I thought there were no Welsh miners anymore, all put out of work by cheap oil in the eighties. Has there been a revival?

by steven | 12th May 15, 1:15pm 1431393337

Hmm, yes and no. I think there is one deep mine in yorkshire and an open one run by a climate denier. I think the last sizeable welsh mine closed in the 1990s simply because there wasnt much coal left, it was expensive plus extremely cheap North Sea gas rather than oil price.

by steven | 12th May 15, 1:34pm 1431394464

Like your thought processes about 25 years too late, no welsh miners now, boyo. I dont know where you get your opinions on the UK working class from but it doesnt really match my experience from 34 year growing up and living in the UK. I certainly dont see why a brit of Nigerian consent could not be UK PM myself quite possible.

by OnwardsUpwards | 12th May 15, 4:32pm 1431405146

What's the chances of us seeing a member of her Majesty's family being a Brit of Nigerian descent? Zero or naught?

by scarfie | 12th May 15, 12:45pm 1431391555

An interesting explanation on why John Key is so keen on a flag change.

http://www.postmanproductions.org/?p=2785

by DFTBA | 12th May 15, 1:50pm 1431395456

Yes, I'll be voting to keep the flag AS IS