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Higher US wages lower productivity; IMF warns Fed; China to free TD rates; Brazil raises again; Greece won't pay; new enquiry into conduct of Aussie banks; NZ$1 = 71.2 US¢, TWI-5 = 75.2

Higher US wages lower productivity; IMF warns Fed; China to free TD rates; Brazil raises again; Greece won't pay; new enquiry into conduct of Aussie banks; NZ$1 = 71.2 US¢, TWI-5 = 75.2

Here's my summary of the key issues from overnight that affect New Zealand, with news of a new enquiry into the conduct of Aussie banks.

But first, American productivity rose in the March quarter from a year ago but fell from the previous quarter - mainly because wages have started rising faster than output and first quarter output took a tumble due to weather and USWC strike action. The results surprised markets.

And they will have been noted by the Fed who have been looking for signs of quickening rises in payrolls. It bolsters their case for raising rates (another reason equity markets were uneasy). Tomorrow's non-farm payrolls report will be crucial data for their next meeting which is still two weeks away.

Equity and bond markets were somewhat surprised at the news. Also uneasy is the IMF who have publicly asked the Fed to delay raising rates until 2016. They worry about the flow-on impact of falling bond values and rising interest costs, especially in Europe, although they couched it as needing to 'wait for greater signs of wage or price pressure' in the US.

Rising interest rates are also on the agenda in China who said overnight that it is about to remove the interest rate ceiling its banks can pay for deposits as part of the 'opening up' of its economy.

In Brazil their central bank has raised interest rates for the sixth straight time, and their OCR is now up to 13.75%. They are struggling to contain stagfation - that is inflation without growth - and are shrugging off growing discontent over higher borrowing costs as it fights regain investors trust and confidence.

In Europe, Greece defiantly announced it won't (or can't) make this week's €300 mln payment to the IMF and that it will bundle all its June payments together and pay at the end of the month.

In Australia, there is to be a new Senate inquiry into the way banks and others allegedly 'engineer' defaults of clients to sell them up, even though they have never missed a payment on their debt. It is to be led by a senior Government senator.

In New York, the UST 10yr benchmark yield is holding at its higher level in today's trading. It is now down just -2 bps to 2.34%.

The US oil markets are lower again today with the US benchmark price now back at US$58/barrel again, and Brent crude is at US$62/barrel.

The gold price is down another $8 to US$1,176/oz.

The New Zealand dollar is also lower this morning, currently at 71.2 US¢, at 92.6 AU¢, and at 63.3 euro cents. The TWI-5 is at 75.2 and its lowest level since September 2013.

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 »

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10 Comments

Of considerable interest to me this week has been the OECD and IMF pretty clearly advising countries with sovereign currencies not to over worry about debt levels, and not to try and have significant fiscal surpluses to pay them off. See http://www.ft.com/intl/cms/s/3/9167aff0-0a98-11e5-a8e8-00144feabdc0.htm…. Entitled "Free Lunch: New thinking on debt".
These organisations seem to be giving those countries that have printed massive amounts in the last few years to not bother paying themselves back. That to do so would be counter productive. The first official anti austerity recommendations arguably.

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"official"? yet really the Keynesian school has been saying this about the GFC for years. ie if theconsumer and private sector will not spend the last thing a Govn should do is also not spend, or theeconomy is going to shrink and significantly.

Meanwhile the "very serious people" who have been screaming for years about the debt being uncontrollable, "that we have to raise interest rates" or "printing is going to cause hyper-inflation" have been proven wrong time and time again.

So I guess maybe the counter-productive outcomes providing proof from the above squealing are finally being looked at.

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On top of that an example of showing that tax cuts do not work,

http://krugman.blogs.nytimes.com/2015/05/31/this-age-of-derp-kansas-edi…

Still things to learn it seems....

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steven, there are tax cuts and tax cuts. I actually don't know which variant Kansas tried. Kansas also is not a sovereign currency issuer, so has to worry about fiscal balances and cannot print money.
Tax cuts at the lowest level of the income stream (so applying to everyone)- or even WFF type subsidies strike me as a good idea when an economy is not humming, especially if the entity giving the tax cuts is a sovereign.
Cutting the top marginal rate at very high income levels has I think been shown to not really work in driving economic behaviour. Trickle up works, trickle down, not so much. Here the Nats started off with their neo conservative ideology, including the sale of the power companies, high end tax cuts and GST rises. In fairness in the last couple of years, National appear more conventionally sensible, and their recent budget could probably have been delivered by Labour.

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If you read the article you would see as a state they are now close to broke as they indeed cannot print.

So in some ways this suggests a better real world example as currency fluctuations for instance and printing are eliminated.

"strikes you as a good idea" yet really you have no evidence for this? and the above shows not so. In fact from what I have seen increasing taxes or even borrowing so a "govn" can selectively spend can have a multiplier above 1.

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"high end tax cuts" pretty clearly was a bad idea and GST hammers spending in effect its a forcing of private austerity also a bad idea. What should have happened was the opposite at the very least.

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the tax cuts were at the wrong end they should have been at the bottom as that would have been spent and not saved and help the consumer economy.

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yes - and also because if you'e measuring the damage to an economy it is the poor who are least insulated from the effects.

Although if you give them too much and they either spend it all (more economy) ... or what.. they save it since there is a tomorrow? (how horrid)

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"more conventionally sensible" I'd suspect its to keep the centre ground given up by labour.

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The power of the lobbyists

ICAC - The Independent Corruption Against Corruption is pressuring Premier Mike Baird to stop lobbyists meeting in secret with bureaucrats, ministerial staff and parliamentary secretaries

http://www.smh.com.au/nsw/icac-criticises-secret-lobbyist-meetings-with…

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