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US bosses grow wary; airlines creaming it; China trade weak; G7 seeks end of fossil fuel; Japan stars; UST 10yr yield 2.38%; NZ$1 = 71.4 US¢, TWI-5 = 75.3

US bosses grow wary; airlines creaming it; China trade weak; G7 seeks end of fossil fuel; Japan stars; UST 10yr yield 2.38%; NZ$1 = 71.4 US¢, TWI-5 = 75.3

Here's my summary of the key issues from over the weekend that affect New Zealand, with news of strength in Japan and weakness in China.

But first in the US, big business CEOs surveyed have become a bit more pessimistic in their outlook for the American economy in 2015 and fewer of them expect to increase sales, investment and hiring this year.

Globally, airlines raised their 2015 industry profit forecasts by more than 17% to more than NZ$40 bln, almost doubling from last year. Recent data shows that passenger traffic is booming, while high levels of airfreight traffic are leveling off. This is a big contrast to the languishing sea freight industry.

In China, imports of both iron ore and coal have taken tumbles in May, and quite large ones in the case of coal - trends that work against Australia.

In fact, China's May trade data shows very weak domestic conditions. Exports were lower, but it was the continuing fall in imports that is really causing concern. Lower energy prices are only a part of the reason.

In Germany, the G7 leaders have formally agreed to phase out the use of fossil fuels this century. In fact they said they supported cutting greenhouse gases by 40% to 70% by 2050 from 2010 levels - the first time they have backed such a precise long-term target. But this agreement only applies to the US, Germany, France, the UK, Japan, Canada and Italy. Notably, China, India, Brazil and Russia all of whom may be larger than the European countries this century are not making any such commitment.

And finally in Japan, their Q1 GDP growth was expected to be at a very creditable +2.8% rate, but it has blitzed that expectation coming in at +3.9%. That is some impressive momentum for Japan.

In New York, the UST 10yr benchmark yield was lower by -3 bps today at 2.38%. NZ swap rates open higher again today, and our rate curves have steepened yet again. The 1-5 curve is now its steepest since November, and the 2-10 curve is its steepest in over a year. In fact international investment grade CDS spreads are also widening.

The US oil markets are marginally lower with the US benchmark price at US$58/barrel, and Brent crude is at US$63/barrel.

The gold price is up $3 to US$1,173/oz.

The New Zealand dollar is higher morning, currently at 71.4 US¢ a whole 1c higher than this time yesterday, at 92.7 AU¢, and at 63.3 euro cents. The TWI-5 is now at 75.3.

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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8 Comments

In fact international investment grade CDS spreads are also widening.

In respect of this observation I urge readers to indulge in an education exercise concerning the money system that is actually operating in and around our affairs, and yet oblivious to most - and belated recognition by the NY Fed of the enormity of the situation. Read more here and here. Following all the links from the first article is recommended.

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Belated recognition indeed. I read very intently and still find it all too complicated, but here's my lay assessment:

It is now 6 years down the track since we last lost control of the boat, and we haven't had a steady hand on the tiller since, as last year we found our chart contained a myriad of uncharted islands. We have begun drawing up a new chart as a means to navigate through these waters. Hopefully we don't encounter a massive weather event in the meantime and so we've significantly increased the ballast such that we could well sink on our own accord anyway.

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Worse as we navigate these un-charted waters we might well run out of fuel.

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In NZ aren't self-extinguishing loans considered income on draw down?

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have to say... That article does not make much sense to me... fed Funds mkt exists for banks to borrow to meet reserve requirements, in regards to settling accts. each day., within the USA Banking System.
USA Banks are swimming in reserves.. ( on which the FED pays interest ).. AND... the Fed funds mkt is to do with lending/borrowing reserves.
In my view , it was far more meaningful that The FED started paying interest on reserve balances in 2008.... ( that probably changed the nature of the fed fund rate impact )..
I'm not that savy with the eurodollar mkt.
Our current Monetary system has always been a "ledger" system... not sure why the author thinks it was 1928 that stirred it to life..??
I don't see that the FED has lost control..???? .. (The FED is more in control when there is credit growth, within the Banking system... which there is..)
http://www.federalreserve.gov/releases/h8/current/default.htm

AND... this does not mean I think it is all rosy..... just that I dont agree with the author of that article.. ( maybe I dont understand..?? )

What did u learn from that article Stephen..??

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Another day - I am busy with model drones - I have a flying event to attend Friday - much work to do in preparation besides other matters to attend to.

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Roelof, you are right it is a poorly written article full of industry jargon that only a select few would naturally grasp (at first reading at least). I think the point is that money starts off with something physically backing it. I would think difficult to start one without that. Over time as confidence grows in the money system it can move from a fully backed start to a state, like we have today, where it is only backed by debt, or promises to pay in the future. The system could be said to work, and work very well, but it only works until the future doesn't pay and compounding interest within the money supply will do that.

My belief is that the clearing feature is key to the system and that in time confidence in this enables the shadow banking system, or money creation outside the system using derivatives.

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