90 seconds at 9 am: China retail in sudden disruption

US confidence surges; Europe confronts wavering Greece; Obama attempts TPPA rescue; China retail in spectacular shift; UST 10yr 2.39%; NZ$1 = 69.8 US¢, TWI-5 = 73.6

15th Jun 15, 7:20am by David Chaston

Here's my summary of the key issues from over the weekend that affect New Zealand, with news the Kiwi dollar is at a five year low against the US currency.

But first, in the US, consumer confidence surged in early June on expectations that a tightening labour market would result in wage raises, which would in turn stimulate consumer spending and overall economic growth later this year. This measure has sentiment back at early 2007 levels.

American home owners may be generally out of the woods but more than 15% of them are still in a negative equity situation. However, that is down from over 31% three years ago and an sharp improvement from the December quarter as house prices start to rise in the US.

But financial markets are starting to fret about Greece and the consequences of a default. And they are not only worried about the behaviour of the Greeks; a new worry is that Angela Merkel and her finance minister may also have a fraying relationship over how to handle the situation.

The latest round of talks between Greek and EU officials in Brussels has failed to reach an agreement just a few hours ago. Europe is upping the pressure, confronting Greece to make spending cuts worth €2 bln, to secure a deal that will unlock bailout funds. They also want Greece to cut their unsustainable pension load but that is something Athens has said it would never accept. The EU wants wage cuts and a VAT hike on electricity as well. However talks continue and the Greek leader has warned his people to be ready for a 'difficult compromise'.

Difficult discussions are also going on in the US Congress after the House narrowly defeated the TPPA 'fast track' deal. The President is fighting to get things back on track and another vote may be held as soon as Wednesday.

And an update on something we first reported a few weeks ago; China's consumers are making a very rapid rush to online shopping, up-ending the business model of many commercial enterprises. Some big names are reporting sales falls of -20% per quarter through normal high-margin bricks-and-mortar outlets as new sales channels especially via smartphones disrupt a huge market.

Locally, Vector has put up its gas transmission business for sale and Aussie investor DUET, along with the NZ Super Fund are reported to be looking seriously.

Back in New York, UST 10yr benchmark yields fell sharply on Friday as the Greek situation unsettled markets, this time by -9 bps to 2.39%. This will no doubt be reflected in local long swaps rates today.

Also down are US oil markets, with the US benchmark price back under US$60/barrel, and Brent crude is now under US$64/barrel.

The gold price is however basically unchanged at US$1,180/oz.

However, this morning the New Zealand dollar starts quite a lot lower and below 70 USc for the first time since March 2010 - and don't forget in-between times it hit 88.2 USc. This morning it opens at 69.8 US¢, at 90.5 AU¢ and itself quite away from parity now, and it is now at 62.1 euro cents. The TWI-5 is at 73.6 although that is only a one year low. The lower kiwi dollar is really a story about a strong US dollar.

If you want to catch up with all the local changes on Friday, 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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Source: RBNZ

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5 Comments

by notaneconomist | 15th Jun 15, 11:00am 1434322818

Extracts from "The Conversation" - from Joerg Bibow.
"The main problem is that governments in creditor countries, with Germany being the key one, have systematically misled their people. Their so-called bailout programs for Greece were never primarily a bailout of the Greek people.".........

"Whose bailout?"

"Instead, they were foremost a bailout of German and French banks, the masters of irresponsible lending in Europe and abroad. The German government had put German taxpayers on the hook for the banks’ colossal losses suffered in the context of the US “subprime crisis.”

"They were too scared of going back to them for more of the same when Greece then faltered. They were in a tough spot as they equally feared that allowing Greece to default on its debts, as West Germany itself had done after the Second World War and as Greece should have done in 2010, would blow up the euro and bestow even bigger costs on German taxpayers – apart from also spoiling Germany’s export-led growth model."

"And so the convenient narrative of a sovereign debt crisis joined by the need to rescue Greece in order to save the euro was invented. Essentially, the creditor countries arranged from new loans so that Greece could repay its excessive old loans rather than default on them. Fast-forward five years, and the same Greek drama is still on display."

"Once again, the Greeks are supposed to sign off on inhumane conditions for new bailout loans so that they can repay old bailout loans."

"The Greek people acknowledge that their current predicament is partly due to their society’s own failings. Even after overcoming military dictatorship and joining the European Union, Greek governments generally prioritized securing the wealth and power of a small oligarchy through favoritism and corruption."

http://theconversation.com/time-to-end-europes-disgrace-of-holding-gree…

by Mike B | 15th Jun 15, 11:42am 1434325354

And did you see in the news the other day "The IMF will continue to lend to Ukraine even though it cant pay its debts"
What a smack in the face for Greece.
That is because the Russian pipelines go through Ukraine and the yanks are squeezing the Russians.

by Basel Brush III | 15th Jun 15, 1:33pm 1434331991

Interesting position for some Asian owners of Auckland property who have borrowed at USD (read yuan-remimbi ) linked loans who are watching their valuations not rising as fast as the NZD drops.
Question is whether this supposition has any legs?

by macbet | 15th Jun 15, 1:59pm 1434333579

Well if it has legs may it learn to sprint like the clappers. We will find out. Kiwi is only going lower...

by Stephen Hulme | 15th Jun 15, 2:04pm 1434333854

Unhedged currency liabilities are still the bane of citizens from peripheral European nations short Swiss Franc mortgages - recent SNB actions included. I even know a Kiwi who regrets committing a similar action in the past to fund a house purchase here.