sign up log in
Want to go ad-free? Find out how, here.

Yellen speaks softly, prepares for two rate hikes; Grexit near; OECD says bank credit hurts; China 'on the mend'; CBO flags aging costs; UST 10yr yield 2.37%; NZ$1 = 70.1 US¢, TWI-5 = 73.4

Yellen speaks softly, prepares for two rate hikes; Grexit near; OECD says bank credit hurts; China 'on the mend'; CBO flags aging costs; UST 10yr yield 2.37%; NZ$1 = 70.1 US¢, TWI-5 = 73.4

Here's my summary of the key issues from overnight that affect New Zealand, with news that borrowing from banks stunts growth.

But first, today's US Federal Reserve monetary policy review was a tame affair as they issued another no-change, wait-and-see statement. They have marginally lowered their internal forecasts for US GDP, their unemployment rate, and inflation forecasts relative to their March analysis. But the analysis also showed they are forecasting two +25 bps rate hikes in 2015.

Given there are only four more such reviews left this year, markets seem to need to prepare for a September start to their hiking. These interest rate rise signals are coming as they acknowledge "international developments".

No doubt the main one is the Greek situation, and policy makers across the region, and even in Greece, are now actively preparing and talking about a 'Grexit'. Overnight, their central bank warned of painful consequences, and their prime minister said he was ready to take those consequences. The day is close now where someone says the game is over. In the meantime, weird analogies are being expressed, often about cows!

Back in the real world, the OECD has said governments should limit the amount banks can lend to households and cap the pay of top-earning male executives in the finance sector if it wants to avoid another financial crisis. It said its research shows that bank loans slow growth compared with credit provided by other market sources such as bonds and equities.

They also say bank loans cause a "misallocation of capital, by funding investments with low profitability; magnifying the cost of implicit guarantees for too-big-to-fail banks; drawing highly talented workers away from sectors with greater productive potential; and generating boom-bust cycles."

In China, there are signs that their housing market troubles have bottomed out and they are on the mend. At least that is the view of one major analyst.

Back in the US, their Congressional Budget Office has put the spotlight back on the long term costs of funding an aging population. It says that although federal deficits have shrunk markedly in recent years, under current law increased spending for Social Security and major health care programs, along with increasing interest costs, would cause their debt to rise steadily over the long term and faster than overall economic growth. In just another 25 years US federal debt will be more than 100% of GDP, growing and clearly unsustainable.

Back in New York, UST 10yr benchmark yields rose today following the Fed statement and are now at 2.37%.

US oil markets are pretty much unchanged with the US benchmark price just under US$60/barrel, and Brent crude is now just under US$64/barrel.

The gold price is up a little however, now at US$1,182/oz.

The Kiwi dollar has started to rise following the Fed statement. This morning it opens by pushing up over 70 US¢, is at 90.2 AU¢, and it has risen to 61.8 euro cents on the Greek woes. The TWI-5 is at 73.4.

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

Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
End of day UTC
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.

4 Comments

after watching yellen this morning, there is no way for two hikes this year, and I am putting money on 2016 for the first hike if any.

Up
0

I am not putting any money on anything the Fed says.

The Fed is going to raise rates (or, in actuality, make you think it wants to so bad that you think they actually might) in order to signal a strong economy, in order to get people acting like a strong economy, in order to create a strong economy. Read more

The economy clearly looks bad even by official Fed numbers, but credit and funding markets still appear to be wondering if the FOMC is crazy/suicidal enough to follow the fantasy instead. Read more

Up
0

Re Grexit, interesting developments!

Greek Debt Committee Just Declared All Debt To The Troika "Illegal, Illegitimate, And Odious"

http://www.zerohedge.com/news/2015-06-17/greek-debt-committee-just-decl…

Here some snippets:

All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.

Several legal arguments permit a State to unilaterally repudiate its illegal, odious, and illegitimate debt. In the Greek case, such a unilateral act may be based on the following arguments: the bad faith of the creditors that pushed Greece to violate national law and international obligations related to human rights; preeminence of human rights over agreements such as those signed by previous governments with creditors or the Troika; coercion; unfair terms flagrantly violating Greek sovereignty and violating the Constitution; and finally, the right recognized in international law for a State to take countermeasures against illegal acts by its creditors , which purposefully damage its fiscal sovereignty, oblige it to assume odious, illegal and illegitimate debt, violate economic self-determination and fundamental human rights.

Up
0

How will Greek protect those fundamental humans rights if it defaults and is unable to finance it's deficit?

Up
0