Here's my summary of the key issues from overnight that affect New Zealand, with news that we and the world seems less affected by the Greeks than the euro-centric headline writers seem to think we are.
European stock markets and economic decisions do seem paralysed by the Greek situation.
However, while it is true bond yields have fallen sharply and credit spreads widened, exchange rates have changed little, and commodity prices seem little affected. The rest of the world carried on.
In Japan, retail sales for May came in better than expected although industrial production last month disappointed.
China worries are growing however. The interest rate cut we reported yesterday did not stop another sharp fall on the Shanghai stock exchange yesterday.
And now, Puerto Rico has said it is in no position to repay its US$72 bln of debt.
But even though the fuse may be lit for a Greek exit from the euro zone, the fallout in the United States is expected to be modest and not enough to throw the Federal Reserve's likely September rate hike off course, according to non-European Fed watchers.
Further, the American real estate market is in better heart with momentum in house sales which continued to rise in May and are now at their highest level in over nine years.
And the fallout from Greece is being felt even less here. Today we get a raft of domestic data, most of which is not expected to surprise.
Back in New York, UST 10yr benchmark yield has fallen sharply and is now at 2.35%. That fall is entirely Greece-related but is probably less than you would think. Credit spreads have jumped as well but not disastrously.
US oil markets are slightly lower with the US benchmark price now at US$58/barrel, and Brent crude is now at US$62/barrel.
In Australia, the iron ore price has tumbled further.
The gold price is up but not by much; it is now at US$1,179/oz and hardly a harbinger of doom.
The Kiwi dollar starts today basically unchanged, if slightly higher. It is at about the same level it was a week ago. It is currently at 68.7 US¢, at 89.3 AU¢, and 61.1 euro cents. The TWI-5 is still at 72.3. Even the euro hasn't shown any special vulnerability.
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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34 Comments
hmm,
http://www.theguardian.com/world/2015/jun/28/greece-crisis-deepens-bank…
"Share prices slumped across Europe on Monday as Greece shuttered its banks for a week following a fateful weekend that has shaken Europe’s single currency.
The Greek government decided on Sunday night it had no option but to close the nation’s banks the following day after the European Central Bank (ECB) raised the stakes by freezing the liquidity lifeline that has kept them afloat during a six-month run on deposits.
In London the FTSE 100 tumbled by 150 points - more than 2% - when trading began at 8am BST. There were even sharper falls across Europe, with the French and German markets both tumbling by 4%. European banking shares were the hardest hit, suffering losses of up to 10%."
"US stock markets are still in the red. The Dow is down over 1.5%, the S&P 1.7% and the Nasdaq has suffered the most at over 2%"
Yes its going to be an interesting week...
Greece really should not matter, at all, outside of the tragic plight of the Greeks themselves. You’ll see that message echoed particularly inside the US where the status quo takes a contradictory turn toward reasonableness in order to justify further what isn’t. This is all about asset prices and how they have been so skewed almost everywhere that when one part of that systemic imbibing threatens to pull back the curtain the rest works overdrive to convince that it doesn’t matter. Read more
I would think the Greek Crisis is very much on the minds of US powerbrokers, just as it was when the broader Eurocrisis first came to light.
UCD economics professor, Morgan Kelly’s article in the Irish Times last month appeared to reveal for the first time that a hitherto unknown player in Irish economic affairs, US Treasury Secretary Timothy Geithner had played a pivotal role in the IMF/EU bailout negotiations last November 2010. "According to Morgan Kelly “The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are”...But what “matter”? I suppose we want to know why someone from the US would interfere in a bailout for Ireland. If that is what we want to know then Wikileaks has already provided the answer apparently. In their release of US State Department cables, there is one which reportedly seems to explain exactly why the US had a keen interest in bondholders in Irish banks being repaid : Secretary Geithner was concerned that if Ireland refused to repay bank bondholders then, in the words of Britain’s Telegraph “that could have spread contagion to the entire European system, to which American-backed “credit default swaps” were exposed to the tune of €120bn” (Wikileaks appears not to have published any cables beyond February 2010 on its website, and presumably this cable from Secretary Geithner is dated towards the end of the 2010, so an attempt will be made with the Telegraph to get the source cable and this post will be updated with any response).
–There’s no mystery to US Treasury Secretary, Timothy Geithner’s intervention in the Irish bailout. Wikileaks has already revealed the reason."
https://www.creditwritedowns.com/2011/06/greece-as-europes-lehman.html
"The ISDA ruling favors the big banks that sold the CDS because those banks sit on the ISDA board,” said Tavakoli, a former head of mortgage-backed-securities marketing at Merrill Lynch & Co. “Smaller banks or other institutions that might have bought the swaps to protect against a default like this don’t have as much influence.”
Some bondholders might challenge the ruling in court, Tavakoli said. Lauren Dobbs, an ISDA spokeswoman, declined to comment.
U.S. Treasury Secretary Timothy F. Geithner urged European leaders and finance ministers to increase the firepower of their 440 billion-euro rescue fund. The Obama administration’s stance might have been prompted by worries that defaults in the euro zone would hurt U.S. banks through their CDS exposure, according to Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based bank-rating firm. "
http://www.bloomberg.com/news/articles/2011-11-01/selling-more-insuranc…
"I expect them to respect this democratic process, not to kill democracy in its birthplace," Tsipras said. See NZ herald article. ROTFL. If greece is an example of the success of democracy maybe we should be having another look at communism. Seriously though its a warning against populist policy and lack of leadership by elected public servants. Also a case for a strong opposition to keep the rulers honest, I think thats where things get off the rails. At least with MMP we do have a limit to the absolute power to some degree.
Don't be fooled Dazz it is not democracy vs communism!!
Democracy also requires that individual constitutional rights are known and understood by all. No political party should ever offer carrots to the voters if everyone knew and respected the individuals rights then carrots wouldn't work.
True democracy is not about 1 person 1 vote with the highest number of voters winning....we are all losers if we think that is democracy in action......bribery and corruption are offences for a reason!!
Until all media take a hard line approach against political bribes and corruption then we are all losers.....Individual and constitutional rights are how every policy and offering should be measured!!
I don't know about communism but a benevolent dictatorship as in Singapore might be the go. With a 3 year cycle here no one has the power to make any significant changes before they need to start smiling for the cameras again.
Who is our Lee Kwan Yew?
A better question might be who will be our first Chinese born PM?
When you wet the bed, first it is warm, then it is cold. If it wasn't so funny it would be sad. People are so batshit crazy they think Chinese stock indexes doubling in the past 12 months is entirely normal and logical, or that Auckland house price increases of 10-20% per year is logical, predictable and normal. This is the crazy mentality that you can get something for nothing, and when you do indeed get something for nothing, this is entirely due to your mastery of investment principals. The craziest part of all, is that sometimes, for short periods, it actually works.
Greece owes its creditors $280 billion Euro - they had no prospect of paying it back for decades. However if they bail now surely that will set off problems in Spain, Portugal, Italy and Germany and what will be the repercussions for the rest of the world? A GFC bigger than the last one?
The rich have invested in something they have to keep investing in to keep the value of their investments. Lol. Trouble is they want to exit at some point. I think what isn't mentioned is that they want to exit when they need the money, they need this "future" money when the present no longer pays the bills. Seems like a few places around the world can't pay their bills, and the list is growing now shrinking.
Reality Bites HARD
I am not sure if you are suggesting our rates should be lower or not. However stop and think what would happen if they were lowered to 0.5%. Massive capital outflow, skyrocketing imported goods costs, sharemarket and real estate values wiped out, etc. We would be very quickly bankrupt. Put up the rates for russia, brazil etc to complete the picture.
That is why I think they should be made to stand in the corner like an errant child misbehaving at the dinner table. They knew the rules of the EU. The people of Greece simply need to make a decision - Are we better off in the EU or would it be better to go it alone.
Default is a risk that lenders take, being a responsible lender reduces the risk, lending to the buyers of your goods without looking at the consequences is irresponsible lending and increases the risk of default.
Lenders have to take some responsibility, and this manifests itself as a write off for a bad investment.
No one like to lose money, but it comes with the territory when you lend.
My thoughts exactly. The lenders to Greece have had a few years warning to cover themselves or reduce their exposure. Many of them would be speculators who bought Greek debt on the cheap hoping for a full bailout and making some quick $$$.
They should just offer something like 30-40 cents in the euro to be repaid over 21 years, no interest - payments start after year 1, and be done with it.
They are better off being like Britain, inside the EU but not using the Euro.
The EU benefits the well run countries like Germany by keeping the Euro lower than a Germany alone Euro would be. I guess the plan was that all countries would average out after a while but Greece obviously has been unable to raise its bar.
If they can't pay, they can't pay it is really that simple!! Something will back up in the system somewhere, those banks that have been bailed out with their debts being transferred to the Greek taxpayer is a huge issue and I'm thinking the German Government has not been too honest with its people.
yes the whole story has not been told how private debt was moved to the government, when greece tried to back out of arms buying from france and germany they were not allowed.
it has landed on the people who had no idea what was happening, could the same thing happen here HMMM food for thought with this governement
It was never about paying money back, or reforming Greece in order to make its economy a more competitive or it's government more efficient. It's all been little more than petty, schoolboy recriminations over the Greek elites lying to the European Union about the actual state of the government books, as these illustrative revelations from transcripts of Timothy Geithner's memoirs make plain.
"I said at that dinner, that meeting, you know, because the Europeans came into that meeting basically saying: “We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them,” was their basic attitude, all of them….
But the main thing is I remember saying to these guys: “You can put your foot on the neck of those guys if that’s what you want to do. But you’ve got to make sure that you send a countervailing signal of reassurance to Europe and the world that you’re going to hold the thing together and not let it go. [You’re] going to protect the rest of the place.” I just made very clear to them right then. You hear this blood-curdling moral hazard-y stuff from them, and I said: “Well, that’s fine. If you want to be tough on them, that’s fine, but you have to make sure you counteract that with a bit more credible reassurance that you’re going to not allow the crisis to spread beyond Greece and that’s going to require, you’ve got to make sure you’re putting enough care and effort into building that capacity to make that commitment credible as you are to teaching the Greeks a lesson…"
http://blogs.ft.com/brusselsblog/2014/11/11/draghis-ecb-management-the-…
It's basically a matter of European technocrats resolve to put the boot in with the Greek populace lying prostrate and then applying the thumbscrews in harsh punishment for their sins.
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