90 seconds at 9 am: China risks grow

US trade softer, jobs strong; IMF positive; China markets fall again; Eurozone on edge; more HSBC trouble; TPPA deal near; UST 10yr yield drops, gold sinks; NZ$1 = 66.5 US¢, TWI-5 = 71.1

8th Jul 15, 7:29am by David Chaston

Here's my summary of the key issues overnight that affect New Zealand, with news the troubles with the Chinese economy are not going away.

But first, the US trade deficit widened slightly in May, led by a drop in exports that could raise concerns over weak overseas demand and a strong American dollar.

However the IMF has issued a positive report about the world's largest economy, saying 'growth is bouncing back'. Still, they have wondered about the wisdom of a rate hike in 2015 given the uncertain international situation.

The latest jobs data in America is maintaining its positive trend.

Across the Pacific, the Chinese stock market fell again overnight, taking little notice of the range of support measures put in place by the Chinese government over the past few days. Not helping was that it was widely noticed that the Chinese Premier didn't bother to mention the market chaos in a statement on the economy.

In Europe, Greece has launched a desperate bid to win fresh aid from sceptical creditors at an emergency euro zone summit overnight, before the country's banks run out of money. But the response is not good. The creditors said 'no new proposals have been received' despite their plea for 'fast credible proposals'. And, just a day after it tightened the basis for Greek banks accessing more cash, the ECB warned overnight (p34) that “moral hazard” could be another reason to limit any more emergency liquidity assistance for those beleaguered institutions.

In England, HSBC has fired six staff who filmed themselves staging a mock ISIS-style beheading of a colleague and posted the video online all as part of a 'team building exercise', it said overnight.

Back in our region, the final push is on to wrap up the Trans Pacific Partnership trade negotiations with expectations now that it will all be finalised by the end of the month.

In New York the UST 10yr yield benchmark is falling faster now and is down to 2.20%. That is about -10 bps lower than this time yesterday. Local swap rates marked time yesterday but will undoubtedly react to this morning's drop.

US oil markets are also down but less aggressively than yesterday. The US benchmark price now just above US$52/barrel, and Brent crude is at US$57/barrel.

The gold price is sharply lower at US$1,153/oz. That is almost a $20 fall and takes the price back to levels last seen briefly in March, but really back to 2010 levels.

The Kiwi dollar opens today down against the US dollar at 66.5 US¢, up against the Aussie dollar at 89.5 AU¢, and at 60.7 euro cents. The TWI-5 is at 71.1, and still a three year low.

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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30 Comments

by Uninterested | 8th Jul 15, 7:46am 1436298389

Haha. The penchant of the Chinese for a flutter.
I have noted that they seem to need to re-confirm to themselves on a regular basis that they are still "lucky".
I think that they may have, en-mass mistaken this new thing, this stock market thing, for a Casino. It must have felt like they were on a winning streak!
Alas, they are now in uncharted territory. They are on a losing streak.
Their illustrious leaders over there have taken note and are trying to stem the losses. This will be done in order to lessen the huge international embarrassment of an out and out stock market rout.

by sharetrader | 8th Jul 15, 8:08am 1436299729

I was talking with an Asian co worker and asked if her parents got there money out in time. she said did (got out two months before) but her point was if they had stayed in until the last minute they would have made more.
I asked how would you have known when it was going to happen and if you stayed in too long you would have lost, I said the PE and yields were way out of wack so it was always going to crash
and the answer but we would have made more.
they have a gamblers mentality its the same logic they are using to buy up here, if I am in first more will come behind me and I will make money

by skudiv | 8th Jul 15, 8:09am 1436299745

I think the Chinese word for stock-market is Play-market, or Fry-market.

by scarfie | 8th Jul 15, 8:38am 1436301498

An interesting read about thinking, and two basic types. Investment thinking is of course causal, so this website is dominated by that type. Occasionally we do see reference to how inventors will save us, but without any understanding of the thinking processes involved. Forget the fancy terms, causal is just an academic coming up with another way of describing linear thinking, entrepeneurship of course being non-linear.

https://www.theicehouse.co.nz/effectuation-the-best-theory-of-entrepren…

by scarfie | 8th Jul 15, 8:39am 1436301555

More iwi jumping in on the action against TPPA, whether they can be effective is hard to say. http://www.radionz.co.nz/news/te-manu-korihi/278090/iwi-groups-join-tri…

by MortgageBelt | 8th Jul 15, 8:54am 1436302476

The NZ PM is unconcerned about a Chinese Stock market crash and instability. He said it's only minor and after all dairy is only 5% of GDP.
But will the PM be more concerned if this devt affects their ability to buy NZ farms and property/houses?

by sharetrader | 8th Jul 15, 9:18am 1436303896

as usual denying anything is wrong and lets take a do nothing approach.
soon as as some poll comes out with people worried about the economy you watch the annoucements for new motorways for the regions

by MortgageBelt | 8th Jul 15, 9:03am 1436303012

The new EU deadline for new proposal from Greece by Sunday may lead to Grexit. Then we have the prospect of Russia, China, Iran etc increasing linkages & influence via Greece.

by notaneconomist | 8th Jul 15, 9:06am 1436303193

I hope that Wheeler and the RBNZ are understanding what the IMF state above "that it wondered about the wisdom of a rate hike in 2015 given the uncertain international situation."......

Wheeler you raised the OCR when you should have lowered it and you have now caused significant damage to the NZ economy because of your stupid actions in not understanding issues far greater than your limited experience........you were given targets for a reason but chose to focus on particular/singular issues without consideration for the wider economic activity or international happenings......and that is why the TARGET RANGE is so critical.......Why have certain interests and currency trades that were short been put ahead of the wider NZ economy?

by MortgageBelt | 8th Jul 15, 9:12am 1436303569

You have to understand that NZ has been captured by a global mandate to set relatively high interest rates. We are the Food commodity, High interest rate for global investors, country. That is where we fit into the global order.

by steven | 8th Jul 15, 10:15am 1436307324

Iindeed, however the banks have comfortably hidden behind the OCR for decades, the tide going out is going to make life "interesting" for them I hope ie take the flak they deserve.

by bw | 8th Jul 15, 9:20am 1436304051

Graeme Wheeler understands better than most people in New Zealand what a property market crash can do to our economy. That he tried his best to avoid that by taking measures that you may disagree with ( raising interest rates)and so demonstrated that he put the Future of our country ahead of the Present. Very few people have that courage, as we are seeing overseas at the moment. Sadly, he's been beaten down and we may have a calm Present. But the Future....for a long way out...is going to be rather unpleasant. (NB: This 'wondering' IMF is the same crowd that got us into this mess in the first place by failing to have the foresight to avoid the disaster...and they are still wondering....)

by Stephen Hulme | 8th Jul 15, 9:44am 1436305482

A Bloomberg index of yields on Fannie Mae-guaranteed mortgage bonds trading closest to face value rose to about 1.14 percentage point higher than an average of those on five- and 10-year Treasuries as of 3 p.m. in New York. That’s up from 0.92 percentage point on Dec. 31 and the highest since August. Read more

by steven | 8th Jul 15, 10:24am 1436307869

A dont agree with you here. The problem is the Govn and previous Govns did nothing to avoid the building problem, the RB is the classic ambulance at the bottom of the cliff. So Wheeler acted to try and curb the risk ofa bubble with the side effect of damaging the business sector. He now has to back peddle to stop the business sector NZ wide going into a severe recession which could pop the bubble anyway. meanwhile the National Govn continues to do squat.

I see the he future will indeed by very unpleasant, but not from your reasons I suspect.

The IMF did not get us into this mess, greed and the free market free for all that allowed the greed to flourish did.

by bw | 8th Jul 15, 10:39am 1436308744

The Future depends on The Present; The Present does not depend on the Future; and The Past is The Past of course! So,yes, it's been many Governments over many administrations that have lead us to where we are today re building and many other imbalances. But we have not choice but to look forward. Graeme Wheeler, perhaps, looked further forward than most New Zealanders would like to see ( because it involves personal sacrifice, today. Someone - whether that's debt holders or current business owner etc , HAS to lose for us to go forwards). We can disagree with what the RBNZ has done, and why, but it didn't just sit there like a bunny in the headlights; it tried something to move us into the Future. I doubt they have done the right thing by backtracking; hopefully I'm wrong!
And re the IMF getting 'us' into this situation? At the risk of boredom, ask Greece what they think! That the IMF ( the European arm of the Grand Scheme of things) allowed Greece to get to where it is, to me, is 'wondering' what they could have done better. So, yes, they have a significant responsibility to the People of Greece for what's happening today, and to the rest of us.

by notaneconomist | 8th Jul 15, 10:57am 1436309857

That is the silliest comment I have read BW the one you made at 09.20am!! How the hell was NZ going to have a property market crash when we had a severe housing shortage and earthquake destruction?

by bw | 8th Jul 15, 10:57am 1436309822

Price and Supply can be different things. We already have a 'market crash' in supply, if you think there is shortage of accommodation in New Zealand. But price is income , and debt, dependent. A Price Crash could come with half the number of properties we have today ( a Taupo Event from the past?) and if that was accompanied by massive financial hardship ( lost jobs, wages income, and a removal of foreign funding - "You are on your own now that you are totally broke - (Greece?)) then Prices could drop to whatever level is necessary to allow the indebted to sell to whoever has funds left to buy

by notaneconomist | 8th Jul 15, 11:42am 1436312523

Price is relative to income and someone has to earn that income first.....the house purchase doesn't come first in the economy it comes second....the businesses have to derive income first.look after your SME business community and the rest flows through....and if every bureaucrat could actually get their head around this and realise that their wages/salaries come from the efforts of business then we would indeed have a vastly different economy and with more financial security for all.

If the RBNZ had kept rates lower when the QE was going on they wouldn't be looking at lowering them now....they put NZ directly out of kilter with the rest of the world......you obviously do not understand the ramifications of such badly timed actions!! The RBNZ made a terrible mistake in not understanding the pricing of WMP and market ups and downs. Or maybe they are not interested in agriculture and all SME's and prefer investment strategies of long and short trades which allows them to furnish a return to the Government.......

I have to ask where do you work?

by sharetrader | 8th Jul 15, 12:06pm 1436313967

"Price is relative to income"
not in auckland it has no relation what so ever, look at the sizes of mortgages going out against the averge wage and it does not add up, so who are taking them out? its a frenzy up here now common sense has left the market and when you houses in mangere going for near a million you know its not right

http://www.realestate.co.nz/2580407

by notaneconomist | 8th Jul 15, 1:12pm 1436317957

So where are all the mortgagee sales in Auckland then?

Auckland is in a bureaucracy housing subsidised haven and if that changes then the proverbial could hit the fan BUT prices could be kept well afloat by immigration.

by tim12 | 8th Jul 15, 5:00pm 1436331624

I think everyone is talking about this housing supply shortage in Auckland and that the market cannot crash because of it. But these foreign investors are only speculators, if prices crashed in Australia do you really think Auckland won't crash as well? So there may be excess demand in Auckland at present but if houses crash elsewhere there will plenty of other places for foreigners to take their money.

by steven | 8th Jul 15, 10:13am 1436307235

Agree, there should be questions asked and answered expected, however I suspect the Govn will tend to keep quiet as the answers will point very much to govn failings. the only Q is now how fast will Wheeler act to correct his error and how much...75~100basis points seems possible even before we consider external impacts.

The problem with International happenings is they are "grey swans" most ppl expect bad things but when and how large are simply unkown.

by Kate | 8th Jul 15, 10:16am 1436307417

the ECB warned overnight (p34) that “moral hazard” could be another reason to limit any more emergency liquidity assistance for those beleaguered institutions.

So now Draghi cares about "moral hazard" - what a joke;

Because something tells us the reason why Mario Draghi personally blocked Bloomberg's FOIA into the circumstances surrounding Goldman's structuring, and hiding, of Greek debt that allowed not only Goldman to receive a substantial fee on the transaction, but permitted Greece to enter the Eurozone when it should never have been allowed there in the first place, is that the person who oversaw and personally endorsed the perpetuation of the Greek lie is none other than Goldman's Vice Chairman and Managing Director at Goldman Sachs International from 2002 to 2005. The man who is also now in charge of the ECB. Mario Draghi.

http://www.zerohedge.com/news/2015-07-06/who-biggest-winner-greek-trage…

by steven | 8th Jul 15, 10:29am 1436308151

Then the EU is slitting its banks own throats. If I was the Greeks now I'd wonder why not go for it ie exit, they have had the pain and all that is on the table is more pain. Why not then exit, take it on the chin short term and move on, meanwhile the sanctimonious idiots in the EU would get what the deserve.

by DFTBA | 8th Jul 15, 10:35am 1436308545

A lesson in morality by the ECB? A bank?
.
It'd be funny if it wasn't so sad...
.
We're getting into dangerous territory when ministers from another country, and unelected officials of EU institutions can demand a nation changes its democratically elected politicians.
Just because thy don't like dealing with them.
.
Ah well. What Germany couldn't do in two wars, they're doing via monetary and political means, instead, it seems.....

by John | 8th Jul 15, 12:26pm 1436315188

I think you simply mean; what they couldn't do with tanks they are doing with banks.

by DFTBA | 8th Jul 15, 12:33pm 1436315604

catchy.

by DFTBA | 8th Jul 15, 11:02am 1436310150

by Smalltown | 8th Jul 15, 12:56pm 1436316983

"China stock market rout deepens
Over 25% of listed companies suspended, freezing $1.4tn of equity"

Headline from the FT. - Now that's one way of stopping a fall. Guess one day they have to start trading again.

by Stephen Hulme | 8th Jul 15, 1:23pm 1436318612

Headline from the FT. - Now that's one way of stopping a fall. Guess one day they have to start trading again.

Hmmm-
In the summer of 2008, the world’s largest secondary financial market was unraveling. Given the size and systemic significance of Fannie Mae and Freddie Mac in the mortgage finance market, the Treasury Department intervened, based on authority granted to it by Congress in its passage of the Housing and Economic Recovery Act (HERA). Treasury invested $187 billion in senior preferred stock in Fannie Mae and Freddie Mac, carrying a ten percent dividend. As part of the deal, the government also effectively acquired ownership of 79 percent of the GSEs’ common stock. As structured, these terms avoided a complete government takeover of the GSEs and protected taxpayers from future bailouts. The government was right to insist on tough terms given its indispensable role in restoring stability into the marketplace.

However, given its critical role, the government has a uniquely important obligation to abide by the terms of deals that it makes. That is why the government’s actions in recent years are troubling. As this paper will detail, beginning in 2012 the government unilaterally changed the terms of HERA and began to sweep all of the GSE’s profits into the general fund. Rather than “conserving and preserving” the GSEs’ assets for their eventual restoration to a “safe and solvent” condition, as the HERA stipulates, the ongoing confiscation of 100% of the GSEs’ profits does just the opposite. Read more