90 seconds at 9 am: Fed leaves door open for rate hike

Russian currency in turmoil, US economy overcomes first-quarter slowdown, IMF commends Chinese govt efforts to calm markets; UST 10yr yield increases, oil and gold prices in a slump; NZ$1 = 66.7 US¢, TWI-5 = 71.7

30th Jul 15, 7:45am by Jenée Tibshraeny

Here's my summary of the key events overnight that affect New Zealand, with news the US economy and job market continue to strengthen.

The Federal Reserve has released a statement, indicating it's leaving the door open for a possible interest rate hike in September. It says the economy has overcome a first-quarter slowdown, and is "expanding moderately", despite a downturn in the energy sector and headwinds from overseas. It says there have also been "solid job gains" in recent months.

Staying in the US, new data reveals house sales dipped in June after five consecutive months of increases. However they still remain near May's levels, which were the highest in over nine years. The median house price for 2015 is expected to increase by around 7% to NZ$332,850. This would match the record high set in the US in 2006.

Russia’s central bank has halted daily purchases of foreign currency in an attempt to stop a week-long slide of the ruble that has raised fears of a second currency collapse in a year. This week's drop threatens to undo months of recovery since an unprecedented fall over the Russian winter.

The China Securities Regulatory Commission is investigating Tuesday morning's historically sharp dive in the markets. Regulators have previously said "malicious short sellers" will be punished. The head of the IMF backs the Chinese government's efforts to contain the stock market sell-off. She says China's economy is resilient and the turbulence is partly a reflection of an immature market.

In New York, the UST 10yr yield benchmark is up to 2.29%.

The price of oil remains very low. The US benchmark price is at US$49/barrel, and Brent crude is at US$53/barrel, basically unchanged from the past couple of days.

The gold price is still at only US$1,097/oz, as demand is at a six-year low.

The New Zealand dollar is at a similar level as it was this time yesterday. It's back at 66.7 US¢, after strengthening slightly in the lead up to the Fed's announcement overnight. The dollar's at 91.4 AU¢, and at 60.6 euro cents. The TWI-5 is at 71.7.

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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37 Comments

by Triple | 30th Jul 15, 8:51am 1438203098

...more meaningless comments from the Fed.

by Stephen Hulme | 30th Jul 15, 9:32am 1438205558

Yes, verging on nonsense.

…it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. [emphasis added] Read more

by bw | 30th Jul 15, 9:12am 1438204363

This is a recipe for a European civil war....Donald Tusk, the EU president, concedes that a pre-revolutionary mood is taking hold across much of Europe, comparing it to the Left-Right alliances of the late 1930s. “It was always the same game before the biggest tragedies in our European history," he told the Financial Times. Yet he could not bring himself to admit that the root cause of the populist uprising is the deformed structure of monetary union that has led to six years of mass unemployment and brought about this new tragedy. Nor could he admit that the deal he himself brokered after "water-boarding" Mr Tspiras in Brussels for 17 hours perpetuates the same vicious cycle.
So we now have a Europe where the political temperature is rising to boiling point: where the EMU elites are refusing to shift course; and where mischievous lawyers are concocting criminal charges against anybody daring to explore a way out of the trap. ( Telegraph, London - today)

http://www.telegraph.co.uk/finance/economics/11768134/European-alliance…

by antonymouse | 30th Jul 15, 10:22am 1438208565

http://www.telegraph.co.uk/finance/economics/11769089/Yanis-Varoufakis-…

"Greece's state prosecutors have set their sights on former finance minister Yanis Varoufakis who faces possible criminal charges over plans to set up a parallel payments system inside the monetary union."

This is such a despicable thought-crime and should be punished!
No more daily rations of Victory Gin for Varoufakis! (Orwell 1984)

But wait, weren't the Dutch having similar thoughts 3 years ago?
And what was their punishment?

https://euobserver.com/news/126605

by King of the whiners | 30th Jul 15, 10:07am 1438207631

Morgan skewers Key on the TPP:
http://www.nbr.co.nz/opinion/could-tpp-become-keys-most-embarrassing-mo…

''For farmers the whole dairy industry is designed around chasing tax-free capital gain.''

Morgan has never spoke truer words - hence the panic from English that bankers could precipitate falls in land values....

by bender | 30th Jul 15, 10:25am 1438208750

"It raises the question whether our interest in the TPP is really just part of a desire to be part of a club regardless or whether we actually win anything from this round."

by DFTBA | 30th Jul 15, 10:30am 1438209059

That question has been answered a long time ago.
Around about the time Key admitted to carrying out spying in the pacific on behalf of the US government.

by sharetrader | 30th Jul 15, 10:46am 1438210006

or allowing our spy agency to break the law for the US to catch dotcom

by King of the whiners | 30th Jul 15, 10:34am 1438209286

I have often thought there is a huge degree of kidology about these agreements. After all which country would actually sign up to an agreement if they were net losers? Very, very few - in fact after such deals are signed all you hear from each nation is ' we are going to gain hugely from the new deal etc'.

It defies logic then that all nations party to an agreement can be net gainers. What of course happens is that within each nation there will be net gainers AND net losers - the trick for the powers that be (supported by the net gainers) is to render protests from the net losers inaudible.

by DFTBA | 30th Jul 15, 11:07am 1438211229

Very interesting opinion piece from Bryan Gould in The Herald, today:

"...One of the most significant consequences of this re-definition of the political landscape has been the acceptance that what would once have been regarded as at the extreme outer edge of what is politically possible is now the new centre ground. Any divergence from this central position is, by definition therefore, literally eccentric; and any move away from "free-market" orthodoxy is condemned as either a return to the past or an irrational lurch leftwards.
These definitions of centrality and divergence have had the further advantage, for their proponents, of confirming a long-held public perception. In the days when the political left was prepared to challenge existing power structures, they were undoubtedly helped by their development of, and adherence, to an ideology of sorts that allowed them to ground their objections to orthodox policies in some loosely defined analytical framework.

It was perfectly understandable that, as a consequence, the left in politics was seen as the doctrinaire element in the political spectrum, whereas the right was identified as pragmatic and concerned with what would work. Indeed, it is the fear of being characterised as ideologically driven that inhibits today's leaders of the left from straying too far from current orthodoxy.

Parties of the right have found it advantageous, on the other hand, to clothe their lurches rightwards in the language of experiment and exploration of what is possible, rather than of ideology. They have also proceeded stealthily, one small step at a time, with the intention of concealing from the public that each new step is in reality a further development of a highly ideological agenda."

.
I couldn't agree more.
And anybody voicing any warning about these so called "free" trade deals, is being tarred with the loony left brush, while it is the right which is now being completely irrational and following an ideological agenda. Not the left.
.
http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=1…

by cowboy | 30th Jul 15, 12:31pm 1438216270

who gains... and who loses.
in the case of TPPA, politicians and huge multinationals win ... NZ loses

by ian64 | 30th Jul 15, 2:02pm 1438221739

they've done all the trickle up already. There's no more juice coming out of the middle classes that way. This is just another method to take from the workers and give to the rich

by DFTBA | 30th Jul 15, 2:09pm 1438222174

Power grab and trying to cement their right and access to future resources. Shutting out the competition.
Greed, greed, greed.
.

by Ms de Meanour | 30th Jul 15, 4:46pm 1438231586

It does not defy logic that all nations party to an agreement can be net gainers.

by David George | 30th Jul 15, 11:35am 1438212945

It must be of huge concern to anyone following this TPP that Grosser is now (more or less) admitting that there won't be any significant reduction tariff for our key agricultural exports. What is the point exactly? And what's worse is that the other "partners", Japan and the US will continue with their massive agricultural subsidies. These subsidies have a huge impact on our total market including exports to those counties not even party to this accord.
Greater IP requirements are another thing and really just amount to extended ticket clipping from the usual suspects - the big drug companies, agritech (Monsanto), Apple, Microsoft and the US entertainment industry. Totally anti competitive and effectively another tax from us to them.
Big business will have the right to sue us for anything which may effect their profits. A big messy mine next door - sorry can't touch it.
John Key is more interested in protecting Big foreign business and Chinese property speculators than Kiwi households. His recent actions and statements prove it.

by cowboy | 30th Jul 15, 12:33pm 1438216413

but what can be _done_ about it. voting just flips the same coin. stick or carrot, same ass

by dh | 30th Jul 15, 12:00pm 1438214443

To paraphrase our "negotiators" from Morning Report- Now that we have given other countries what they want, they are ganging up not to agree with what we want.

by cowboy | 30th Jul 15, 12:10pm 1438215046

that IS how real negotiation works. just like politicians line up to _promise_ voters things, but have no intention of following through. Then when they've secured what they want eg votes, signitures, promises, can't back downs; then they just do what they want. don't like it? sue...if you can. if we do what they dont like...they have power to punish us.

by Anarkist | 30th Jul 15, 12:22pm 1438215749

Check out the latest release from Wikileaks which reveals a new chapter of the TPPA, this one is which circumscribes government intervention in SOEs.

I wonder how this particular provision will affect the operation of Southern Response.

"1. SOEs and monopolies have to act on the basis ofcommercial considerations. “Commercial considerations” is avague term that could have far-reaching consequences. Theconverse – non-commercial considerations – seems to reframe thepublic good role of public entities as a negative trait thatgovernments must abandon."
https://wikileaks.org/tpp-soe-minister/analysis/page-1.html

by cowboy | 30th Jul 15, 12:35pm 1438216516

yes, add that to what TISA, and there is absolutely nothing in TPPA for NZ.

It very much sounds like a "vote for our US democracy" or we bring the our US democracy to you.

by Smalltown | 30th Jul 15, 12:17pm 1438215445

Course it is KITW. Farmland is better than AKL housing in this regard. Some of these Old money Farmers driving around in their crusty utes and only letting Thelma one shopping day a week are worth on paper 10s of millions. Fair play to them - they have worked hard and played the system as much as the Arthur Daley types in AKL. What I would like to see more of is them being forced to spend more on the environment instead of just buying up the neighbor.

by cowboy | 30th Jul 15, 4:46pm 1438231610

hard to catch just them, and not all the startups and sharemilkers who haven't had all their years of low compliance and low regulation to build themselves up. Same ol' boomers and co lining their nests, now declaring rules for everyone else not on a fat hog.

by Ergophobia | 30th Jul 15, 12:47pm 1438217260

Yes KOTW, many of the 10.000 fonterees are debt jockeys posing as farmers, with parasites galore feeding off their NZ monopoly- pollies and their creatures at the rbnz will stop at nothing to favour them. Good on Morgan taking a stand (tho I baulked at his nice words elsewhere on the N Korean Kims and his (Morgans', that is) plans for Stewart Is).

by Mike B | 30th Jul 15, 10:14am 1438208050

Are there people out there that still believe the FED or even bother to listen to their "talk the markets up"

I mentioned yesterday about the figures comming out on US GDP 2nd quarter growth. Looks like it is going to be lower, if true, will prove all those lies about US recovery

by sharetrader | 30th Jul 15, 10:49am 1438210165

The FED missed their window and are now backed into a corner, the US is on the down turn so too late they should have been at least 2 % now so they could cut to jump start it.
QE 4 anyone

by Smalltown | 30th Jul 15, 1:38pm 1438220333

He Jennee, your economic calendar doesn't appear to be showing the next GDT - I believe its on the 4th August. Current pricing for WMP shows 1510 - thats a drop of 18% from the last GDT. What am I missing - the dollar and rates have a ways to go from here. Surprised Wheeler doesn't have any urgency.

"The next GDT auction on August 4 will have 60 per cent more product on offer, so there is a lot more pain to come." http://www.heraldscotland.com/business/13500608.Dairy_industry_woes_per…

by David Chaston | 30th Jul 15, 3:01pm 1438225297

While that may be true for dairy, the NZ economy is more than just that. Other sectors are doing really well. We have recently reported on the 'export' trade in education, red meat, wool, and especially tourism all of which seem to be booming (and about to overtake dairy as our largest export earner). There are others. Policy makers look at it all. Also, domestic sectors still look pretty good too. Retail continues to impress me, but so does construction. Yes, I know, some pockets of retail have been left adrift, but not overall. Those pockets may be more related to changing consumer buying habits than 'evidence' "all retail is struggling".

Having noted that, dairy used to add to the economic outlook; now it detracts from it. Concern is warranted, but blind panic is not.

by Kate | 30th Jul 15, 3:12pm 1438225946

Good points, David - only I do so wish we had had this pep talk about tourism before we despoiled vast tracts of the Canterbury Plains and its surrounding ecosystems.

by profile | 30th Jul 15, 4:14pm 1438229686

Vast? Get some perspective Kate - the majority of the South Island is protected and NZ has the largest proportion of protected land in the OECD. Canterbury itself has more protected areas than all North Island regions apart from BOP. Do try and get out more.

http://www.mfe.govt.nz/more/environmental-reporting/land/area-native-la…

by Smalltown | 30th Jul 15, 4:25pm 1438230359

Kate is probably referring to all the shitty farms and non swimmable rivers. 100% pure - there is a TUI's there. Give up already Prof. http://www.3news.co.nz/environmentsci/key-grilled-over-nzs-clean-green-…

by cowboy | 30th Jul 15, 4:40pm 1438231241

lol. the fencing off dairy streams had reverse effect of what the consultant types thought would happen, so much so they had to revisit their definitions.

by profile | 30th Jul 15, 5:07pm 1438232845

Shitty farms - really? Still plenty of trout in our creeks despite surrounding conversions over the past 25 years. Green scare groups have to make there money somehow I 'spose.

by Smalltown | 30th Jul 15, 8:45pm 1438245925

http://www.dailystar.co.uk/news/latest-news/388076/Russian-anglers-hunt…

by Kate | 30th Jul 15, 4:32pm 1438230760

I was specifically referring to the Canterbury Plains environment. Check out a Google sat view and you'll get an idea of the scale of change arising from dairy conversions. This quantified it up to 2009 (and it sure hasn't slowed since!);

https://researcharchive.lincoln.ac.nz/bitstream/handle/10182/3850/pangb…

Between 1980 and 2009 the land used for dairying in Canterbury increased from about
20,000 ha to nearly 190,000 ha. Per cow and per hectare production also increased both in absolute terms and also relative to elsewhere in New Zealand. Total production increased about fifteen fold during this period.

by profile | 30th Jul 15, 4:58pm 1438232308

So 170k ha of productive sheep and beef farms got converted to dairy. Your 170k was already farmland in the first place. Between 2006 and 2009 285k ha of land in the same province got protected/taken out of productive use and that figure excludes riparian areas and areas protected by city, district and (dairy) farmers.

Where are these "despoiled vast tracts of the Canterbury Plains and its surrounding ecosystems"?

Perhaps you could come up with a more profitable landuse and show all those farmers how it's done - now would be a great opportunity.

by cowboy | 30th Jul 15, 4:38pm 1438231118

is that regional or national scope David?

the only ones noticing business upswing and traffic that I've seen is government departments.
several regions in several industries are strictly hand-to-mouth level (outside 3 big cities)

by Smalltown | 30th Jul 15, 1:41pm 1438220475

You're welcome