ADB lowers growth forecast; VW fraud extends, affects credit spreads; MasterCard outed in phoney campaign; UST 10yr yield 2.13%; NZ$1 = 62.9 US¢, TWI-5 = 67.6

ADB lowers growth forecast; VW fraud extends, affects credit spreads; MasterCard outed in phoney campaign; UST 10yr yield 2.13%; NZ$1 = 62.9 US¢, TWI-5 = 67.6

Here's my summary of the key events overnight that affect New Zealand, with news of a substantial rise in risk aversion.

But first, a new report from the Asian Development Bank says that softer growth prospects for China and India, and a slow recovery in the major industrial economies, will combine to push growth in developing Asia for 2015 and 2016 below previous projections. The revisions are not major, but they do change the outlook from one where growth is accelerating to one where growth is contracting. The neighbourhood is in the early stages of catching a cold, it seems.

The ADB downgrade follows last week's OECD downgrade.

In Europe, the fallout from carmaker VW's fraud on diesel emissions is extending and their reputation is being polluted. And it goes some way to explaining why the air in US cities is much cleaner than those in Europe. The claim by most European carmakers that new diesel engines are cleaner than petrol has been exposed as a giant lie. So far 11 million cars are affected and that is just by VW. Most other European manufacturers of diesel cars are also expected to be caught-out, so the total may balloon to a much larger number. VW's claim that this doesn't affect New Zealand is not credible.

The scandal is affecting money markets. There has been a +7% jump in the cost of credit spreads for European investment grade bonds at a time the rest of the world's CDS spreads went up less than +1%. Markets rely on trust and honesty and the breaking of that by giants like VW (and earlier by banks) costs everyone.

In China, all eyes are on the president's official state visit to the USA. American's however, are only taking a passing interest.

In Australia, MasterCard has been outed as running a phoney 'consumer' campaign to push back on a regulators drive to reduce interchange fees. "It's one thing to argue for the interests of your business, it's another to fund front-groups to do it for you," a consumer group there says.

In New York, the UST 10yr yield benchmark could not hold the gains it made yesterday and is now back at 2.13%. Equity markets opened lower and have not recovered as the trading sessions come to an end.

The US benchmark oil price is unchanged today, now at US$46/barrel and the Brent benchmark is at US$49/barrel. But observers are expecting prices to soften, maybe when the official weekly assessment of US markets is released today.

The gold price is lower as well, now down to US$1,123/oz.

The New Zealand dollar starts today lower against the greenback but holding against most others. It is now at 62.9 US¢, at 88.9 AU¢, and 56.6 euro cents. The TWI-5 is at 67.6.

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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11 Comments

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[ Please keep the vacuous commenting off interest.co.nz please. Ed.]

The gold price is lower as well, now down to US$1,123/oz.

And the rest - view the commodity carnage

The implications are not inconsequential. Read more

Lets not ignore that yet another of the US Regional Fed Manufacturing Indices came in 'surprisingly' negative either last night (the Richmond Fed). Though one of the less important regional manufacturing indices, it mirrors 'surprising' negative values recorded in he last 2 weeks from much more significant regional surveys (ie the Empire State and the Philly Fed), which indicate US manufacturing is hitting a brick wall.

What VW has done is unforgivable. How much garbage have they spewed into our atmosphere?

We need to run some tests here in NZ and any VW vehicles that have the "Liar Liar Lederhosen on fire" software installed need to be replaced free of charge with Toyota's. At Germany's expense.

Run the tests while moving the steering wheel. The software seems to have detected "I'm being run but I'm not being steered, so this is a test"

While reprehensible, negligible compared to the power stations and trains etc.

Yes I must agree, The EPA assertion that they are reducing pollution is somewhat disingenuous, I mean they don't requlate the volume of pollutant only the percentage, diesels for example are far more thermodynamically efficent (lower CO2 emmisions) than the equivalent petrol, not to mention a 2 ton 5 litre V8, though how they though they wouldn't get caught is beyond me, they should have just sucked it up and had the lower power output and allowed the aftermarket to disable it

or stayed out f that market. Never ceases to amaze me that companies do stupid things like this, still at least in the USA they get some hefty fines. Here in NZ they'd probably just have to buy brownlee lunch.

Fair enough but don't forget we are talking about diesel cars here that release NO2. How many people have died from these emissions from VW cars? Diesel is deadly, always has been, always will be.

Can you explain the 'diesel is deadly' statement, It is probably the most consumed fuel is ICE engines.

If I understand the VW issue correctly, most diesel cars in the US use a urea additive to keep the NO2 emissions down. VW chose not to do this with their smaller cars and claimed that by firing one of the cylinders differently it could burn of the excess NO2. Presumably this affected performance too much so VW set it up so that would only happen in test (dyno) mode. I don't think NZ or Europe have the NO2 emission restrictions that the US do, so these cars are compliant under our rules.