Oil dips; France declares 'social emergency'; more markets near bear territory; NAB talks up Clydesdale IPO; CDS spreads jump; gold marks time; NZ$1 = 64.4 US¢, TWI-5 = 70.2

Here's my summary of the key events overnight that affect New Zealand, with news the oil price slipped below US$28/barrel overnight - it touched US$27.70 - but has since steadied above US$29 now.

The impending spike in supply from Iran is the driver. Their 'fresh start' with the West opens up many new commercial opportunities - some for New Zealand - but it will also intensify some bitter rivalries.

In Europe, France has declared "a state of economic and social emergency" to tackle anemic jobs growth and high unemployment. At stake is national pride, among other things. France has a jobless rate of 10.6%, which is embarrassingly high compared with Germany at 4.2%. The latest plan is to 'encourage' small firms with cash incentives to hire the young and the long-term unemployed. But few think the NZ$3.4 bln plan will move the dial at all. Most expect the funds to be wasted.

Chinese stocks steadied a little yesterday as the 'national team' did its bit and restrictions on sellers were extended, but two other major Asian indexes headed toward bear-market territory. Hong Kong lost -1.5% where Chinese restrictions don't apply. Australia was down -0.7% while the the Japanese market lost -1.1%. Both have lost roughly -19% from their recent highs, and at -20% they are 'officially' in a bear market. Nothing like these declines have yet been seen on the NZX.

BNZ's parent which is trying to quit a troubled UK division via an IPO in London, said the division could be worth as much as UK£2 bln. Given it has written down much of its investment, a handy profit may yet be booked if the markets share that valuation view.

Staying in Australia, it is becoming clearer that the major banks are actually paying more for their wholesale funding at a time when interest rates are supposed to be declining. Risk premiums seem to be rising faster than falling base rates. Fairfax is reporting that the CBA sold debt at +115 bps over swap, which is vastly higher than the +80 bps NAB and ANZ paid seven months ago. While wholesale funding is not their major source of funds, it is an important source accounting for about a third of what they need. And the signals they get from wholesale markets set the retail tone.

In New Zealand we see the rise in CDS spreads which are at their highest level in a year and a half. Depositors should be seeing benefits and there are definite suggestions TD rate reductions have ended. Borrowers may be at risk however. Certainly, even if we get more OCR rate cuts it seems unlikely they will flow through to borrowers while risk premiums are so high. The RBNZ will be very aware of these market forces and this may be a factor if they decide to forego further easing. Why cut policy rates if there is no flow-through?

Update: We note that at 2.65%, the one year swap rate opens today at a three year low.

It is a public holiday in the US today so the benchmark UST 10yr yield is unchanged at 2.04%.

In the absence of Wall Street, the gold price is marking time in London.

The Kiwi dollar is also just marking time. It starts at 64.4 US¢ today, at 93.8 AU¢, and at 59.2 euro cents. The TWI-5 is pretty much unchanged at 70.2.

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 ».