90 seconds at 9 am: ECB to take action

Oil springs out of 12-year low; ECB indicates intentions to further ease monetary policy in March; weak manufacturing and employment data out of US; UST 10yr 2.01%; gold down; NZ$1 = 65.0 US¢, TWI-5 = 70.8

22nd Jan 16, 8:06am by Jenée Tibshraeny

Here's my summary of the key events overnight that affect New Zealand, with news oil prices and global stocks have rebounded, following talk of more monetary policy stimulus in Europe.

The European Central Bank has signalled it intends to further ease monetary policy as early as March, as low oil prices have "significantly" weakened the outlook for inflation.

While the bank left its key interest rate on hold overnight, its president, Mario Draghi, has said there are "no limits" to the action it might take to expand stimulus efforts at its next meeting.

Draghi's comments have pulled major Eurozone stock markets up around 2%, and the S&P500 up around 1.5%.

The price of US crude oil has also moved out of its 12-year slump, jumping nearly US$3 from this time yesterday, to US$29.90/bbl. Brent crude is up to $29.60.

Meanwhile gold is down to US$1,094/oz.

New data out of the States is providing more evidence the factory sector is struggling with an inventory correction, weak global growth and the effects of a strong dollar. The Philadelphia Federal Reserve's manufacturing index rebounded more than expected in January, but remains in the negatives.

The report says firms reported an increase in shipments, but a modest decrease in employment. While it expects "continuing deterioration in confidence" around manufacturing growth throughout the first half of the year, it says conditions remain positive overall.

Market instability is taking some of the edge off the US's strong labour market. The number of Americans filing for unemployment benefits rose to a six-month high last week, jumping 10,000 to a seasonally adjusted 293,000.

The increase in jobless claims so far this month has been concentrated in oil-producing states like Texas, Louisiana and Alaska, while the labour market throughout the rest of the country remains buoyant.

In New York, the benchmark UST 10yr yield has recovered a bit from yesterday to 2.01%.

The run of weak data out of the US has seen the New Zealand dollar recover from yesterday to 65.0 US¢. It's at 93.0 AU¢ and 59.8 euro cents. The TWI-5 has jumped to 70.8.

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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Source: RBNZ

Source: CoinDesk

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9 Comments

by Stephen Hulme | 22nd Jan 16, 9:32am 1453408322

The European Central Bank has signalled it intends to further ease monetary policy as early as March, as low oil prices have "significantly" weakened the outlook for inflation.

While the bank left its key interest rate on hold overnight, its president, Mario Draghi, has said there are "no limits" to the action it might take to expand stimulus efforts at its next meeting.

Hmmmmm.

Mr White said QE and easy money policies by the US Federal Reserve and its peers have had the effect of bringing spending forward from the future in what is known as "inter-temporal smoothing". [Very true.] It becomes a toxic addiction over time and ultimately loses traction. In the end, the future catches up with you. "By definition, this means you cannot spend the money tomorrow," he said.

"Policy makers were seduced into inaction by a set of comforting beliefs, all of which we now see were false. They believed that if inflation was under control, all was well," he said. [Hmmm...]

In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style "Fisherite" debt-deflation. [Oops.] Read more

RBNZ needs to stick to it's knitting.

by notaneconomist | 22nd Jan 16, 10:15am 1453410920

When you interfere in anything that goes up and down naturally there will always be consequences.......I am of the thinking that it is central banks who should take the hit !!

by Stephen Hulme | 22nd Jan 16, 12:53pm 1453420434

Unfortunately, in the case of ANZ it's the shareholders taking the first round of losses (shares down 37.6% from peak). Once that avenue of liquidation can no longer refresh the balance sheet with new equity issuance, the unsecured creditors will be moved to the front line for a financial beating, including depositors. View share price graph

by Andrewj | 22nd Jan 16, 1:08pm 1453421283

The ones who sold out and got into covered bonds must be feeling pretty smug.

by Stephen Hulme | 22nd Jan 16, 1:18pm 1453421884

At the current rate of international bank fixed income dealing capacity collapse, the owners of those securities may have to exercise their right to the underlying collateral, the physical residential properties, to register a return. Read more

by Andrewj | 22nd Jan 16, 1:38pm 1453423093

I find it hard to believe that the RBNZ let banks issue covered bonds, when they new it would result in poor outcomes for depositors in an OBR event.

Talks about, "all animals are equal it's just that some are more equal than others".

by billsay | 22nd Jan 16, 1:53pm 1453424026

my understanding is that NZ residents were not able to purchase these covered bonds which are secured against the prime NZ residential mortgages (generally with current LVR less than 65%).

but could be repeat of the USA mortgage mess if one of the banks is declared insolvent. The RBNZ says "If a mortgage granted by an issuing bank is placed into the cover pool, this will have no impact on the mortgage holder while the bank remains solvent."

But they've protected the borrower versus the depositor again here, via OBR.

by Zombie ponzi | 22nd Jan 16, 11:15am 1453414539

At a meeting this week in the finance capital, Shanghai, the People's Bank of China (PBOC) pledged to "severely crack down" on illegal foreign currency transactions, including underground banks, which are used by investors to sidestep foreign exchange quotas.

http://www.afr.com/markets/peoples-bank-of-china-pledges-severe-crackdo…

by sharetrader | 22nd Jan 16, 11:41am 1453416090

so with all the ones that got their morney out before "legally" supplying deatils to our IRD to pass back wont be a problem now