Yellen sees China risk but unmoved on policy hikes; China outflows gather pace; APRA and ASIC tackle bank culture; UST 10yr yield 1.73%; oil and gold unchanged; NZ$1 = 66.6 US¢, TWI-5 = 71.1

Yellen sees China risk but unmoved on policy hikes; China outflows gather pace; APRA and ASIC tackle bank culture; UST 10yr yield 1.73%; oil and gold unchanged; NZ$1 = 66.6 US¢, TWI-5 = 71.1

Here's my summary of the key events overnight that affect New Zealand, with news of regulator frustration at worsening bank behaviour.

But first, tightening financial conditions and uncertainty over China pose risks to the US recovery, Janet Yellen testified to the US Congress today. These are remarks that some have jumped on to speculate that further rate hikes may be off the table. But a closer reading of her testimony suggests chances are still slim the Federal Reserve will reverse the rate tightening cycle it began in December. Offshore analysts are talking up the prospect of a hike pause, but domestic analysts don't see the same imperative. Yellen's remarks don't actually indicate any change in direction.

In China, new data shows that more than US$113 bln was sent out of the country in January alone by both Chinese companies and residents, as they continue to evade tightening capital controls. That is now 22 months in a row of strong outflows and the third highest on record.

This surge has become a source of growing concern around the world and has Beijing scrambling to support its currency. Recently-released data showed the country’s foreign exchange reserves fell to their lowest level in almost four years in January.

In Australia, financial regulators APRA and ASIC have each set up a group to focus on fixing corporate culture which they see as having become 'inappropriate' based on the reward systems in place. The banking industry is their primary focus. Basically, they are trying to teach 'ethics' to bankers. Apparently years of oversight have had no impact on behaviour standards that have clearly fallen. They have now taken to 'lecturing'.

In New York, the benchmark UST 10yr yield is still sliding lower and is currently at 1.73%. That may bring more wholesale swap rate falls in New Zealand today, even as CDS spreads rise.

The US WTI oil price is holding at its lower levels. The US price is now just over US$28 while Brent is just over US$31/barrel. Overnight Russia has floated the idea of a supply cut, but to lukewarm and not universal enthusiasm. Maybe that is because BP said it sees US shale output doubling in the next nine years.

The gold price has settled a little lower today at US$1,193/oz.

The NZ dollar has moved very little overnight. It is now at 66.6 US¢, at 93.9 AU¢, and at 59.2 euro cents. The TWI-5 starts today unchanged at 71.1.

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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14 Comments

The law of diminishing returns is a fundamental principle of economics
https://en.wikipedia.org/wiki/Diminishing_returns

I have been reading reports in the Financial Times that the Chinese are still managing to illegally shift funds overseas. "Over invoicing" seems flavour of the month at the moment. No doubt some will end up in the NZ money laundrette.

In Australia, financial regulators APRA and ASIC have each set up a group to focus on fixing corporate culture which they see as having become 'inappropriate' based on the reward systems in place.

Presumably they will eventually realise that the obvious answer is to make the banking business model less profitable by removing its protected and largely untaxed status. It will, however, take them a few years to exhaust all other options.

In Australia, financial regulators APRA and ASIC have each set up a group to focus on fixing corporate culture which they see as having become 'inappropriate' based on the reward systems in place.

What sort of moral hazard promise has been placed in front of this bottom picker collective using the support of stockholder's money?

How Australia’s Big 4 Banks Can Sink the Entire Economy

http://wolfstreet.com/2015/06/13/how-australias-big-4-banks-can-sink-the...

Good luck Oz with the project of changing bank culture. Nothing is going to happen.

11
up

Teaching ethics to bankers?? I taught a horse to wash dishes....

Maybe you should have taught it to be a banker.

Bankers should be washing dishes, in jail,in a just world...

30pieces of silver it seems. ie pre the GFC with everyone making 7% interest or better with shares and house prices climbing no one in main street complained about what the bankers were doing.

If I were to create money out of thin air and charge interest on it I would be hunted down, charged with fraud and incarcerated.

When a bank does the same thing if is held up as an institution to be admired.

There is no fix for the monster that haws been created. It's just a matter of time before overpopulation, climate change and the decline in availability of easy-to-extract energy overwhelm the system.

In the meantime, expect interest rates to be driven down so that banks and nations dependent on banking can stay afloat just a little longer.

an interesting video to watch. 1 week old...

New Zealand’s Economy Could Make Smart Investors Rich

https://www.youtube.com/watch?v=6bg9buRxnOU

Run by an ex-currency trader, OMG.

So this is a punt on the carry trade, the risk of terrorism in Switzerland, and exporting milk powder for infant formula, beef and cattle feed to China.