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US jobless claims fall; Wall Street tanks; Sweden goes deeper negative; HSBC drops pay freeze; UST 10yr yield 1.63%; oil drops; gold leaps; NZ$1 = 66.9 US¢, TWI-5 = 71.1

US jobless claims fall; Wall Street tanks; Sweden goes deeper negative; HSBC drops pay freeze; UST 10yr yield 1.63%; oil drops; gold leaps; NZ$1 = 66.9 US¢, TWI-5 = 71.1
12th Feb 16, 7:10am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news some policy makers are revealing their impotence.

But first, the number of Americans filing for jobless benefits fell more than expected last week, suggesting their labour market remains on solid footing despite slowing economic growth and a stock market rout.

Wall Street is down again today by another -2%, and that makes it more than a -10% fall since the beginning of the year.

The gloom today was triggered by the Swedish central bank cutting its policy rate even further into negative territory. It seems a hopeless policy move in the face of lower-than-target inflation because previous similar changes have had no impact in getting inflation higher. Sweden was the first to institute negative rates more than a year ago and there is no sign low or even negative rates make any difference. But it is a sign policy makers have no answers down this path.

There seems a odd disconnect between actual current economic data which is pretty reasonable, and market and policy-maker sentiment which is very bearish. Group-think is taking hold.

In London, HSBC has dropped plans to freeze pay this year, according to a memo by CEO Gulliver seen by Reuters, which reverses a cost-cutting decision made less than two weeks ago. But it is keeping its hiring ban in place.

In New York, the benchmark UST 10yr yield tumbled as well today and is currently at just 1.63%. They have traded as low as 1.53%. That is its lowest since December 2012 and will do doubt bring further wholesale swap rate falls in New Zealand today.

The US oil price fell sharply too and is now under US$27/barrel while Brent is just on US$30. Now we are now near a 13 year low.

The gold price has leaped by +$60/oz to US$1,254/oz. Yesterday the World Gold Council issued a very sombre report on gold's performance in 2015, but today's price action has sparked the yellow metal into life.

The NZ dollar however has not caught the 'change' bug, again moving very little overnight. It is still at 66.9 US¢, at 94.1 AU¢, and at 58.9 euro cents. The TWI-5 is 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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32 Comments

by  Penguin  |  12th Feb 16, 7:52am 1455216778

The biggest issues in the world unsurprisingly revolves around the knock on affects of the falling oil price. One of the biggest things at the moment is the actions of the Sovereign Wealth Funds that were built up whilst the oil price was high. Now that the oil nations all have large budget deficits they are having to sell billions of assets. Their main exposure is in the financial and real estate sectors.
So whilst the headline economic data coming out is pretty good you have a major asset sale going on with no obvious buyers out there to replace the money from the SWF's.

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by  skudiv  |  12th Feb 16, 8:22am 1455218564

The biggest issues in the world is the one nobody talks about. Like an unmentionable elephant in the living room. What exactly is causing the oil price to fall, the milk price to fall, the timber price to fall, the copper price to fall, ad-nauseum.
Central Bankers touch obliquely on the subject when they reduce interest rates. The issue is debt, and the lack of opportunity for the profitable deployment of debt. Most every country, (and China has just recently joined the ranks) has tapped out it's credit card. Nobody has the right combinations of money good collateral, cashflow, and investable projects. The world has reached his credit limit, and is now looking for an extension on it's overdraft. Banks are reduced to lending on speculative positions.

This is what limits to growth, and diminishing returns look like. Over 7 Billion people all trying to get rich, have exploited every business opportunity, pushing real returns on effort and investment down to xero. If real returns were higher, we could afford higher interest rates, the investment opportunities are so bad, the only way they make sense, is if you get the money for nothing and get paid to borrow.

Low oil prices are a symptom of a much larger problem, overindebtedness. Yes they cause cascades through the economy as well, but raising oil prices does nothing to address the underlying cause of too much debt, neither does NIRP.

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by  gelous  |  12th Feb 16, 8:49am 1455220168

This has to be the comment of the decade. It sums up our predicament perfectly.

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by  steven  |  12th Feb 16, 9:08am 1455221339

yep. Over the last 50 years we have optimised our financial systems more and more using debt to give short term gains at the expense of our future, now the future is here and there is nothing left as we have used it up and the debt remains.

My view now is how long til we see massive defaults and wipeouts of "wealth". There will be a lot of angry people wondering who "stole" their pensions and futures. Meanwhile the banksters seem to think they are immune to the anger or are making bolt holes in "quiet" palces like NZ. Quite why they think they will be OK here mystifies me.

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by  bender  |  12th Feb 16, 12:32pm 1455233525

"making bolt holes in "quiet" places like NZ. Quite why they think they will be OK here mystifies me." They judge the docility and intelligence of its citizens by the government that keeps getting elected. Also the ease of distraction by spin and circuses.

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by  Afewknowthetruth  |  12th Feb 16, 9:13am 1455221629

Yes, limits to growth, and overindebtedness. But also declining EROEI (energy return on energy invested).

Whereas 100 years ago you could drill a hole with fairly primitive equipment and get 100,000 barrels of oil a day gushing out soon after, these days more energy and money and materials are required to extract less oil.

The worst case is the extraction of oil from the glug that coats Athabasca tar sands; a huge investment of money, machinery and energy to get a very low quality product. Having gone down a road to nowhere (self-inflicted catastrophe), Canada is now in severe crisis.

Then there are the frackers, who drill multiple holes to extract oil and gas from shale: most wells deplete very rapidly (down to 5% production in 4 years) requiring yet more drilling and fracking.

BP's attempt to extract at great depth in the gulf of Mexico ended up an utter disaster, as did Shell's attempt to drill in the Arctic.

Since oil supports the entire economic system, when oil becomes hard to find and extract, the entire economic system goes down the drain, just as we have been witnessing.

The current low oil prices, which are linked to falling demand and consumer resistance to high prices, are slowly choking the oil sector. And there can never be a recovery.

Another unmentionable elephant in the room is Abrupt Climate Change and the link to fossil fuels. The oil sector has a huge amount of 'stranded oil', unrecoverable oil, the oil they have on their books that can never be extracted and burned because doing so would rapidly render the Earth uninhabitable. Even the UNIPCC admits that, but does not make too much noise about it because the financial system is heavily dependent on the perception that oil companies can carry on extracting oil forever.

Even the current rate of oil (and coal) extraction and combustion looks set to render the Earth uninhabitable in the not-too-distant future.

All eyes should be on atmospheric CO2, atmospheric CH4, the Arctic sea ice cover, and the general overheating that is going on. But few eyes are. Most people are only concerned with the next [financial] deal they can make, and not with their children's or grandchildren's futures. .

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by  Neven911  |  12th Feb 16, 9:39am 1455223177

I don't find it surprising really they are all related - High EROEI underpinned growth and growth supports the servicing of increasing debt hence lose the energy muliplier and what happens? to continue BAU debt goes into overshoot - hence we are where we are now, Debt in isolation has never been the problem per se, excessive debt that we have now is the result of the failure to adjust to the new normal.

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by  steven  |  12th Feb 16, 10:33am 1455226431

Yes, with lowering EROEI we needed a system with lower and lower debt, instead we went the opposite way borrowing more and more from the future and further into the future. Meanwhile the likes of BP think we'll be fine? such an outlook fails to stackup.

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by  Stephen Hulme  |  12th Feb 16, 9:28am 1455222534

US bank stocks reflecting the fundamentals.

The Crash In US Bank Stocks Is Only Half-Way Through

Just in case - Option-Adjusted Spread (OAS)

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by  @tony  |  12th Feb 16, 10:32am 1455226366

Twin Peaks
Peak Debt
Peak Idle Money

Money not invested (circulating) will kill the economy and fear of losing this money is locking it more tighter and tighter down...

Tax the "%^)(" out of idle money ; at least the stuff sat in bank acocunts!

(Property != Investment)

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by  steven  |  12th Feb 16, 11:04am 1455228293

Not sure what you mean here, I dont think the money is circulating, its in the banks but isnt coming out.

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by  iconoclast  |  12th Feb 16, 12:03pm 1455231790

Utter nonsense
It's not "sitting" idle in the bank - it's what banks do - they circulate it - if they can't get their hands on enough of that "sitting there idle doing nothing" stuff they borrow more from the foreign wholesalers

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by  happyfunball  |  12th Feb 16, 1:00pm 1455235220

Most of the world is a favela that still needs to be developed. Most NZ housing needs to be redeveloped too, come to think of it. Thats a lot of work and business opportunities for the foreseeable future. The population is still (stupidly) increasing. Growth is not going away just because of a stock market crash, the real world keeps chugging onward.

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by  Hamish  |  25th Feb 16, 8:52pm 1456386728

I wonder how this will influence global population size in the next couple of decades?

Also, re growth, Nathan Guy hanging on to growth in developing economies to put a bottom under dairy prices....http://www.stuff.co.nz/business/farming/77277871/minister-banks-not-kee…

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by  njm  |  12th Feb 16, 8:38am 1455219499
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by  skudiv  |  12th Feb 16, 7:57am 1455217061

I wish we had some of those negative rates here, I'd gladly be paid to borrow money.

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by  Andrewj  |  12th Feb 16, 8:07am 1455217640

But will people pay you to borrow it off them?

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by  sharetrader  |  12th Feb 16, 8:12am 1455217960

all the countries with neg rates are battling no growth and deflation do you really want that for NZ

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by  skudiv  |  12th Feb 16, 8:24am 1455218648

They hit some limits to growth? Who would have thought there were any limits on a spherical planet? Maybe people who still think the earth is flat and goes on forever.

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by  steven  |  12th Feb 16, 9:10am 1455221417

Lots of them, if not most actually, just look at Profile's posts.

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by  KH  |  12th Feb 16, 10:37am 1455226673

Great concept. From now there is a new title of 'Flat Earthers' for those who advocate increased population as the solution for every business problem. Clearly they think the place is flat, with no edges for the ever increasing crowd to fall off.

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by  Man in the Street  |  12th Feb 16, 1:28pm 1455236908

Wasn't it Bernard Shaw who said that if all the economists in the world were placed end-to- end
they would never reach a conclusion.

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by  iconoclast  |  12th Feb 16, 8:36am 1455219376

A brief explanation on negative interest rates
Only applies to bank deposits with the central bank
Designed to force banks to get out and lend more
Get consumption going
They want you to borrow more
They want you to spend more
http://money.cnn.com/2016/02/11/news/economy/negative-interest-rates-ja…

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by  skudiv  |  12th Feb 16, 8:50am 1455220251

"Designed to force banks to lend". Har har har, as if banks ever need motivation to lend money. Hahahahahaha! I know it's a commone enough meme, but seriously, forcing banks to lend? What do central banks think a normal banks business is, if not lending money? Something is seriously wrong with everything, if banks need to be forced to lend.
If banks wont lend, because of legitimate reasons, what exactly is achieved by 'forcing' them to lend, if that is even possible? It makes no sense.

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by  steven  |  12th Feb 16, 9:40am 1455223200

Assumes ppl can and want to borrow. This has been the problem with QE etc the central banks are trying to push uphill with a rubber hose ie it isnt going to work. What needed to happen was Govns needed to step in and spend to replace the lack of private industry spending due to over-capacity / lack of demand.

The banks will not i think lend because their exposure is now already way over extreme, we can see that I think with the banks share prices tumbling.

of course all this assumes you can grow for ever on a finite planet...

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by  chris_t  |  12th Feb 16, 10:17am 1455225459

This is just one more big sign that shows how brainwashed people generally have become when this sort of rubbish gets pushed out by MSM without any concern for their reputation. I have the sneaky suspicion though that many average people like myself have recently also started to figure out the various scams to talk us into "wealth creation", "investments" and easy money forever... because the simple maths just doesn't add up anymore. Hasn't for a long time actually! As a result, I think many people are starting to withdraw their cash before it is too late. And it wouldn't surprise me at all if central banks are only too aware of this trend and are scared to hell because a very silent run is already underway! Hence this global concerted campaign to get articles published by various so called financial industry experts, economists and some politicians proclaiming the virtues of a cashless society! Ask yourself, why the sudden rush to ban cash???

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by  iconoclast  |  12th Feb 16, 10:39am 1455226762

Whatever form the shakeup takes, the die is cast, the course is now set, just a case of searching for the weakest link

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by  Kaper2  |  12th Feb 16, 3:50pm 1455245451

Regarding Negative Interest Rates, this was comment of the week for me, posted on the Telegraph earlier in the week.

"The mathematics of a successful ponzi scheme are complex, involve derivative function calculus and integrals, but the maths is designed solely to extend a ponzi schemes life.
It cannot be saved.
If you run a successful ponzi scheme that includes say a certain group, maybe 10 friends, and you can get each one to contribute in ever decreasing amounts whilst paying out ever decreasing amounts , no matter what happens one of those ten will eventually go broke.
That will precipitate the second one to broke quicker and eventually it all crashes in an instant when the critical point is reached where income in plus available float is less that outflows .
Slowing outflows is typical way to extend the life of a ponzi scheme, by reducing the yield or coupon.

Negative interest rates signify that it is indeed a ponzi scheme as this is a blatant attempt to reconfigure outflows as inflows.
It means basically that all fiat denominated now in that NIRP environment is essentially worthless. It means that all the float and the income has now dried up and nothing is left for coupons.
Mr Madoff is well aware of this pitfall of any and even the best and biggest ponzi schemes.
If anyone has fiat in a NIRP environment then I suggest you get the hell out of Dodge as it would appear that right now, some people have woken up to the fact that NIRP is in fact worthless tat.
Which means Yen and Euro coupons especially."

http://www.telegraph.co.uk/finance/economics/12149114/Europes-doom-loop…

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by  steven  |  12th Feb 16, 11:11am 1455228660

Good point, however can we relate the sell off to the drop in oil price? Or did the sell off happen more recently? If its just the oil-rich selling selling then surely these bargins should be snapped up quick? Norway I think has no huge social program to support unlike Saudi etc so it can afford to sit it out. Though wouldnt it be good to realise cash now and then buy even more back later at a lower cost? ie shorting?

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by  Stephen Hulme  |  12th Feb 16, 12:52pm 1455234759

No. Norway has already reported that it's SWF will be funding the budget deficit due to reduced oil related income reaching government coffers. Presumably that entails liquidating assets.

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by  MikeM  |  13th Feb 16, 8:29am 1455305366

There has been talk lately of an imminent US recession, others are balking at the idea but take a look at this chart showing sales growth of S&P 500 companies:

http://www.multpl.com/s-p-500-sales-growth

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