Inflation in the US and Canada rises; CoCos impossible to sell in Europe; China fires regulator; S&P loses Lehman case in Australia; UST 10yr yield 1.74%; oil down, gold up; NZ$1 = 66.3 US¢, TWI-5 = 70.8

Inflation in the US and Canada rises; CoCos impossible to sell in Europe; China fires regulator; S&P loses Lehman case in Australia; UST 10yr yield 1.74%; oil down, gold up; NZ$1 = 66.3 US¢, TWI-5 = 70.8

Here's my summary of the key events over the weekend that affect New Zealand, with news European banks can no longer find any demand for their CoCo bonds.

But first, rising rents and healthcare costs lifted underlying American consumer price inflation in January by the most in nearly 5 years and +2.2% higher that the same month a year ago. This underlies support for the view that the Federal Reserve could gradually raise interest rates this year as forecast.

And across the border in Canada, CPI inflation is rising too. Headline inflation is up to +2.0%, while core inflation (excluding food and energy) is higher by the same amount.

In Europe, banks are having trouble selling CoCo bonds, those bonds that can turn ugly on investors if a bank gets into trouble. Fear of that situation has dried up any demand for the products in Europe. (CoCos are contingent convertible bonds, sometimes called enhanced Capital Notes.) New Zealand banks have issued similar bonds here, but any more now seems unlikely in the near future.

And, there has been a dramatic firing at the senior policy level in China over the weekend. The Party has ousted the boss of the China Securities and Regulatory Commission with a very public dismissal. The previous boss is being blamed for the recent market turmoil and policy missteps. But most observers actually don't see any policy changes ahead with the new appointee.

In Australia, a substantial settlement has been reached in a landmark AU$200 mln (NZ$215 mln) class action brought against ratings agency Standard & Poor's, according to the law firm for the local governments, churches and charities bringing the suit. But a quarter of the settlement will go to a litigation funder. They sued because S&P gave Lehman Bros an investment grade rating prior to its failure in 2008.

In New York the benchmark UST 10yr yield could not hold its Thursday rise and has fallen back sharply by -6 bps to 1.74%. On Friday, local rate curves fell and flattened in a move that anticipated Wall Street signals.

The US oil price is down sharply too, to US$29.50/barrel while Brent is just on US$33/barrel. Rig counts are now getting quite low.

The gold price starts marginally higher at US$1,228/oz.

The NZ dollar is still trading in that narrow range, now at 66.3 US¢, at 92.8 AU¢, and at 59.6 euro cents. The TWI-5 will start the week at 70.8.

If you want to catch up with all the local changes on Friday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Daily exchange rates

Select chart tabs »

The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
End of day UTC
Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

15 Comments

The SWF's were the big buyers of the CoCo Bonds and hence the reason no buyers now. The SWF's sold $45bn of assets in 2015 and at the current oil price need to raise much greater amounts.

These are serious amounts of money that can't be replaced by Joe Bloggs in the street overnight. The two sectors that the SWF's have big exposure to are property and financials. That is why those 2 sectors are performing so poorly at the moment.

As many as one in five of the UK’s 10,000-plus dairy farms could be forced to close this year, as falling milk prices and rising debt reach crisis levels for farmers across the country, various industry bodies have warned.
http://www.telegraph.co.uk/finance/economics/12165323/Thousands-of-dairy...

On Christchurch's earthquake anniversary: are the banks still pushing the line that this is/was an economic benefit to NZ?

The banks don't need to "push any line" a $15 billion injection is a massive boost to the economy and the main reason why NZ is doing less badly than the rest of the world (for now)

Well that would be the same Shanghai regulatory authority that found Shanghai Pengxin guilty of financial fraud, false accounts , failure to disclose, and insider trading on December 2 2015.That is what happens when your overinflated major assets encompass declining commodity groups

Trouble at mill....

China has recently uncovered one of the country's biggest banking frauds in decades - the USD4.9bn banking fraud that victimized Bank of Liuzhou, according to the state-backed China Business Journal. The revelation was the latest in a series of fraudulent loans in China, have damaged the country's USD29tr banking system.

https://www.asia-first.com/newsletter/china-unravels-a-usd6bn-banking-fr...
I
And:
Sour investments bankrupted dozens of rural cooperative banking organizations in China, destroying the life savings of thousands of peasants. It seems that small cooperative banks are just as vulnerable to looting and irresponsible investments as big ones on Wall Street.

http://dimsums.blogspot.com.au/2016/02/banks-for-poor-chinese-farmers-go...

Oh brother....
Everett: Pete, it's a fool that looks for logic in the chambers of the human heart.
And
Everett: Well, I guess hard times flush the chumps. Everybody's lookin' for answers...

Other riveting details from Shanghai Pengxin 2012 application. The Shanghai centre to promote New Zealand business- you can buy the website. The Wuhan Aqua City complex which was being built apparently in 2012 has never been built, the additional rollout of a further fifteen Aqua Cities before 2016 looks nice on paper only. So much for the strong supermarket presence and construction numbers. The 2012 annualised copper production figures for the Shituru mine were grossly overstated forecasts given that production did not commence until mid 2012. And NZ allows this company to use its farmland with input from a suspended subsidiary and Kuangchi Science whose major income is paper gifts to float balloons into near space whist Airways NZ clears the skies above all done to appease certain political leaders.

Henry, have you been following the PGGW debacle.

refer to either one of Everett's comments above. We were never big wrighties from way back, but were so PGG, once together we drifted away...

Agria seems a cayman island play thing.

http://media.corporate-ir.net/media_files/IROL/21/216437/AgriaCorporatio...

see item 6 and item 7, round page 52.

'In his latest note, Wicklund takes the gloom level up a notch and shows that for all the bank posturing and attempts to preserve calm among the market, what is really happening below the surface can be summarized with one word: panic, and not just for the banks who are stuck holding on to energy exposure, or the energy companies who are facing bankruptcy if oil doesn't rebound, but also for their (now former) employees. Curious why average hourly earnings refuse to go up except for those getting minimum wage boosts? Because according to CS "It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months."

Which is bad news: as we reported late last week, the restaurant "recovery" is now over, so as these formerly very well-paid and highly skilled workers scramble to find a job, any job, they'll find that even the "backup plan" has failed, with not even the local McDonalds suddenly hiring.

http://www.zerohedge.com/news/2016-02-21/panic-below-surface-banks-are-s...

Maybe they should move to Auckland and become real estate agents.

Will you take fries with your rental investment sir?

Sorry I don't invest in property. Tulip bulbs are back in fashion and Federal Reserve is the exclusive supplier.

Foreign Investors in AU get the straight-jacket treatment

Under the new rules
Foreign investors will be required to provide an annual compliance report to FIRB (OIO)
and
FIRB investment approval conditions will compel foreign companies to comply with ATO directions and meet ATO requests for information

http://www.businessspectator.com.au/news/2016/2/22/economy/foreign-inves...