Here's my summary of the key events over the weekend that affect New Zealand, with news of public negativity masking real gains.
The US economy grew at a faster pace than previously thought in the fourth quarter of 2015, according to the latest official figures. It grew at an annualised pace of 1% in the quarter, compared with an initial estimate of 0.7%. Most economists had taken a more pessimistic view, expecting the figure would be revised downwards. This 'surprise' will likely flow into sentiment, equity markets and currency markets later today. Real US growth in all of 2015 was +2.4%, the same level it recorded in 2014.
Also released on Saturday was the US inflation measure preferred by the Fed, PCE (Personal Consumption Expenditure). American consumers are facing the strongest inflation pressures in year and a half, a sign of economic vitality that is likely to be welcomed by them. The cost of products from housing to medical care to furnishings increased in January, and petrol prices, the primary driver of deflationary pressures the past 18 months, are falling at a slower rate. As a result, inflation gauges are quickly moving back toward levels recorded during most other economic expansions. They rose +1.3% year-on-year and their fastest rate in three years. They were up +0.5% in January alone.
Warren Buffet released his annual letter to shareholders over the weekend and as usual it is an intriguing read. It's been a record year for Berkshire Hathaway. One thing Buffet did say is that the campaigning politicians have it all wrong about the state of the US economy. In an interesting analysis, he says that young people entering the US workforce today are more likely than ever before to earn considerably more than their parents, a view at odds with almost all Republican and Democrat presidential contenders.
And, in a statement dripping with unintended irony, the world's G20 economies declared that they need to look beyond ultra-low interest rates and printing money and renew their focus on structural reform to spark higher economic activity. Of course, almost everyone signing that communique is responsible for close to 100% of the world's QE. Another way to look at this is to see it as an admission that low rates and money printing are failed policy. In the end, the G20 meeting was also a failure to act, so the focus is back on central banks to get us out of this trap.
At the very same meeting the boss of the Chinese central bank signaled that China has room for lower rates and more QE.
Also, different to almost all other G20 meetings, access to communiques and documents is very opaque for this one organised by Beijing. Unless you are there, it looks like a propaganda exercise for President Xi.
In New York the benchmark UST 10yr yield rose at the end of last week to 1.76%.
The oil price is a little higher at US$33/barrel in the US while Brent is at US$35/barrel.
The gold price is however US$24/oz lower at US$1,220/oz.
The NZ dollar will start the week at 66.3 US¢, at 93 AU¢, and at 60.7 euro cents. The TWI-5 will start at 71.5 and still in the range that has been with us all year.
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 ».
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8 Comments
Oil, seems the hedging is un-winding all over the place,
http://www.telegraph.co.uk/business/2016/02/26/north-sea-firms-are-slee…
The US economy grew at a faster pace than previously thought in the fourth quarter of 2015, according to the latest official figures. It grew at an annualised pace of 1% in the quarter, compared with an initial estimate of 0.7%.
Hmmm - U.S. Has Record 10th Straight Year Without 3% Growth in GDP
And, in a statement dripping with unintended irony, the world's G20 economies declared that they need to look beyond ultra-low interest rates and printing money...
Printing? 'That'll Be The Day'
When the Federal Reserve through its Open Market Desk engages in a transaction under QE or the current balance sheet stabilization (reinvesting maturing securities) with a primary dealer, the direct effect is to increase the dealer’s account with the Fed while decreasing that dealer’s stock of securities. On the other side, absent any offsetting absorptions (either intentional or autonomous), FRBNY’s balance sheet size increases; with the newly purchased security expanding the asset side while the simultaneous reserve account increases by the matching amount. To some, this has been taken as “money printing.”
There is no money in reserves of this kind. It is nothing more than a strictly financial liability that requires further exertion on the part of the banking system in order to take usable form (money). In other words, nobody can access these reserves and use them in the real economy to obtain goods and services or to invest in real projects. They must be converted into other financial forms first, participating in the pyramid of wholesale schematics as just one liability among many, before they can actively contribute in the real economic structure. That bank “reserves” can only apply to primary dealers further suggests these kinds of limitations – that further chains of liabilities (interbank) beyond primary dealers will be necessary for that conversion from an idle and inert balance with the Fed to something actually useful.
That is the major difference between a eurodollar and bank “reserves”, as the eurodollar sits at the end of useful spectrum, acceptable as forms of payment in global trade and credit funding, while QE’s special byproducts are really quite remote. In fact, QE was never designed to be “money printing” directly, as none other than Ben Bernanke declared at the outset. Read more.
In other words "trickle down economics" - not to be confused with science. Read more
Stephen... That is printing money...
That bank “reserves” can only apply to primary dealers further suggests these kinds of limitations – that further chains of liabilities (interbank) beyond primary dealers will be necessary for that conversion from an idle and inert balance with the Fed to something actually useful.
In the same way that if I have $1 million under my mattress...I actually have to do something to make that money useful..
Explain to me why a Bank can't simply "write a check" against its excess reserves..???
In years gone by ..FED created reserves was a liability because they could be exchanged for gold..... but really... today , in a practical sense if the FED creates reserves it is "money"....
( when a counterfeiter creates "money" , in terms of practical reality, he does not really create a counterbalancing liability with that.??....thou, if he wants to keep double entry books he would have to figure out a way.. )
Explain to me why a Bank can't simply "write a check" against its excess reserves..???
Yes it could, but there is no evidence in the required reserves data. The free balance remains inert rather than supporting 9 times (fractional reserve banking) outstanding loans that would necessitate total reserve balance requirements equal to the reported $2.460094 trillion total. View data
Plus the bank selling the bond trades a capital gain for reduced future income. It sells a bond yielding , say, 2.5% (that it bought when it was yielding, say, 4.5%), but from then on only gets 0.25% yield on its reserves. So money is created and taken away again at the same time.
I guess they just can't print it and put it in people's bank accounts because that would be fair and democratic, and the Yanks in charge don't want to create a civilised society. They want a servile and easily led populace who live in fear of the outside world.
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