90 seconds at 9 am: A black eye for Graeme Hart

US labour markets firm; ECB sees growth, inflation; NZ vehicle sales strong; Hart company in bankruptcy; UST 10yr yield 1.81%; oil and gold unchanged; NZ$1 = 68.1 US¢, TWI-5 = 72.2

3rd Jun 16, 7:34am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of a black-eye for Graeme Hart.

But first, there were two pieces of US labour market data out overnight, both confirming tighter conditions. Firstly the ADP employment data which is a pre-cursor to tomorrow's non-farm payrolls report beat expectations slightly with a gain of +173,000, almost all in the service sector. The market is expecting growth of +160,000 in non-farm payrolls. And secondly, claims for unemployment benefits came in a bit lower than expected for last week.

Overnight, the ECB reviewed its benchmark interest rates. As expected, it made no changes. But it did say it sees improved economic growth within the euro zone and slightly higher inflation.

Auckland's booming regional economy is getting the credit for another strong month of new vehicle sales in May. And SUVs now account for 35% of those. This data is being driven by record commercial vehicle sales for a May and light trucks for tradies are what is giving this the extra push. The Ford Ranger was top dog in May.

And on a somewhat related note, American car parts maker UCI has filed for bankruptcy mainly because it has lost some key customers who have decided to source their product from China. Why is this of interest? Well, UCI is owned by Auckland-based billionaire Graeme Hart.

In New York the benchmark UST 10yr yield has fallen sharply today and is now back to 1.81%. That shift may echo in local wholesale interest rate swap markets today. Our rates are again very flat and may get flatter.

The oil price is little changed with the US benchmark just on US$49/barrel and the Brent benchmark just under US$50/barrel. OPEC has failed to agree any supply cuts. Also, the US summer driving season is underway and that is starting out strongly. The American AA is reporting that 38 mln Americans are planning to road trips this summer.

The gold price is unchanged today, still at US$1,210/oz.

And finally, the NZ dollar will start today unchanged overall from this time yesterday at 68.1 US¢, it is at 94.3 AU¢ which is its highest level of the year, and at 61 euro cents. The TWI-5 index is now at 72.2.

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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10 Comments

by Stephen Hulme | 3rd Jun 16, 8:04am 1464897854

At some $600 billion, debt sold by state-supported companies in emerging markets ranging from China to Oman has surpassed the amount of emerging market government debt outstanding, according to a new note from Bank of America Merrill Lynch. Such quasi-sovereign debt issuance has helped propel the stunning growth of the overall bond market, with EM issuance accounting for 47 percent of the growth in global debt between 2007-14, compared to 22 percent in the previous seven years, according to S&P Global Ratings. Read more

As Bill Gross has a want to note:

Returns will be low, risk will be high and at some point the “Intelligent Investor” must decide that we are in a new era with conditions that demand a different approach. Negative durations? Voiding or shorting corporate credit? Buying instead of selling volatility? Staying liquid with large amounts of cash? These are all potential “negative” carry positions that at some point may capture capital gains or at a minimum preserve principal. Read more

Cracks are appearing:

Investors last month balked at Pop. Vicenza’s 1.8 billion-euro cash call, forcing the country’s new rescue fund to take control of the lender. Veneto Banca said earlier this week that it has received assurances the fund will buy its stock if investors also spurn its offering. Read more

by Ezy | 3rd Jun 16, 8:50am 1464900625

Auckland's booming regional economy is getting the credit for another strong month of new vehicle sales in May.

With NZ debt levels at the highest we've ever seen them, and most of these vehicle sales being purchased with what is essentially housing equity we better to hope to hell that there's no adjustment in the Auckland property market. I suppose on the upside though, there'll be a tonne of cheap late model Ford Rangers available at Turners for anyone who has real cash though if it does happen.

by Stephen Hulme | 3rd Jun 16, 9:06am 1464901596

If the US experience is a benchmark of substance, homeowner's equity has collapsed while the level of gross household debt has exploded without pause, until now - NZ maybe a bit behind the US cycle? Read more

by Ezy | 3rd Jun 16, 9:15am 1464902158

Great read Stephen. There's a delicious yet tragic irony that the man at the helm of NZ during this Keynesian period is one John Key. The world never solved the problems at the root of the GFC, we've just delayed and inflated them.

by Henry_Tull | 3rd Jun 16, 12:20pm 1464913212

Too Ezy, you have already paid for those Rangers.

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new meanings

Lease: Usually a program to buy something you give payments of money to keep the object for a while but not actually buying, but nowa days kids have turned the word Lease into a word that may mean "give" or "bring it to me"
"Yo g i just got diz ill shiz shoes for fity dollas off a truck u down?"
"Yo LEASE me somma doz i needs em"

Leased out: Stressed, tired, hungover or mentally out of it (or a mix of any or all of the above).
Her: "Hey, are you okay? You seem distant."
Me: "I'm still leased out from the weekend"

by Joe Public | 3rd Jun 16, 9:48am 1464904091

Yep nothing was learnt from the GFC. Absolutely nothing. Regulators toothless.

Great article Stephen. Sounds very much like what is happening in NZ now..

Per the article:

"There is no secret or mystery as to how America’s working households were led into this appalling debt trap. The fact is, the befuddled Greenspan actually bragged about it when he celebrated the higher consumption levels that were being funded by MEW or mortgage equity withdrawal.

That was just Fedspeak for the fact that under its interest rate repression policies, American families were being massively incentivized and encouraged day and night by cash-out mortgage financing ads ( e.g “Lost another one to Ditech!”) to hock their homes to the mortgage man and splurge on the proceeds. This reached nearly a $1 trillion annual rate and 9% of disposable personal income at the peak just before 2008."

by Smalltown | 3rd Jun 16, 1:30pm 1464917422

History seems to blame the Fed for the GFC but personally I believe it all started when George Bush brought in the American Dream Downpayment Act in 2003 which allowed anyone to own a house regardless of their financial situation.
Interesting parallel here for Wheeler. History will probably lay the fault of any major NZ financial crash on him whereas National's policies on immigration, dairy and the housing Ponzi will probably be the catalyst.

by sharetrader | 3rd Jun 16, 10:11am 1464905483

Bill Gross can see a black swan coming due to worldwide debt levels growing to levels that can not be serviced if rates rise
"Ultimately, they have to move back up and I think a certain number of Fed governors realize that the normalization process is necessary in order to save business models and to save capitalism basically because capitalism doesn't work at 0 percent and it doesn't work at negative interest rates," he said.

by Ezy | 3rd Jun 16, 11:55am 1464911748

Capitalism died, and Corporate Socialism was born the moment they bailed out the 'Too Big Too Fail' companies.

by ngakonui gold | 3rd Jun 16, 4:51pm 1464929486

The average auto loan in the U.S.A. has just hit 30k and the average time taken to pay off is 68 months.
Jaime Dimon,C.E.O of J.P.Morgan Chase said that '''someone is going to get hurt'''''
No doubt if house prices fall in NZ we can expect the same.