90 seconds at 9 am: NZD surges higher

US data positive; OECD criticises QE and low interest rates; equities fall; UST 10yr yield 1.67%; oil lower, gold higher; NZ$1 = 71.3 US¢, TWI-5 = 74.6

10th Jun 16, 7:32am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of a further surge in the value of our currency.

But first, in the US the number of Americans filing for jobless benefits unexpectedly fell last week. And wholesale inventories recorded their biggest increase in 10 months in April, prompting economists to raise their second-quarter economic growth estimates. The rise in inventories came even as sales at wholesalers rose for a second straight month. The expectation is that American GDP will come in at about +2.5% pa in Q2.

Overnight, the OECD issued a report critical of QE and low policy interest rates. It says they are not having the desired effect and just encourage short-term economic decision making. They also say such policies may also be harming the possibility of a sustainable recovery.

Equity markets are all sinking today. Wall Street is lower after pushing at new records just a few days ago. European equities markets are also lower as were markets in our region yesterday. Mostly, its a -1% sell-off.

In New York, the benchmark UST 10yr yield has fallen today and is now at 1.67%. Locally, the 2-year swap closed the day up 4 bps at 2.33%, after being up as much as 8 bps at one stage. The markets now see the odds of further cuts from the RBNZ as low and the 90 day bank bill rate unwound any pricing for a rate cut in 2016.

The oil price is seeing a small pullback today. The US benchmark now just over US$50/barrel and the Brent benchmark just under US$52/barrel. On the climate front, there has been an innovative development in building a workable carbon capture process.

On the other hand, the gold price is up US$10 to US$1,270/oz.

And finally, the NZ dollar starts today substantially stronger again at 71.3 US¢, especially against the Aussie where we are now at 95.9 AU¢, and at 62.9 euro cents. The TWI-5 index is now at 74.6. The last time it was this high was exactly one year ago.

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 ».

Daily exchange rates

Select chart tabs

Source: RBNZ

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

by Stephen Hulme | 10th Jun 16, 7:50am 1465501812

The rise in inventories came even as sales at wholesalers rose for a second straight month. The expectation is that American GDP will come in at about +2.5% pa.

It Took $10 In New Debt To Create $1 Of Growth In The First Quarter

by BadRobot | 10th Jun 16, 7:25pm 1465543533

You quote ZeroHedge as a reliable source....

by Stephen Hulme | 10th Jun 16, 7:56am 1465502169

Overnight, the OECD issued a report critical of QE and low policy interest rates. It says they are not having the desired effect and just encourage short-term economic decision making. They also say such policies may also be harming the possibility of a sustainable recovery.

Negative rates stir bank mutiny

Deutsche Bank's Shocking ECB Rant: Warns Of Social Unrest And Another Great Depression

by sharetrader | 10th Jun 16, 9:21am 1465507293

another European bank overnight reported a plan to hold cash in a vault to counter ECB negative rates. it looks like we are getting very close to the turning point of QE and negative rates not being effective.
http://www.bloomberg.com/news/articles/2016-03-16/munich-re-rebels-agai…
https://www.sovereignman.com/trends/its-a-revolution-german-banks-told-…

by Stephen Hulme | 10th Jun 16, 10:20am 1465510817

it looks like we are getting very close to the turning point of QE and negative rates not being effective.

Elsewhere possibly, but in New Zealand the aligned demands of cheaper is better when it comes to domestic bank funding costs are being publicly marshalled against a governor seemingly reluctant to take the nation down this road.

“Financial stability concerns appear to have influenced the decision not to cut rates,” said Jane Turner, senior economist at ASB Bank in Auckland. “We continue to see downside risks to the RBNZ’s inflation outlook. As a result, we continue to expect the cash rate to eventually fall to 1.75%, although the RBNZ appears very reluctant to cut.” Read more

Finance Minister Bill English has publicly fired a series of shots at Wheeler, who he appointed, for his repeated failure to stoke inflation, and even slowing down the economy by raising interest rates too far. Read more

by Roger Witherspoon | 10th Jun 16, 1:39pm 1465522786

Perhaps the Governor should put interest rates up to kill the Auckland housing bubble and buy up a few billion of NZGB at the same time to offset the effects. No one seems to have tried that. He could call it Sterilised Quantitative Easing.

by Afewknowthetruth | 10th Jun 16, 9:35am 1465508126

With the disastrous effects of increasing atmospheric CO2 becoming ever more evident, an 'innovative development in building a workable carbon capture process' sparks interest.

The process involved mimics the natural process of silicate rocks reacting with atmospheric CO2 to form carbonate rocks and silica, which has operated at an exceedingly slow rate over most of the Earth's history.

The devil is in the detail, as always, and we see from the linked article that.'In 2012, they pumped about 250 tons of carbon dioxide, mixed with water, about 1,500 feet down into porous basalt.'

Meanwhile: ...'global carbon dioxide emissions once again set a new all-time record high. Carbon dioxide emissions in 2015 were 36 million metric tons higher than in 2014...'

http://robinwestenra.blogspot.co.nz/2016/06/a-record-world-fossil-fuel-…

We see that the project in Iceland removed about one-hundred-thousandth of the annual INCREASE in carbon dioxide emissions. Total global emissions are of the order of 36 billion tonnes per annum, indicating we would need to build about 100,000 Iceland sequestration plants (or their equivalent) EVERY YEAR to prevent atmospheric carbon dioxide rising, and an even greater number to reduce the current atmospheric burden (around 408 ppm, 130 ppm above the historic norm, and currently rising at the greatest rate in human history).

Apart from the 'problem' of who is going to pay for the 'carbon capture plants', there is the ' problem' that constructing such plants results in additional CO2 emissions, as does running them.

Only a drastic change to current living arrangements (a massive reduction in per capita energy consumption), together with severe population constraints, will have any impact on the global carbon dioxide predicament. And no politician will go anywhere near either a drastic change to current living arrangements or population constraints, so the CO2 predicament will continue to be made rapidly worse.

by Justice | 10th Jun 16, 9:54am 1465509251

Who would of thought QE would lead to negative effects eh? Gee, surprise!

by Ezy | 10th Jun 16, 10:48am 1465512523

The same corporations who would bitch and moan about needing billions of cash dollars for a bailout, are made up of the same demographic who decry the comparatively paltry amount that we pay our beneficiaries. Ironically both have the same issue - circumstances that prevent them from generating profit. The question for both, is who's responsible for those circumstances? Go figure.

by Stephen Hulme | 10th Jun 16, 12:33pm 1465518792

Hollowing out the country continues at pace.

New Zealand's second largest fuel retailer has returned $300 million to its British owners after higher margins helped it quadruple profits in 2015. Read more

How did this factor not turn up in CPI calculations? - money removed can hardly be spent, hence factors and or compensating coefficients need to be introduced.

by Roger Witherspoon | 10th Jun 16, 1:30pm 1465522235

Of late, I've been trying to look at the inverse effects of transations due to the double entry nature of modern money and the associated effect of a transaction on the price of the currency. So, a dividend paid to a foreign owner implies, in this case a sale of $300 million NZD unless they leave the money here. If so then the transaction implies a fall in the price of the NZD exactly sufficient to cause an inflow of $300 million on the capital account or elsewhere on the current account (ie more exports or less imports) to make the transaction balance.

I'm not sure if my logic is right (how can simple pluses and minuses get so complex?) but, is it a good thing or a bad thing? Weakening the dollar, more exports, less imports seem good; capital inflows seem bad, on the basis that our chronic current account deficit is a sign of chronic failure and long term economic decline.
http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-current-account

by Stephen Hulme | 10th Jun 16, 2:28pm 1465525730

The sold NZD always remain here as a bank ledger entry waiting to monetise a foreign supranational NZD offshore bond issue (Kauri?). The NZD bond proceeds are cross currency basis swapped with USD gained from a eurodollar credit raised in Europe by a local NZ bank. New NZD mortgages are processed, the interest from which together with the basis are passed back to the supranational to pay it's investor's coupon payment demands and realise sub-libor financing costs.Simultaneously, the World Bank (supranational) emerging market dollar loan service receipts are passed to the NZ bank to make good on the foreign IOU. And around we go until we can longer extend and roll such artifice.

by Roger Witherspoon | 10th Jun 16, 3:39pm 1465529982

New Zealand, living off it's capital since 1973. Sigh. Is it a lack of understanding that causes the authorities to encourage this? It seems obvious to most people that selling our houses and land to overseas owners (or selling their annual value via mortgage interest payments) is daft. It seems to be legitimised by the 0.0001% of inward investment that actually increases our productivity. Yet those in power are unable to see that Sky City is not a productivity enhancing investment, it's a giant parasite.

by dtcarter | 10th Jun 16, 2:31pm 1465525898

Ah, now it makes sense when the commerce commission says the reduction from 4 to 3 main retailers after the z caltex merger will not significantly reduce competition. Before you can reduce something, there needs to be some of it in the first place!

by waymad | 10th Jun 16, 1:47pm 1465523248

Curb yer enthusiasm re US results, DC.

Spengler (David P Goldman) over at Asia Times has a much more nuanced view. With graphs. http://atimes.com/2016/06/last-weeks-jobs-report-was-the-new-normal-not…

Money shot:

Why is there no investment? Let me count the reasons:

The United States has the world’s highest corporate tax rate

The crushing burden of regulation has virtually shut down startups except in social media and similar niches (for the first time since the numbers were kept, new businesses contributed exactly zero to employment growth since 2009)

Federally-supported basic R&D in aerospace and defense, the principal source of new commercial technologies from the 1960s onward, has dried up

America’s tech companies have changed from disruptive innovators to stable consumer franchises run by patent trolls instead of engineers