Here's my summary of the key events overnight that affect New Zealand, with news US Treasury yields have hit an historic low in trading today.
Trading resumed after the American public holiday, and Wall Street is posting losses in early afternoon. It is down almost -1%. Commodities, including oil prices slipped further and uninspiring US data added to global growth worries.
The latest dairy auction saw prices fall marginally; they were down -0.4% in USD terms and down -1.6% in NZD terms. The lower overall price was driven by a -2.4% drop in WMP prices, while SMP prices rose slightly. The volumes sold at this event were the highest of the year.
New orders for American factory goods fell in May on weak demand for transportation and defense capital goods, but growing order backlogs and lean inventories suggested the worst of the manufacturing downturn was probably over. Certainly the June data that has been coming through reinforces that view.
Across the Atlantic, the Bank of England has warned there is evidence that risks it identified related to Brexit are emerging. Their July Financial Stability Report out overnight states: "There is evidence that some risks have begun to crystallise. The current outlook for UK financial stability is challenging," they said. The same report highlights the UK's risks to property and especially "commercial real estate prices". Things are about to get very bumpy there. In fact, a third property trust fund there has closed for withdrawals overnight.
It is not dire everywhere. In India, it is becoming clear that they are about to replace China as the hot market for raw commodities. The Government there is embarking of an infrastructure development push and demand for iron ore, coal, and other steel-making commodities will surge as they renew infrastructure, especially for housing and their railways.
In Australia, the RBA left its benchmark interest rate unchanged at 1.75% but analysts sensed that they 'left the door open' for a cut later in the year.
UST 10yr yields have dived today, down -10 bps and are now at 1.36% and well below the previous low of 1.43% in July 2012.
The US benchmark oil price is is also much lower, down about US$3/barrel, now just under US$46/barrel and the Brent benchmark is just over US$48/barrel.
The gold price is up but only a few dollars, now at US$1,355/oz.
The NZ dollar starts today almost 1c lower against the greenback at 71.4 US¢, at 95.8 AU¢, and at 64.5 euro cents. The TWI-5 index is at 75.1.
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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12 Comments
Lets start with a laugh
Malcolm,
You assassinated a Liberal Prime Minister, Tony Abbott, who'd won an election by a huge margin.
You promised to do even better than him.
You then treated the Liberal base like dirt, smashing it with a huge super tax, refusing to speak to conservative journalists, repeatedly humiliating Abbott.
You referred to the colonial settlement of Australia as an "invasion" and even held an end-of-Ramadan meal with known Muslim bigots...
And Bolt's just warming up. Unfortunately, his call for Turnbull to quit is trickier than it sounds:
Malcolm can't fall on his sword, it's still stuck in Tony Abbott's back.
http://www.steynonline.com/7549/the-blunder-down-under
I don’t want to diminish the importance of repo haircuts or correlation implications, but those pertain more so (so far) to the “last one.” In the years since the crisis, it seems that volatility has assumed a more central mathematical role. Frustratingly, it has done so in almost exactly the same fashion as correlation had leading up to 2007. The conventional perception about central bank policy including QE is that it has all been a combined effort of “money printing”, and thus for asset markets there is plentiful liquidity which can be extrapolated into expectations of very low volatility. In some circles, this has been called the banishment of “tail risk.”
Volatility has a role to play in math upon balance sheets, especially in measures like VaR. Even indirectly, volatility is a central premise of not just asset pricing but funding conditions and basic balance sheet construction (and then fortification). Thus, if it were suddenly found that volatility estimates, like correlation in the mid-2000’s, had been too optimistic and systemically so, the adjustment in aggregate terms to even a slightly more realistic volatility organization might be excessively harsh.
http://www.alhambrapartners.com/2016/07/05/how-markets-are-supposed-to-…
Will pensioners take it on the chin?
As Bloomberg reports, because shares held by Japan’s $1.4 trillion Government Pension Investment Fund have suffered such large losses, it will need to add to those holdings to meet targets for their weighting, while selling sovereign bonds whose value has soared. Assuming no re-weighting was done since Jan. 1, GPIF will need to buy 4.2 trillion yen ($41 billion) of local stocks and sell 9.8 trillion yen of Japanese government bonds to reach its goals. The brokerage didn’t give a time frame for this buying. Read more
Sounds like a healthy re-balancing of their portfolio to the tune of a few % of total value. This is how it's supposed to work, you sell what has performed well to buy what has performed poorly. The urge to sell what has become cheap and buy what has become expensive is a major reason so many investors' returns trail market returns.
Almost everything we are now witnessing is symptomatic of the complete failure of governments in the western world to deal with any of the fundamental matters that needed to be dealt with decades ago. Continuous economic growth fueled by conversion of oil into waste products has always been a path to catastrophe, both because sources of high-quality easy-to-extract oil are finite and because burning too much oil (and coal) wrecks the global environment; continuous expansion of population leads to ever-lower levels of sustainability and greater dependence on rapidly depleting energy reserves; continuous 'printing' of money and charging of interest on it leads to unsupportable debt levels.
Since all the fundamental factors are more-or-less universally ignored, it follows that general conditions will continue to be made worse by governments......until the system 'implodes' as a consequence of depletion of resources, pollution, overpopulation and inability to service debt.
The fact that there are still impoverished people in a few countries who are prepared to work for what would be regarded as slave wages in the developed world and the fact that there are still some pockets of unexploited mineral resources does not alter the overall picture or the inevitable conclusion.
I would suggest that it is a complete failure of mankind (collectively, as many individuals do see the truth). Pollution, resource depletion, false scarcity, debt, consumerism, economic growth, environmental degradation are fundamentally all symptoms of our blind belief in material wealth as the be all and end all.
We continue to tell the same story over and over again, that economic growth leads to higher living standards, that material wealth and possessions are signs of success, and everyone is expected to follow the same story.
We have become so indoctrinated into this story that we are too afraid to think that another way is possible.
"The significant issues we face today cannot be solved by the same thinking that created them" - Einstein
Utilising the QV values , Auckland housing stock has just gone thru the half trillion mark, about 510000000000, accounts for 57 percent of New Zealands total value . Put another way , and remembering fewer people per home outside Auckland( bar Poverty Bay), the rest of this tiny nations housing stock is valued at only 43 percent of the total yet accounts for two thirds of the population and close to two thirds of the nations GDP..At least we can blame it on a surge in international students.
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