Here's my summary of the key events overnight that affect New Zealand, with news the Brexit fallout is getting real.
Three more fund managers have stopped investors from leaving their UK property funds, bringing the number of funds unable to meet withdrawal requests up to six. More than half of the £25bn of funds committed to commercial property by retail investors have now been frozen by their asset managers, which are coming under pressure to sell buildings to raise cash.
Italy’s banking crisis is far from subsiding. Shares in Italy's Banca Monte Dei Paschi Di Siena have crashed 45% in 10 days, forcing regulators to temporarily ban short-selling in the stock. The bank has been given until Friday to come up with a plan to reduce its bad loans by 40% in the next two year. Other Italian bank stocks have fallen by about 30% since the Brexit.
The French government has pledged to make its tax regime for expats the most favourable in Europe, in a land grab for London banking business.
In other news, an independent inquiry has slammed the Blair Government for not knowing what it was doing going to war in Iraq with the US in 2003. The ‘Chilcot Report’ reveals it made its call based on flawed intelligence and ill preparation. It says Blair underestimated the difficulties and consequences of the war and overestimated the influence he would have over George Bush.
And finally, we have a bit more clarity about why the Federal Reserve has been sending conflicting signals about when it plans to hike rates. The minutes from its pre-Brexit June meeting show officials voted unanimously to sit tight. Yet it was the result of confusion rather than consensus, as officials couldn’t see eye-to-eye on the strength of the US’s labour market.
UST 10yr yield has inched up overnight to 1.39%, but is still well below its previous 2012 low of 1.43%.
The US benchmark oil price remains low at US$47/barrel, while the Brent benchmark is at US$49/barrel.
The gold price has risen to US$1,364/oz.
The NZ dollar is fairly unchanged from 24 hours ago against the US, at 71.3 US¢. It's weaken slightly against the Aussie but remains very strong at 94.9 AU¢. The dollar's down a little to 64.2 euro cents. The TWI-5 index is at 74.9.
If you want to catch up with all the local changes from 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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32 Comments
I haven't checked yet, but is there any similar exodus from non-fund commercial property brewing, or are the fund managers starting at their own shadows, freaking out and locking just in case? Funds will lock down because of the relative ease of getting the hell out as compared to real estate, but I wouldn't necessarily assume that it's a symptom of anything more than the wobbles and overreactions that are going on in other markets with all this political madness going on. Or perhaps it's a Ponzi in the last stages.
My CSI Fund lock-down database is in my other computer, (not really). It's rare, but not unheard of, and in itself not necessarily indicative of a meltdown. Could be prudent caution in time of market upheaval. Could be a Ponzi trying to stay afloat for a little bit longer while the fraudsters steal all the assets and disappear. Question is, how would we tell?
And another thing, rather than start whole new post. I'm finding it very strange how little media coverage there has been on the Italian banking system issue.
How do we tell? When 50% of all funds are under lockdown? I dunno, you tell me?
And another thing the media is advertising and has no desire to keep you informed, I find it pretty much standard behaviour that they have shown little interest in Italy up to this point.
Good point on Italian banks Kakapo... I think there is no media comment, because it goes against the agenda that all the European woes are all the Brexiters fault... By acknowledging the catastrophe that is Italy (Spain and Portugal and Greece and and and) you disprove your argument that the "racist xenophobic oldies" of Britain have made the wrong decision.
At the beginning of the GFC there were mortgage funds and property funds in NZ that used to provide daily liquidity and to stop a run on funds then shut down all redemptions to protect the value of the investor capital. NZ Guardian Trust, Perpetual Trust, AXA/BNZ, Tower were names that come to mind of freezing mortgage fund withdrawals - I'm sure there were others too, just can't recall who they were
and not just mortgage and property funds were affected. AXA/BNZ had their most conservative superannuation fund invested in a related party mortgage fund - and the run on the mortgage fund resulted in their superannuation fund being frozen for more than five years. Eventually they closed the superannuation fund and returned 99% of the value of the fund - more than five years later - hardly the promised "suitable for those in retirement or approaching retirement" that they advertised.
Hopefully current KiwiSaver funds will be managed more prudently.
watching last night these are commercial property funds soldto retail investors that do not hold a large cash amount for redemptions, and after brexit the investors were trying to cash in due to the fear so they locked down on the premise that it is better to sell slowly and achieve better prices for the assets.
we will only know in time if they are a Ponzi and if the assets were overvalued.
looks very much like what happened here in 2009 with our finance companies though and the values on the books were nowhere anything like what they got when they sold the assets
Many "Funds" do operate, and are required to operate under a written constitution or "Articles of Association". Those documents require the "Fund" to operate in accordance with those articles
The main feature is those Funds are compelled to operate "True to Title" which means they have to be invested "True to Title" otherwise, if they don't, they expose themselves to potential litigation. As new cash flows in they have a minimal window of time they can hold that as cash
In the case of Property Funds they can't hold enough cash to meet a run of redemptions
And therein lies the problem
Update: Aberdeen suspends trading on £580m UK Property fund and cuts price by 17%
http://www.investmentweek.co.uk/investment-week/news/2463776/slis-gbp27…
And finally, we have a bit more clarity about why the Federal Reserve has been sending conflicting signals about when it plans to hike rates. The minutes from its pre-Brexit June meeting show officials voted unanimously to sit tight. Yet it was the result of confusion rather than consensus, as officials couldn’t see eye-to-eye on the strength of the US’s labour market.
While the Fed dithers Bill Gross has sage advice - Worry for now about the return "of" your money, not the return "on" it. Read more
Reminds me of the time the Wall Street Journal announced it was lowering the composition complexity of it's articles for those with a reading age of eight rather than twelve.
Interesting article Stephen but Bill Gross's comments that "more credit is required" hardly seems right at this juncture. I would have thought, one of the reasons more credit isn't being achieved is because the global credit card has been maxed out? I think he just wants to go back to the good old days, and that, in my opinion, just isn't going to happen.
There is a lack of good investments, plain and simple. Lack of investments/lack of growth/lack of lending. Where are the big areas needing development for profitable ventures? What area would you love to borrow money for? I don't see anywhere that isn't already overpriced into high risk territory.
We have all the credit available, there is no lack, Jesus Wept you can borrow millions for a normal house in Auckland, what lack of credit is there to be filled?
Secured retail mortgage lending and the subsequent securitisation machine is surely maxed out. But not the funding dedicated to collaterlised purchase of sovereign/high grade debt, which is forever sucking much needed liquidity out of the global system, despite the Bank of Japan and ECB maintaining ~$80.0 billion plus monthly QE programmes.
The issue Gross alludes to is the reality that central banks' POMO actions credit individual bank's reserve accounts which are now locked up meeting Basel III LCR and 30 day liquidity requirements. It is notable that US banks do not fractional reserve the $2,273,320 million excess reserves sitting on the Fed's H3 ledger. At the current 10% reserve requirement US banks could lend nine times the excess reserve amount.
More importantly, it is necessary to realise wholesale USD funding demands in Europe and Japan and presumably China are greater than that offered. Evidence is found in the negative basis quotes for EUR and JPY versus USD cross currency swaps. Read more
Moreover, the lack of general USD credit creation balance sheet capacity caused by new reserve regulations has made LIBOR moribund since banks no longer have a need to lend to each other, hence they cannot be bothered to arbitrage the negatively priced 10 and 30 year in the ~$500 trillion IR swaps space which is underpinned by the eurodollar FRA stacks price discovery mechanisms.
In summary, there is a gigantic collateral call as each swap is further marked further away from expected "fair value." It is, once again, collateral shortage that has all sorts of negative funding implications, including the recent increase (and enormous spike) in repo fails. HT Jeffrey P. Snider
Interesting. My pennies worth is that the desirable currency is the one that debt has been issued in. This is what determines into which currency money has to flow back to, and which will therefore be bid up, when things get tighter. That's why dollars and yen go up, because they have been key funding currencies. Gold is largely irrelevant in this regard.
AEP has a sensible view of Brit devaluation:http://www.telegraph.co.uk/business/2016/07/06/sterling-slide-is-painfu…
...the New York Times and the Washington Post ran stories after the vote deeming it to be the death of liberal globalisation. Variants of this corrosive theme have taken hold everywhere. It is a little irritating since all we have done is to take back our sovereign self-government from a deeply dysfunctional organisation that has over-reached badly, plays fast and loose with democracy, and is itself a major cause of the crisis engulfing Europe.
And points out the bleedingly obvious: that a market-led devaluation, in a context where managed currencies everywhere are trying to drive down their own values in a beggar-thy-neighbour spiral, is in fact a beautiful thing......
The following title seems so terribly appropriate, now that global financial arrangements are crumbling, the environment is crumbling, global energy systems are crumbling, and the political system is crumbling.
Rather than dealing with anything, the major players -primarily banks, corporations and governments- continue to make matters worse and store up ever greater predicaments for those who follow us, whilst robbing them of the resources to deal with anything.
Anyone who thinks this is all going to end well really ought to think again.
'Our Future Is (Literally) Crumbling Before Our Eyes'
http://www.peakprosperity.com/blog/99486/our-future-literally-crumbling…
Actually folks are Zach. Blair cannot go out his front door without folk lining up and announcing "citizens arrest" and wanting to lay their hand on his shoulder. He has to go with security at all times. He probably won't end up in court unfortunately, but there are plenty who will make the rest of his days quite miserable. That's fitting.
Talking about being held accountable!
"Donald Trump and Hillary Clinton are in a bar. Donald leans over, and With A smile on his face, says, "The media is really tearing you apart for That Scandal."
Hillary: "You mean my lying about Benghazi?"
Trump: "No, the other one."
Hillary: "You mean the massive voter fraud?"
Trump: "No, the other one."
Hillary: "You mean the military not getting their votes counted?"
Trump: "No, the other one."
Hillary: "Using my secret private server with classified material to Hide my Activities?"
Trump: "No, the other one."
Hillary: "The NSA monitoring our phone calls, emails and everything Else?"
Trump: "No, the other one."
Hillary: "Using the Clinton Foundation as a cover for tax evasion, Hiring Cronies, And taking bribes from foreign countries?
Trump: "No, the other one."
Hillary: "You mean the drones being operated in our own country without The Benefit of the law?"
Trump: "No, the other one."
Hillary: "Giving 123 Technologies $300 Million, and right afterward it Declared Bankruptcy and was sold to the Chinese?"
Trump: "No, the other one."
Hillary: "You mean arming the Muslim Brotherhood and hiring them in the White House?"
Trump: "No, the other one."
Hillary: "Whitewater, Watergate committee, Vince Foster, commodity Deals?"
Trump: "No the other one:"
Hillary: "The funding of neoNazis in the Ukraine that led to the toppling of the democratically elected president and to the biggest crisis that country has had since WWII ?"
Trump: "No the other one:"
Hillary: "Turning Libya into chaos?"
Trump: "No the other one:"
Hillary: "Being the mastermind of the so-called “Arab Spring” that only brought chaos, death and destruction to the Middle East and North Africa ?
Trump: "No the other one:"
Hillary: "Leaving four Americans to die in Benghazi and go to sleep?
Trump: "No the other one:"
Hillary: "Trashing Mubarak, one of our few Muslim friends?"
Trump: "No the other one:"
Hillary: "Encouraging and supporting the murders of Palestinians and the destruction of their homes, towns and villages by Israel ?"
Trump: "No the other one:"
Hillary: "The funding and arming of terrorists in Syria, the destruction and destabilization of that nation, giving the order to our lapdogs in Turkey and Saudi Arabia to give sarin gas to the "moderate" terrorists in Syria that they eventually used on civilians, and framed Assad, and had it not been for the Russians and Putin, we would have used that as a pretext to invade Syria, put a puppet in power, steal their natural resources, and leave that country in total chaos, just like we did with Libya?
Trump: "No the other one:"
Hillary: "The creation of the biggest refugees crisis since WWII
Trump: "No the other one:"
Hillary: "Leaving Iraq in chaos? "
Trump: "No, the other one."
Hillary: "The DOJ spying on the press?"
Trump: "No, the other one."
Hillary: "You mean HHS Secretary Sibelius shaking down health insurance Executives?"
Trump: "No, the other one."
Hillary: "Giving our cronies in SOLYNDRA $500 MILLION DOLLARS and 3 Months Later they declared bankruptcy and then the Chinese bought it?"
Trump: "No, the other one."
Hillary: "The NSA monitoring citizens' ?"
Trump: "No, the other one."
Hillary: "The State Department interfering with an Inspector General Investigation on departmental sexual misconduct?"
Trump: "No, the other one."
Hillary: "Me, The IRS, Clapper and Holder all lying to Congress?"
Trump: "No, the other one."
Hillary: "Threats to all of Bill's former mistresses to keep them quiet"
Trump: "No, the other one."
Hillary: "I give up! ... Oh wait, I think I've got it! When I stole the White House furniture, silverware, when Bill left, Office?"
Trump: "THAT'S IT! I almost forgot about that one".
Interesting article in the Nikkei about grumblings with Japan's negative interest rates. It seems that even some of the central bankers don't want it, and certainly the retail banks don't: http://asia.nikkei.com/Politics-Economy/Economy/For-whom-BOJ-toils.
But the real kicker is this:
BOJ Gov. Haruhiko Kuroda is unsympathetic. "Monetary policies are for the benefit of the Japanese economy overall, not for financial institutions," said Kuroda in a news conference on April 28.
Make of that what you will. But, I tells ya, those bond yields and cash rates are chasing many out into equities, like pheasants flushed out of cover by the dogs. I hope we don't all live to regret it, and I certainly hope that NZ doesn't end up in the same place.
I think we might have helped it along when we set up the Reserve Bank as an independent entity aimed at 2% inflation. It seemed like a good idea at the time, and for a while it was.
The idea was to stop politicians ruining the currency by giving the job to overpromoted civil servants and academics. Trouble is, it has taken the pressure off politicians to actually solve problems. Instead the central banks are forced to respond to any and all troubles by lowering the interest rates. This forces the other central banks to do likewise, until they are all at zero %.
Not sure how we escape this trap, but it is a classic case of crisis response becomes policy that is almost impossible to get rid of.
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