90 seconds at 9 am: NZD down on Yellen's speech

Fed Chair says case for US rate rise has strengthened in recent months; ECB and BoJ reinforcing easing bias; Youi being investigated in Australia; UST 10yr yield at 1.63%; oil and gold stable; NZ$1 = 72.3 US¢, TWI-5 = 75.6

29th Aug 16, 8:15am by Jenée Tibshraeny

Here's my summary of the key events from over the weekend.

The New Zealand dollar remains weak against the US, further to the Federal Reserve chair being modestly optimistic about the US economy. Speaking at the annual Jackson Hole summit on Saturday, Janet Yellen said more interest rate rises were on the way.

Yet she stopped short of saying when. She said the case for a rate hike had strengthened in recent months, due to the "solid performance" of the labour market, as well as the positive outlook for economic activity and inflation.

Markets have responded positively to Yellen's comments. ANZ says the odds of a September hike are now at 42% - up from 30% before the speech, and 62% for December - up from 50%.

Yet it's worth noting Yellen has taken a cautious approach, saying the bank's calls hinge on incoming data - the Labour Department's jobs report to be released on Saturday (NZ time) being the big one to look out for.

Meanwhile a European Central Bank Executive Board member and the Bank of Japan Governor have reinforced their respective central banks’ easing biases, perhaps resurrecting a market theme of divergence. Both officials have also called for fiscal policy to step up and help stimulate growth

In other news, disgraced South African insurer, Youi, has come under fire in Australia for employing the same dodgy sales techniques it's being charged for using in New Zealand. Australian media are reporting allegations Youi is billing those seeking quotes for policies they haven't signed up to. Fairfax says its six-month investigation has prompted the Australian regulator, ASIC, to launch an investigation.

Following extensive Interest.co.nz investigations into Youi, the New Zealand Commerce Commission earlier this month said Youi would plead guilty to 15 Fair Trading Act charges alleging it's used misleading sales tactics.

Fairfax's whistleblowers claim a number of illegal phone sales made in New Zealand came from Australian call centres. It also maintains Youi's tactics have contributed to its revenue increasing nine-fold from 2011 to 2015.

In New York, the UST 10yr yield has jumped to 1.63%.

The US benchmark oil price has remained stable since Friday at US$47 a barrel. The Brent benchmark is at US$50 a barrel.

The gold price is still at US$1,322/oz.

Yellen's speech has seen the New Zealand dollar fall from 73.4 US¢ to 72.3 US¢. It's at 95.6 AU¢ and 64.6 euro cents. The TWI index has eased back since Friday to 75.6.

If you want to catch up with all the local changes from 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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13 Comments

by Stephen Hulme | 29th Aug 16, 8:25am 1472415940

Janet Yellen said more interest rate rises were on the way. Yet she stopped short of saying when. She said the case for a rate hike had strengthened in recent months, due to the "solid performance" of the labour market, as well as the positive outlook for economic activity and inflation.

Fed turns up the volume; market tunes out the message

With profits from current production declining in Q2, it is unsurprising to find that the BEA’s measure of corporate cash flow did, too. Cash flow (SAAR) has been stuck around $2 trillion or so for an astounding 27 quarters dating back to late 2009. This lack of sustained growth for the corporate sector is undoubtedly one of the primary reasons for not just the lack of recovery but almost certainly the labor component of it. Without actual cash flow growth from business operations, setting aside any additions to balance sheet liquidity due to debt (which has mostly been served for financial reinvestment in share repurchasing), it indicates that the US corporate sector truly wouldn’t have had any use for additional labor. And that includes the past few years of the so-called “best jobs market in decades. Read more

by Stephen Hulme | 29th Aug 16, 9:28am 1472419699

The Trans-Pacific Partnership (TPP) may not be dead in the water, but it’s struggling to stay afloat now that Senate Majority Leader Mitch McConnell (R-Kentucky) has said he’s not willing to serve as its lifeguard.

McConnell said he will not bring the TPP up for a vote in the Senate this year.

"The current agreement, the Trans-Pacific [Partnership], which has some serious flaws, will not be acted upon this year," McConnell said at the Kentucky State Farm Bureau breakfast on Thursday, The Hill reported. Read more

Talks between the EU and the US on the Trans-Atlantic Trade and Investment Partnership, or TTIP, have essentially failed, German Vice Chancellor and Economy Minister Sigmar Gabriel has said.

In my opinion the negotiations with the United States have de facto failed, even though nobody is really admitting it,” the minister told ZDF broadcaster, according to a written transcript of the interview to be aired on Sunday.

“[They] have failed because we Europeans did not want to subject ourselves to American demands.”

He noted that throughout 14 rounds of talks the two sides have not been able to find common ground on a single chapter of the deal being discussed. Among the stumbling blocks is a US objection to opening public tenders to European companies.

“For me, that goes against free trade," Gabriel previously commented regarding the issue. Read more

by bender | 29th Aug 16, 10:17am 1472422636

RIP

by steven | 29th Aug 16, 2:39pm 1472438369

I hope.

by steven | 29th Aug 16, 2:39pm 1472438340

For once I could love Republicans.......just this once.

by Stephen Hulme | 29th Aug 16, 10:16am 1472422568

'Property is better bet' than a pension says Bank of England economist

Chief economist Andy Haldane says pensions are too complicated and property is better due to continuously rising prices Read more

Central banker talking out of turn or just telling it as is or at least should be? Given the job description, shouldn't he desist from encouraging greater fools?

by Tom Joad | 29th Aug 16, 10:26am 1472423174

Just as the Dutch found buying tulips "uncomplicated" in the "Golden Age"!

by OnwardsUpwards | 29th Aug 16, 11:12am 1472425959

A house is not a tulip.

by steven | 29th Aug 16, 2:40pm 1472438435

The product does nto matter, it is suffering from the same simple greed.

by OnwardsUpwards | 29th Aug 16, 5:40pm 1472449204

Unless you're Maya the bee then you can't live in a tulip. A house (home) will always retain it's intrinsic value. Even after a "crash" (temp buying opportunity)

by badmonkey | 29th Aug 16, 6:27pm 1472452069

A tulip also retains its intrinsic value. It's a tulip. It's worth 1x tulip.

A house is four walls and a ceiling parked on some land. It's intrinsic value today is the same as it was 500 years ago (in real terms).

So what's your point?

by PocketAces | 29th Aug 16, 6:33pm 1472452406

And a HOME is a whole another thing again, sadly being denied more and more people

by dictator | 29th Aug 16, 11:38am 1472427486

I don't think there is a greater fool than the BoE economist. There's going to be a lot of people that develop 20/20 vision on what's going on once something goes horribly wrong.