90 seconds at 9 am: ECB keeps door open to more stimulus

China wins anti-dumping dispute with US; Italy helps fund bank staff redundancy payouts; ECB keeps interest rates on hold; Uptick in US first home buyer activity; UST 10yr yield at 1.74%; oil and gold down; NZ$1 = 72.0 US¢, TWI-5 = 76.2

21st Oct 16, 7:54am by Jenée Tibshraeny

Here's my summary of the key events overnight that affect New Zealand.

The European Central Bank has left ultra-loose monetary policy unchanged, but kept the door open to more stimulus in December. Putting a few options on the table, ECB President Mario Draghi says "very substantial" monetary accommodation will be needed to boost inflation. He doubts an expected rise in inflation in the coming month will last long, as this will be driven by the fading effect of past oil price falls.

The Italian Government is believed to be bailing out commercial banks, hamstrung by the number of early retirement scheme payouts they're making as they slash staff numbers. Reuters believes Italy has allocated 500 million euros over the next three years towards helping cover the cost of up to 25,000 redundancies. Italy's banking system is under pressure, weighed down by some 200 billion euros in bad loans.

China has won the bulk of a World Trade Organisation dispute over the way the US determines anti-dumping duties on Chinese products. The WTO has specifically found fault with the way the US assesses "targeted dumping," where foreign firms cut prices on goods aimed at specific US regions, customer groups or time periods. The ruling is significant given the rifts caused by the wave of protectionism sweeping the world.

Staying in the US, home resales surged in September after two straight months of declines as first-time buyers stepped into the market. The National Association of Realtors says existing home sales rose more than expected, by 3.2%. First-time buyers accounted for 34% of transactions. While this is the largest share since July 2012, it's still below the ideal level.

Other data shows a larger-than-expected increase in the number of Americans filing for unemployment benefits last week. Overall, jobless claims are still relatively low, signalling the US labour market is in good shape.

In New York, the UST 10yr yield is unchanged at 1.74%.

The US benchmark and Brent benchmark oil prices have come off yesterday's high. They're both sitting at around US$51 a barrel.

The gold price down to US$1,266/oz.

The New Zealand dollar has fallen slightly in the last 24 hours to 72.0 US¢. It's jumped to 94.4 AU¢, and is stable at 65.9 euro cents. The TWI-5 index is up marginally to 76.2.

All eyes will be on New Zealand's migration stats out later this morning. ANZ economists expect migration levels to remain solid.

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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7 Comments

by AK79 | 21st Oct 16, 8:35am 1476992108

I am sure China will hail this WTO ruling and insist that the US follows it - and rightly so. However, the Permanent Court of Arbitration's decision against China in the South China Sea is not respected. That's the Rule of Law with Chinese Characteristics!

by David George | 21st Oct 16, 11:52am 1477003924

How is NZ Steel getting on with their complaint against dumped and dodgy Chinese steel.
I'm sure John Key is fighting hard for them and their Kiwi workers. Yeah Right!

by Stephen Hulme | 21st Oct 16, 9:07am 1476994059

The cult of the expert – and how it collapsed

Led by a class of omnipotent central bankers, experts have gained extraordinary political power. Will a populist backlash shatter their technocratic dream? Read more

What felled AIG was not losses; it is never losses. In August 2008, AIG released earnings that included $6.8 billion OTTI charges (other than temporary impairment) that were losses in the accounting sense of securities that were not sold but, as the name implies, weren’t likely to see prior values anytime soon. This was actually the Enron legacy of using market inputs for valuations.

None of those positions generated a single dollar in actual credit losses or defaults. In fact, Maiden Lane yielded the government, through the Fed, $20 billion in profit; part of the reason Hank Greenberg sued the Fed and obtained a partial victory last year (mostly that the Fed went beyond legal authority in the bailout of AIG and the terms of it. Read more

by Stephen Hulme | 21st Oct 16, 9:24am 1476995072

ECB's Mario Draghi:

."So far we have not seen an evidence of bubbles" which he defined as rising asset prices propelled by rising leverage. Read more

I guess the RBNZ's Mr Wheeler views NZ's residential property bubble with a similar blind eye? How else can he reconcile repeatedly cutting the OCR, while the rate of private mortgage debt expansion far exceeds that of GDP growth?

by Peri | 21st Oct 16, 9:26am 1476995172

Central Banks have lost the plot:
"As with the aftermath of the Great Recession, Yellen noted that economists have at times been baffled by the economy's refusal to comply with their expectations ""
http://tinyurl.com/CBs-have-no-idea

by Stephen Hulme | 21st Oct 16, 10:44am 1476999850

Yes, indeed, as have their acolytes.

Global “dollar” illiquidity or even a shortage is a slap in the face of central bankers and economists, a complete contradiction to what is still believed by many of what QE was. Thus, they more and more refuse believe their lyin’ eyes.

That’s because the once-dependable indicators traders relied on for decades to send out warnings are no longer up to the task. The so-called yield curve isn’t the recession predictor it once was. Swap spreads are so distorted they can’t be trusted. Even the vaunted VIX — sometimes referred to as the “fear gauge,” is leading its followers astray, strategists say.

This Bloomberg article even manages to quote one analyst who says, “There aren’t a whole lot of reasons to believe there are funding strains in these big financial institutions.” As I write for my RCM column tomorrow:

It would be easy to respond with Deutsche Bank, too easy really, but it’s not as if DB is an outlier. At worst, the big German bank has been the leading edge of an industry-wide downward lurch. What’s even more ridiculous is that you can establish this with just a few minutes work by plotting the price of Deutsche’s stock or those of European banking as a whole or even US banks (of the wholesale variety) as a group against the 10-year swap spread now persistently negative. They all move almost perfectly together, with their unmistakable inflection last summer just before CNY broke and “global turmoil” rather predictably followed. Read more

by rastus1 | 21st Oct 16, 11:14am 1477001675

Sky City shares tanking. A realisation that the fraudulaent cash cow from China may not be eternal. That same cash being responsible for Auck housing.