Here's my summary of the key events overnight that affect New Zealand, with news that a credit card company has started a 'war on cash'.
But first in Washington, Janet Yellen told a Congressional committee she expects forces holding down prices to fade in coming months, allowing the Fed to stick to plans for gradual rate increases. She also confirmed they see the American economy as healthy enough to proceed with plans to begin winding down its massive bond portfolio. But she also said the official interest rate would not have to rise "all that much further" to reach the new neutral level, and signaled one further rise this year.
In its latest Beige Book national survey of American business conditions, the Fed says a shortage of qualified workers has “limited” hiring, but there’s little evidence firms are raising wages to attract them. The Fed judged economic growth was “slight to moderate” from late May through June. That’s a bit less upbeat compared to the May report. The tight labour market, with unemployment near a 16-year low at 4.4%, was frequently cited as a headwind by those surveyed. One reason might be that firms - and especially manufacturing firms - have (or had) a productivity problem.
And staying in the US, credit card company Visa has started a war on cash. It has launched a new trial program where it offers mainly restaurants as much as US$10,000 to upgrade equipment - provided they no longer accept banknotes or coins. Cash transactions can't be mined for fees, so the card companies are working to convince users they are dinosaurs if they accept it or pay with it.
As expected, the Bank of Canada has hiked its policy rate from 0.50% to 0.75% today, it first change in over two years and first rise in seven years. It has also raised its growth forecast for the Canadian economy.
In Europe, industrial output is now growing at its fastest pace since 2011. But it is still not back to 2007 levels.
Back in New York, an appeals court overturned a ruling to force HSBC release a report on its progress to improve anti-money laundering procedures. The Justice Department had required improvements after accusing the bank of being the Mexican drug cartels' preferred bank. HSBC appealed to keep the progress report from being made public.
In Australia, the use of a blockchain has been successfully tested to provide bank guarantees for commercial leases by a consortium that includes ANZ, Westpac, IBM and Scentre Group. They now say it is only a matter of time before the technology is rolled out more broadly, disrupting other industries that rely heavily on paper-based documents, such as insurance.
In New York, the UST 10yr yield has slipped further for a third consecutive day, now to 2.32%.
The price of oil has been stable over the past 24 hours and is still at just over US$45.50 a barrel, while the Brent benchmark is now just on US$47.50.
The price of gold is up by +US$4 to US$1,218/oz.
And the Kiwi dollar has recovered some of yesterday's drop and is now up at 72.7 USc. On the cross rates we are at 94.6 AU¢, and at 63.6 euro cents. The TWI-5 index is at 76.5.
If you want to catch up with all the 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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17 Comments
I see strong parallels between the 'war on cash' and the increasingly negative attitude by government agencies towards online encryption, and the calls for governments to be able to hold 'golden keys' to selectively break encryption via backdoors (but look what happened with the leaked NSA exploit WannaCry). If you look at it, the master plan encompassing both seems to be being able to keep tabs on your citizens and residents, under the guise of "fightin' terr'ism".
Fredo Trump following a lot of the Double Dipton Defence Denial strategies at the moment.
A lot of similarities arising from incriminating comms. It will be interesting to see how much better the US media work this than our MSM did with the Barclay English liarthon.
But she also said the official interest rate would not have to rise "all that much further" to reach the new neutral level, and signaled one further rise this year.
Exactly.
As I wrote earlier today, “dovish” or “hawkish” is the wrong way to think about these things. Policymakers are still assuming something like normal if in a shrunken state. Janet Yellen said today:
."Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance.
That’s what the eurodollar futures curve has been saying for years now, as the UST curve. There is no conundrum. But there is still margin for debate, only about whether that kind of “normal” is even still achievable. To put numbers on it, Yellen and the FOMC are thinking 3% is the new neutral for federal funds (setting aside objections to the whole philosophy and technical reach of a neutral or natural rate) when in the past it has been 5% or 6%. That says something very important about our economic state, that “something” still isn’t quite right.
Where we truly are today is continuing to decipher just how wrong the economy will stay for the foreseeable future. It is here that the bond market, as eurodollar futures, are still deciding not “hawkish” or “dovish” but rather somewhere between “somewhat wrong” and “really, really wrong.” In truth, Yellen herself isn’t so sure, either:
"There is, for example, uncertainty about when — and how much — inflation will respond to tightening resource utilization".
The unemployment rate is all she has left to base a somewhat normal future projection on. But after several years, there is no evidence it is gives us a valid sense of the real economic picture; and more than a little doubt that it ever will. Because it has gone on so long this way, Yellen is forced to admit what is plainly obvious. Read more
"Where we truly are today is continuing to decipher just how wrong the economy will stay for the foreseeable future."
Maybe they need to look at the effects of Peak oil, that might just tell them what they need to know. PS just to be clear the "new normal" is only 3% (I doubt that, more like 1/2 that) because we have a temp glut of [shale] oil, once that supply declines the new normal will be 0.25% for ever....enjoy.
Just been reading about the Oil Glut of the 1960s and the sudden rise of OPEC in the seventies, seemingly from nowhere, when a couple of temporary supply problems on top of long term Western Stupidity gave OPEC the opportunity to put up the price of oil x 4. Coal production and railways were gutted in the 1960s in Europe and US and people moved to the suburbs - everyone became dependent on cheap oil (at $1 a barrel) for transport and heating. So demand went up until it almost matched supply, then Suez was blocked by Eygpt and Israel and a French bulldozer cut a pipeline in Syria...
Should be interesting (in the Chinese sense) when Janet starts selling the USTs. Presumably we get currency "surprises" and sudden shock commodity "adjustments" as the real value of the virtual commodities we use for money is revealed.
Does selling $4 trillion of assorted bonds and stuff not perhaps rather devalue the currency they are denominated in?
Who cares...we won the Americas Cup..
"Those observers, and indeed many New Zealanders, might have got a shock this week when the OECD published a landmark report, showing that economies the world over are being hamstrung by growing inequality – and that New Zealand was the worst affected"
https://www.theguardian.com/commentisfree/2014/dec/12/how-new-zealands-…
According to Bloomberg, which first spotted the trade, someone just bet that bond volatility is about to soar. The unknown trader bought $10 million in out-of-the-money puts and calls on 10Y Treasury futs (a strangle). The outsized trade was spotted as it involved huge block sizes of about 63,500 on either side: "a strangle of that magnitude is rare, and possibly unprecedented" according to several rates traders who spoke to Bloomberg.
But just as notable as the size is the timing: the strangle expires July 21, giving the trade a shelf life of under 10 days before it expires worthless. Which means that the trader is confident enough about not only the size of the upcoming price swing to bet $10 million on it, but also when it will strike. According to Bloomberg calculations, the theta on the trade is so high that just to recoup the premium, the yield on the 10Y would have to rise or fall about 10 bps from 2.38%, and preferably very soon.
Once the 10Y moves beyond 10bps, gains are unlimited, and the trader "stands to gain about $50 million on a quarter-point move in either direction from the starting level, which would involve approaching this year’s highs and lows for 10-year yields."
Briefly this morning, the trade seemed like slam dunk when Yellen's "dovish flip" sent the 10Y tumbling 6 bps before it stabilized around 2.32%. Read more
Um, in NZ cash is a legal tender so it cant be refused? Is it illegal to refuse to take it?
as if CC companies are not making enough $s as it is.
--edit--
A bit more subtle,
"The technical point here is that the seller is under no positive legal duty
to accept the payment that is tendered by the debtor. The statement that
‘legal tender means that payment has been made’ is, in technical terms,
incorrect. So what is the relevance of legal tender? Most consumers
would naturally assume that having offered valid notes and coins they
have done all that could reasonably be expected of them to meet their
side of the bargain.
The answer has greater theoretical than practical relevance. While the
seller (‘creditor’ at this point) is not required to accept the payment, the
fact that a valid tender has been made means that in refusing to accept
it, the seller is barred from recovering the debt in court."
http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletin…
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