90 seconds at 9 am: ECB: "Substantial degree" of monetary accommodation necessary

ECB quashes any expectations of it winding down stimulus; US$65b+ price tag put on Hurricane Harvey damage; Sanctions against North Korea looking more likely; UST 10yr yield down to 2.05%; oil stable, gold up; NZ$1 = 72.2 US¢, TWI-5 = 74.0

8th Sep 17, 8:06am by Jenée Tibshraeny

Here's my wrap of what’s happened around the world overnight.

The European Central Bank has held interest rates at 0.0%. It says it’s poised to increase its asset purchase program if needed, quashing any remaining expectations that it will signal a stimulus wind-down. President Mario Draghi says while inflation has picked up, it remains subdued, so a "substantial degree" of monetary accommodation remains necessary at least until the end of the year. He says the central bank will make a call on the status of its bond-buying programme at its October meeting.

As Hurricane Irma devastates the Caribbean on its way to Florida, a risk modelling firm has revealed just how much damage Hurricane Harvey has done. AIR Worldwide estimates flooding alone (not wind or storm surges) caused US$65 billion to US$75 billion of damage to property in Texas. Yet insurance will only cover US$10 billion of (flood, wind and storm surge) damage.

China appears to be coming down harder on North Korea, saying the United Nations should take “necessary measures” against the rogue state. While South Korea and Japan support the US’s push for tougher sanctions, China cautions these should spur negotiations. Russia isn’t keen on more sanctions.

Meanwhile the US military has been met by thousands of South Korean protestors as it’s tried to install the final parts of its THAAD defence system in South Korea. North Korea is believed to be planning to fire another missile this weekend.

Data designed to look at economic trends in the next six to nine months, points to stable growth across the OECD. The OECD’s composite leading indicator shows growth looks consistent in the US, Japan, Canada and across Europe. However signs are emerging that growth may be stabilising in Germany and easing in the UK. Growth is expected to gain momentum in India and Brazil as well as the industrial sector in China.

In New York the UST 10yr yield has continued to track down. It’s now at 2.05% - the lowest it’s been since November last year.

The price of crude oil is stable at US$49 a barrel. The Brent benchmark is at US$54.

Gold has risen to US$1,345/oz.

The New Zealand dollar has strengthened to 72.2 US cents. It remains at 89.9 Australian cents and has dropped to 60.1 euro cents. The TWI-5 index remains at 74.0.

If you want to catch up with all the 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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11 Comments

by ham n eggs | 8th Sep 17, 8:39am 1504816741

Indeed a "substantial amount of monetary accommodation" is needed. Otherwise the horse would have died way back. When you have zero interest rates and no takers you know the debt system is in trouble. So
- interest rates will go /stay down & asset prices will go up
- pension funds will slowly go broke
- governments will continue to run huge current account deficits
- till a currency pops and the whole thing implodes

by bw | 8th Sep 17, 8:48am 1504817281

...unless your Japan! Who appear to have 'taken the hint', back in '87 (that we didn't take then, or in '00 or in '08!), and have battled through decades of monetary 'stimulation' - discarding the 'advice' given to them back then, that The West is now embarking on itself. They have/are shrinking their population, and the monetized debt they 'owe to themselves' will be owed to the now dying population. The dead will be owed the debt in their coffins and it will be extinguished! Smart move, as it turns out. Those that expected to inherit the savings/wealth of the dead will not get it, but they don't have it today anyway - so won't miss it. Japan will end up with a smaller population; debt free and a robotized economy to advance from.....

by ham n eggs | 8th Sep 17, 11:07am 1504825670

Japan is definitely the leader in this great "we can buy our own debt " experiment... But its only a can kicker...
You wont be able to power those robots on thin air...
Theres a couple of good articles by Tim Morgan on this.
"https://surplusenergyeconomics.wordpress.com/2016/06/02/72-end-game/"
"Large fiscal deficits have resulted in the very substantial issuance of JGBs – but who is buying these new tranches of government debt? The answer, rather shockingly, is that nobody is. Investors are not lending to the Japanese state. Instead, debt is being “monetised” – meaning printed – by the authorities. A country which reaches this situation is in the last-chance saloon where its credibility and creditworthiness are concerned."

https://surplusenergyeconomics.wordpress.com/2014/03/01/18-japans-road-…

"Japan has three critical problems:
– It is a major importer of energy at a time when the energy cost of energy (ECOE) is moving inexorably upwards.
– It entered this era with far too much debt.
– It has a government which thinks that you can borrow and print your way to prosperity.
Where Japan is concerned, the writing is already on the wall"

by dictator | 8th Sep 17, 11:21am 1504826481

France had particular success with printing money to buy debt or swap debt for shares in the company that turned out to be a ponzi scheme. Well it was a sort of success until it probably contributed to the French Revolution. I guess they could always chop off the heads of their politicians if their financial experiment doesn't work out.

by J.C. | 8th Sep 17, 3:07pm 1504840061

Couple of crucial points you missed there.

-- Japan is the world's largest creditor.
-- The debt burden is largely carried by the public sector, unlike China and the West, where private sector debt is exorbitant.
-- Japan's industrial power is without peer, The country is hugely productive. That helps a lot when you actually make and sell things for a living.

by James007 | 8th Sep 17, 8:59am 1504817980

Houston, we have a problem!
The $55B to $65B is direct loss - never mind the disruption to the daily lives of all those affected, which will be ongoing for years to come. At least there is not EQC.
What looked cheap is now looking throw away.

by Groen_mamba | 8th Sep 17, 9:43am 1504820586

This quote from a RE newsletter I recently received:
"We are still seeing money coming from China regardless of the tighter regulations. These guys have residency but their main source of income and/or capital remains in China. If the investor was back in China, the purchase would often be made through a local associate, which is why so few overseas buyers of residential property have shown up in the official statistics. "

How effective will labour's policy be?? Go Winnie!

by Cherrytree | 8th Sep 17, 11:59am 1504828761

China's capital control is not the main reason you have seen less Chinese (NZ citizens and residents) buying properties in Auckland, they just have similar views or expectations as most kiwis that the market has been rising for a long period of time and needs another period of slowing down, also there is an uncertainty of the election. Yes, you're right, I don't think CGT will have long term effect on the property price especially in Auckland. If the price keeps down due to CGT and decreasing immigration, I think it provides good opportunities for kiwis who want to buy their home. The house prices in Auckland are still cheap compared with some major cities in China where most Chinese money comes from. They will come back.

by Ralph | 8th Sep 17, 2:06pm 1504836384

I suspect China will make *every* accommodation with North Korea short of solving the problem.

by Roger Witherspoon | 8th Sep 17, 6:29pm 1504852162

Keep the pit bull in the back yard hungry to keep out the neighbours, but don't let it die. Say it belongs to a gang member tenant and there isn't much you can do.

by Ralph | 8th Sep 17, 6:35pm 1504852555

Yes, if I were China I would judge things are going extremely well at the moment. The longer they talk to the puppet the longer the hand can do what it wants.