Here's our summary of key events overnight that affect New Zealand, with news that Italy is joining some emerging markets adding risks in the international economy.
But firstly in New York, stocks are up strongly with the Dow up more than +1% in Monday trading. The pullback from the tariff war between the US and China is the catalyst.
Japan's April trade balance improved, coming in as a surplus and 40% higher than analysts were expecting. Export growth jumped, but not quite by as much as expected, but import growth, while much better than for March, grew much less than expected.
In Italy, a little-known academic has been nominated as Prime Minister, "a friend" of one of the populist parties (The Five Star Movement) that gained support at the last election. Investors are unimpressed, marking down Italy's bonds sharply. That is because the new Italian coalition has policies that contravene the EU rules on fiscal prudence. That in turn is sparking calls for the ECB to step in to calm the situation.
Italy is just one economy breeding trouble for the international financial system. Argentina, who are in talks with the IMF for a bailout, is another. As is Indonesia which is struggling to defend its currency. Any missteps in Malaysia after the transfer of power there might bring them into question as well.
In China, reports are emerging that Beijing is worried about rapid changes in its demographic profile bringing an ageing population much faster than they want. Apparently they are about to announce the end of family size restrictions..
Locally, housing confidence in New Zealand is 'improving' with a sharp jump in the number of people surveyed by ASB saying house prices will rise.
The UST 10yr yield is now at 3.06% and unchanged overnight. The Chinese 10yr is at 3.72% (unchanged) while the New Zealand equivalent is at 2.85% (down -4 bps).
Gold is unchanged at US$1,291/oz in New York.
Oil prices are higher today and are now just over US$72/bbl in the US and the Brent benchmark is now just over US$79/bbl.
The Kiwi dollar will start today slightly firmer at 69.3 USc. On the cross rates we are down at 91.5 AUc (the Aussie is one beneficiary of the receding US:China trade spat) and we are up at 58.9 euro cents. That puts the TWI-5 at 72.2.
Bitcoin is now at US$8,341 and that is -2% lower than this time yesterday.
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29 Comments
NZ incurs a current account deficit due to a low saving environment and as a result, relies on foreign capital to fund all kinds of investments. As per RBNZ's paper, a sudden outflow of capital from NZ would have less of an impact on our exchange rate and inflation levels compared with a similar outflow from these developing nations.Mainly due to the nature of foreign capital in NZ, which is more so invested in equity and debt markets instead of key economic sectors.
Italy, Spain, Greece???Portugal. France with massive negative productivity. How much can Germany carry on its own. I mean a visitor from outer space would wonder why the UK stayed for so long. Got their own problems sure, but at least they can have a crack at them now independently. Still as everyone might say, it’s not that simple.
My reading of this is that Germany wants the EU to remain intact , it gives them a massive market and a uniform currency , and they are able to keep competition from outside the EU at bay
They are the only real winners in the long run .
The peripheral countries want to join in the belief they will get access to cheap money , and not have to manage their widely fluctuating currencies .
The problem is that not all Europeans are the same .
The work ethic differences between North and South are marked .
The financial discipline difference between North and South Europe is also very different , Germans , Scandanavians and the Dutch are savers , run surplusses , produce more food than they can eat and are careful with money .
The big fat hairy Greeks , the Slavics and other Latin European countries .......... not so much
The productivity of the land differs too , in terms rainfall , of land carrying capacity and production capacity.
I think the Brits have done the right thing exiting this party ........... its been gate-crashed by a bunch of drunkards
One colossal, corpulent counter productive committee, more or less. What got me when Iwas working amongst, shall we say, continentals, was the deep seated animosity between just about every nationality and region. For instance you just have to say Scheleswig-Holstein in the wrong company and you can get a tirade going on something venomous. Anything, any venture or proposal, that might be for the common good is soon shafted if some other party might benefit better. Yes a committee too right.
Question, if you are a high wage/high productivity like Germany, is it always advantages to have a monetary union (without fiscal union) with lower wage/lower productivity countries? Monetary union improves competitiveness within the union by removing the currency differential. And it improves external competitiveness by lowering the Germany’s exchange rate.
Definitely, Germany wants it together for the advantages it delivers them. However, while there are elements of truth to the profligacy etc. it's certainly not the whole story.
I recommend reading "And the Weak Suffer What They Must?", the book written by the former Greek finance minister. I really did not expect it to be good but it was very good, and pretty revealing of a whole other side to this. Including, e.g. the ECB pressuring the Irish government to convert private property investor debt into taxpayer debt.
What do you mean by negative productivity? Despite perceptions, I think France has pretty high productivity, equal to Germany and the USA according this this:
http://piketty.blog.lemonde.fr/2017/01/09/of-productivity-in-france-and…
and rather more productivity than the UK according to this:
https://www.ft.com/content/f372cbb8-4a96-11e7-a3f4-c742b9791d43
There's an opinion that the high productivity is a feature of having relatively short working days/weeks compared to other countries. In other words, the French get at least as much done and still get to go home earlier.
If you mean productivity is decreasing, I don't think that's true either, quite good growth over all timescales according to this:
https://tradingeconomics.com/france/productivity
I won't be mounting a defense of the other countries you mention.
Full disclose: I'll be visiting France in a couple of months to partake in their highly productive pastry, cheese and wine industry produce.
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