Here's our summary of key events overnight that affect New Zealand.
Minutes from the Federal Reserve's meeting on May 1 and 2 show central bank policymakers are happy to let inflation briefly run above the 2% target as US the economy continues to recover. Some officials are concerned about the yield curve flattening, and that an inversion could signal a recession. While the Fed kept interest rates on hold at its last meeting, it remains on track to hiking them at its next meeting on June 12 and 13.
Over to Turkey, turmoil there is continuing. Its central bank raised its top interest rate at an emergency meeting overnight, bowing to pressure from financial markets after the government’s rejection of higher borrowing costs plunged the nation into a currency crisis.
The Governor of the Reserve Bank of Australia has pointed to the build-up of debt and bad loans in China as one of the biggest risks facing the Australian economy. Philip Lowe has delivered a speech saying similar situations in the past have led to a slowdown in growth or financial crisis. The RBA is so concerned about Chinese debt that it'll have a special discussion about it during a board meeting later this month.
One of the strongest privacy laws the world has seen will take effect at the end of the week. The European Union's General Data Protection Regulation gives individuals more control over what businesses and organisations can and cannot do with their private information. While the law is a European one, the borderless nature of the online world has virtually every commercial entity that touches the web making changes to their sites and apps to comply.
The UST 10yr yield has fallen 4bps overnight to 3.02%.
The US crude oil price is pretty much unchanged at US$72/bbl. The Brent benchmark is just below US$80/bbl.
Gold is stable at US$1,293/oz.
No fireworks in the currency markets overnight. The New Zealand dollar is down a touch to 69.2 USc, and up slightly to 91.5 AUc and 59.2 euro cents. The TWI-5 is at 72.2.
The price of Bitcoin has fallen by 8% to US$7,522.
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28 Comments
Had a talk to a mate in California, yes gas prices are high, he said yesterday morning $3.80 a gallon, thats a small gallon, he also said several stations are over $4.00.
I was in AKL airport at the time and got talking to a lovely polynesian girl, she was telling me that AKL is too expensive for her extended family and they have all decided to move to Perth, leaving next week. I wondered how many others are struggling with house price related poverty and looking at options.
I think people will put up with a lot as long as there is light at the end of the tunnel. Take the light away and it's a slog, without hope there is no tomorrow, no future to dream of and life becomes a weary battle fought day by day.
It's a political fail on a grand scale, Tomorrow, Creeps in this petty place from day to day,
Thames CBD and the Hauraki Plains dairy farms WILL be leading indicators of how rising seas will affect our low lying regions in coming decades. And the effects will impact within the lifetimes of currently middle aged humans. Combine locally subsiding lands with sea levels rising exponentially (particularly so around NZ) and we surely will have problems.
https://teggtalk.wordpress.com/2018/05/23/global-mean-sea-level-rise-tr…
Finally the reality of our risks is swamping (pun intended) our ignorant climate change deniers in our main stream media. https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12057342
Interesting last nights what happened Wednesday, Fonterra looking at good solid growth of %6.6 percent in milk consumption in the Middle Kingdom, I still think that the worlds growing diabetes epidemic is going to be noticed soon enough.
The UK NHS spends over %50 of its budget on obesity related disease, namely fatty liver disease and diabetes. Some time soon, it's either going to be take note and do something or collapse the heath care system.
https://qz.com/756585/diabetes-is-chinas-next-public-health-crises/
https://www.consultancy.uk/news/1278/mckinsey-obesity-costs-uk-society-…
I one of those who believe if we stop eating sugar, using oil from seeds and reduce carb intake, particularly refined carbs in processed foods, our bodies will self heal.
This my book recommendation for the week
https://www.amazon.com/Deep-Survival-Who-Lives-Dies/dp/0393353710/ref=s…
Very interesting that the Fed is now saying that they "are happy to let inflation briefly run above the 2% target as officials are concerned about the yield curve flattening, and that an inversion could signal a recession"
I have no degree in finance but it has seemed obvious to me for some time that, with the huge amount of debt present, hiking interest rates will plunge a country into recession 12 months later on. Since few like to self inflict pain, including governments, I'm still betting against the Fed and many scholars, that rates will be rising significantly. Or they will rise only to be lowered again the year after to try to avoid a recession.
...and now I have just read the the article on this site about the RBNZ using 5 unconventional policy tools, where the RBNZ makes the following stunning statements:
- "... should future economic conditions require the Official Cash Rate to be reduced to zero"
- "Despite the OCR being at a record low of 1.75%, the Reserve Bank sees "significant further room" to ease monetary policy in a conventional way"
- "On a negative OCR the Bulletin article suggests that based on overseas experience, a "modestly negative OCR" could be implemented in NZ"
Yvil, honestly I don't think any of the central banks or economists know how this will play out. How could they possibly? This situation has never happened before, the decade of negligible growth, low inflation (except for assets), the level of debt, China slowing, along with the demographic factors... boomers retiring, population growth slowing, globalisation backlash, technological advancement and robotics etc.
I think it's imminently sensible of RBNZ to get their ducks in a row for any eventuality.
Inflation may have been at its lowest levels in the past decade or so but ask any average Kiwi if they feel any better off than they were in 2007.
Sure the occasional Kiwi might feel richer due to inflated asset prices but that is a future cash inflow if they decide to liquidate their assets. For now, they are met with rising mortgage costs and disappointing pay hikes.
TV and mobile phones are much cheaper than they were a decade ago but when there is a squeeze on a household's discretionary spending due to higher debt servicing, transportation costs (fuel) and rents, the discretionary spending falls and brings inflation down.
Maybe it is time for economists to earn their ridiculously large pay packets and come with a better metric to gauge inflation accurately.
I think you can only say this has never happened before only in terms of the discipline of economics. The trouble is that it is being viewed as a financial or economic situation, when it is a resource issue. I think past civilisations have experience of that. You could perhaps be accurate in saingy that it is the first time it has happened on a world wide scale.
Gingerninja, I very much agree that central bankers have no idea how this will play out. My point was that after saying there's an even chance of an OCR rise or fall in 2019 at the MPS 10 days ago, the RBNZ is now at least contemplating the possibility to drastically lower the OCR. This is a major shift in their language with large implications
The FED increasing the cost of borrowing may slow down the US Economy and may cause Capital flight elsewhere (at worst) or tight money supply at least . Dont be surprised if there is a global recession ( you can always blame Donald Trump for anything and everything )
China has so many out-of-sight issues that rear their heads occasionally , so we should not be surprised if a big one comes along and causes a serious financial meltdown .
Or we could just keep calm and carry on as we are
For anyone going from "Interest Only" back to P&I here's a little gem that I discovered today! Your loan doesn't go back to "P&I", it goes onto "Scheduled Repayment" (no account of any 'offset' credit balances is taken into account in the amount charged, Any 'credit balance' is used to reduce the term, not the repayment $) and if the Variable Interest Rate has risen during the 5 years that it was on 'Interest Only" the Scheduled Repayemnt will be calculated at the highest interest rates over that time - even if it has fallen back again to today's rate ( It went to ~6.75% and that is the rate used in today's calculations). Just lucky we didn't have a spike to 30% in the meantime. So be aware, and check what your repaymenst are going up too.
Admist the white women with mokos and the real estate porn, Granny Herald does a piece on the NZ economy being "over the hill." The only factors they touch on are housing, immigration, and govt spending.
Quite interesting how these national narratives turn on a dime. I thought we were the next Silicon Valley and our technical genius something to be worn like a replica ABs jersey.
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
I love it. The Reserve Bank of Australia are going to have a breakfast meeting with muffins to discuss Chinese debt levels and risk of contagion. I wonder if they had a similar meeting about the lending practices of there own banks 10 years ago.. Oh no they skipped that breakfast and only rescheduled it for earlier this year.. I'll have some more debt with my eggs please.
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