By Ralph Atkins in Frankfurt, Bertrand Benoit in Berlin and Daniel Pimlott in London
Published: March 31 2009 11:31 | Last updated: April 1 2009 03:29
Eurozone inflation has fallen significantly closer to negative territory, strengthening the case for further European Central Bank action to boost the economy and head off risks of deflation.
The annual inflation rate in the zone fell more than expected to 0.6 per cent in March (from 1.2 per cent in February), Eurostat, the European Union’s statistical unit, reported on Tuesday.
EDITOR’S CHOICE
Deflation fears grow in Spain - Mar-30
Little scope for extra stimulus, says OECD - Apr-01
ECB explores expansion of its economic armoury - Mar-27
Wolfgang Münchau: A new plan needed as the cycle grows vicious - Mar-29
This was the lowest figure since comparable records began in the early 1990s, and pointed to substantial undershooting of the ECB’s target of an annual rate “below but close” to 2 per cent.
The Organisation for Economic Co-operation and Development warned the ECB that mounting “disinflationary pressures” in the next two years implied that the “remaining scope for cutting policy [interest] rates should be used quickly, and quantitative easing policies implemented”.
On current trends, eurozone inflation could turn negative by June, economists said. Oil prices probably accounted for much of the March fall, but weakness of the eurozone added to the downward pressure. Spain, Italy and Ireland were “seeing quite a significant deceleration in underlying inflationary pressures”, said Nick Matthews, European economist at Barclays Capital.
With the eurozone recession broadening, Germany reported a pick-up in the rate of increase in unemployment. The number of jobseekers rose by a seasonally adjusted 69,000 in March to 3.4m – the highest since January last year – pushing the jobless rate up to 8.1 per cent from 8 per cent in February.
Further rises are expected in the coming months as companies stop taking advantage of wage subsidies that have prevented mass layoffs.
The Paris-based OECD expects advanced economies to contract by 4.3 per cent in 2009, with little or no growth in 2010. While the downturn will leave no advanced economies unscathed, the OECD believes that it will be less severe in the US and UK, which are less dependent on trade, even though their banking systems have proved more fragile.
The US is expected to suffer a 4 per cent decline in gross domestic product this year, followed by no growth in 2010, but the eurozone is forecast to contract by 4.1 per cent this year and 0.3 per cent next. Within the eurozone, Germany is expected to see the worst recession, with a 5.3 per cent decline in GDP in 2009.
The ECB is expected to cut the main policy interest rate by a further half point to 1 per cent on Thursday. To fight recession it has focused on flooding the banking sector with unlimited, low-interest liquidity. But it is considering further steps, including buying private-sector debt.
Tuesday, March 31, 2009
Australia, N.Z. Dollars Fall on Retail Sales Drop, Bollard Call
April 1 (Bloomberg) -- The Australian and New Zealand dollars slid on concern weakening economic growth will lead the two nations’ central banks to lower interest rates, sapping the appeal of their assets.
The currencies weakened against the greenback and the yen as U.S. lawmakers said the Obama administration is prepared to let General Motors Corp. and Chrysler LLC go bankrupt. New Zealand’s dollar dropped as central bank Governor Alan Bollard expressed concern about gains in long-term interest rates. Australian retail sales fell by the most since 2000, spurring speculation the central bank may lower its benchmark April 7.
“The retail spending data shows consumers are extremely cautious and really leaves the door open for a rate cut from the Reserve Bank of Australia next week,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “Bollard’s comments triggered the sell-off in” New Zealand’s dollar which may fall toward 55 U.S. cents, while Australia’s dollar may decline to 68 U.S. cents, she said.
Australia’s dollar weakened 0.2 percent to 68.98 U.S. cents as of 1:28 p.m. in Sydney from 69.13 cents late in New York yesterday. It depreciated 0.3 percent to 68.17 yen.
New Zealand’s dollar fell to 55.79 U.S. cents from 57.08 U.S. cents before Bollard’s comment and 55.95 cents late in New York. It bought 55.16 yen from 55.37 yen yesterday.
Gradual Recovery
“We are projecting interest rates to remain at relatively low levels for an extended period,” Bollard said today. “The economic recovery is expected to be very gradual.”
Benchmark interest rates are 3.25 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets.
“There has been a panic rise in interest rates which stemmed from the view that the RBNZ wasn’t going to cut rates to as low as previously thought and hold them as low as thought,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp. “This removes the uncertainty around the easing track.”
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.71 percent from 3.93 percent before the comments. It had climbed as high as 4.12 percent on March 30, after the bank cut its benchmark on March 12 by less than some economists forecast.
Interest Rates
Traders raised bets for a 25 basis point cut by the RBNZ when it meets next April 30 to 100 percent from 72 percent at the start of the week, according to a Credit Suisse index based on swaps trading. Economists expect a reduction to 2.5 percent according to the median forecast of 13 economists surveyed by Bloomberg News. The bank has lowered its benchmark 5.25 percentage points since July.
The Australian dollar weakened 30 percent since a 25-year high reached July 15 as the country’s central bank cut interest rates by four percentage points. Four economists forecast the RBA will leave rates unchanged when it meets April 7, two expect a 25 basis point reduction and 10 predict a 50 basis point cut, according to a separate Bloomberg survey.
A decline in New Zealand’s cash rate to 2.5 percent, “further below the 3.25 percent in Australia, would argue for the Australian dollar above NZ$1.25,” wrote John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., in a note to clients today. The so-called Aussie advanced as high as NZ$1.2388, the most since March 25.
Retail Sales, Manufacturing
Australian retail sales declined 2 percent in February, the Bureau of Statistics said in Sydney today. The median forecast of 18 economists surveyed by Bloomberg News was for a 0.5 percent drop. Manufacturing contracted for a 10th month in March as new orders fell, the Australian Industry Group and PricewaterhouseCoopers said in a report today.
Australia today sold A$600 million ($414 million) of bonds maturing February 2017 at a weighted average yield of 4.29 percent. The government received bids for 3.7 times the securities on offer.
Australian government bonds advanced for a third day. The yield on 10-year notes fell two basis points, or 0.02 percentage point, to 4.41 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.14, or A$1.40 per A$1,000 face amount, to 106.73.
The currencies weakened against the greenback and the yen as U.S. lawmakers said the Obama administration is prepared to let General Motors Corp. and Chrysler LLC go bankrupt. New Zealand’s dollar dropped as central bank Governor Alan Bollard expressed concern about gains in long-term interest rates. Australian retail sales fell by the most since 2000, spurring speculation the central bank may lower its benchmark April 7.
“The retail spending data shows consumers are extremely cautious and really leaves the door open for a rate cut from the Reserve Bank of Australia next week,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “Bollard’s comments triggered the sell-off in” New Zealand’s dollar which may fall toward 55 U.S. cents, while Australia’s dollar may decline to 68 U.S. cents, she said.
Australia’s dollar weakened 0.2 percent to 68.98 U.S. cents as of 1:28 p.m. in Sydney from 69.13 cents late in New York yesterday. It depreciated 0.3 percent to 68.17 yen.
New Zealand’s dollar fell to 55.79 U.S. cents from 57.08 U.S. cents before Bollard’s comment and 55.95 cents late in New York. It bought 55.16 yen from 55.37 yen yesterday.
Gradual Recovery
“We are projecting interest rates to remain at relatively low levels for an extended period,” Bollard said today. “The economic recovery is expected to be very gradual.”
Benchmark interest rates are 3.25 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets.
“There has been a panic rise in interest rates which stemmed from the view that the RBNZ wasn’t going to cut rates to as low as previously thought and hold them as low as thought,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp. “This removes the uncertainty around the easing track.”
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.71 percent from 3.93 percent before the comments. It had climbed as high as 4.12 percent on March 30, after the bank cut its benchmark on March 12 by less than some economists forecast.
Interest Rates
Traders raised bets for a 25 basis point cut by the RBNZ when it meets next April 30 to 100 percent from 72 percent at the start of the week, according to a Credit Suisse index based on swaps trading. Economists expect a reduction to 2.5 percent according to the median forecast of 13 economists surveyed by Bloomberg News. The bank has lowered its benchmark 5.25 percentage points since July.
The Australian dollar weakened 30 percent since a 25-year high reached July 15 as the country’s central bank cut interest rates by four percentage points. Four economists forecast the RBA will leave rates unchanged when it meets April 7, two expect a 25 basis point reduction and 10 predict a 50 basis point cut, according to a separate Bloomberg survey.
A decline in New Zealand’s cash rate to 2.5 percent, “further below the 3.25 percent in Australia, would argue for the Australian dollar above NZ$1.25,” wrote John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., in a note to clients today. The so-called Aussie advanced as high as NZ$1.2388, the most since March 25.
Retail Sales, Manufacturing
Australian retail sales declined 2 percent in February, the Bureau of Statistics said in Sydney today. The median forecast of 18 economists surveyed by Bloomberg News was for a 0.5 percent drop. Manufacturing contracted for a 10th month in March as new orders fell, the Australian Industry Group and PricewaterhouseCoopers said in a report today.
Australia today sold A$600 million ($414 million) of bonds maturing February 2017 at a weighted average yield of 4.29 percent. The government received bids for 3.7 times the securities on offer.
Australian government bonds advanced for a third day. The yield on 10-year notes fell two basis points, or 0.02 percentage point, to 4.41 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.14, or A$1.40 per A$1,000 face amount, to 106.73.
Asian Stocks Climb as U.S. Automaker Speculation Boosts Honda
April 1 (Bloomberg) -- Asian stocks gained, led by automakers and commodity producers, on speculation the U.S. will let General Motors Corp. and Chrysler LLC fail, and after raw- material prices rose.
Honda Motor Co., which generates more than half its sales in North America, climbed 6.9 percent and South Korea’s Hyundai Motor Co. added 5.2 percent on optimism they will boost U.S. market share. The U.S. government is prepared to let Chrysler go bankrupt and be sold off piecemeal, while General Motors appears headed for a prepackaged bankruptcy, people familiar with the matter said. Santos Ltd., Australia’s No. 3 oil and gas producer, rose 2.8 percent after oil prices climbed.
The MSCI Asia Pacific Index gained 1.8 percent to 82.41 as of 10:52 a.m. in Tokyo, following a two-day, 5.3 percent slump. The gauge rose 7.6 percent last month, its first advance in 2009, as some investors bet governments worldwide will succeed in easing the financial crisis and reviving global growth.
“I would say we are cautiously optimistic about the outlook of the economy going forward,” said Diane Lin, a Sydney-based fund manager at Pengana Capital, which oversees about $1.9 billion. “Globally, the Japanese auto industry is the most competitive, and because of concern about the outlook and about the U.S., these companies are trading on very attractive valuations.”
Japan’s Nikkei 225 Stock Average rose 2.4 percent to 8,301.50. South Korea’s Kospi Index climbed 2.6 percent. Australia’s key index was little changed, with gains limited as the nation’s manufacturing slumped for a 10th consecutive month. OneSteel Ltd., Australia’s No. 2 steelmaker, slumped 7.1 percent after extending production cuts.
Automaker Bankruptcies
Futures on the Standard & Poor’s 500 Index slumped 1 percent, following the gauge’s 1.3 percent rally yesterday. Futures accelerated declines as news of the U.S. government’s plans for the automakers emerged.
U.S. President Barack Obama will let Chrysler go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, said members of Congress who have been briefed on the subject and two other people familiar with the administration’s deliberations. A prepackaged bankruptcy for GM appears to be inevitable, the people said.
U.S. March auto sales data due later today are expected to come in at an annualized rate of 8.8 million vehicles, which would be the lowest since December 1981, according to economists in a Bloomberg News survey.
The MSCI Asia Pacific Index’s March rally pared its decline last quarter to 9.7 percent amid growing signs the global recession is hurting corporate earnings.
Tankan Survey
The Bank of Japan’s quarterly Tankan survey of sentiment among large manufacturers that was released today fell to minus 58, a record low and worse than economists had predicted.
Capital spending plans only dropped by half as much as economists had forecast and managers said they expect a rebound in profits starting in the second half of the financial year that begins today.
Japanese Prime Minister Taro Aso said yesterday his administration will compile a third stimulus package by mid- April to address the “economic crisis.”
Crude oil for May delivery rose 2.6 percent to $49.66 a barrel in New York yesterday, capping an 11 percent gain over three months. A measure of six primary metals traded in London advanced 2.1 percent.
Honda Motor Co., which generates more than half its sales in North America, climbed 6.9 percent and South Korea’s Hyundai Motor Co. added 5.2 percent on optimism they will boost U.S. market share. The U.S. government is prepared to let Chrysler go bankrupt and be sold off piecemeal, while General Motors appears headed for a prepackaged bankruptcy, people familiar with the matter said. Santos Ltd., Australia’s No. 3 oil and gas producer, rose 2.8 percent after oil prices climbed.
The MSCI Asia Pacific Index gained 1.8 percent to 82.41 as of 10:52 a.m. in Tokyo, following a two-day, 5.3 percent slump. The gauge rose 7.6 percent last month, its first advance in 2009, as some investors bet governments worldwide will succeed in easing the financial crisis and reviving global growth.
“I would say we are cautiously optimistic about the outlook of the economy going forward,” said Diane Lin, a Sydney-based fund manager at Pengana Capital, which oversees about $1.9 billion. “Globally, the Japanese auto industry is the most competitive, and because of concern about the outlook and about the U.S., these companies are trading on very attractive valuations.”
Japan’s Nikkei 225 Stock Average rose 2.4 percent to 8,301.50. South Korea’s Kospi Index climbed 2.6 percent. Australia’s key index was little changed, with gains limited as the nation’s manufacturing slumped for a 10th consecutive month. OneSteel Ltd., Australia’s No. 2 steelmaker, slumped 7.1 percent after extending production cuts.
Automaker Bankruptcies
Futures on the Standard & Poor’s 500 Index slumped 1 percent, following the gauge’s 1.3 percent rally yesterday. Futures accelerated declines as news of the U.S. government’s plans for the automakers emerged.
U.S. President Barack Obama will let Chrysler go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, said members of Congress who have been briefed on the subject and two other people familiar with the administration’s deliberations. A prepackaged bankruptcy for GM appears to be inevitable, the people said.
U.S. March auto sales data due later today are expected to come in at an annualized rate of 8.8 million vehicles, which would be the lowest since December 1981, according to economists in a Bloomberg News survey.
The MSCI Asia Pacific Index’s March rally pared its decline last quarter to 9.7 percent amid growing signs the global recession is hurting corporate earnings.
Tankan Survey
The Bank of Japan’s quarterly Tankan survey of sentiment among large manufacturers that was released today fell to minus 58, a record low and worse than economists had predicted.
Capital spending plans only dropped by half as much as economists had forecast and managers said they expect a rebound in profits starting in the second half of the financial year that begins today.
Japanese Prime Minister Taro Aso said yesterday his administration will compile a third stimulus package by mid- April to address the “economic crisis.”
Crude oil for May delivery rose 2.6 percent to $49.66 a barrel in New York yesterday, capping an 11 percent gain over three months. A measure of six primary metals traded in London advanced 2.1 percent.
Monday, March 30, 2009
Deutsche Bank Risk Chief Banziger Says Crisis ‘Far From Over’
March 31 (Bloomberg) -- Deutsche Bank AG Chief Risk Officer Hugo Banziger said the credit crisis is “far from over” and global financial regulations must be overhauled to regain investor trust.
“We are in the middle of it,” Banziger, 53, said yesterday at the Frankfurt School of Finance and Management. The industry has “an opportunity” to build a stable financial system that seeks higher capital buffers, while encouraging investors to return money to the market and help stem the crisis, he said.
Deutsche Bank in February reported its first annual deficit in more than 50 years after the worst financial crisis since the Great Depression pummeled bond and stock trading. The crisis has caused $1.3 trillion in losses for financial companies worldwide, a total that may climb to more than $3 trillion, Banziger said yesterday, citing forecasts.
Deutsche Bank has gained 40 percent this month in Frankfurt trading, valuing the bank at 18 billion euros ($24 billion), and eclipsing the 5 percent advance in the Bloomberg Europe Banks and Financial Services Index of 65 companies. The bank fell 10 percent to 28.75 euros in trading yesterday.
The German bank skirted the worst of the U.S. subprime mortgage collapse by betting against the bonds that contributed to credit losses and writedowns at the world’s largest financial companies and forced government-led bailouts from Berlin to London to Washington.
The German bank has booked about 9.3 billion euros in writedowns since the start of the U.S. subprime mortgage crisis in 2007. UBS AG in Zurich has had $50.6 billion of costs and New York-based Citigroup $88.3 billion, according to data compiled by Bloomberg.
Credit Spreads
Banziger said credit spreads are higher than before Lehman Brothers Holdings Inc. collapsed last year, which he said signaled the crisis was far from ending.
The cost of protecting European corporate bonds from default rose, according to traders of swaps. Contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high- risk, high-yield credit ratings rose 33 basis points yesterday to 943, according to JPMorgan Chase & Co. in London.
The index is a benchmark for the cost of protecting bonds against default, and an increase signals deterioration in the perception of credit quality.
Deutsche Bank is resisting pressure to take government aid or raise additional capital to protect existing shareholders that have seen the value of their stock decline, Banziger said.
“One of my top priorities is to make sure that those who lost money recover it,” Banziger said. Protecting shareholder value is “our deep philosophy” and Deutsche Bank’s management “will stand by this.”
Tier 1 Capital
Deutsche Bank has several times raised a goal for Tier 1 capital, a key measure of solvency, Banziger said. The bank’s Tier 1 ratio is 10 percent, which may be insufficient in the future and result in boosting the standard to 12 percent, he said.
Banziger said a so-called bad bank in Germany to buy toxic assets from financial companies “can work,” though it would require an accepted process to value the securities and sufficient specialists to oversee the entity.
Banziger praised the German government for intervening with Hypo Real Estate Holding AG, the bailed out commercial-property lender, saying the company can’t be allowed to “crash against the wall.” Germany’s bank rescue fund, Soffin, said during the weekend that it will buy an 8.7 percent stake in Hypo Real Estate and plans to gain “full control.” The move presages the first bank nationalization in Germany since the 1930s.
‘Systemically Important’
Banziger said an institution such as Deutsche Bank is “systemically important” and “if anything happens” to the bank, it would cause “serious problems” in the euro zone. Government and regulators would act if needed, he said.
Regulators need the power to withdraw licenses from banks that take on more risk than they can absorb, and “they should’ve done that with a couple of institutions earlier in the crisis,” Banziger said.
Banziger criticized a lack of supervision for off-balance- sheet investment vehicles and urged more regulation. “It’s like in road traffic: not all Porsche drivers can drive like they want to. A red light means everyone has to stop,” he said. Compensation should also be geared more toward long-term success, he said.
“We are in the middle of it,” Banziger, 53, said yesterday at the Frankfurt School of Finance and Management. The industry has “an opportunity” to build a stable financial system that seeks higher capital buffers, while encouraging investors to return money to the market and help stem the crisis, he said.
Deutsche Bank in February reported its first annual deficit in more than 50 years after the worst financial crisis since the Great Depression pummeled bond and stock trading. The crisis has caused $1.3 trillion in losses for financial companies worldwide, a total that may climb to more than $3 trillion, Banziger said yesterday, citing forecasts.
Deutsche Bank has gained 40 percent this month in Frankfurt trading, valuing the bank at 18 billion euros ($24 billion), and eclipsing the 5 percent advance in the Bloomberg Europe Banks and Financial Services Index of 65 companies. The bank fell 10 percent to 28.75 euros in trading yesterday.
The German bank skirted the worst of the U.S. subprime mortgage collapse by betting against the bonds that contributed to credit losses and writedowns at the world’s largest financial companies and forced government-led bailouts from Berlin to London to Washington.
The German bank has booked about 9.3 billion euros in writedowns since the start of the U.S. subprime mortgage crisis in 2007. UBS AG in Zurich has had $50.6 billion of costs and New York-based Citigroup $88.3 billion, according to data compiled by Bloomberg.
Credit Spreads
Banziger said credit spreads are higher than before Lehman Brothers Holdings Inc. collapsed last year, which he said signaled the crisis was far from ending.
The cost of protecting European corporate bonds from default rose, according to traders of swaps. Contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high- risk, high-yield credit ratings rose 33 basis points yesterday to 943, according to JPMorgan Chase & Co. in London.
The index is a benchmark for the cost of protecting bonds against default, and an increase signals deterioration in the perception of credit quality.
Deutsche Bank is resisting pressure to take government aid or raise additional capital to protect existing shareholders that have seen the value of their stock decline, Banziger said.
“One of my top priorities is to make sure that those who lost money recover it,” Banziger said. Protecting shareholder value is “our deep philosophy” and Deutsche Bank’s management “will stand by this.”
Tier 1 Capital
Deutsche Bank has several times raised a goal for Tier 1 capital, a key measure of solvency, Banziger said. The bank’s Tier 1 ratio is 10 percent, which may be insufficient in the future and result in boosting the standard to 12 percent, he said.
Banziger said a so-called bad bank in Germany to buy toxic assets from financial companies “can work,” though it would require an accepted process to value the securities and sufficient specialists to oversee the entity.
Banziger praised the German government for intervening with Hypo Real Estate Holding AG, the bailed out commercial-property lender, saying the company can’t be allowed to “crash against the wall.” Germany’s bank rescue fund, Soffin, said during the weekend that it will buy an 8.7 percent stake in Hypo Real Estate and plans to gain “full control.” The move presages the first bank nationalization in Germany since the 1930s.
‘Systemically Important’
Banziger said an institution such as Deutsche Bank is “systemically important” and “if anything happens” to the bank, it would cause “serious problems” in the euro zone. Government and regulators would act if needed, he said.
Regulators need the power to withdraw licenses from banks that take on more risk than they can absorb, and “they should’ve done that with a couple of institutions earlier in the crisis,” Banziger said.
Banziger criticized a lack of supervision for off-balance- sheet investment vehicles and urged more regulation. “It’s like in road traffic: not all Porsche drivers can drive like they want to. A red light means everyone has to stop,” he said. Compensation should also be geared more toward long-term success, he said.
Australia Central Bank Says Economy to Shrink in 2009
March 31 (Bloomberg) -- Australia’s economy will probably contract this year for the first time in almost two decades amid slumping global demand for exports, central bank Deputy Governor Ric Battellino said.
“There are limits on how much we can insulate ourselves from what is happening abroad, and therefore there are probably still some difficult times ahead,” Battellino told a conference in Brisbane today. Gross domestic product is “likely to fall in 2009,” he said. In February, the bank tipped 0.5 percent growth.
To stoke an economy that contracted in the fourth quarter for the first time in eight years as exporters such as BHP Billiton Ltd. shipped less coal and iron ore, policy makers have slashed the benchmark interest rate by a record four percentage points since early September to a 45-year low of 3.25 percent. The cuts “have been effective and there remains scope to ease policy further if circumstances require,” Battellino said.
“If they are going to move, it is better they cut rates sooner rather than later,” said Su-Lin Ong, a senior economist at RBC Capital Markets in Sydney. “Australia is not immune to what happens overseas, but is still better placed than many nations.”
The Australian dollar traded at 68.27 U.S. cents at noon in Sydney from 68.11 cents before the speech. Government bonds extended gains after the comments. The yield on the two-year note fell 6 basis points, or 0.06 percentage point, to 2.84 percent from yesterday.
Rate Outlook
The benchmark S&P/ASX 200 stock index fell 0.3 percent to 3593, led by shares of banks, mining companies and makers of building materials.
Reserve Bank of Australia policy makers will cut the overnight cash rate target by at least a quarter-point to 3 percent on April 7, according to 12 of 16 economists surveyed by Bloomberg News late last week. Four tipped no change.
Increased spending by Australia’s federal and state governments, including Prime Minister Kevin Rudd’s A$42 billion ($28.6 billion) stimulus package announced in February, will “go a long way” to offset negative influences on the economy coming from abroad, Battellino told an Urban Development Institute of Australia conference.
“Australia will remain one of the better-performing economies in the developed world and be well placed to benefit from the renewed global expansion when it comes,” he said.
About-Face
Still, his forecast for a drop in GDP this year comes less than two months after the bank predicted the economy would expand 0.25 percent in the 12 months through June, 0.5 percent in calendar 2009 and 2.5 percent next year.
“No amount of good economic management can totally shield us from what is happening in the global economy,” Battellino said.
The economy hasn’t been in a recession since 1991, when it shrank 1.3 percent, according to Anthony Thompson at Westpac Banking Corp., one of 16 economists surveyed by Bloomberg News who predict the economy is either in, or headed, for a recession.
While Battellino said he doesn’t know whether the economy is already in a recession, defined as two quarters of negative GDP, “most households will feel this downturn is severe enough that they’ll see it as a recession.”
Companies including underwear maker Pacific Brands Ltd. and BHP Billiton, the world’s biggest miner, fired the largest number of full-time workers in almost two decades in February, driving the jobless rate to a four-year high of 5.2 percent.
China Outlook
It will “be a while” before it’s known whether an economic slump has bottomed in China, Australia’s biggest trading partner, Battellino said.
“My guess is that the Chinese authorities, like everybody else, were caught by surprise at the suddenness of the downturn,” he said.
Given China has since “reacted with great speed and vigor in implementing monetary and fiscal measures to stimulate their economy,” it is possible the past six months will turn out to have been the period of “maximum weakness.”
Also, the U.S., the “country at the heart of the global crisis, is making reasonable progress” in attempts to restore its banking system, Battellino said.
Australia’s economy has also been affected by a halving of commodity prices from “boom levels” during the middle of last year, Battellino said. “This has resulted in a large loss of real income to the economy.”
Economy Contracts
GDP unexpectedly shrank 0.5 percent in the fourth quarter from the previous three months, and exports fell 5 percent in January, reports showed this month. Farm shipments dropped 3 percent and coal slumped 19 percent, the government said March 5.
Battellino said Australia’s central bank has reacted with a “very substantial lowering of interest rates,” which unlike many other countries, has pushed borrowing costs for businesses and households to “historically low levels.”
Households with an average-sized mortgage of A$250,000 are paying A$7,000 a year less than they were six months ago, which is equal to 8 percent of average family incomes, according to the central bank.
“There are limits on how much we can insulate ourselves from what is happening abroad, and therefore there are probably still some difficult times ahead,” Battellino told a conference in Brisbane today. Gross domestic product is “likely to fall in 2009,” he said. In February, the bank tipped 0.5 percent growth.
To stoke an economy that contracted in the fourth quarter for the first time in eight years as exporters such as BHP Billiton Ltd. shipped less coal and iron ore, policy makers have slashed the benchmark interest rate by a record four percentage points since early September to a 45-year low of 3.25 percent. The cuts “have been effective and there remains scope to ease policy further if circumstances require,” Battellino said.
“If they are going to move, it is better they cut rates sooner rather than later,” said Su-Lin Ong, a senior economist at RBC Capital Markets in Sydney. “Australia is not immune to what happens overseas, but is still better placed than many nations.”
The Australian dollar traded at 68.27 U.S. cents at noon in Sydney from 68.11 cents before the speech. Government bonds extended gains after the comments. The yield on the two-year note fell 6 basis points, or 0.06 percentage point, to 2.84 percent from yesterday.
Rate Outlook
The benchmark S&P/ASX 200 stock index fell 0.3 percent to 3593, led by shares of banks, mining companies and makers of building materials.
Reserve Bank of Australia policy makers will cut the overnight cash rate target by at least a quarter-point to 3 percent on April 7, according to 12 of 16 economists surveyed by Bloomberg News late last week. Four tipped no change.
Increased spending by Australia’s federal and state governments, including Prime Minister Kevin Rudd’s A$42 billion ($28.6 billion) stimulus package announced in February, will “go a long way” to offset negative influences on the economy coming from abroad, Battellino told an Urban Development Institute of Australia conference.
“Australia will remain one of the better-performing economies in the developed world and be well placed to benefit from the renewed global expansion when it comes,” he said.
About-Face
Still, his forecast for a drop in GDP this year comes less than two months after the bank predicted the economy would expand 0.25 percent in the 12 months through June, 0.5 percent in calendar 2009 and 2.5 percent next year.
“No amount of good economic management can totally shield us from what is happening in the global economy,” Battellino said.
The economy hasn’t been in a recession since 1991, when it shrank 1.3 percent, according to Anthony Thompson at Westpac Banking Corp., one of 16 economists surveyed by Bloomberg News who predict the economy is either in, or headed, for a recession.
While Battellino said he doesn’t know whether the economy is already in a recession, defined as two quarters of negative GDP, “most households will feel this downturn is severe enough that they’ll see it as a recession.”
Companies including underwear maker Pacific Brands Ltd. and BHP Billiton, the world’s biggest miner, fired the largest number of full-time workers in almost two decades in February, driving the jobless rate to a four-year high of 5.2 percent.
China Outlook
It will “be a while” before it’s known whether an economic slump has bottomed in China, Australia’s biggest trading partner, Battellino said.
“My guess is that the Chinese authorities, like everybody else, were caught by surprise at the suddenness of the downturn,” he said.
Given China has since “reacted with great speed and vigor in implementing monetary and fiscal measures to stimulate their economy,” it is possible the past six months will turn out to have been the period of “maximum weakness.”
Also, the U.S., the “country at the heart of the global crisis, is making reasonable progress” in attempts to restore its banking system, Battellino said.
Australia’s economy has also been affected by a halving of commodity prices from “boom levels” during the middle of last year, Battellino said. “This has resulted in a large loss of real income to the economy.”
Economy Contracts
GDP unexpectedly shrank 0.5 percent in the fourth quarter from the previous three months, and exports fell 5 percent in January, reports showed this month. Farm shipments dropped 3 percent and coal slumped 19 percent, the government said March 5.
Battellino said Australia’s central bank has reacted with a “very substantial lowering of interest rates,” which unlike many other countries, has pushed borrowing costs for businesses and households to “historically low levels.”
Households with an average-sized mortgage of A$250,000 are paying A$7,000 a year less than they were six months ago, which is equal to 8 percent of average family incomes, according to the central bank.
Moscow fights job losses with $1bn aid plan
Published: March 31 2009 03:22 | Last updated: March 31 2009 03:22
Vladimir Putin announced more than $1bn in state support for Russia’s embattled car industry on Monday in an effort to stave off job losses and prevent social unrest.
Unemployment in Russia has shot up since the global financial crisis caught up with the country last August. On Monday, the World Bank forecast a jobless rate for the country in 2009 of 12 per cent – up from 8.5 per cent in February.
EDITOR’S CHOICE
In depth: Russia’s financial fallout - Nov-04
State aid urged for Russian banks - Mar-26
Russian reformer hails low commodity prices - Mar-24
Kremlin refuses to bail out Russian oligarchs - Mar-21
Editorial: Tests of maturity - Mar-16
Medvedev says crisis is a test - Mar-16
Faced with mounting discontent in industrial towns across Russia, the Kremlin has been doing its best to convince business leaders not to make people redundant while, at the same time, being selective about the industries it bails out.
Mr Putin made the announcement of state aid in the city of Togliatti, home to Avtovaz, Russia’s largest carmaker. The prime minister heaped praise on the company for its restraint in regard to laying off workers.
“Unlike some other companies, Avtovaz has not fired workers en masse and that is an expensive feat,” he said, adding an unfavourable comparison with General Motors, the US car group, which, he said, had laid off 34,000 people.
Mr Putin ordered disbursement of Rbs25bn ($737m) in state funds to Avtovaz and asked state banks to lend another Rbs8bn, Reuters reported. He announced Rbs13.6bn in state loan guarantees to other carmakers. Avtovaz is 25 per cent owned by France’s Renault. Avtovaz shares rose 28 per cent on news of the bail-out.
The state aid comes as the World Bank issued a dire forecast of the crisis in Russia, saying it would be far worse than official government predictions. The bank said Russia’s gross domestic product would contract by 4.5 per cent this year, compared with the official forecast of a 2.2 per cent fall.
The bank said the state would need to increase social spending to help vulnerable people. It urged the government to spend up to 1 per cent of GDP to save 4m people from poverty and stave off social unrest.
“The social situation has worsened so rapidly and so unexpectedly that it is important to shift the focus of the anti-crisis policy to the population,” said Zeljko Bogetic, the bank’s chief economist on Russia.
Vladimir Putin announced more than $1bn in state support for Russia’s embattled car industry on Monday in an effort to stave off job losses and prevent social unrest.
Unemployment in Russia has shot up since the global financial crisis caught up with the country last August. On Monday, the World Bank forecast a jobless rate for the country in 2009 of 12 per cent – up from 8.5 per cent in February.
EDITOR’S CHOICE
In depth: Russia’s financial fallout - Nov-04
State aid urged for Russian banks - Mar-26
Russian reformer hails low commodity prices - Mar-24
Kremlin refuses to bail out Russian oligarchs - Mar-21
Editorial: Tests of maturity - Mar-16
Medvedev says crisis is a test - Mar-16
Faced with mounting discontent in industrial towns across Russia, the Kremlin has been doing its best to convince business leaders not to make people redundant while, at the same time, being selective about the industries it bails out.
Mr Putin made the announcement of state aid in the city of Togliatti, home to Avtovaz, Russia’s largest carmaker. The prime minister heaped praise on the company for its restraint in regard to laying off workers.
“Unlike some other companies, Avtovaz has not fired workers en masse and that is an expensive feat,” he said, adding an unfavourable comparison with General Motors, the US car group, which, he said, had laid off 34,000 people.
Mr Putin ordered disbursement of Rbs25bn ($737m) in state funds to Avtovaz and asked state banks to lend another Rbs8bn, Reuters reported. He announced Rbs13.6bn in state loan guarantees to other carmakers. Avtovaz is 25 per cent owned by France’s Renault. Avtovaz shares rose 28 per cent on news of the bail-out.
The state aid comes as the World Bank issued a dire forecast of the crisis in Russia, saying it would be far worse than official government predictions. The bank said Russia’s gross domestic product would contract by 4.5 per cent this year, compared with the official forecast of a 2.2 per cent fall.
The bank said the state would need to increase social spending to help vulnerable people. It urged the government to spend up to 1 per cent of GDP to save 4m people from poverty and stave off social unrest.
“The social situation has worsened so rapidly and so unexpectedly that it is important to shift the focus of the anti-crisis policy to the population,” said Zeljko Bogetic, the bank’s chief economist on Russia.
Sunday, March 29, 2009
Australian, New Zealand Dollars Fall as Regional Stocks Slide
March 30 (Bloomberg) -- The Australian and New Zealand dollars slid for a second day as regional stocks and commodities tumbled on concerns about the depth of the global recession.
New Zealand’s currency pared its strongest month of gains since 1985 as factory output in Japan, the world’s second- largest economy, fell for a fifth month in February, its longest losing streak since 2001. The U.S. jobless rate climbed in March to the highest level since 1983 and manufacturing shrank, putting the recession on the brink of becoming the longest in seven decades, economists said before reports this week.
“The last two days of March are likely to be a bit of a whimper with the markets giving back some of this month’s gains,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. “The market is looking for signs of life in the economy.”
Australia’s currency fell 0.6 percent to 69.09 U.S. cents as of 12:29 p.m. in Sydney, paring its advance in March to 8 percent, its best monthly performance since 2007. The currency slipped 0.4 percent to 67.69 yen from 67.93 yen late in New York on March 27.
New Zealand’s dollar declined 0.5 percent to 56.69 U.S. cents from 57.06 cents in New York. It has strengthened 13 percent in March, the most since August 1985. It bought 55.60 yen, taking this month’s advance to 14 percent, also the most since 1985.
Australia’s dollar may fall toward 68.70 U.S. cents today while New Zealand’s may slide toward 56.02 cents, Sinton said.
Homes Sales, Futures Bets
New Zealand home-building approvals rose for the first time in three months in February. Approvals jumped 11.6 percent from January when they declined 13 percent to a record, Statistics New Zealand said in Wellington today, citing seasonally adjusted figures. Australian sales of newly built home gained 3.9 percent in February, the Housing Industry Association said in a report e-mailed to Bloomberg News today.
Futures traders reversed bets that the Australian dollar will decline against the greenback, holding the largest net long position since August, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 8,413 on March 24, compared with net shorts of 419 a week earlier.
Quarterly Declines
The Australian dollar is set to decline 1.5 percent in the three months to March 31, its third straight decline after dropping 11 percent and 17 percent in the September and December quarters, respectively. New Zealand’s currency will slide 2 percent, the smallest drop in four consecutive quarters of losses.
The currencies weakened after their central banks slashed interest rates amid falling prices for commodities and equities as the industrialized world enters a synchronized recession. Benchmark interest rates are 3.25 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S.
Australian private sector credit grew 0.5 percent in February while retail sales last month shrank for the first time in five months, according to economists polled by Bloomberg News. The data will be released March 31 and April 1, respectively.
Australian government bonds rose, ending the longest stretch of losses since February 2008. The yield on 10-year notes fell four basis points, or 0.04 percentage point, to 4.53 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 added 0.30, or A$3 per A$1,000 face amount, to 105.74.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.09 percent from 3.85 percent on March 27.
New Zealand’s currency pared its strongest month of gains since 1985 as factory output in Japan, the world’s second- largest economy, fell for a fifth month in February, its longest losing streak since 2001. The U.S. jobless rate climbed in March to the highest level since 1983 and manufacturing shrank, putting the recession on the brink of becoming the longest in seven decades, economists said before reports this week.
“The last two days of March are likely to be a bit of a whimper with the markets giving back some of this month’s gains,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. “The market is looking for signs of life in the economy.”
Australia’s currency fell 0.6 percent to 69.09 U.S. cents as of 12:29 p.m. in Sydney, paring its advance in March to 8 percent, its best monthly performance since 2007. The currency slipped 0.4 percent to 67.69 yen from 67.93 yen late in New York on March 27.
New Zealand’s dollar declined 0.5 percent to 56.69 U.S. cents from 57.06 cents in New York. It has strengthened 13 percent in March, the most since August 1985. It bought 55.60 yen, taking this month’s advance to 14 percent, also the most since 1985.
Australia’s dollar may fall toward 68.70 U.S. cents today while New Zealand’s may slide toward 56.02 cents, Sinton said.
Homes Sales, Futures Bets
New Zealand home-building approvals rose for the first time in three months in February. Approvals jumped 11.6 percent from January when they declined 13 percent to a record, Statistics New Zealand said in Wellington today, citing seasonally adjusted figures. Australian sales of newly built home gained 3.9 percent in February, the Housing Industry Association said in a report e-mailed to Bloomberg News today.
Futures traders reversed bets that the Australian dollar will decline against the greenback, holding the largest net long position since August, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 8,413 on March 24, compared with net shorts of 419 a week earlier.
Quarterly Declines
The Australian dollar is set to decline 1.5 percent in the three months to March 31, its third straight decline after dropping 11 percent and 17 percent in the September and December quarters, respectively. New Zealand’s currency will slide 2 percent, the smallest drop in four consecutive quarters of losses.
The currencies weakened after their central banks slashed interest rates amid falling prices for commodities and equities as the industrialized world enters a synchronized recession. Benchmark interest rates are 3.25 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S.
Australian private sector credit grew 0.5 percent in February while retail sales last month shrank for the first time in five months, according to economists polled by Bloomberg News. The data will be released March 31 and April 1, respectively.
Australian government bonds rose, ending the longest stretch of losses since February 2008. The yield on 10-year notes fell four basis points, or 0.04 percentage point, to 4.53 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 added 0.30, or A$3 per A$1,000 face amount, to 105.74.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.09 percent from 3.85 percent on March 27.
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