Tuesday, November 23, 2010

Future shock



Bloomberg reported yesterday that:
New Zealand’s credit-rating outlook was lowered to negative by Standard & Poor’s, spurring traders to buy protection on the nation’s debt and snapping a three-day rally in its currency.

“The main risk to the ratings would be a significant weakening in the credit quality of New Zealand’s banking sector,” S&P said in a statement today. The South Pacific nation’s AA+ rating, the second-highest grade, is the same level as Hong Kong’s in the Asia-Pacific region.

New Zealand is in danger of a “prolonged” struggle to recover from the global recession due to diminished demand for its goods and services in the U.S., U.K. and Japan, central bank Governor Alan Bollard said last week. S&P highlighted the danger of a widening current-account deficit that leaves the country increasingly dependent on foreign capital.

“It’s a very slow, fragile recovery,” said Jarrod Kerr, director of rates strategy at Credit Suisse AG in Singapore. “It’s just another warning shot for the government.”

For the rest of the article go here. For something a little different, let's travel down the wormhole to the year 2013 and a destination that this blogger fears could await us. (It only took replacing a few names and numbers, in bold):

Australia's credit-rating outlook was lowered to negative by Standard & Poor’s, spurring traders to buy protection on the nation’s debt and snapping a three-day rally in its currency.

“The main risk to the ratings would be a significant weakening in the credit quality of Australia’s banking sector,” S&P said in a statement today. The South Pacific nation’s AA+ rating, the second-highest grade, is the same level as Hong Kong’s in the Asia-Pacific region.

Australia is in danger of a “prolonged” struggle to recover from the global recession due to diminished prices for its commodities, central bank Governor Guy Debelle said last week. S&P highlighted the danger of a widening current-account deficit that leaves the country increasingly dependent on foreign capital.

“It’s a very slow, fragile recovery,” said Credit Suisse AG in Singapore. “It’s just another warning shot for the government."

Australia’s currency fell to 44 U.S. cents as of 5:07 p.m. in Sydney, having reached as high as 44.2 cents earlier today. Credit-default swaps on the nation’s debt jumped 8 basis points to 150 basis points as of 4:23 p.m. in Wellington, according to National Australia Bank Ltd.

Australia’s 10-year-bond yield rose 8 basis points to 7.75 percent as of 5:06 p.m. in Sydney, the highest level in six months, according to data compiled by Bloomberg. Longer-dated Australian bonds are likely to underperform shorter-dated debt “as the market builds more risk premium” into securities with longer maturities, said CSA.

Debelle said in a twice-yearly report this month that the recovery has been “tepid” and household spending remains constrained. In September, he lowered his 2013 growth forecast to 1.6 percent from 2.1 percent and said the expansion will probably be slower in 2014. Last month Debelle kept the benchmark interest rate unchanged at 1.5 percent.

S&P said Australia’s current-account gap is forecast to widen, and average 6.2 percent of gross domestic product over the next three years, from 3.9 percent in the 12 months to June, as the economy recovers.

“This implies further rises in Australia's external financing needs that are already among the highest of any Standard & Poor’s-rated sovereign,” the company said today.

Finance Minister Andrew Robb said S&P’s move highlights the need to reduce the nation’s reliance on foreign debt.

“This is a long-standing problem for Australia and has left us vulnerable as a country,” he said in a statement. “The government is taking steps to reduce this external vulnerability and to move the economy towards savings and exports.”

Australian policy makers are looking to exports, which make up 15 percent of the country’s $1.5 trillion economy, to boost growth as domestic spending and housing remain sluggish.

The Reserve Bank of Australia said this month that the reliance of the nation’s banking sector on short-term wholesale funding from international markets was exposed as a ”key vulnerability” amid the global credit freeze.

“A further weakening in the recovery has the potential to generate further loan losses in the banking system,” the RBA said. “House sales have stalled for the past six months, and there are signs of prices falling again. Were this to be accompanied by renewed weakness in the labor market, some mortgage borrowers would find themselves in a position of financial stress.”

Just sayin...

4 comments:

Anonymous said...

2013 'eh? At the rate things are going (down) both globally and here viz. the housing market, 2011-12 might be a better guesstimate.

Anonymous said...

Great post.

The Lorax said...

That's exporter p*rn that is.

I have fantasies about a 44c dollar.

Anonymous said...

I too have fantasies about a 44c dollar (provided cable isn't below parity!). I'd have half a chance of paying down my AUD mortgage with my hard-earned sterling.

(I should add the mortgage was taken out in 2005 with 20% deposit and very comfortable 'normalised' interest cover, and was used to fund a long-term purchase which will, in the near future, serve as a roof over my family's head! Call me old fashioned...)