Despite clashes on the Korean and China-India borders, global markets firm again as US Federal Reserve starts money printing to lend to big companies, rather than just banks. Expert fears an eventual US dollar crash

Don’t fight the Fed: Once again, it is the U.S. Federal Reserve to the rescue this week, announcing a new round of bond buying that provided the soothing balm the equity markets needed just as they looked set to trade sharply lower. A resurgence of Covid cases in the US and the Fed’s own downbeat assessment of the economic recovery last week had investors on edge.

‘Don’t worry. There’s always a bailout for us’: However, the announcement that the Fed would extend its bond buying programme to include purchases of US$250 billion of corporate bonds put investors at ease reversing an intraday fall of more than 2 percent and allowing the S&P500 to close up 0.8 percent on Monday and be up nearly two percent this morning.

More stimulus: Investors were also buoyed by a report that the Trump administration is considering a $1 trillion dollar stimulus program that will be focused on infrastructure spending and the possibility this could eventually be expanded to more than $2 trillion.

Asian celebration too: Asia/Pacific markets traded higher on the improved market sentiment with the NZX50 closing up 0.8 percent at 10,954 while the ASX200 kicked into overdrive gaining 3.9 percent to close at 5942. In Japan, the Nikkei also rose sharply gaining 4.9 percent to close at 22,582.

Kiwi pushes higher: The U.S. Fed’s latest actions boosted the NZ dollar yesterday. The kiwi was trading at 64.5 US cents at 7am. 

Mind the gap: Some experts are beginning to voice serious concerns about the consequences of the record US stimulus policies being employed by the U.S. Federal Reserve. Stephen Roach, a leading authority on Asia and a senior fellow at Yale University, is once such voice forecasting that a US dollar crash is now inevitable.

Be warned: The former Morgan Stanley Asia chair told business network CNBC the currency is currently under enormous strain and the US dollar could be on borrowed time. “The US economy has been afflicted with some significant macro imbalances for a long time, namely a very low domestic savings rate and a chronic current account deficit.” He is forecasting the greenback to fall about 35 percent against other major currencies within the next two years.

Oof: That would put the kiwi back at 88 US cents where it was almost six years ago.

Covid takes its toll: Listed commercial and industrial property investor Asset Plus reported a net loss of $14.6 million in the 12 months ended March, reversing a profit of $3.8 million the previous year, due to a $19.1 million write down in the fair value of its property portfolio. Adjusted funds from operations – which its dividend is based on – were unchanged at $4.7 million as increased rental income was offset by higher due diligence costs. The board had already said it won’t pay a fourth-quarter dividend.

Valuations lowered: The pandemic saw the value of its four properties being lowered to $142.1 million and the withdrawal of a planned $100 million capital raising for a major development. The company said rental abatements and relief will hit June quarter earnings by $590,000, and that the full impact of the pandemic won’t be known for some time. Its shares closed down 1c at 37.5 cents.

Not so bad after all: Consumer confidence in the first 10 days in June fell to its lowest level since the depths of the GFC in 2009, but the decline was moderate compared to other downturns. The Westpac McDermott-Miller consumer confidence index fell 7 points in June, to 97.2, its lowest level in more than a decade. The present conditions index fell 9.3 points to 103.4, however, the expected conditions index only fell 5.4 to 99.3. Economists had previously feared a much larger drop.

Holding steady: The survey aligns with stronger-than-expected retail spending on credit and debit cards once the lockdown lifted, which also showed up in the government’s tax take as GST receipts in April exceeded forecasts. However, retailers remain wary that the pent-up consumer demand may be temporary. Westpac economist Dominick Stephens said the better-than-expected confidence figures are likely to reflect New Zealand’s success in limiting the spread of the virus and the earlier than expected easing of the lockdown restrictions.

Another NZ IPO choses ASX: Soft tissue regeneration innovator Aroa Biosurgery which has developed products that are used by surgeons to repair soft tissue wounds and has five patented products selling in the United States looks set to list on the ASX. The company’s IPO bookbuild is expected to take place this Friday. It is seeking to raise $45 million at 75¢ a share. The offer would value Aroa at $225 million on a market capitalisation basis. Wellington based VC fund Movac and founding Movac partner and Aroa non-executive director Phil McCaw will be shareholders in the venture.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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