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Brexit Result – what does it mean for New Zealand, the RBNZ, Gold and Sterling?

June 28, 2016 Leave a comment

The impact of Brexit on the New Zealand economy should be limited when you consider the following statistics:

  • 3.5% of total exports from NZ go to the UK – mainly sheep and wine.
  • 2.7% of total imports from the UK to NZ – mainly transport goods
  • 6.7% of all short-term visitor arrivals come from the UK

When the UK joined the EEC (as it was then know as) in 1973 there was a major shift away from trade with the Commonwealth. However New Zealand has been able to move away from the traditional dependency of the Commonwealth to become increasingly integrated to the Asia Pacific region.

Reserve Bank of New Zealand

The RBNZ is a good position even with a record low OCR of 2.25% which paradoxically is among the highest in the developed world. By not being aggressive with OCR cuts the RBNZ has the ammunition to stimulate aggregate demand further which is in contrast to the European Central Bank and the Bank of Japan who are in negative territory. With the turmoil in Europe over Brexit the US Fed will most likely hold off on a rate hike to ease the pressure on markets – it may even cut the US Fed rate.

Gold and Sterling – US$ rate

The graph below shows the reaction to the Brexit – GBP drops significantly against the US$ and gold, as a safe investment, appreciates in value. The uncertainty that surrounds Brexit saw more investors buy gold, which rose to about $1,315 an ounce on June 24th, up by 4.7% on the previous day. This was the largest increase since the global financial crisis in 2008. The rise was in stark contrast to the plunging pound, which tumbled to its lowest level in 30 years.

 

Brexit - Gold USD

Below is video from the FT looking at Five Consequences of the UK’s exit form the EU.

Categories: Euro, Trade Tags: ,

Brexit – consequences of leaving or staying

June 21, 2016 Leave a comment

On Thursday the UK vote whether to stay or leave the European Union. Below are some consequences and also a good video clip from the FT.

Brexit

Categories: Euro, Trade Tags:

FT Pub Quiz – What has the EU ever done for us?

February 23, 2016 Leave a comment

Remember the line in Monty Python movie ‘Life of Brian’, ‘What have the Romans ever done for us?’ This can be applied to the question of a British exit from the EU – ‘What has the EU ever done for us?’ Below is an informative video clip from the FT with a bit of humour. The questions in the Pub Quiz are:

  1. Which country I am describing in the year it joined the EU? Is the poorest European nation – incomes slipping behind its European competitors by £185 per year. Regular power cuts.
  2. In 2015 who was richer? The average person in German, France and Italy or England, Scotland and Wales?
  3. What caused Britain’s improved performance?
  4. How has Britain’s membership of the EU improved economic performance?
  5. Has the EU made Britain richer?

Basically the answers suggest that EU membership has been very beneficial to the British economy.

 

Categories: Euro, Trade Tags: ,

When not to put your money in the bank.

January 4, 2016 2 comments

Negative interest ratesIt seems that in Europe negative interest rates are common place. Below are the current rates of some central banks:

European Central Bank -0.3%
Swiss National Bank -0.75%;
Danish Central bank -0.75%
Swedish Central Bank -1.1%

Why are they in negative territory?
For all these countries it is the the exchange rate against the Euro that is important. Negative interest rates weaken a country’s currency and make imports more expensive and exports cheaper. Furthermore central banks could be trying to prevent a slide into deflation, or a spiral of falling prices that could derail the recovery.

In theory, interest rates below zero should reduce borrowing costs for companies and households, driving demand for loans. In practice, there’s a risk that the policy might do more harm than good. If banks make more customers pay to hold their money, cash may go under the mattress instead. Janet Yellen, the U.S. Federal Reserve chair, said at her confirmation hearing in November 2013 that even a deposit rate that’s positive but close to zero could disrupt the money markets that help fund financial institutions. Two years later, she said that a change in economic circumstances could put negative rates “on the table” in the U.S., and Bank of England Governor Mark Carney said he could now cut the benchmark rate below the current 0.5 percent if necessary. Deutsche Bank economists note that negative rates haven’t sparked the bank runs or cash hoarding some had feared, in part because banks haven’t passed them on to their customers. But there’s still a worry that when banks absorb the cost themselves, it squeezes the profit margin between their lending and deposit rates, and might make them even less willing to lend. Ever-lower rates also fuel concern that countries are engaged in a currency war of competitive devaluations. Source: Bloomberg

Categories: Euro, Interest Rates Tags:

Clarke & Dawe on Grexit

August 19, 2015 Leave a comment

Another satirical clip from Clarke and Dawe of ABC in Australia, this time on the crisis in Greece and understanding Grexit. Interesting use of the word ‘Grexitentialism’.

Categories: Eco Comedy, Euro Tags:

Greece – the problems started with the euro-entry exam in 2000

July 4, 2015 Leave a comment

When Greece went through euro-zone entry exam in 2000 it is said that it cheated on its deficit figures. Greece was able to enter the currency bloc after claiming its deficit was less than 1% of GDP, well within the bloc’s 3% threshold. EU reports have since revealed Greece’s budget hasn’t been within the 3% limit a single year since its accession. Below is a video from RealNews which explains the background to the present crisis. Worth a look

Categories: Euro Tags:
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