Air travel jumps; IFRS9 affects banks; US growing faster; CBA faces major AML lawsuit; BofE signal higher rates; SAA looted; China deals with quake fast; UST 10yr yield at 2.23%; oil down, gold unchanged; NZ$1 = 74.4 US¢, TWI-5 = 76.7

Here’s my summary of the key events overnight that affect New Zealand, with news the Commonwealth Bank of Australia is facing a major AML lawsuit.

Firstly however, air travel worldwide is growing very fast. For international travel it was up +7.5% in June from the same period a year ago. In the Asia-Pacific region the growth is +9.1%. However, the real story is the explosion of growth in domestic air travel in China and India.

Moody’s is reporting that new accounting rules (IFRS9) will force banks to provide for loan losses earlier in the credit cycle, and therefore dampen earnings somewhat as an economy starts to weaken. That may require them to bolster capital at that time. But Moody’s also says that the overall effect will be to strengthen banks’ abilities to weather any downturn better. In NZ, BNZ has already adopted IFRS9.

In the US, all eyes are on tomorrow’s non-farm payrolls report. Meanwhile, the Atlanta Fed’s GDP Now tool suggests the American economy is on track to expand at a +4% annualised pace in the third quarter, boosted by strong growth in inventory levels. The actual Q2 GDP result for the US was +2.6% annual growth which was -0.2% lower than what the GDP Now forecast model predicted.

In Australia, the Commonwealth Bank has been accused of “serious and systemic” breaches of anti-money laundering and terrorism financing laws that could leave it exposed to heavy civil penalties. The allegations follow an official investigation into the CBA’s use of an ATM system for deposits that customers used for over 50,000 suspect transactions, each one of which is regarded as a violation. The automated system was in place between November 2012 and September 2015. The maximum penalty for each of the 53,700 contraventions is up to AU$18 mln. The accusation is that because the bank did not verify each transaction received via the machine on a know-your-customer basis, those that were made using cards from other institutions broke the AML regulations.

Here in New Zealand Justice Minister Amy Adams announced last night that Parliament unanimously passed reforms to strengthen the existing Anti-Money Laundering and Countering Financing of Terrorism Act. The Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill will extend the current regime to lawyers, conveyancers, accountants, real estate agents, sports and racing betting and businesses that deal in certain high value goods. 

In England, their central bank has followed the other majors in signaling that a long era of easy money is gradually drawing to a close, saying that it anticipates raising interest rates in the UK at a faster pace than investors currently expect. Two dissenters wanted to move faster and raise their rates now.

In South Africa, reports are surfacing that their national airline is close to bankruptcy. Apparently the carrier “is being looted”.

In China, on August 3, 2014, a 6.5 magnitude earthquake hit the Chinese area of Ludain. It killed over 600 people. Today, their government declared the completion of the full reconstruction of the area, after spending some NZ$1.5 bln in the effort.

In New York, the UST 10yr yield is down -4 bps today at 2.23%.

The price of oil is down slightly today at just over US$49 a barrel, while the Brent benchmark is now just over US$52.

The price of gold is unchanged US$1,268/oz. The World Gold Council released its second quarter data for supply and demand and it presents an uninspiring view of the markets for gold.

And the Kiwi dollar will start today basically unchanged at 74.4 USc. On the cross rates we are marginally lower at 93.7 AU¢, and at 62.6 euro cents. As a result the TWI-5 index is at 76.7.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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