Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).
MORTGAGE RATE CHANGES
Westpac raised fixed rates today. See details here. So did China Construction Bank.
TERM DEPOSIT RATE CHANGES
Westpac raised TD rates too.
NOT AS GOOD AS WISHED FOR
Fonterra reported a -3% drop in after-tax earnings to $583 mln in its Annual Report today. It retained its forecast 2022/23 milk price range of $8.50–$10.00, with a midpoint of $9.25. It has also found it can't sell out of Australia for an acceptable price so it said it will keep full ownership of its Australian business. It said it will pay a final 15c dividend, making the annual dividend payout 20c/share. Recently its share price has risen from $2.94 to $3.47 just before these results were released (+17%). Post the release the FSF share price is down to $3.35 a -3.4% decline. Details of the milk payout history are here.
"OFF THE CANVAS, BUT STILL DAZED"
The Wespac MM consumer confidence survey reported a good recovery in September, but it was only up from a record low in June. But they say it’s hard to describe the mood in the country as anything but grim. Households’ finances are being squeezed by high consumer prices and increases in borrowing costs. Against that backdrop, spending appetites remain subdued they say.
SAILING ON BLINDLY, TOWARDS ROCKS
Our merchandise trade result for August brought the largest single-month deficit ever at -$2.4 bln. For the year to August it was a deficit of -$12.3 bln also an all-time record. This is driving our diving current account deficit. As others have pointed out, this is financed by foreigners and their funding will continue - until they loose faith. And then very bad things could happen. Sadly there seem almost no public policy focus on this swelling deficit, itself a corrosive deficit.
WHO IS EATING OUR LUNCH
Over the last twelve months, our trade surplus with China has fallen from +$4.3 bln to just over +$1.0 bln. With Australia we have gone from a surplus to a deficit, a -$1.2 bln retreat. With the US is a -$200 mln retreat, with Japan a -$400 mln retreat. These four account for a shift of -$5.2 bln in the past year and well more than half the overall -$9.4 bln worsening.
AVANTI FINANCE APPOINTS PRODUCTS & MARKETS HONCHO
Avanti Finance has hired Elaine Owen as Head of Product and Markets, to support the lender's "significant growth and develop new products that meet the needs of introducers and consumers across Australia and New Zealand." Owen joins from Medical Assurance Society (MAS), where she was the Chief Product Officer and has also previously worked for ANZ.
LIQUIDATORS INTERESTED IN VIVIER'S WESTPAC ACCOUNT
Vivier and Company's liquidators, Waterstone Insolvency, are seeking details from Westpac NZ having discovered the company had a Westpac bank account in 2014-15. Having recently successfully had sister company Vivier Capital placed in liquidation, the liquidator says it may apply to the Court to treat the two liquidations as one entity. Also in their second liquidator's report, Waterstone Insolvency says BNZ and ASB, who Vivier also banked with, became suspicious and closed the accounts. There's background on Vivier here.
DEPOSIT GUARANTEE NEARLY HERE
The Deposit Takers Bill has been introduced to Parliament today, which provides for a deposit guarantee for savers of up to $100,000. More here. The guarantee will be funded by a levy on banks which will be risk-based, with deposit takers paying different rates depending on an assessment of the risks they pose. This will probably work to protect the already large and strong (or Government-owned) and penalise smaller institutions and new entrants.
GOING TO THE WELL AGAIN
The Funding for Lending program had another $185 mln drawn from it yesterday according the the D12 RBNZ disclosures. We don't know who made this/these drawdowns, but it is unlikely to be any of the four bid Aussie banks. There is now $14,745 bln borrowed under the FLP and the cost is now 3.0% for these funds and likely to rise to 3.50% on October 8. It is not "cheap money" any more. The FLP option will close in December and then run down over the following three years.
RISING YIELDS
There were 109 bids at the three NZGB bond tenders today and these bidder stumped up $934 mln for the $400 mln on offer. The May 2026 (4 year) $200 mln went for a winning yield of 4.04%, up from 3.87% two weeks ago. Banks only offer 4.40% for a four year term making the risk-free NZGB option quite attractive. The $150 mln on offer for the April 2029 bond attracted $450 mln in bids, and the winners got a yield of 4.00% and up from 3.90% two weeks ago. The $50 mln May 2051 got bids of $139 mln for a yield of 4.37% pa.
SWAP RATES HOLD HIGH
Wholesale swap rates are probably firmer and flatter today on global forces although not by much. Our chart will record the final positions. The 90 day bank bill rate is up another +3 bps at 3.74% after yesterday's big jump which is a new high since January 2015. The Australian 10 year bond yield is now at 3.74% and up +1 bp from this time yesterday. The China 10 year bond rate is also up +1 bp at 2.69%. The NZ Government 10 year bond rate is now at 4.05%, down -1 bp from this time yesterday and still above the earlier RBNZ fix for this bond at 4.02% which was down -2 bps. The UST 10 year is now at 3.56% and up +1 bps from this time yesterday. At one point in between it rose to 3.61%.
EQUITIES SELL OFF AFTER THE FED
Wall Street struggled to figure out what the Fed positions mean for equity investors. It was up +0.8% just prior to the Fed statement. Then it fell -1.6% from there. Then it rose +1.9% from there. Then it turned gloomy and ended the day down -1.7%. So far this month it is down -4.2%. From the peak at the end of 2022 it is now down -21%, so is a definite bear market now. Tokyo is down -1.3% so far today. Hong Kong is down -1.7%, but Shanghai is up +0.2% in early trade. The ASX200 is closed today for a public holiday. The NZX50 is also up +0.2% led by Air NZ (AIR, #36) which is up +2.1%, Fisher & Paykel Finance (FPH, #1) which is up +1.7%, and Spark (SPK, #2) which is up +1.2% today. Dragging the chain are Freightways (FRE, #19) down -4.2%, and Vector (VCT, #25) down -2.1%.
GOLD CAN'T HOLD GAINS
In early Asian trade, gold is down -US$6 from this time yesterday to US$1,659/oz. This is after it closed in New York at US$1671/oz and in London at US$1674/oz, so it has been tough for gold to hold on to any rises which happened just after the Fed decision.
NZD CONTINUES ITS DOWNWARD SLIDE
The Kiwi dollar has fallen another -¾c from this time yesterday and is now at 58.2 USc. Apart from the pandemic dive, that is a 13 year low. Against the AUD we are little-changed at 88.3 AUc. Against the euro we also little-changed at 59.3 euro cents. That all means our TWI-5 is at 68.4 and down another -30 bps from this time yesterday. That is its lowest since October 2020.
BITCOIN SLIPS
Bitcoin has fallen today and is now at US$18,463 and down -3.0% from where we were this time yesterday. Volatility over the past 24 hours has been very high at +/- 4.5%. It has now been almost four straight days where the bitcoin price could not get back to US$20,000 at any point.
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89 Comments
Our merchandise trade result for August brought the largest single-month deficit ever at -$2.4 bln. For the year to August it was a deficit of -$12.3 bln also an all-time record. This is driving our diving current account deficit. As others have pointed out, this is financed by foreigners and their funding will continue - until they loose faith. And then very bad things could happen. Sadly there seem almost no public policy focus on this swelling deficit, itself a corrosive deficit.
The Kiwi dollar has fallen another -¾c from this time yesterday and is now at 58.2 USc
It's not just India or Turkey (Sri Lanka), emerging mkt economies that are getting killed by the Euro$. DM econ New Zealand's dollar is plummeting, too. Why? Not rate hikes. Link
Just like India, China, and the rest, New Zealand is bleeding forex reserves, too. In fact, the country has had a big forex reserve problem since '20 (thus, NZD). At the same time NZD started going down, RBNZ started selling securities (USTs). Links
So, currency collapsing, forex reserves ("outflows") flooding out, but why? Media equates tightening w/FOMC rate hikes. Nope. Like many CBs, RBNZ has been hiking its own rates. In fact, hikes started in NZ while Fed was still QE-ing. FORGET FED RATE HIKES Link
I reckon tourism and agriculture recovering to pre-Covid levels won't be sufficient to make up for this huge shortfall in our current account.
In the longer run, the Crown could make Kiwibank more competitive and reduce Aussie bank profits being shipped out of the country. Can't see that happen under this leadership, definitely not under Nats either.
French kids are encouraged at high school & uni to take active parts in social discussion, ethics & protest. There are many things not great about French society & life (married to one and have spent considerable time there) though one thing they know how to do and are actively taught in school, is how to debate social issues.
And when that fails how to protest in a meaningful way.
IMO It would be much better for us to teach our children revolution histories, morality & ethics, rather than NZ history or the relevance of the treaty of WT.
I recently mentioned to my (NZ) workmates while chatting that I don't follow the NZ News. There was a delay of about a second, then chuckles, like they thought I was kidding. I said that our future is being determined in countries that matter, so why waste the time. The chuckles died off.
Granny Herald reporting on it: 13 Sep And others, e.g. "Imports jump by billions, high energy costs blamed - and it could get worse"
Although the usual QAnon victims (not you) might believe it's because "Cindy is bribing them" etc.
The problem is the awful possibility that Nats simply cutting taxes for land speculators while taxing working folk and running austerity elsewhere will just end up making things worse. Which so far seems to be what they're looking like doing. I'm also likely to vote TOP.
I voted TOP last time despite disliking garth Morgan. I can't see either labour nor national taking us in a good direction. I know they probably won't get a seat without an electorate seat like national used to do for act. But I just can't bring myself to support either of the other 2.
Speculators already paid tax even before the brightline test.
Not sure National are the ones that would be "taxing working folk". They have a raft of tax cuts including indexation of thresholds. Labour are the ones with a 2.5% or so compulsory insurance levy, plus a bunch of other taxes they have brought in.
This way of thinking is far too entrenched in NZ it sickens me. If we continue to think we have to vote red or blue to make any real difference then this will keep things swinging back and forth hopelessly like we have done for decades. NZ'ers need to vote on policy, not people, and this coming election is thee best possible time in history for us to break from tradition and have a more diverse government. Neither National or Labour are addressing the big issues in a practical and pragmatic way that gives us any confidence that they have any long term vision, they are only showing clearer than ever that in politics they are all sociopaths out for their own careers stepping on others, and promising things at the right planned time to get what they want, votes and power.
Time to think about what is good for everyone in this country, and not just good for our own interests. We can make history next year people, you can, your family and friends can, but we have to 1./ discuss it with each other as often as possible and remove tying our senses of identity to a political party as there is NO benefit to this, it will only prevent us from bein open minded and 2./ Shift our perspective and remove ourselves from the preset mentalities passed down from our parents generations to us. Better living everybody - we got this
The NZ dollar is going down the gurgle. We must have an OCR increase by at least 100bps next month and have an OCR of 4.75% before end of the year. There is going to be a currency war in the near future, driven by the Fed, and we cannot afford to be left behind unless we want to see inflation levels unseen for many decades.
I was thinking about all that again last night. There is chat on the tubes that the US can't push rates up much more because it will increase the already huge interest payments on the enormous $31T public debt. They will therefore have to accept chunky inflation.
But my pick is they will continue to push rates up, and the Fed will print money to cover the rising interest cost to the Treasury. Can kicking to retirement for the top dogs and ultimately collapse in confidence in USD. If it pans out that way, our tiny island has to follow (as you say above), and we are in deep shit because printing Pacific Pesos and waving them around to cover deficits will just get laughed at. I think we are buggered.
At a dinner the other night was chatting with another boomer long on AKL property and about all the shit going on. He was like, "we will adapt, we always do, not to worry". He's right - most of us will adapt by settling for a much lower standard of living.
So I've been DCAing into US equities since May. Mainly index ETFs, energy, consumer staples, commodities (uranium and lithium) and a bit of tech and other stuff.
Despite all the downwards movement in the markets, in NZD terms I am only down 0.25% (and most of the time its been green). That's pretty good given we have single days where the markets have lost nearly 5%.
Might well be a dumb question, but is that because you bought using USD and the ever favorable exchange rate USD > NZD, which means your losses are offset (asking cause you mentioned "in NZD terms)? Or just small losses because the particular equities you selected were well-chosen in these market conditions?
I've been DCAing through a work defined contribution scheme for 2.5 years now on various indexes and managed funds in Asia/US.....thought about some switching to more conservative optionst when markets had turned badly some months ago, but decided to just ride it out as in it for the long term and I figured that I'll make good gains when the market turns again.
But mainly I didn't change because I basically have no idea what I am doing.
The Deposit Takers Bill has been introduced to Parliament today, which provides for a deposit guarantee for savers of up to $100,000. More here. The guarantee will be funded by a levy on banks which will be risk-based, with deposit takers paying different rates depending on an assessment of the risks they pose.
Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source
For those who think we should aggressively hike the OCR to prevent the NZD collapsing, I offer the following…
Let’s assume we do that, and it prevents a collapse in the NZD.
Now let’s assume by hiking the OCR to say 5% by April, we ruin the domestic economy and unemployment starts soaring above 7-8%. And let’s say a dramatic housing market crash is underway.
Won’t the NZD collapse at that point?
what I am trying to say is that hiking the OCR to protect the NZD is simply delaying the inevitable PLUS comes with some very nasty side effects…
The USA has the worlds reserve currency, so can export its inflation. We cannot. NZ has been living above its means (Covid excuse) as observed by our trade deficits and government deficit spending. The locked down hermit kingdom, where everyone was paid to fear, with no productivity, has accelerated our demise. We fell for the Keynesian experiment and the USA has got away with it; so far.
I agree with your opinion that hiking the OCR for the sake of defending the NZD will not work. The trade- and current account deficit will take care of the downfall of the NZD. Even if tourism would bounce back to above 70% most of their expenditure will be consumed by what NZ needs to import. Example: Most campervans run on diesel which needs to be imported. So they spend a bigger part of their budget on fuel, which fills overseas bankaccounts, and have less to spend on a NZ hospitality, money which stays here. An increasing trade deficit needs to be funded by overseas based investors which claim a ever bigger return on their risk perception of NZ, if their faith declines. So even more money flows out of the country creating ever more pressure on the NZD.
Now let’s assume by hiking the OCR to say 5% by April, we ruin the domestic economy and unemployment starts soaring above 7-8%
I could have written it better. I meant unemployment starts to soar from April, eventually reaching above 7-8% (possibly by early-mid 2024)
Have a listen to this. A very interesting interview and puts a lot into perspective regarding fighting inflation. The guest is Aswarth Damodoran. One of the best I’ve listened to. https://podcasts.apple.com/nz/podcast/invest-like-the-best-with-patrick…
HM - hypothetically I run through your situation.
1. RBNZ say that's it - no more rate hikes and leaves the OCR were it is.
2. Markets call BS and swap rates keep climbing as inflation runs rampant within the economy (internationally and domestically).
3. FLP continues and taxpayers revolt against government, RBNZ and retail banks as the profit from the rort is paid to foreign shareholders of the retail banks at the expense of domestic taxpayers.
3. We see the biggest disconnect between the OCR and market interest rates in the history of our central bank - who as a result lose all credibility (if not already) and lose all ability to influence markets and interest rate movements.
4. NZD/USD falls to 0.3 and imported inflation continues to climb.
5. House prices fall 50%+ in inflation adjusted terms as inflation runs at 20% a few for the next few years and nominal prices are flat.
From this point I have no idea what could happen as its too far outside the textbooks to be able to predict. But I would say that the outcome/s could be far worse that what you suggest in the original post. Then again, it may not be....but as the mantra of the central banks appears to be, that they want to take the path of least regrets (whatever that means to them at the time).
There were 109 bids at the three NZGB bond tenders today and these bidder stumped up $934 mln for the $400 mln on offer.
Can anyone in the industry comment on how Japanese car importers are faring with the exchange rate, interest rates, and petrol prices? Has the bottom dropped out of the market with thirsty but fast European cars?
I can comment and say that the used car auction markets are alive and well in Japan with ample supply. NZD is relatively strong against JPY at the moment. Outside NZ, other mkts that were important for this trade were Russia, Sri Lanka, and Pakistan. So there will be reduced demand I suspect. Interestingly, and it was quite some time ago (10+ years ago), used cars were being imported from Japan to Ireland.
Just completed a buy at auction; naturally as soon as I close out a five month process to get what I want, the BOJ stands in the market for the first time since 1998. As far as the auctions go, the agglomeration of most houses into the USS network has really done a number on the process.
A weak Yen and a weak USD is pretty bad deal for motorists; you can't get cheap petrol and a cheap EV isn't cheap anymore.
1 year swap not far from breaking the 4.5% mark now - and if the trend of the last 12 months continues, it could be higher than the 5% mark by the end of the year. In some respects, this is the opposite of the GFC - where rates are rising by 500 basis points in a short space of time, instead of dropping by 500 basis points (although that might happen again late 2023!)
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