What happened Thursday

A review of things you need to know before you go home on Thursday; no rate changes, house sale volumes rise, population up, inflation up, Govt debt cost up, swap rates retrace, NZD buffeted, & more

14th Nov 19, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
No changes to report today. But the market reaction yesterday to the RBNZ policy decisions has some wondering if there is now upward pressure on underlying mortgage rate costs.

TERM DEPOSIT RATE CHANGES
None here either.

REBALANCING
Housing sales October volumes were up compared to last year in Auckland but down in the rest of the country, according to the latest REINZ data. Auckland housing prices were flat, while prices up in the rest of the country, especially the major regional centers in the North Island, and Otago.

POPULATION UPDATE
Statistics NZ national population estimates updated today say that there were 4,932,600 resident people in the country as at the end of September. That is +81,400 more than a year ago, according to this data, a gain of +1.7% in a year. 54,600 of this was from migration, according to data out on Tuesday.

GUEST NIGHT DATA FINALE
Although it's shoulder season for the tourism industry in September, they did manage to get their best overall occupancy level for that month in 2019 even if was only 39%. Domestic guest nights rose +4.4%, while international guest nights fell -5.0%. This is the last time Statistics NZ will report this guest night data. They have pulled the curtain down on this series now.

INFLATION WATCH
ANZ's monitoring of inflation monthly shows that in the year to October, prices are up +3.0% in their gauge (and about the same annual rise they reported for September). Domestic inflation has been strong lately, largely reflecting cost increases pushed through by government agencies. Going forward, ANZ expected a slowing economy and fading transitory strength should see annual non-tradable inflation fall over the next year.

FUND RAISING
China Construction Bank NZ is looking to raise $100 mln locally at an interest rate of about 2.45%.

A MILLION DOLLAR RISE
The cost of money raised by the Government is rising. Today's $250 mln tender of April 2029 bonds was won at an average rate of 1.43%, up from 1.30% two weeks ago and up from 1.04% on October 10. Compared with the October 10 tender, today's tranche will cost the Government $1 mln more in interest each year.

GOOGLE PLOTTING BANKING MOVE
Google is reportedly talking to US financial service providers including Citigroup and Stanford Federal Credit Union about offering current accounts to its customers. “We’re exploring how we can partner with banks and credit unions in the US to offer smart checking accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools,” a Google spokesperson told the FT.

FEWER JOBS
In Australia, official data shows the Australian economy lost -19,000 jobs in October, the first fall in three years, and their unemployment rate edged back up to 5.3%. Analysts had thought employment would rise +15,000 so the miss is substantial. Full time jobs fell more than part time jobs. That saw the AUD fall sharply.

LOCAL SWAP RATES FALL, FLATTEN
Wholesale swap rates have moved lower today. The two year is down by -2 bps, the five year by -4 bps and the ten year is down by -6 bps. The 90-day bank bill rate is down -6 bps at 1.27%. Australian swap rates are down about -8 bps across the curve. The Aussie Govt 10yr is down -9 bps at 1.19%. The China Govt 10yr is unchanged at 3.26%. The NZ Govt 10 yr yield isunchanged at 1.45%. The UST 10yr yield is down -4 bps from this time yesterday at 1.89%.

NZ DOLLAR HIT BY AUSSIE FALLOUT
The Kiwi dollar has held on to its higher level and now at 64 USc even though we have been hit by -20 bps on the Aussie news. Against the Aussie we are have jumped on their poor jobs data, now over 94.1 AUc. The collateral damage has hurt up against the euro as well and we are now at 58.2 euro cents. That means the TWI-5 is now at 69.3.

BITCOIN UNCHANGED
Bitcoin is now at US$8,732 and little-changed from this time yesterday. The bitcoin price is charted in the currency set below.

This chart is animated here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

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23 Comments

by Te Kooti | 14th Nov 19, 4:30pm 1573702208

Not on the list, but Swedens Riksbank (Central Bank) announced today it sold Western Australia and Queensland state bonds in protest at their negative climate policy. https://www.riksbank.se/en-gb/press-and-published/speeches-and-presenta…

This opens Pandora's Box. For example, the firm about to drill for oil in The Great Australian Bite is largely Norwegian state owned, are Riksbank selling it's Norwegian bonds? Discuss.

by profile | 14th Nov 19, 4:50pm 1573703414

Norway has form. "So while the Norwegian government produces natural gas in Mozambique and Tanzania, it is simultaneously participating in a European push to prevent those same countries from building their own natural gas power plants.

Climate extremists also have successfully pressured the World Bank and other financial institutions to reduce financing for poor countries seeking to expand their energy production. In 2014, for instance, Senator Patrick Leahy of Vermont, the ranking Democrat on the Appropriations Committee, sought to cut off U.S. development funding to poor nations seeking to build hydroelectric dams, on the basis that such dams have a “negative impact” on river ecosystems. “If Senator Leahy is so adamantly against hydropower,” wrote a development specialist, “let him show his commitment by first turning out the lights of Vermont.”
https://quillette.com/2019/10/05/channelling-the-malthusian-roots-of-cl…

by Te Kooti | 14th Nov 19, 5:46pm 1573706771

It's the veneer of being virtuous when the reality is totally opposite that I detest. Australia have signed up to the Paris accord, yes they have work to do but let them get on with it. These same investors will be all over the Saudi Aramco float.

by Audaxes | 14th Nov 19, 6:09pm 1573708168

It's all about property rights - the west has been determined for years to withhold funds for development of poor country land that would qualify as collateral for bank loans.

by Roger Witherspoon | 14th Nov 19, 4:51pm 1573703504

The Norwegians seem to own a couple of billion USD's worth of NZ inc so far. Would be interesting how much China and the US and the Saudis own too.

https://www.nbim.no/en/the-fund/holdings/holdings-as-at-31.12.2018/?ful…

by Audaxes | 14th Nov 19, 5:20pm 1573705241

I find the duties of unelected central bankers extending beyond their sovereign jurisdiction somewhat dangerous for the civil population of the home country - pulling this sort of stunt involving Russia or China could encourage dramatic retaliation.

It's bad enough that Riksbank sought a platform to indoctrinate the willing with what can at best be claimed a bogus Nobel award.

It is also a relevant subject of future research to investigate how central banks have exerted influence over the research conducted by academics. For instance, the Swedish central bank established a pseudo-‘Nobel Prize’ by awarding substantial sums of money to selected economists – none of them supporters of the credit creation theory of banking – and calling this prize the ‘Riksbank [Swedish central bank] prize in economic sciences in honour of Alfred Nobel’. The fact that journalists would abbreviate this as a ‘Nobel Prize’ in their reporting of the award could neither have been a surprise nor unwelcome to the Swedish central bank, which lobbied for the involvement of the Nobel Foundation in the award of this prize. Through the award of this central bank prize, a particular branch of economics, usually based on the deductive methodology, received a significant boost internationally. It is noticeable that a number of authors implicated in leading the public away from the credit creation reality of banking have been receivers of this Swedish central bank prize (including Samuelson, Tobin and Krugman).Link

The blow back from this practice cannot be too far distant - Swiss National Bank Now Owns Record $94 Billion In US Stocks After Q3 Buying Spree

by Te Kooti | 14th Nov 19, 5:43pm 1573706585

The SNB equity carry trade is an absolute peach. They print CHF which they are paid to borrow (negative rates) then sell that to buy USD and then finally buy S&P! It's a screamer.

by Audaxes | 14th Nov 19, 6:15pm 1573708522

Until it isn't - then the Swiss taxpayers have to inherent the costs because the private shareholders of SNB have stuffed previous proceeds elsewhere.

It's the same as bank prop traders - the job is an option which has to be thrashed to death for bonus return potential. Worse case scenario is a dismissal notice evolving into a failed upwards promotion elsewhere.

NB: I don't think the SNB imposes negative rates upon it's own credit creation - that's a central bank impost placed on domestic Swiss banks - Credit Suisse, UBS etc.

by Te Kooti | 14th Nov 19, 6:32pm 1573709576

The SNB sells CHF and buys USD which leaves them short the CHF. They fund the CHF from the system (CS, UBS etc) - which they are paid to do. They use the long $'s to buy S&P.

The printing is buying CHF bonds to ensure the system has enough CHF to led them for the above.

by Audaxes | 14th Nov 19, 6:58pm 1573711138

I don't think so - the printed short CHF sits on the liability side of the ledger offset by the US stock purchases masquerading as assets.
Bond QE operations create a reserve liability to domestic banks that delivered bonds to the SNB - these bonds are registered against this liability as assets

by Te Kooti | 14th Nov 19, 7:17pm 1573712231

Regardless of the accounting, the short CHF position still has to be funded though and is sterilised via QE given the scale of it. If it wasn't, there'd be an almighty shortage of CHF.

by Audaxes | 15th Nov 19, 10:28am 1573766888

Regardless of the accounting, the short CHF position still has to be funded though and is sterilised via QE given the scale of it. If it wasn't, there'd be an almighty shortage of CHF.

There is never a shortage of CHF.

In reality the money supply is “created by banks as a byproduct of often irresponsible lending”, as journalist Martin Wolf called it (Wolf, 2013). Thus the ability of capital adequacy ratios to rein in expansive bank credit behaviour is limited: imposing higher capital requirements on banks will not necessarily stop a boom-bust cycle and prevent the subsequent banking crisis, since even with higher capital requirements, banks could still continue to expand the money supply, thereby fuelling asset prices: Some of this newly created money can be used to increase bank capital (Werner, 2010). This was demonstrated during the 2008 financial crisis.

5.2.1. How to create your own capital: the Credit Suisse case study

The link between bank credit creation and bank capital was most graphically illustrated by the actions of the Swiss bank Credit Suisse in 2008. This incident has produced a case study that demonstrates how banks as money creators can effectively conjure any level of capital, whether directly or indirectly, therefore rendering bank regulation based on capital adequacy irrelevant: Unwilling to accept public money to shore up its failing capital, as several other major UK and Swiss banks had done, Credit Suisse arranged in October 2008 for Gulf investors (mainly from Qatar) to purchase in total over £7 billion worth of its newly issued preference shares, thus raising the amount of its capital and thereby avoiding bankruptcy. A similar share issue transaction by Barclays Bank was “a remarkable story of one of the most important transactions of the financial crisis, which helped Barclays avoid the need for a bailout from the UK government”. The details remain “shrouded in mystery and intrigue” (Jeffrey, 2014) in the case of Barclays, but the following facts seem undisputed and disclosed in the case of Credit Suisse, as cited in the press (see e.g. Binham et al., 2013): Link

Barclays avoids trial over £6bn Qatar rescue package

by Advisor | 14th Nov 19, 4:44pm 1573703078

In Australia, pay was barely keeping ahead of inflation in key sectors such as manufacturing, retail and construction

So everything but the mining sector in the Aussie economy is downbeat - surprise, surprise!

Whether they agree with or not, the 'lucky' country is on the same boat (barge) as the Emiratis, Qataris, Saudis, (oil tanker) etc.

by profile | 14th Nov 19, 4:52pm 1573703547

Despite the best efforts of the hand wringers and Malthusians - "By the end of this week, Bangladesh’s agriculture minister is expected to announce the approval of “golden rice" for sale and use, making the country the world’s first to embrace a food that could save hundreds of thousands of children in developing nations from blindness and death."
https://www.washingtonpost.com/opinions/2019/11/11/golden-rice-long-an-…

by frazz | 14th Nov 19, 5:04pm 1573704274

Don't misunderstand me, Daño says: Golden rice is not purely public relations. It is, indeed, supposed to help malnourished people — although she doesn't think it's a very good way to help. She thinks it will be more expensive and less effective than traditional nutrition programs.

This rice is mainly going to help the image of biotechnology, she says
https://www.npr.org/sections/thesalt/2013/03/07/173611461/in-a-grain-of…

by profile | 14th Nov 19, 5:58pm 1573707510

"traditional nutrition programs" are leaving millions of kids dead and blind. Only a Malthusian would be so callous to try to prevent this suffering. You do realise the IRRI is a non-profit? So what if it helps the image of biotech? If that is the only downside you can find - from 2013 - you really are grasping at straws.

by frazz | 14th Nov 19, 6:52pm 1573710769

Balanced reporting Profile...just wondering who your sponsor is?
the support of both anti-GMO activists and pro-GMO activists, voices from the developing countries are starting to emerge. For example, as told to Jill Kuehnert for IRRI, Edwin Paraluman presented his story of his Golden Rice harvest in the Philippines as a rice farmer. He gave his approval, saying that like other farmers in countless countries dreaming that their crops feed their families, communities, and countries with healthy food, golden rice meets his needs. At the end, he gave his enthusiastic support to the development and expansion of golden rice. Other Philippine farmers gave contrasting reports, however. Some raised concerns about small farmers becoming indebted to larger corporations for seeds, exploitation of farmers, health concerns for humans and the environment. The voices of farmers are often broadcast by activist organization, which may lead us to wonder: what are the developing country farmers true beliefs? Their viewpoints are lost in the debate, prompting ethical concerns over who should get to decide what crops to plant in a particular country or region.

by profile | 14th Nov 19, 8:50pm 1573717827

IRRI is a non profit. "small farmers becoming indebted to larger corporations for seeds" is just plain misinformed. But given you believe people are sponsored to write comments on a kiwi finance blog I guess you would believe anything. Put the tin foil hat away for the night.

by Wrong John | 14th Nov 19, 5:00pm 1573704038

The lucky country losing jobs? No, there must be a mistake.

by Hardly | 14th Nov 19, 5:20pm 1573705224

Inflation at 3% seems important relative to interest rate expectations.

by billsay | 14th Nov 19, 5:37pm 1573706225

about all that is returning 3% interest now are unrated junk bonds - and that's before tax is deducted. So essentially 0% return relative to inflation.

by Fritz | 14th Nov 19, 6:17pm 1573708674

Jeez how friggin useless as a country are we at building:

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12284430

by waymad | 14th Nov 19, 7:54pm 1573714458

From the Ag arena in the USA: the cooling is not doing wonders for crops like corn and soy that need a long growing season. Oats and barley OK, for us hardy Scots/Vikings.....and for pigs, ASF is gonna make pork a bit more expensive...