What happened Monday

Economy / news

A review of things you need to know before you sign off on Monday; more retail rate rises, fewer ACC claims, Synlait challenged, more election policy, swaps stable, NZD unchanged, & more

25th Sep 23, 3:59pm by David Chaston

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/LOAN RATE CHANGES
Kiwibank raised some fixed rates today, as did the Co-operative Bank. More here. And we have an analysis of the current pressures on interest rates, here.

TERM DEPOSIT/SAVINGS RATE CHANGES
Westpac raised its 9 month TD rate to 6%, and trimmed its 1 years rate. Kiwibank raised some rates. More here.

A TWENTY-YEAR LOW
Updated data on work injuries via ACC claims has them at 87 per 1000 (full-time equivalent) employees. This is the lowest since this data started to be collected in 2002. The incidence rate for claims involving entitlement payments was 16 claims per 1,000 FTEs in 2022. This rate has remained relatively stable for the past five years.

NEW ELECTION POLICY RELEASES
Today we have uploaded tow changes to our election policy comparison tool, but from ACT. They include new positions on Immigration, and Senior Citizens.

'HIGHLY CHALLENGING YEAR'
Synlait (SML, #50) says while it is confident in its strategy 'to right-size its cost base', the uncertainty of 'broader macroeconomic factors' means the company is not providing result guidance for the coming year at this stage.

RISING UNCERTAINTY
The quarterly Canterbury business confidence survey is out and not pretty reading for that region. It details a decline in business confidence and rising uncertainty about inflationary pressure, rising interest rates, and demand.

FUEL COSTS AS AN INFLATION THREAT
In Australia, the threat of higher inflation is real. For example, last week's petrol price (AU$ 2.044/L or NZ$2.21/L) is +11.6% higher than year ago levels. Meanwhile their diesel price ($2.228/L or NZ$2.41/L) is +8.3% higher on the same basis. In New Zealand, our discounted petrol pump price will be 20% higher than a year ago, largely due to the ending of the excise tax remission. Meanwhile the diesel price will be -6.9% lower than a year ago. These fuel prices are important because the quarter is about to end and the Q3-2023 CPI's are about to be calculated.

A COMMODITY PUZZLE
We should also note that, although it is a long way below its 2021 peak, the iron ore price is moving back up toward its 2023 highs. Driving the shift is the expectation that China will at sometime have to relent and reinstitute old-fashioned infrastructure stimulus measures. While we are at it, we should note that coal prices aren't moving up in sympathy. And nickel prices are going nowhere recently, nor zinc. If none of the other key ingredients for steelmaking are rising, it is hard to see why iron-ore is.

UPDATED TIME DIFFERENCES
In case you were wondering, after we adopted Daylight Savings Time is past weekend, we are now three hours ahead of Sydney, Melbourne and Brisbane. NSW and Victoria won't switch to summer time until this weekend. Then we will revert to 2 hours ahead of them and stay three hours ahead of Brisbane.

SWAPS UNCHANGED
Wholesale swap rates are probably little-changed today. But the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is up +2 bps at 5.72%. The Australian 10 year bond yield is unchanged from this morning at 4.32%. The China 10 year bond rate is unchanged at 2.71%. The NZ Government 10 year bond rate is down -4 bps to 5.21%, but still well above the earlier RBNZ fixing of 5.16% which was down -3 bps today. After hitting 4.50% on Friday NZT, the UST 10 year yield retreated to 4.44% in Friday trade in New York. But today it has advanced +2 bps to 4.46%. The UST 2yr has slipped a little less, now 5.12% and back up at October 2000 levels.

EQUITIES MOSTLY WEAKER
The NZX50 has opened the week down -0.2%. The ASX200 is down -0.3% in early afternoon trade. Hong Kong has opened down -0.9% to start its Monday trade. Shanghai has opened down -0.3%. Tokyo is up +0.5% to start its week. The S&P500 futures indicates that Wall Street might open quite positively, up +1.1%.

GOLD HOLDS
In early Asian trade, gold is now at US$1924/oz and down a mere -US$1 from this morning.

NZD STAYS FIRMER
The Kiwi dollar is unchanged from where we opened today, still at 59.6 USc and holding its recent gains. Against the Aussie we are holding up at 92.6 AUc. Against the euro we still at 56 euro cents. That means the TWI-5 is still at 69.3 and its 45 day high.

BITCOIN SLIPS A BIT
The bitcoin price is lower today, now at US$26,303 and down -1.0% from where we opened this morning. Volatility over the past 24 hours has been modest at just over +/- 1.3%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

This soil moisture chart is animated here.

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39 Comments

by J.C. | 25th Sep 23, 4:12pm 1695611566

We should also note that, although it is a long way below its 2021 peak, the iron ore price is moving back up toward its 2023 highs.

Yes, this is something that I've been closely following and it doesn't add up. Putting on the conspiracy theory dot com hat, iron ore stocks (not equities by physical iron ore) are used as collateral for much shadow bank corporate lending in China. If the iron ore price collapsed, you would suspect that chaos and panic could happen. I would not be surprised if price collusion is happening.

by HouseMouse | 25th Sep 23, 4:24pm 1695612256

Interesting.

or are China ramping up their military hardware production, in lieu of building lots of iron ore-hungry apartments?

by Audaxes | 25th Sep 23, 5:14pm 1695615276

Pledge repo market.

by Audaxes | 25th Sep 23, 4:17pm 1695611835

Meet Jim, soon retired

“If there is a light at the end of the tunnel, I can’t see it yet.” said apple grower Stu Kilmeister in the HB Today recently. That sentiment perfectly encapsulates the mood that pervades our rural community. Cyclone Gabrielle is yesterday’s news but it’s still the most important news for our region. The economic engine of Hawke’s Bay has suffered significant damage and it will affect every café and nail salon for years to come.

by J.C. | 25th Sep 23, 4:23pm 1695612220

Depressing. Article states 'the government is absolutely the lender of last resort.'

But this is not going to happen it seems. Or it is possibly too later.

by nigelh | 25th Sep 23, 9:59pm 1695632395

"the bottom end of our society is burdened by drug addiction, mental health issues and other factors that are so debilitating that they can’t reliably function in the workplace."

two ticks for Labour and the Greens. Throw in TPM as well

by J.C. | 25th Sep 23, 4:19pm 1695611951

Frickin mindblowing is the 'Bank positions in FX swaps: insights from CLS' report from the BIS.

Almost $4 trillion in new FX swap contracts are made daily off the balance sheet, most of which involve a payment of US dollars.

US and euro area banks are net providers of USD via FX derivatives to Japanese banks and institutional investors in need of FX hedging services.

US banks use FX swaps to borrow dollars short-term from other banks and lend them longer-term to non-banks. This means that US banks are net interbank dollar borrowers in FX swaps.

This means that US banks borrow dollars (short duration) and lend them out (long duration) - a dirty and dangerous game. If short-term interest rates suddenly rise or if many depositors demand their money back at once, the banks would have a liquidity crisis and it would all come down like a pack of cards.

https://www.bis.org/publ/qtrpdf/r_qt2309b.pdf

by Audaxes | 25th Sep 23, 5:24pm 1695615881

These FX derivatives create huge payment obligations. The BIS OTC derivatives (OTCD) statistics, which capture outstanding (notional) amounts of internationally active banks in more than 50 jurisdictions, put the global total at $97 trillion in mid- 2022 (Graph 1.A). Almost 90% involved the payment of US dollars. The total exceeded global GDP in 2021 ($96 trillion) as well as outstanding global external portfolio investment ($81 trillion) and international bank claims ($40 trillion) at end-2021.

by J.C. | 25th Sep 23, 5:29pm 1695616149

My brain is too small to pack it all in. But what I do understand is its relation to economic activity.

by dumbthoughts | 25th Sep 23, 4:28pm 1695612519

Has there ever been, in all of recorded political history, a worse and less clear ministerial job title than 'Minister for Just Transitions'?

It's like they asked ChatGPT to come up with a job title that would be a red rag to the talkback radio bull.

by Foxglove. | 25th Sep 23, 5:57pm 1695617836

Ministry of Funny Walks? As demonstrated by Cleese. At least that deserved real laughter.

by Justa comment | 25th Sep 23, 4:33pm 1695612789

First big (ish) bank to hit 8% mortgage today, Kiwibank for less than 20% equity. KB clearly not keen for desperado FOMOs this time round..........

by Rampart | 26th Sep 23, 1:50am 1695646258

8 is getting awfully close to 10%..

by rolande | 26th Sep 23, 7:10am 1695665441

The maths are easier when it's 10%

by J.C. | 25th Sep 23, 4:41pm 1695613271

Not a good indicator for those expecting a king's ransom for their humble adobe from potential Chinese buyers with suitcases of cash.

Zhang is not alone. She’s part of a growing wave of Chinese youth returning to the mainland and eschewing what used to be coveted overseas jobs and foreign citizenship. And while China is facing the world’s biggest exodus of millionaires and growing capital outflows, rising geopolitical tensions and the perception of increasing hostility abroad toward Chinese nationals are changing the calculus.

In 2022, the number of overseas Chinese graduates who repatriated rose 8.6% from a year ago, according to the Human Resources and Social Security Information Network. While the number of Chinese studying abroad has risen, more also now choose to flock home. The ratio of returnees to those who enroll at overseas universities increased from 23% at the turn of the century to 82% in 2019 — when more than 580,000 overseas Chinese students repatriated.

https://www.bloomberg.com/news/articles/2023-09-21/-china-is-rising-ult…

by IT GUY | 25th Sep 23, 5:00pm 1695614438

Starting to hear that some Labour voters are going to vote tactically for Winnie the Poo as a handbrake on Act, a bit like many Rural voters went red to keep the Greens out.... MMP has a lot to answer for...

by kiwikidsnz | 25th Sep 23, 4:59pm 1695614365

$51 Billion Of Labour’s Policies Remain Unfunded | Scoop News

Major Labour policies that remain unfunded include:

Auckland Light Rail, expected to cost up to $29.2 billion
Wellington Light Rail, expected to cost around $5 billion
Lake Onslow power scheme, expected to cost $15.7 billion
Income insurance, which would cost the government as an employer $860 million over four years
GST free fruit and vegetables, which is estimated to cost an extra $411 million over four years

by IT GUY | 25th Sep 23, 5:03pm 1695614584

Its not unfunded, they are just going to borrow it like everything else they have done, neither party has funded land buy backs for flood prone and sea rise either - add BILLIONS

by kiwikidsnz | 25th Sep 23, 5:10pm 1695615033

NZ sovereign debt interest rate now 5.2% & rising...

http://www.worldgovernmentbonds.com/bond-historical-data/new-zealand/10…

by Jonny.Foe | 25th Sep 23, 5:41pm 1695616866

Interest rate on new bonds, yes. The weighted average on the $120 billion of Govt bonds on issue and in non-Govt hands is 2.5%. Deflating away peacefully.

by kiwikidsnz | 25th Sep 23, 5:48pm 1695617302

Unfunded debt will require new bonds.

by Jonny.Foe | 25th Sep 23, 5:54pm 1695617659

So, let's say Govt double the debt to $240 billion - the weighted average interest rate on the debt will be about 3.75%! Who cares? What matters is whether the spending makes our collective lives better and less expensive in the future, and, of course, whether the economy has the headroom to absorb the spending without kicking off inflation.

by J.C. | 25th Sep 23, 6:21pm 1695619319

Which essentially what Japan has done with the trade offs being a weaker currency despite being a net creditor to the world.

Given that NZ is a net debtor to the world, how do you think this potentially impacts our currency in particular?

by Jonny.Foe | 25th Sep 23, 7:56pm 1695624963

Great question. I am still patching together my understanding of FX and Bonds etc, but...

My initial view is that being a net debtor to the world erodes some of our monetary sovereignty... basically, we have to make sure that NZ Bonds remain attractive as an investment (because they offer a decent rate of return) or we risk our currency losing value. So, we are stuck with interest rates that are not ttoo far away from the Fed's.

That said, there is no question we will be good for the debt given that we are one of the few countries in the world where the Govt has a positive net financial worth meaning we have more financial assets than financial liabilities. In usual times, our assets generate more of a return than Govt pays out in interest (Govt has been a net beneficiary of interest payments for years!) Couple this positive balance with a decent economic strategy - e.g. to be 90% energy self-sufficient in energy by 2035 (making us even more of a safe haven) - and I think we can handle a *much* higher Govt debt. The bigger challenge imho is making space in our economy for the Govt spending - and selling a long-term plan for the changes we need to make.

by J.C. | 25th Sep 23, 8:18pm 1695626318

That all make sense to me.

Because of the Super Fund, right? Which makes me think considering I mentioned Japan. Their Government Pension Investment Fund is actually the largest in the world (USD1.5 trillion) and is a large owner of assets within Japan. National govt debt is approx USD9 trillion.

by kiwikidsnz | 25th Sep 23, 6:28pm 1695619688

"What matters is whether the spending makes our collective lives better and less expensive in the future..."

You got that part right. How much of the $52 billion (will be $100+ billion before completed) will actually deliver on that vs virtue signalling.

by Jonny.Foe | 25th Sep 23, 7:57pm 1695625068

I don't rate the current Govt's plans for what they will invest in, nor the Nat's plans which are a weird throwback to 1975. My point is that we are not fiscally constrained.

by kiwikidsnz | 25th Sep 23, 8:38pm 1695627531

That's wasn't suggested by me & is irrelevant in any case. No successful business I ever worked for justified additional capital investments by using what is effectively dollar cost averaging their debt. The "improvement" needed to stand on its own merits against the current cost of working capital. Sometimes the cwc calc also included an Economic Value Added component.

by Nzdan | 26th Sep 23, 11:25am 1695680739

How many businesses have you worked for that are sovereign currency issuers?

by profile | 25th Sep 23, 6:29pm 1695619768

Given our dire productivity shouldn't we care? Or do we just let the kids deal with it?

"A report produced by the commission found that productivity growth in New Zealand had now been lagging behind other developed countries in the OECD for 50 years.

Kiwis were on average working slightly longer hours than their counterparts overseas as of 2019, but were producing less than the average value of goods and services in that time, it said."

https://www.stuff.co.nz/business/132465559/nz-still-lagging-on-producti…

by streetwise | 25th Sep 23, 7:03pm 1695621822

Get real. We shouldn't be comparing ourselves with OECD countries. We are just a few islands in Oceania. We should be comparing ourselves with the likes of Fiji, Samoa, and Tonga. Open your eyes and look around.

by kiwikidsnz | 25th Sep 23, 7:15pm 1695622544

If we do that then we'd do what most of the hard working people in those islands do - leave for a better economy that values and can afford to reward us

by bender | 25th Sep 23, 7:20pm 1695622815

Exactly what's happening.

by profile | 25th Sep 23, 7:49pm 1695624578

Streetwise - if we can't "get real" we shouldn't borrow the money off the kids. It is laughable that being an island is suggested as an excuse for mediocre performance.

by Albert2020 | 25th Sep 23, 5:06pm 1695614775

Didnt chippy put the income insurance to bed?

by nigelh | 25th Sep 23, 10:09pm 1695632986

"to bed", for the time being. You can easily get out of bed again!

by Jonny.Foe | 25th Sep 23, 5:38pm 1695616708

In New Zealand, our discounted petrol pump price will be 20% higher than a year ago, largely due to the ending of the excise tax remission. Meanwhile the diesel price will be -6.9% lower than a year ago. These fuel prices are important because the quarter is about to end and the Q3-2023 CPI's are about to be calculated.

The 2023Q3 CPI will show petrol prices around 7% higher than 2022Q3 and diesel prices 25% lower because Stats use a weighted average across the full quarter rather than the price at the end of the quarter. The net impact on 2023Q3 CPI (due just after the election) will be negligible. If petrol prices stay high then it will be 2023Q4 that has the big jump in petrol contribution to CPI as petrol prices will be 25% higher than 2022Q4. Although this will probably be offset by diesel prices still being a bit lower than 2022Q4.

What matters more is what higher fuel costs will do to the cost of other imported goods and business costs in NZ. Our low competition environment means that higher input costs are quickly passed through to prices. High fuel costs on top of the crippling cost of credit is a nightmare scenario. Let's hope RBNZ don't hike rates and pour petrol on the fire!

by J.C. | 25th Sep 23, 5:39pm 1695616741

Bill Ackman puts on his DGM at the AFR:

“The peace dividend is no more. The long-term deflationary effects of outsourcing production to China are no more. Workers and unions’ bargaining power continues to rise. Strikes abound, with more likely to come as successful walkouts achieve substantial wage gains.

“The long-term inflation rate is not going back to 2 per cent, no matter how many times chairman Powell reiterates it as his target. It was arbitrarily set at 2 per cent after the financial crisis in a world very different from the one we live in now.”

But Ackman also nailed the simple supply-and-demand problem facing the bond market, recounting how a chief investment officer (CIO) at one of the world’s largest fixed income asset managers told him there “are just too many bonds” being issued every week, by governments and corporations.

https://www.afr.com/chanticleer/bill-ackman-s-big-warning-comes-amid-sp…

by Squishy | 25th Sep 23, 7:14pm 1695622473

In New Zealand, our discounted petrol pump price will be 20% higher than a year ago, largely due to the ending of the excise tax remission. Meanwhile the diesel price will be -6.9% lower than a year ago. These fuel prices are important because the quarter is about to end and the Q3-2023 CPI's are about to be calculated.

RBNZ sound like set on just doing their own thing regardless of inflation trajectory. I expect lip.service but no action yet.