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A review of things you need to know before you go home on Wednesday; many retail rate changes, import surge, business costs pressures not easing, insurer stress tests, swaps up sharply again, NZD holds, & more

Business / news
A review of things you need to know before you go home on Wednesday; many retail rate changes, import surge, business costs pressures not easing, insurer stress tests, swaps up sharply again, NZD holds, & more

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

MORTGAGE RATE CHANGES
ICBC has raised all its fixed home loan rates. The Cooperative Bank has raised all its fixed rates by +10 to +25 bps.

TERM DEPOSIT RATE CHANGES
BNZ has raised most of its term deposit rates, and a 3% rate makes a rare appearance after two years. The Cooperative Bank raised most of its rates by between +5 and +25 bps. ICBC also raised its offers, as did NZCU Baywide.

IMPORTS SURGE, ESPECIALLY EVs
Statistics NZ says September was the third record month in a row for imports, with the figure reaching $6.6 bln - up +30% on the same month a year ago. The trade deficit hit -$2.2 bln in the month, -$4.1 bln for the year to September, driven by both rising import volumes, and now also fast pricing prices for imports. The fast jump in the number of electric vehicles being imported is a notable feature.

'UNRELENTING COST PRESSURES'
Latest ANZ Business Outlook survey shows over 90% of firms in every sector apart from services are facing sharply higher costs. Inflation expectations blowing out, they say. The same survey records a reduction in economic activity.

A SPRING PULLBACK, BUT AN ANNUAL FRENZY
The lockdowns in September sharply reduced mortgage lending in the month. In fact the overall level was the lowest of any month since July 2020 (excepting January). All types of lending reduced (FHB, owner-occupier, investor), although lending to investors suffered the least. Despite the September dip, the total new business written in the past twelve months exceeds $100 bln, and has done for the years to July, August and now September (and the only three months at this level ever). More here.

HIGHER STRESS -> HIGHER PREMIUMS
The RBNZ released the results of the General Insurance Industry Stress Tests today. They tested for three separate stresses; a reinsurance crisis, a pandemic, and a major weather event. The largest risk to these insurers was found to be a reinsurance crisis which could occur based on international events. All three scenarios could give rise to lower returns for the general insurers operating in New Zealand, and "could lead to higher premiums in the future". Climate change will be added as a fourth stress test in future.

MAKING SURE HAVELOCK NORTH NEVER HAPPENS AGAIN
The Government has decided to mandate the centralisation of all water distribution assets, despite protests from some local councils who currently own this infrastructure. This is seen as a "heavy-handed approach", requiring councils to transfer ownership of their water assets into four new water entities controlled by Wellington.

UDALL IS THE US AMBASSADOR TO NZ
The US Senate has confirmed the appointment of Tom Udall as the US Ambassador to New Zealand. We was a two-term Democratic senator from New Mexico before he retired. His Congressional legacy involves advocating for Native American tribes, climate change, and conservation issues.

AUSSIE Q3 CPI DIPS MORE THAN EXPECTED
Australia's inflation rates dipped to 3.0% in September, down from 3.8% in June. This was an expected reversal, but the effect was more than anticipated (3.1%). The more technical RBA Trimmed Mean CPI rose 2.1% year-on-year in Q3, the most since Q4 2015, after a 1.6% rise in Q2. One large supermarket chain in Australia, Woolworths, says it is facing fierce cost rises. And that comes at a time more Australians are eating out after lockdown, rolling back their recent high volumes.

PANDEMIC UPDATE
In Australia Delta cases in Victoria have risen to 1534 cases reported there today, and so more improvement still. There are now 24,715 active cases in the state and there were another 13 deaths yesterday. In NSW there were another 304 new community cases reported today with 4,170 active locally acquired cases which is lower, and they also had 3 deaths yesterday. Queensland is reporting two new cases. The ACT has 10 new cases. Overall in Australia, more than 74% of eligible Aussies are fully vaccinated, plus 13% have now had one shot so far. In contrast, there were four new cases in New Zealand at the border, and 74 new community cases. Now 86.9% of Kiwis nationally aged 12+ have had at least one vaccination, and the Australian rate is now at 87.1% of all aged 16+. More here.

GOLD SLIPS
In early Asian trading, gold is down -US$10 from where we were this time yesterday, now at US$1793/oz.

EQUITIES GENERALLY SOFT
The NZX50 is down -0.4% late in its session. The ASX200 is down -0.2% in Wednesday afternoon trade. The very large Tokyo market has opened today down -0.6% in mid-day trade after yesterday's very strong rise. Hong Kong has opened down -1.3%, and Shanghai has opened down -0.6% in their opening trade. The S&P500 ended up a minor +0.2% but it was another all-time closing record.

SWAP & BONDS RATES JUMP AGAIN
We don't have today's closing swap rates yet. They probably rose again and substantially, about another +10 bps which is very notable, and pushed up today by the Aussie inflation data. The 90 day bank bill rate is up +1 at 0.75%. The Australian Govt ten year benchmark rate is now at 1.86% and up +6 bps from this time yesterday. The China Govt 10yr is now at 3.00% and unchanged. The New Zealand Govt 10 year rate is now at 2.54% and up a very sharp +11 bps. That leaves them still well above the earlier RBNZ fix for that 10yr rate at 2.46% (+7 bps). The US Govt ten year is little-changed at 1.63%.

NZ DOLLAR STILL ON HOLD
The Kiwi dollar is now at 71.6 USc and marginally softer than where we were this time yesterday. Against the Aussie we are -½c softer at 95.1 AUc. Against the euro we are slightly firmer at 61.8 euro cents. The TWI-5 is still at 75.1, unchanged but still well above the top of the 72-74 range we have been in for most of the past eleven months.


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BITCOIN EASES BACK
The bitcoin price is now at US$60,760 which is -3.3% lower than this time yesterday. It is now -9.3% below its high on October 21, 2021. Volatility in the past 24 hours has been moderate at just over +/- 2.6%.

This soil moisture chart is animated here.

Keep ahead of upcoming events by following our Economic Calendar here ».

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23 Comments

The rise in swap rates is remarkable for its speed. Its steepness is impressive. The markets are clearly expecting much higher rates, and quite soon too.

Depositors should hold fire (as now the market is totally a buyer's/savers market when it comes to longer term fixed rates investments), and see how further up longer rates can go in the near future. Every day looks better than the previous one.   

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Swaps at 3 year highs now after hitting record lows only 12 months ago... yeah, it's a sight to behold alright. 

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3 year highs are hardly an amazing level. Even 12 year highs are very low. 

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It's not so much the level as it is the speed at which they got there.

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Crony capitalism costing a fortune?

Tiwai Point smelter subsidy may leave households paying up to $200 more in power - EA

The Electricity Authority (EA) says households may be paying an extra $200 per year for power, as they subsidise the cheap energy the Tiwai Point Aluminium Smelter receives.

 

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The retail consumer subsidises businesses across all forms of energy. So hardly unexpected.

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The comments from Meridian are complete bull.  That's why I own some of their shares, if they were stating the truth I'd sell them.

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Its impossible to calculate these things. Hindsight cannot be used with certainty because generators offer prices take into account the weather forecasts. Which may or may not eventuate. I take this with a grain of salt.

I also take with a grain of salt that for low energy users, the governments assertions that the variable kWhr costs will come down counterbalancing the increased daily fixed rates. That's why its being phased in and why the govt will do what it does best: call for reports on this at regular intervals. By phasing it in it can change its mind when energy prices do not drop one iota due to the lack of gas and the lack of thermal plant among other decisions.

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"We can't allow more houses because we can't afford more pipes" in one breath, "we can't let you take our precious pipes" in the other. 

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I just got off the phone from telling a client not to install unnecessary pipes on a project.

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It's the same with transport infrastructure. Light rail in Auckland fell first, will all public transport and even local roads follow?

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The lockdowns in September sharply reduced mortgage lending in the month. In fact the overall level was the lowest of any month since July 2020 (excepting January). All types of lending reduced (FHB, owner-occupier, investor), although lending to investors suffered the least

It's notable the discounted present value of ACC's claim liabilities have been scaled back since interest rates stopped falling and have risen since.

It's fair to believe the need to capitilise the falling present value of cash flows associated with assets, and in particular residential property, might be put on hold.

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Witness ACC:

The significant impact changes in interest rates have on the ACC scheme was again evident in 2020/21. In the previous two financial years, ACC recorded sizable deficits totalling $15 billion primarily due to interest rates falling to historical lows, a factor outside of ACC’s control. This impacted the discount rate used to value our outstanding claims liability (OCL) which rose to $61.5 billion as at 30 June 2020.

This year the opposite occurred, with ACC recording a $10 billion surplus including a $6.1 billion reduction in the OCL. As New Zealand’s economic outlook improved, the OCL fell due to the impact of rising interest rates, partially offset by changes in experienced and forecast inflation rates that increases the expected future cost of existing claims.

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I think the government should revisit the working for family and accomodation supplements in view of the rising inflation to keep pace.

The vulnerable in the society needs help and inflation is hurting them the most.

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“The vulnerable in the society needs help and inflation is hurting them the most.”
 

Landlords?

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Landlords are just exploiting a tight market, the issue has always been and continues to be persuading councils to zone land for residential construction.

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Spot the rentier

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"Tell me you're a landlord without saying it".

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-cried the landlord

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NZ 10 year is at 2.55%. Interesting times. The rate of increase is what to watch. Up .1% today.

The RBNZ has no mandate to consider govt debt yields when setting monetary policy. So a kick start of LSAP to drive down these yields is doubtful.

If rising interest rates does drive us into recession. The effect in employment which is a part of the RBNZ will be a "lagging indicator". So won't matter in the short/medium term.

Happy gambling!

 

 

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I mean what will the govt do? They can't compel the RBNZ to monetise more debt. Further the govt has been throwing the RBNZ under the bus over property prices. so Cindy and her merry men can expect very little assistance from the RBNZ over interest rates.

By the time that the govt changes the law mandating the RBNZ to buy more debt  the financial crisis will already be upon us.

Who's knows? Judith could still win in 2023??

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MAKING SURE HAVELOCK NORTH NEVER HAPPENS AGAIN

Team.of $55 million much?

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Wasn't the cause of the Havelock North campylobacter outbreak agricultural runoff due to heavy rain that permeated into the aquifer that the town was using for water? I don't see how an asset grab is going to change that. The answer would have been more rigorous testing standard and a hold period for water prior to distribution.

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