What happened Monday

Business / news

A review of things you need to know before you go home on Monday; higher retail rates, construction activity wavers, commodity prices jump, deposit insurance plan inches ahead, swaps fall & flatten, NZD holds low, & more

6th Dec 21, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
SBS Bank raised all its fixed rates for terms of 1 year and longer. WBS also raised their rates. Heartland Bank raised its reverse mortgage floating rate from 5.95% to 6.20%, a +25 bps rise. (Heartland's regular floating rate rose +25 bps to 3.75% last week.)

TERM DEPOSIT RATE CHANGES
SBS Bank raised most of its term deposit rates, except its 1 and 2 year rates.

HANDICAPPED
Construction activity took a large -$226 mln hit in Auckland in the September quarter from the June quarter due to the Level 4 restrictions (-$306 mln on a seasonally adjusted basis). But activity appears to have increased in the rest of the country where Waikato shrank a minor -$18 mln, Wellington rose +$13 mln, the rest of the North Island by +$62 mln, Canterbury by +$25 mln, and the rest of the South Island by +$31 mln. That means that outside Auckland, all construction work completed rose +$113 mln in the September quarter. Two thirds of Auckland's decline was in the residential construction sector, harder hit than the commercial sector.

NEW RECORD HIGH
The ANZ World Commodity Price Index lifted +2.8% in November from October, pushing it into new territory. Dairy prices led the charge, supported by strong gains in meat, which offset weaker prices for forestry and aluminium. Overall commodity prices are now +26% higher than a year ago in world price terms, and a bit less in NZD terms. Our charts of the various components are here. It is a good time to be selling [food] commodities.

LOOKING AHEAD TO THE NEXT DAIRY AUCTION
We have another dairy auction on Wednesday morning and it looks like it could be another good one. Dairy futures pricing suggests SMP could rise by +2.8% to US$3780/tonne. And WMP could rise by more than +6% to US$4,230/tonne. There is a day or so to go and things could change from here, but a result like this would be a +12% rise since the start of October. It is a good time to be selling [food] commodities.

CARBON PRICE MOVES UP AGAIN
We should also note that after settling in at $65/tonne CO2e, the NZ Unit carbon price rose last week to over NZ$68/tonne NZU - and with a steeper bias in the futures pricing, now up to over NZ$81 tonne for April 2025 contracts (4+ years). (Remember, a year ago this price was about $35/tonne; two years ago $25/tonne.) As reference, the EU carbon price also rose sharply in the past three weeks, now up to NZ$130/tonne. (€78/tonne.)

MORE SLICING & DICING
Non-bank mortgage lender Basecorp has securitised $250 mln of its floating rate loans that are secured by mortgages. The best bits ($100 mln rated AAA) has been priced at the 30 day BKBM rate plus 90 bps, which today would be about 0.81 + 0.90 = 1.71%, and floating from there. It's Basecorp's second such issue this year after an earlier one in March. (Full details of the latest issue are here).

MARK DARROW TO SUCCEED JOHN KELLY AS TSB CHAIRMAN
Mark Darrow, the former CEO of PGG Wrightson Finance, will join the TSB Board in February and succeed the departing John Kelly as Chairman next June. Darrow has held a range of board roles across a number of sectors, including financial services, FMCG, manufacturing, automotive and transport, primary sector, health, education, and investment.

DEPOSIT 'INSURANCE' DUE LATE 2023
The new Deposit Takers Act will create a single regulatory regime for all bank and non-bank deposit takers (NBDTs), such as building societies, credit unions and retail-funded finance companies). It will also introduce a new Depositor Compensation Scheme that will protect up to $100,000 per depositor, per licensed deposit taker, if a payout event is triggered. We expect that returns received by depositors will fall to be more in line with other countries with deposit insurance. That is because the premium costs to the institutions will eventually get passed on, plus the holdings at $100,000 or below will become risk-free and will be priced similar to other risk-free offers (like Kiwi Bonds, currently at 0.5% pa for one year, up tp +0.9% pa for four years). When the Act is in force, that will be the end of "market rates" for depositors.

RRR CUT COMING
In a meeting with the head of the IMF, Chinese premier Li Keqiang was at pains to point out that they will likely cut their reserve requirement ratio (RRR) rates if the property slowdown requires policy action and their overall economy staggers for much longer. Their are currently focused on keeping liquidity levels elevated.

LOCAL PANDEMIC UPDATE
In Australia, pandemic cases in Victoria were1073 reported yesterday. There are now 16,503 active cases in the state - and there were another 6 deaths yesterday. In NSW there were another 208 new community cases reported yesterday, a jump, with 3036 active locally acquired cases. Queensland is reporting zero new cases. The ACT has 6 new cases. Overall in Australia, just over 88% of eligible Aussies are fully vaccinated, plus a bit under 5% have now had one shot so far. In contrast, there were zero cases in New Zealand at the border again, and 135 new community cases today. Now 87.6% are double vaxxed, 93.3% of Kiwis nationally aged 12+ have had at least one vaccination, and the equivalent Australian rate is now at 92.8% of all aged 16+ (91.9% ages 12+).

GOLD SOFT
In early Asian trading, gold is at US$1784/oz and little-changed from this morning.

EQUITIES MIXED IN EARLY TRADE
The NZX50 has opened today down -0.5%. The ASX200 has opened for -0.3%. The S&P500 futures suggests Wall Street will open up +0.4% tomorrow which is an 'encouraging turnaround from the -1.0% signal earlier today. Tokyo has opened down -0.8% and Hong Kong has opened down -0.9%. But Shanghai has opened up +0.3%.

SWAP & BONDS RATES FALL & FLATTEN
We don't have today's closing swap rates yet. They may have flattened again today with the 2yr and 3yr rates down more than -2 bps and the 10yr down nearly -4 bps. The 90 day bank bill rate is up +1 bp at 0.88%. The Australian Govt ten year benchmark rate is now at 1.58% and up +3 bps from this morning. The China Govt 10yr is at 2.84% and down a sharp -7 bps. The New Zealand Govt 10 year rate is now at 2.30% and down a sharp -5 bps from this morning's opening but still well below the earlier RBNZ fix for that 10yr rate at 2.35% (-8 bps). The US Govt ten year is up +2 bps from this morning at 1.38%.

NZ DOLLAR STAYS SOFT
The Kiwi dollar is now at 67.5 USc and just marginally above the opening level this morning. Against the Aussie we are slightly firmer at 96.2 AUc. Against the euro we are softish at 59.8 euro cents. The TWI-5 is now back at 72.4.

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BITCOIN RETREATS
The bitcoin price has dropped to US$48,813. That is a similar level to this morning, but -14% lower than this time Friday. Volatility since this time yesterday has been moderate at just on +/- 2.0%.

This soil moisture chart is animated here.

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

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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40 Comments

by Audaxes | 6th Dec 21, 4:12pm 1638760320

CTU backs Reserve Bank Governor Adrian Orr amid calls to replace him

Unlikely bedfellows.

by J.C. | 6th Dec 21, 4:37pm 1638761836

Sam Stubbs gets his 5 cents in. Pushing his self interests as usual.

by nz-it-worker | 6th Dec 21, 5:08pm 1638763733

Sam Stubbs:

"If you had said before Covid that worst outcome will be [that] the economy will be trucking along, we'll have very strong employment and house prices would have gone up 25 percent to 40 percent - any Reserve Bank governor in history would have taken that."

If all previous governors thought expanding existing wealth inequality to staggering levels would be a great thing, the Reserve Bank as we know it needs to be abolished immediately, as clearly it has become a magnet for psychopaths.

by Rob Reid | 6th Dec 21, 7:30pm 1638772210

Abolition approved.

by streetwise | 6th Dec 21, 9:34pm 1638779694

Some posters on this site are truely ignorant. I would have thought that by now all reasonably intelligent persons would understand the lessons learnt from the Great Depression of the 1930s where the populace of NZ and all advanced economies really suffered deprivation...only 90-odd years ago.

The main economic lesson learned was that when confronting the onset of an economic depression you DO NOT CUT BACK ON SPENDING. It follows that you INCREASE THE MONEY SUPPLY as the least harmful option (or in modern parlance, the path of least regret).

Prey tell me someone, who has really suffered in Labour's response to the Covid pandemic. Except, of course, in NZ, those few unfortunates who died.

True, property speculators have even prospered and FHBs have found it difficult to afford their first home, but we now know that that situation was caused by the country being flooded by an unbridled influx of mostly unskilled immigration under the Key Government.

by nz-it-worker | 6th Dec 21, 9:54pm 1638780854

Who said anything about cutting spending? There are all kinds of ways to distribute money to citizens of a country without relying on the flimsy and ultimately extremely damaging housing wealth effect.

In the U.S, the government provided direct payments to its citizens, amongst other measures. Why was this type of stimulus not tried in NZ, which had very high house price to income ratios already?

by HouseMouse | 6th Dec 21, 9:59pm 1638781192

Because it's apparently 'too hard' here, just as apparently it's 'too hard' here to give people vouchers to spend in hospo.

by Dick Mortensen | 7th Dec 21, 3:10am 1638799851

What exactly is the wage subsidy?

by bw | 6th Dec 21, 4:19pm 1638760759

"Depositor Compensation Scheme that will protect up to $100,000 per depositor, per licensed deposit taker, if a payout event is triggered. "

Pointless. Worse. Costly for the psychological thought that "my money is safe!"

If, as noted, that event ever gets triggered, do you know what the value of the NZ$ will be, given that 'things' will have deteriorated to such an extent that Compensation is necessary? Or the 'safety' of other deposited funds? (Bank Runs won't describe it properly). Developed economies resolve their liquidity and banking crises in other ways. That's what the Banking Regulator and the Public Balance Sheet are for.

by gnx | 6th Dec 21, 5:09pm 1638763765

I was just thinking this morning about how we read very little about the strength of Chinese banks.... I guess they are state owned & backed but still a business exposed to losses..

black swan??

by waymad | 6th Dec 21, 9:35pm 1638779713

There's always double quotes in any data coming from the Middle Kingdom. So error bands are miles wide....

by morepork | 6th Dec 21, 5:30pm 1638765056

Do you know what Australia, Canada, UK, USA, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Spain (and I could go on) have in common? Developed countries with deposit insurance.

by Let me be Frank | 6th Dec 21, 7:21pm 1638771668

As did Cyprus....'deposit insurance' does not make bail in risk free,...the devil is always in the detail.

by Justa comment | 6th Dec 21, 4:15pm 1638760527

Deposit guarantees delayed until late 2023. DTIs delayed by RBNZ. Seems like anything that actually does something is kicked down the road. The insurance the banks will need for deposit guarantees could be quite expensive with NZ mortgage lending at up to 10x household income in some cases.

by Audaxes | 6th Dec 21, 4:20pm 1638760800

The new Deposit Takers Act will create a single regulatory regime for all bank.deposit takers....

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. Same principle as central bank QE.

Demand deposits referred to by the public as “cash in bank” is recorded and reported by monetary financial institutions (MFI) in units of account by double-entry bookkeeping in a process which the MFIs call “lending ” — but which is effectively a nullity — by debiting loans receivable and crediting demand deposits.

These so created units of account are then denominated at will in dollars, pound sterling, euros, etc., depending on the terms of the documentation or underlying promissory note, or whatever is the legal document giving rise to this type of “lending,” using whatever is the name of the currency in the jurisdiction in which it takes place, but legal tender the “demand deposits” are not.

Banks do not have pre-existing funds in the form of legal tender to lend, except in miniscule amounts relative to the size of their loan portfolios.1 In other words, banks create demand deposits out of nothing, and it therefore remains a nothing. The malpractice continues because public accountants as auditors sanctify the aforementioned practice by “certifying” the banks’ financial statements, provoking credit expansion, moral hazard, asset bubbles, liquidity-stressed financial markets, bank runs, and eventually global financial crises. Link-pdf

by solardb | 6th Dec 21, 4:23pm 1638761021

Just wondering what the risk with a reverse mortgage is . to justify that rate ??? Or is it just taking advantage of some that have no choice but to take one out ?

by Roark78 | 6th Dec 21, 4:34pm 1638761659

Liquidity and maturity risk

by J.C. | 6th Dec 21, 4:43pm 1638762193

Over in Japan where consumers still have some power:

While only 14% of Japanese firms have so far passed on higher costs to customers, another 40% say they plan to.

Yet food companies are among the least willing to pass on costs, the survey showed, reflecting their fear of alienating shoppers.

"As the price of raw materials increases, food manufacturers would like to raise prices but it is difficult for them to do that," said Tsutomu Watanabe, an economics professor at the University of Tokyo.

https://www.reuters.com/world/asia-pacific/global-costs-soar-japans-shr…

by Rob Reid | 6th Dec 21, 4:56pm 1638762996

Perhaps it would be dishonourable to raise prices. No qualms here.

Read somewhere years ago that Japanese housewives would not ask their husbands for more housekeeping money as prices rise, and would pretty much kill themselves to avoid such disgraceful disrespect for their hard-working husbands. Hopefully that has changed.

by J.C. | 6th Dec 21, 5:02pm 1638763361

The female head of Japanese households traditionally handles the household income. The male head of h'hold gets a monthly allowance from that h'hold income. After the bubble burst, more Japanese housewives entered the workplace instead of being a 'housewife.'

by Rob Reid | 6th Dec 21, 5:07pm 1638763675

OK thanks. Sounds like the clog is now on the other foot.

by lowercase capitalist | 6th Dec 21, 5:11pm 1638763880

That does seem to be the case. Theres a fairly well known story where an ice cream maker took out an ad in which the chairman personally apologises for raising the price of their ice creams from 60 to 70 yen. The first price increase in 25 years.

Hard to imagine the same thing happening in any western country, I can better imagine a CEO begging forgiveness from shareholders having not done it sooner.

https://www.independent.co.uk/news/business/news/japanese-company-apolo…

by J.C. | 6th Dec 21, 6:04pm 1638767085

It's a great product too. Basically a popsicle. Equivalent of NZD1. You can find it everywhere and Japanese know it and trust it.

by HouseMouse | 6th Dec 21, 8:11pm 1638774719

Where did you live in Japan, J.C., and when?

I was there 1996-1997, in Nagoya.

by Audaxes | 6th Dec 21, 5:57pm 1638766663

JGB optics are not good

This current string of events is the further culmination of a decidedly different set of circumstances that have been playing out – consistently, if entirely opposite of what “they” have said – from even before mid-March, going further back in time beyond Fedwire.

Nothing here is, or at least it should not be, surprising or unexpected. The global “bond market” has made the real situation perfectly plain and clear this whole time, even if or as consumer prices in the US and elsewhere have made it seem something else. And stocks, well, they’re equities.

Eurodollar University Episode 157, Part 2: Is It Time To Start Thinking About (bond) Landmines?

We’ve been talking about landmines for about a month now!

The Fed isn’t these other markets; it sure hasn’t “rigged” eurodollar futures in any way, nor has it somehow boosted the dollar (regardless of the fantasy of interest rate differentials).

The data has been, as I’ve written, particularly unambiguous about dollar shortage, risk aversion, collateral scarcity (occasional outright shortage; maybe today?), all the things that would lead any rational, honest observer to have expected in at least broad strokes the general outcomes I wrote about above. Pretty much the whole year (in fact, going back to the end of last year).

Eurodollar futures isn’t the end of the list, either. This one curve is merely refusing to be boring, thereby taking the lead in representing all these other wrong things. Link

by chebbo | 6th Dec 21, 5:32pm 1638765142

Govt. goes back on takeaway workers' vaccination requirements less than 24h after new "traffic light" system is put in place.

What a mess.

by DTRH | 6th Dec 21, 5:57pm 1638766669

Jacinda not get her crushed avocado and latte it will end rather bad for this government because of their incompetence we are now a society who have to show passports to have a coffee people loosing jobs,people living in cars as cannot afford rent, family’s not being able to buy food,kids struggling with family breakdown. Mental health issues going through the roof

by frazz | 6th Dec 21, 6:09pm 1638767386

"Jacinda not get her crushed avocado and latte" ? I doubt anyone has ordered that lately

by Dick Mortensen | 7th Dec 21, 3:32am 1638801152

What happens when your passport expires? Does it expire when you get infected? Does it expire when a new variant arrives? Will I need a flu shot for my passport? If I have had the booster can I get extra sugar in my latte? You got the mental health bit right, even us sane ones are going crazy.

by gnx | 6th Dec 21, 7:00pm 1638770411

These two paragraphs from Robertson in the Herald sum up why we are doomed.

One of those is labour constraints and obviously as we move into 2022 we are in a strongish position to be able to see more people come in, help ease some of those labour shortages.

"Supply constraints I do think will ease through 2022, we are already starting to see the price of containers come down a little bit. We have really got to look at what are the drivers of it and focus on how we can mitigate those and support that kind of sustainable productive growth.

So keep wages down by bringing immigrants in?Where do they sleep?In houses!!!!!!!So more pressure on housing....

How on earth is that good for a labour voter or a renter!!

Also in the Herald

"housing bill to be watered down".....so no crisis I guess National

by Audaxes | 6th Dec 21, 7:38pm 1638772708

Where will the funding for necessary public utilities capacity come from?

by HouseMouse | 6th Dec 21, 8:14pm 1638774882

Good to see they've listened to the large number of us who submitted on that hugely flawed Bill.

God knows what sort of advice they are getting...it certainly leaves a lot to be desired if the Bill was the outcome of that.

by HouseMouse | 6th Dec 21, 8:59pm 1638777599

'So no crisis I guess National'

Actually, they have acknowledged as many of us said in our submissions, that you could offer much better protection of sunlight while still enabling 3 storey development.

So the changes they are looking to make thanks to submissions will make little if any difference to the supply of housing enabled under the Bill while providing much better sunlight protection to neighbours.

I am surprised they listened to us, maybe there still is some hope left in democracy.

by CWBW | 6th Dec 21, 7:57pm 1638773852

Construction activity took a large -$226 mln hit in Auckland in the September quarter from the June quarter due to the Level 4 restrictions (-$306 mln on a seasonally adjusted basis).

That's actually good for house prices.

Counting the decline in construction activities in house terms, that's about 250 less houses being built in Auckland and an implied increase of 32 houses for the rest of the country.

Coincidentally, Auckland has a third of the country's population so it is coherent that a third of all building activities happens in Auckland. This undoubtedly points to the Auckland real estate market having a genuine demad and not all speculation.

With this development and market expectations, there's still plenty of room for upward valuation in the property prices across the country especially in Auckland.

It pays to buy it forward.

by HouseMouse | 6th Dec 21, 8:15pm 1638774943

You should factor in hardly any immigration and a mini exodus out of Auckland.

by CWBW | 6th Dec 21, 8:30pm 1638775830

Temporal internal migration does not determine long term trends.

by HouseMouse | 6th Dec 21, 9:06pm 1638777977

I am talking about short term, next two years.

Almost all factors are weighing towards significant house price falls.

And it's very unlikely indeed that the mid-long term prospects will be anything like as rosy as they have been in the past.

by HouseMouse | 6th Dec 21, 8:18pm 1638775114

I had to chuckle about G Robertson warning those who are highly indebted, when he and the RBNZ have gone to extra lengths to promote said indebtedness.

by Dick Mortensen | 7th Dec 21, 3:41am 1638801663

What; RBNZ rose the OCR to a staggering 0.75%, how did that not stop the speculation?....

by HW2 | 6th Dec 21, 9:14pm 1638778455

It is not surprising that dairy prices are rising when you check the soil moisture map. Dry November in nz dairy powerhouse, waikato.