What happened Wednesday

Business / news

A review of things you need to know before you go home on Wednesday; RBNZ raised the OCR by 25 bps with hawkish tone, health insurers tout claims payouts, GHG emissions stable, swaps firm, NZD firm, & more

23rd Feb 22, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
None today so far.

TERM DEPOSIT RATE CHANGES
So far, HSBC has raised all their rates, and FinanceDirect has both raised some and lowered two rates.

"MORE TIGHTENING NEEDED"
The RBNZ decided it is +25 bps in February, taking the OCR to 1.00%. See this. The key analysts have judged today's settings as hawkish. The currency and interest rates rose.

A SUDDEN FLOOD
There was a huge jump in residence visa approvals in January, with almost 11,000 approved, up from less than 4,000 in December, and an average of just 2700/month in 2021. About half of the residence visas issued in January were issued under the 2021 Residence Visa Scheme.

LITTLEFAIR STEPS UP PERMANENTLY
BNZ has appointed Paul Littlefair as Executive, Technology. He was already acting in the role since October last year, was previously BNZ’s Chief Technology Officer and was "appointed after an extensive international recruitment process".

PAYOUT REVEALED
The Financial Services Council says the health insurance sector paid out nearly $1.5 bln in claims in 2021, an increase of +$121 mln on the previous year (+8.0%), while the number of New Zealanders holding health insurance grew to 1.45 mln - so that is a claims payout averaging about $1000 per member. The information on premium levels earned by the sector are not readily available.

GHG EMISSIONS GENERALLY STABLE
Stats NZ released data today that shows net greenhouse gas emissions rose marginally in 2019 (the latest available). This is about the same as the 2012 levels, and while they are not rising, they aren't falling either. The 2020 and 2021 activity was stunted by the pandemic, and these emissions are unlikely to have risen from 2019.

TRACTOR SALES SLIP
Stats NZ released data today showing that tractor sales are slowing again (on a year-on-year basis), after recent recoveries.

NOT EVERY COMMODITY IS RISING ...
The carbon price has fallen -$5/NZU over the past five days. That is its largest fall in more than two years.

... BUT DAIRY PRICES ARE
Since the last dairy auction a week ago, WMP prices are up +4% in derivatives trading. SMP is up only +2% however. The next GDT auction is on March 2, 2022 (NZT).

UP BUT STILL TAME
In Australia, their wage index was up, up +2.3% year-on-year. But that is not strong enough to make a June rate hike more certain than not.

LOCAL PANDEMIC UPDATE
In NSW, there has been 8,931 new community cases reported yesterday, now with 100,745 active locally-acquired cases, and another 6 daily deaths. There are now 1,246 in hospital there and holding. In Victoria they reported 6,926 more new infections yesterday. There are now 42,016 active cases in that state - and there were also 18 daily deaths there. Queensland is reporting 6,301 new cases and 37 (not a typo) more deaths. In South Australia, new cases have fallen to 1378 yesterday and 3 more deaths. The ACT has 946 new cases and no deaths, and Tasmania 842 new cases and no deaths. Overall in Australia, more than 25,000 new cases have been reported so far today although not all counts are in yet. In New Zealand, there were 8 cases stopped at the border, plus 3297 new cases reported in the community, yet another new record.

GOLD LOWER
In early Asian trading, gold is now at US$1904 and down -US$4 from this time yesterday.

EQUITIES MIXED
The S&P500 ended down -1.0% in its Tuesday session after their long weekend. Tokyo is on holiday. Hong Kong has opened up +0.3%. Shanghai has opened up +0.2%. The ASX200 is up +0.3% in early afternoon trade. The NZX50 is flat late in the session, slipping from earlier gains.

SWAPS RISE TODAY
We don't have today's closing swap rates yet. They are likely to have risen today and by quite a bit, maybe a +10 bps jump. The 90 day bank bill rate is up +1 bp at 1.26%. The Australian Govt ten year benchmark bond rate is up +6 bps from yesterday to 2.26%. The China Govt 10yr is unchanged at 2.85%. The New Zealand Govt 10 year bond rate is now at 2.80% (up +8 bps from this time yesterday) and now just above the earlier RBNZ fix for that 10yr rate at 2.75% (up +4 bps). The US Govt ten year is now at 1.94%, a +8 bps recovery.

NZ DOLLAR FIRMER
The Kiwi dollar is +40 bps on the OCR news and it was already firmer from this time yesterday, now at 67.7 USc and a net +60 bps rise. Against the Aussie we are up +½c at 93.7 AUc. Against the euro we are firm by almost +½c too, now at 59.3 euro cents. That means the TWI-5 is firmer at 72.1 a +60 bps rise in a day.

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BITCOIN BOUNCES
Bitcoin is higher today, now at US$38,098 and +2.6% higher than this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.8%.

This soil moisture chart is animated here.

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24 Comments

by Foxglove. | 23rd Feb 22, 4:09pm 1645585746

Starting to get to the point, that on some days, the caption might better read “What didn’t happen today.”

by Justa comment | 23rd Feb 22, 4:14pm 1645586052

yes 1% OCR....yawn.... still extremely low. Inflation at 6%. First meeting since Nov, and yet only 0.25%. This story doesnt really start until we get back over 2%.

by Audaxes | 23rd Feb 22, 4:47pm 1645588068

SWAPS RETREAT AGAIN - and yet - They are likely to have risen today and by quite a bit, maybe a +10 bps jump.

by chebbo | 23rd Feb 22, 5:08pm 1645589314

I keep getting thrown by these boilerplate artifacts, too. Someone fire the copy editor!

by Trickledown | 23rd Feb 22, 6:17pm 1645593425

To be fair - David is probably running around like a mad man trying to get this info to us in real time.

by chebbo | 23rd Feb 22, 6:23pm 1645593785

I'm only being facetious.

by ozzzy2 | 23rd Feb 22, 8:25pm 1645601104

I up-voted you just for the term, 'boilerplate artefacts'. Oh, and you looked lonely 🙁

by David Chaston | 23rd Feb 22, 7:24pm 1645597489

crikey. Fixed now.

by nz-it-worker | 23rd Feb 22, 4:11pm 1645585900

Your SUDDEN FLOOD is missing 10,000 people.

by David Chaston | 23rd Feb 22, 7:25pm 1645597531

Crikey II. Also fixed now. Thanks.

by chebbo | 23rd Feb 22, 5:45pm 1645591535

Jenee asked Adrian Orr in the press conference today how much influence he thought "quantitative tightening" was going to have on prevailing interest rates, as opposed to the influence of movements in the OCR. The answer she received seemed to suggest that the OCR constitutes 99% of it, with the selling of bonds being more or less irrelevant.

Interesting to note, then, this article from July 14th last year, about the RBNZ halting LSAP, but making no movement in the OCR. The article is tagged as an "event" (big black triangle) in the 1 year swap rate chart, and look what happens to that swap rate shortly afterwards.

The bonds were bought by the Reserve Bank at artificially inflated prices in order to push rates down, and are being sold back to treasury at the same price - under duress - in order to keep rates there, despite Hawkesby's insistence at the presser that they're doing as much as they can not to distort the bond market.

But you can only fool markets for so long. If the act of simply stopping LSAP was enough to send swaps rates up, surely reversing it is going to have an even greater effect. I'm not sure how this can't put upward pressure on interest rates.

by Audaxes | 23rd Feb 22, 6:27pm 1645594035

Supposed "QT" is the act of RBNZ selling it's government bonds back to the public - market place. Hardly comparable to the Treasury extinguishing them via direct purchase from RBNZ.

by chebbo | 23rd Feb 22, 6:42pm 1645594952

Indeed, hence the inverted commas. I'm can't remember if she actually called it that or not.

by Audaxes | 23rd Feb 22, 7:47pm 1645598841

Here’s what, oh, the Reserve Bank of New Zealand (RBNZ) has to say about LSAP effectiveness:

When we buy assets, this increases their price and so reduces their yield. That means the interest rate, in this case on government bonds, fall. This has the effect of ‘lowering the tide’ on other interest rates in the economy, particularly longer-term interest rates of two years or more. It also reduces the cost of borrowing for households and businesses…

LSAP programmes have been conducted in the euro area, Japan, Sweden, the United Kingdom and United States.

The evidence shows LSAP proved effective in providing much needed support, lowering long-term interest rates and exchange rates, and underpinning economic growth and inflation.

Studies found the government bond purchases worth 10 percent of GDP have, on average, lowered 10-year government bond yields by around 50 basis points. [emphasis added]

It’s true; many academic studies from around the world focusing on different program types in different places have come to similar conclusions using all kinds of regression analysis. They find that QE programs do correlate with falling interest rates; maybe even “around 50 bps” (the “around” part means rounding up).

Even if we take them at their numbers, and presume correlation equals causation (because, they’ll tell you, they do account for the difference when regressing variables), you should still end up wondering why they even bother with this stuff.

Purchase bonds equivalent to ten percent of GDP, and rates are at most half a percent lower?

by J.C. | 23rd Feb 22, 6:29pm 1645594188

BNZ has appointed Paul Littlefair as Executive, Technology. He was already acting in the role since October last year, was previously BNZ’s Chief Technology Officer and was "appointed after an extensive international recruitment process".

So they couldn't find anyone internationally willing or capable for the role. Wonder what kind of person they're looking for. Being a bank, remuneration should not be an issue.

by Audaxes | 23rd Feb 22, 6:40pm 1645594854

Some bank entered into a $500m repurchase agreement (FLP) with the RBNZ yesterday, taking the total to $8,231 million.

by JimboJones | 23rd Feb 22, 7:00pm 1645596056

Still a bit confused why the RBNZ would only increase rates by .25% when inflation is well outside their remit and predicted to remain there, yet they can drop rates by 0.5% on a whim. I’m not convinced they are performing their main role of a stable inflation rate of 2%, is the max employment role tainting them? Are they worried about GDP or a crash, because that really shouldn’t concern them.

by Justa comment | 23rd Feb 22, 7:17pm 1645597072

Agreed. I knew he would say they were seriously considering a 0.5% increase, but not actually do it. Still very wary of Orr.

by HouseMouse | 23rd Feb 22, 9:24pm 1645604662

Yes of course they are worried about those other things, and they are part of their mandate as I keep saying like a broken record.

I don't know if many readers have a cognitive deficit or are simply suffering from severe confirmation bias.

by Independent_Observer | 23rd Feb 22, 10:03pm 1645606986

That’s because they’re not focused on inflation, they’re focused on preventing a debt ponzi from collapsing.

Deflation is their absolute enemy hence why at even the smallest sniff of deflation back in early 2020 it was emergency rate cuts and removal of LVRs etc - yet when you have real, measured inflation consistently quarter after quarter far above the target levels it’s a wait and watch, slowly rise the OCR response.

They care more about protecting the debt ponzi than they do about inflation.

by Noncents | 23rd Feb 22, 7:30pm 1645597843

Congrats Interest. A lot of really well written pieces today across a broad range of topics. Much appreciated.

by MLSmith1 | 23rd Feb 22, 8:05pm 1645599927

Who is worried like I am re Ukraine kicking off!

Russia supplies 10% of oil market - would we see $3.50/litre petrol?!

the ramifications of this are large - the ocr hike would be like putting out fire with gasoline (Bowie line)

by nigelh | 23rd Feb 22, 9:19pm 1645604368

Lucky we probably don't get any oil from Russia. Foreign Minister putting Russia in the naughty room. I wonder from whom the PM and the Foreign Minister minders are getting their instructions. Could it be the five eyes? Need some enlightenment on NZ's foreign policy here or is it that they wait for instructions from some other party.

by MLSmith1 | 24th Feb 22, 7:24pm 1645683886

Doesn’t matter if we get it from Russia or Timbuktu… it’ll affect world market