Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
Heretaunga Building Society raised its floating rate by +25%.
TERM DEPOSIT RATE CHANGES
BNZ tweaked some term deposit rates higher in small increments.
SHARP REVERSAL
The opening of new retail credit accounts dropped -44% year-on-year in the first full month after CCCFA changes, the steepest fall since the start of the Covid-19, according to credit reporting bureau Equifax.
STILL EXCESSIVELY LEVERAGED
We have updated our bank leverage data to December 2021, based on last week's RBNZ Dashboard update. Every major banks reports great results while at the same time 'warning' they may not last. And of course they always (*well almost always) do. Banks are margin businesses, and what is remarkable is how sticky the Net Interest Margin is for most of them. Our Key Bank Metrics tool makes them easy to find and compare (Category P). In terms of leverage, no bank is going backwards. They all have at least 11 times the asset value (mainly the loan book) than is supported by the shareholders. Some (like Westpac) is more than 13 times. Kiwibank is 15 times. You will have zero chance borrowing from them if your leverage was this high.
WESTPAC NZ EXECUTIVE APPOINTMENTS
Westpac NZ says Tania O'Brien, who joins the bank from ANZ, started as its Chief Financial Officer this week. She replaces Kerry Conway, Acting CFO since November when Ian Hankins moved from CFO to become General Manager of Consumer Banking and Wealth. Westpac NZ also says Stephen O’Brien has been appointed General Counsel, a role he has been acting in since October, and Leanne Lazarus, CEO of Westpac Life, is leaving the bank after Westpac Life's sale to Fidelity Life. The two O'Brien appointments are subject to the Reserve Bank having no objections.
SOME BRIGHT SPARKS
It may seem somewhat odd given the international backdrop, but the NZX50 saw its capitalisation rise last week by +1.8%. That was far better than just about all the main markets we monitor. Last week's biggest mover was a big recovery by Pushpay Holdings (PPH, #29), up +11.8% for the week. Sky TV (SKT, #39) also rose sharply, up +9.8% in the week. And Tourism Holdings (THL, #48) recovered +8.1%. Fonterra (FSF, #47) was the largest faller, with its FSF shares dropping -3.8% in the week and again bumping along near its all-time lows. The main driver of the overall rise was the Energy sector, up +3.6% (Meridian - MEL, #6 - rose +7.2%) for the week and it is now up +2.8% over the past year (which to be fair is a pretty lame annual result, but it is far better than the overall NZX50 which is down -0.7% over the past year in terms of overall market capitalisation. Leverage for these listed companies barely even gets to 2:1.
CRAZY GLOBAL SCRAMBLE
Crude oil prices have risen sharply again today. US crude prices are now up to US$122/bbl (a +US$8.50 rise from this morning). The international price is up to US$127/bbl (up US$12/bbl). Serious talk by the US and the EU about blocking Russian oil is inducing a mad global scramble for supply. Coal prices have leapt again today.
FUEL COST CRISIS CONSEQUENCES
The sudden leap in fossil fuel prices means that working-from-home will be suddenly back in vogue, and international travel - or any travel - is facing a future of no recovery. Inflation will become rampant if this keeps up.
GOOD DATA FALLS ON DEAF EARS
Updated Aussie data released today has been quite positive. Their services PMI rose to a level that indicates a sharp expansion in that sector. That is a nine month high, and a strong expansion in any country. Their job ad levels rose as well, and to a 14 year high. Despite this good data, investors are retreating in financial markets.
GOLD SHARPLY HIGHER
In early Asian trading, gold is now at US$1994/oz and up +US$21/oz from this time this morning.
EQUITIES STARTING THE WEEK WORRIED
The NZX50 is down -1.4% in late afternoon trade today, giving up most of last week's gains. The ASX200 is down -0.9% in early afternoon trade. Tokyo has taken fright at its opening, down -2.9%. Hong Kong has opened down -3.7%. Shanghai is down -0.9% at its open. The S&P500 futures suggest it will open down -1.5%.
SWAPS FOLLOW BOND YIELDS LOWER
We don't have today's closing swap rates yet. They are likely to be lower. They can no longer buck the global trends and are now following benchmark bond yields lower. The 90 day bank bill rate is unchanged at 1.34%. The Australian Govt ten year benchmark bond rate is down -8 bps at 2.08%. The China Govt 10yr is down -1 bp at 2.85%. The New Zealand Govt 10 year bond rate is now at 2.73% (down -3 bps) and still below the earlier RBNZ fix for that 10yr rate at 2.76% (down -5 bps). The US Govt ten year is now at 1.69%. That is down -3 bps from Saturday, and down -12 bps from this time Friday.
NZ DOLLAR FIRMER
The Kiwi dollar is firmer from where we opened this morning, now at 68.9 USc and up more than a full +1c since this time on Friday. Against the Aussie we are up at 93.1 AUc. Against the euro we are up +¾c from this morning's open at 63.5 euro cents and a +2c gain from this time Friday. That means the TWI-5 is firmer at 72.7. A week ago it was at 74.1, so a +30 bps ris during the day today.
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BITCOIN CALLING DIP BUYERS
Bitcoin is down another -1.8% from where we opened this morning, now at US$38,435 and down -6.8% from this time Friday. Volatility over the past 24 hours has been moderate at just on +/- 2.1%.
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53 Comments
Putting up with high energy costs and telling your electorate that Russia is causing it is much cheaper than going to war, notwithstanding there was high inflation before the Russo-Ukraininian war. China will be getting discount oil and gas I should imagine. Setting up sanctions busting both physically and financially will be in full swing.
China will be getting discount oil and gas I should imagine.
Pakistan strikes key deal with Russia to buy gas and wheat – reports
Quite a few “…….stans” for said pipeline to run through aren’t there. Will be quite some engineering feat. Rugged country to say the least. Historically rugged tribesmen thereabouts too. Don’t know that delivery will commence sufficiently early to be an early deliverance so to speak, if needed?
“Inflation will become rampant if this keeps up.” There it is. Despite the best endeavours of government, finance ministers of late, Bill Birch, Michael Cullen, Bill English & this one now, when the big boys start weighing in on one another, playing battleships, New Zealand becomes little more han a picket boat in the wake of the great fleet. Fair to say having learned to navigate that challenge, has stood New Zealand in good stead. Never going too high nor too low. Nevertheless with the dawning of the grip of Covid easing this international crisis is an unwelcome and untimely substitute to make a present of itself.
This was inevitable and has been heralded - on this site incessantly - for over a decade.
The virus hid the problem in plain view - that wrapper is coming off and we're 2-3 more years depleted.
I have long wondered if we would ever discuss the true energy story - lately I suspect we never will. We blamed Trump, we'll blame Putin, blame out political oppo's; anything but admit the predicament ahead.
Putin has no choice now but to head south & east. Trusting Mr Xi is not what I would call ''being in a great position.'' However, he has burnt his bridges with Europe (which he needs) & with the Yanks always anti-Russian, especially the Democrats, that makes two-thirds of the (economic) planet off limits for him. There's just the other third to deal with & that's pretty much run by China, so we have a real split opening up which I think will eventually lead to the Yanks pulling out of China pretty much everything they can get out, without pissing Wall Street off. With oil at US$120+ a barrel, we'll all be ''watching the pennies" for a while & while Biden has started shutting down his own refineries, that just makes America more reliant on offshore oil than ever. This doesn't end well.
You are not wrong John. Russia has nowhere else to turn now and will be evermore reliant on the support of China and increasingly indebted. Wonder when the Russian people will get to realise they have been sold down the river, due east . The USA now has some navel gazing to undertake. If oil supply is their biggest issue, then the shale extraction and other nasty “Trumpish concepts” will have to come out of the back chamber and onto the dining table.
Putin has been in power for 22 years. Apart from Stalin no Soviet leader has lasted that long. Stalin was paranoid, so too now is Putin. It goes with the territory for obvious reasons. Putin as with Stalin does not respect territory any more than considering the people of Russia as disposables. Even if Ukraine had been declared neutral, no inclination to join NATO, Putin would have respected that no more than Germany respected the neutrality of Belgium in WW1 & WW2. Once Putin annexed the Crimean peninsular, and sectioned of the pro Russian segment in the Sth East, Ukraine was doomed as much as Czechoslovakia was doomed when Hitler annexed the Sudetenland in 1938. This is what is playing out now, right now.
Perhaps the only difference is the size/dominance of the US/NATO war machine in comparison to the aggressor at the outset.
It took years for the US productive capacity to be fully directed towards the war effort.
And as Churchill observed, that the Japanese ended the war in Europe by bombing Pearl Habour and bringing the US into the war. After that it was only a matter of time before Hilter would be defeated.
IO, get a hold of V D Hanson’s “The Second World Wars.” Probably I have “over read” all the accounts & theories over the years but this book lays it out, black & white,clarifies exactly how the base economical factors made WW2 a foregone conclusion once the USA got involved. Tremendous details, facts, statistics. Even before so though. Great Britain even under siege, the Battle of the Atlantic, was still outstripping Germany armament production. Despite all the gains, the military equipment captured, Germany commenced Barbarossa weaker than when they had swept into France etc. vital book if you are interested in that period!
Great - will take a look thanks! The reading list is long at present and never seems to get any shorter (lol).
Recently read a book about JFK and his fathers role as the Ambassador in London in the build up to the WW2. Gave good insights in the US reluctance to join the fight and just how split the US was internally in terms of their willingness to join the fight (and was surprised just how much sympathy Hitler had from so many Americans at the start of the war).
Kennedy senior. An absolute rotter by my book. Detested by Roosevelt & his inner circle. A defeatist about Britains chances but that didn’t stop him making another fortune playing the stocks as ambassador with all the insider knowledge available to him. Here we go again. John Costello’s “ Ten Days to Destiny” documents a lot of what went on and how the wily Churchill was able to turn that back on Roosevelt, got some leverage.
ps. best get another bookshelf. lost a whole lot of books due to a burst water pipe in our EQs here. But running out of room again already.
2nd WW. Britain and France had a treaty with Poland. So declared war once Poland was invaded. No treaty with Czechoslovakia, so could be the sacrificial lamb to Hitler. Ukraine no treaty ie NATO, so Ukraine the sacrificial lamb for the EU and USA. The buck stops at Poland. Its border is be-reinforced. Any suggestion that Putin will invade Poland is speculation at this stage.
Poland. Ironic is not the right word, but you have a point in that regard certainly as to that border becoming once again a potential flash point. And in another well tried theatre, if Turkey maintains the Montreux Treaty, Russian warships won’t be exiting the Black Sea any time soon. Trouble in the Balkans too, once again.
CRAZY GLOBAL SCRAMBLE
Crude oil prices have risen sharply again today. US crude prices are now up to US$122/bbl (a +US$8.50 rise from this morning). The international price is up to US$127/bbl (up US$12/bbl).
Inflation to the moon. 🚀🌕
Good to see wheat and corn up as well. There is a lot of synchronisation in this commodity supercycle so far.
I've not yet identified any good cyclical opportunities in the current market unfortunately so I'm heavily in cash.
The opportunity that has really interested me over last couple of years is freshwater because it's probably the most under-valued resource on earth. Unfortunately there isn't an active market for water rights yet, water is so under valued we don't generally treat it as a commodity (except California.) However farmland REITS give you some exposure as does hydro etc. If you find a better way I'm all ears.
That said, if you where willing to buy a bullet proof jacket and get on a flight to the Ukraine, I'm pretty sure farmland would be cheap. Just don't get shot on road to el Dorado.
Thats simply not an option. if we can't get fuel into the country then no delivery trucks, no public transport, no ambulances, no fire service etc. Would make the gumbies that ruined parliaments lawns look positively civilised by comparison to what the public would do.
We aren't likely to get nothing. But we may have to go onto severe rationing if things turn really bad and supply lines are severely interrupted. Most of the things that you state would be critical services, so would get fuel. We had fuel rationing in the 70s/80s and good reasons for it, there wasn't a mass uprising because everyone knew the situation couldn't be fixed by a change in government. Same would apply here.
Everything's an option, depending on how bad things get. Go back 4 years and tell people they were going to be locked in their house and local neighbourhood for 3-6 months because a fairly low risk virus was going to circulate and you may have thought the same.
But it wasn't really ever self sufficient, still required the import of crude oil. But yes, getting rid of the processing facility now seems like a amateur and completely inexperienced decision by the government. Having our own refinery for crude does put us further down the production tree, especially as the world heats up. Simply said, if things break out around the world, importing crude will be a LOT more secure than importing already refined fuel.
references required, please. Firstly, oil comes in many grades/forms - sour crudes are not all that useful, and some refineries cannot accommodate. More and more of the ever-lessening 'swing capacity', is sour etc. Then we need volumes; my appraisal is that only SA is really capable of being a swing producer now; Iran is an old set of fields (read Longhurst's Adventure in Oil), even if it got into gear. And everyone else has either gone from being an exporter to being an importer - or they're on the way there. And not everyone can be an importer.......
I doubt SA can put 2mbpd extra into the system for long, and I bet it's sour. Iran? How is all that old BP infrastructure? They we'd have to de-embargo - read; commandeer. Just remember that OPEC by its very definition, is a dwindling cohort.
"Global proved oil reserves were 1732 billion barrels at the end of 2020, down 2 billion barrels versus 2019. The global R/P ratio shows that oil reserves in 2020 accounted for over 50 years of current production. OPEC holds 70.2% of global reserves."
https://www.bp.com/en/global/corporate/energy-economics/statistical-rev…
https://www.statista.com/statistics/264331/global-oil-reserves-since-19…
this chart of quality by country might be useful
Feeling inspired by Luxon, can't wait to vote...https://ibb.co/nMqJDBG
Roy Morgan poll February 2022
The February 2022 Roy Morgan is out.
Party Vote
- Labour 32.0% (-1.0% from January)
- National 38.0% (+3.0%)
- Greens 11.0% (+0.5%)
- ACT 11.5% (-2.0%)
- Maori 2.0% (-0.5%)
- NZ First 2.0% (-0.5%)
- TOP 1.0% (-0.5%)
- New Conservatives 1.0% (nc)
Seats
- Labour 40 (-25 from election)
- National 48 (+15)
- Greens 14 (+4)
- ACT 15 (+5)
- Maori 3 (+1)
Governments
- Labour/Green 54/120
- National/ACT 63/120
Direction
- Right 42.5% (-6.0%)
- Wrong 47.5% (+5.5%)
Interesting though that fringe parties either further to the left/right are gaining popularity…perhaps both National/Labour have become too centrist?
Or like the US, voters are shifting further to the extreme in each direction with less middle ground/bi-partisanship
Regards Oil Production I would expect post November 2022 Congressional Elections the US will be back to pumping more Oil. Americans won't put up with this level of Petrol increases when they know their is plenty of Oil sitting in the ground in North Dakota & Texas that Biden and his Administration made difficult to source. https://supermacro.substack.com/p/oil-prices-spiking-because-no-one?utm…
I have seen the 120 long tanker trains heading west to east from North Dakota passing through every 8 hours, and all of that was supposed to be draining down a new pipeline to Oklahoma & Texas under the last Administration. Average American drives 3x's per year the kilometers that Kiwis due and makes it a very much more "vote worthy" matrix.
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