What happened Thursday

Business / news

A review of things you need to know before you sign off on Thursday; SBS Bank raises rates, trade deficit balloons, benefit numbers sticky, credit stress at record low, FMD watch nervous, swaps stable, NZD firm, & more

[updated]

21st Jul 22, 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 RATE CHANGES
SBS Bank raised its floating rate by +50 bps to 6.29%.

TERM DEPOSIT RATE CHANGES
SBS Bank has raised term deposit rates for terms 6-18 months

TRADE DEFICIT BALLOONS
The June trade deficit was large. That took the annual trade deficit to June was -$10.5 bln and more than twice the annual deficit for any other June year. In the year ended June 2021 there was a deficit of just -$277 mln. In June itself, there was a -$701 mln deficit in a month where normally we have surpluses. Trade and current account deficits don't seem to matter much - until they do. And we might actually be getting towards that tipping point. You have to go back to the Clark/Cullen years to find a worse trade result over a sustained period (2002-2009).

EXPLAINING THE BAD TRADE RESULT
Of our major export trading partners, exports to the United States, the European Union, and Japan rose in June, while exports to China and Australia fell. Imports from all our major partners rose. Our imports of fuel rose +206% in June from June 2021 and made up 17% of all imports. That increase ($405 mln) only explains about 40% of the trade deterioration.

WELL SUPPORTED NZGB TENDER
$400 mln was tendered in NZ Govt bonds today, attracting bids totaling just over $1 bln. The May 2026 $200 mln attracted $474 mln in bids and went for a yield of 3.70% pa which as up from 3.39% two weeks ago. The April 2029 $150 mln attracted $424 mln in bids and went for a yield of 3.73% pa versus 3.51% two weeks ago. The $50 mln May 2051 bond attracted $136 mln in bids and went for a yield of 3.98% pa, unchanged from two weeks ago. Overall there were 117 bids and 54 were successful and a much improved spread of winners.

THE NUMBER ON PUBLIC BENEFITS VERY STICKY
The number of people on the jobless benefit continues to fall, now 170,762 as at June and a fall of more than -10% in year, a year where labour shortages have been acute. You might have expected it to fall much more than by just -19,500. The number of people on the Sole Parent Benefit rose by more than +10% in the year, and the numbers on the Supported Living Payment rose as well, and to a new record high.

CREDIT STRESS REMAINS AT RECORD LOWS
The number of personal bankruptcies plus No Asset Procedures have remained very low at 1168 for the year to May and the lowest absolute number we have seen since we started tracking this in June 2004. On a per population basis (20yrs+) it is even lower. Moaners aside, very few people are in serious credit stress.

CREDIT CARDS STILL OUT OF FAVOUR
Billings on credit cards are inching back to year-ago levels, but remain below pre-pandemic levels. Inflation is not boosting these transactions (C13). Credit card balances (C12) are still +4.6% lower than year ago levels, and -20% below the December 2019 level. But still, just over half of these balances are incurring interest (which is also near an all-time low).

HEARTLAND FIELDS REGULATORY QUERY OVER RISING SHARE PRICE
Heartland Group Holdings, parent of Heartland Bank, says it continues to comply with NZX continuous disclosure obligations. This follows an enquiry from market regulator NZ RegCo about a 10.7% increase in Heartland's share price over just one week.

SHARE BUYBACKS START
Fonterra (FCG) has made its first purchase of shares under the $50 mln buyback program announced last month. The first purchase was tiny, 21,900 shares at $2.70 or $50,060.

MUSICAL CHAIRS
Westpac NZ has announced the appointment of Reuben Tucker to the role of General Manager of Institutional and Business Banking and Dirk McLiesh to the role of Chief Risk Officer. Tucker was (prior to his Balthazar & Co venture) a long-time senior ANZ manager and replaces Simon Power. McLiesh has been a senior BNZ manager.

SQUIRREL CLIMBS HIGHER
Squirrel Mortgages is boosting its Wellington presence through the acquisition of The Home Loan Shop, as it also unveils referral relationship with financial advisor enable.me. It is also seeking more capital.

JAPAN'S EXPORTS VERY STRONG
As expected, Japan reported a larger trade deficit in June from the higher cost of oil. But the deficit wasn't as large as some had feared. However, the more important news here was the unexpected strength in Japanese exports, reinforcing that there is strong global demand for Japanese high-tech machinery. Exports rose more than +19% in June from a year ago, the 16th straight month of gains.

FMD FEARS RISE
In Australia, there are growing calls to shut their border with Bali to keep the foot & mouth disease out. Fear of what it will do there is rising fast.

SWAP RATES FLAT
Wholesale swap rates may have marked time today, holding yesterday's rise. The 90 day bank bill rate was up +4 bps to 3.16%. The Australian 10 year bond yield is now at 3.57% and down -1 bp from this time yesterday. The China 10 year bond rate is now at 2.79% and also down -1 bp. The NZ Government 10 year bond rate is unchanged at 3.80%, and now just below the earlier RBNZ fix for this bond which was up +4 bps to 3.79%. The UST 10 year is now at 3.01% and down -2 bps from this time yesterday.

EQUITIES MIXED
The S&P rose another +0.6% on Wall Street earlier today, building on the prior day's big gain. Tokyo has opened -0.1% lower. Hong Kong has opened down a sharpish -1.2%. Shanghai is down -0.4 in their early Thursday trade. The ASX200 is flat in afternoon trade. The NZX50 is up +0.7% in late trade and another good rise. For the four days this week, the NZX50 is up +1.2% so far.

GOLD DROPS UNDER US$1700/oz
In early Asian trade, gold has fallen -US$19 from this time yesterday, now at US$1693/oz and a 16 month low.

NZD FIRM
The Kiwi dollar has risen +¾c to 62.3 USc. Against the AUD we are stable at 90.4 AUc. Against the euro we are still at 61.1 euro cents. That means our TWI-5 is now just under 71.1 and holding most of yesterday's rise.

BITCOIN HOLDS
Bitcoin is now at US$23,276 and down -0.7% from this time yesterday, so holding its recent gains. Volatility over the past 24 hours has been moderate at +/-2.9%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

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58 Comments

by Kiwisaint | 21st Jul 22, 4:01pm 1658376074

Has anyone asked Robbo about the Balance of Trade and Balance of Payments deficits?

by Pa1nter | 21st Jul 22, 4:39pm 1658378347

I'd like to know more detail. There's this

Our imports of fuel rose +206% in June from June 2021 and made up 17% of all imports. That increase ($405 mln) only explains about 40% of the trade deterioration.

Where's the rest from?

Higher freight costs?

Differences in the dollar?

We're just making and exporting less stuff, while importing ever increasing amounts?

by Rex Pat | 21st Jul 22, 5:14pm 1658380495

When Keith W writes about something I take notice. He addressed this yesterday in comments. I’m worried.

by sit23 | 21st Jul 22, 10:51pm 1658400670

We import fuel now. We used to import oil and add value to it and then sell it domestically.

by HouseMouse | 21st Jul 22, 4:25pm 1658377521

Everyone talks about the need to keep the NZD strong, to counter inflation.

But the other side of the coin is a weaker NZD would help our exporters - you know, the ones that actually generate income for the country.

by J.C. | 21st Jul 22, 4:47pm 1658378877

But the other side of the coin is a weaker NZD would help our exporters - you know, the ones that actually generate income for the country

Yes and no. It can make export receipts more attractive for sure. It doesn't necessarily drive growth. For ex, Zespri seems to have done well in the Japan market in the last few years, but it's really unclear the extent to which that market can grow. Japan is now looking at South-East Asia for other fruits such as dragon fruit that it can get much cheaper than NZ kiwifruit. Another interesting thing about Kiwifruit is that if Japanese experience a sour taste when they first try Kiwifruit, they're unlikely to ever buy or try it again.

by Jarlaith | 21st Jul 22, 4:48pm 1658378920

That heterodoxy is doing wonders for Türkiye.

by HouseMouse | 21st Jul 22, 4:58pm 1658379496

Japan’s exports are doing very well out of a weak yen.

by J.C. | 21st Jul 22, 5:29pm 1658381372

Japan’s exports are doing very well out of a weak yen.

True. Been high demand for Japanese goods out of China. That includes things like Japanese sake, beef, and fish products.

by Advisor | 21st Jul 22, 9:04pm 1658394279

So an unnecessarily strong NZD has been holding back all those NZ exporters to come forth and unleash their hi-tech merchandise onto the world.

by HouseMouse | 21st Jul 22, 9:07pm 1658394446

What a silly comment. I never said anything remotely along those lines.

A strong NZD isn't helping our exporters. And we are seeing that as a contributing factor in our BOT.

by company of heroes | 21st Jul 22, 4:59pm 1658379561

Nah, let the market sorts itself. We can not just keep intervening the market by creating artificial weak dollar value to keep our exports up. We've been doing this for years, just see where it got us, unproductive industries became less competitive. If dairy industry couldn't keep up with competition, maybe for once, they should figure out a way to keep themselves competitive?

by J.C. | 21st Jul 22, 5:30pm 1658381440

How much more sexy can milk powder get?

by Rob Reid | 21st Jul 22, 9:19pm 1658395171

It's obvious - chocolate coated milk powder.

by kazadi | 21st Jul 22, 6:13pm 1658384020

We must keep the NZD strong as it gives us options. Can't do that with a weak dollar. It's like having the power of the lender and the weakness of the borrower.

by Audaxes | 21st Jul 22, 4:33pm 1658378026

[Japan's] Exports rose more than +19% in June from a year ago, the 16th straight month of gains.

Is China still the largest importer of these exports?

Japan's trade balance shifted to a deficit of JPY 1,383.8 billion in June 2022 from a surplus of JPY 369.4 billion in the same month a year earlier. While coming below market consensus of a gap of JPY 1,509.7 billion, the latest figure marked the 11th straight month of trade shortfall, amid a surge in imports. Inbound shipments climbed 46.1% yoy to JPY 6,854.4 billion, while outbound shipments grew by 19.4% to JPY 7,223.8 billion. Considering the first six months of the year, Japan posted a trade gap of JPY 7,924.0 billion, compared with a surplus of JPY 847.7 billion in the corresponding period of 2021. Link

by Nzdano | 21st Jul 22, 4:38pm 1658378290

5 year swap rate is under the 2 year.

Interest rate drops coming up?

by realterms | 21st Jul 22, 4:50pm 1658379030

Sure. In 2-5 years time. Unless of course the market is wrong. It's not like it changes its mind every other week or anything...

by J.C. | 21st Jul 22, 4:42pm 1658378536

Aussie state politics gets little attention and coverage in NZ. The self entitlment, rorting, and "corruption" is rife and the John Barilaro situation is interesting. Remember this is the ex-deputy leader of NSW who sued Google for defamation and received damages of $700K when an independent journalist exposed all kinds of oddities.

It seems like NZ is relatively clean but the self entitlment issues are still obvious.

https://www.abc.net.au/news/2022-07-21/john-barilaro-staffer-sought-gov…

by Audaxes | 21st Jul 22, 4:46pm 1658378791

BlackRock, $BLK, just lost the largest amount of money lost by a single firm over a six-month period. In the first half of this year, it lost $1.7 trillion of clients' money. Link

by realterms | 21st Jul 22, 4:54pm 1658379271

And is, somehow, trading up on the news.

by The Person | 21st Jul 22, 5:47pm 1658382431

they lost lots of money cause they manage so much money. 'largest loss in history' just highlights what a sucessful business they have.

Sharsies, in nominal terms, saw a smaller losses on assets under management, does that make them a more valuable company?

by Audaxes | 21st Jul 22, 6:09pm 1658383760

Was leverage (Prime Brokerage activities) in a falling market an issue?

by kazadi | 21st Jul 22, 6:29pm 1658384961

I worked for Ford during the 80's recession. They essentially became used car dealers by buying Swan vehicle rentals, a very large business. Most of the new production cars went to Swan for 3 months and popped out the other side at the used vehicle auctions.

I'm expecting the builders who can afford to do similar to flood the market with brand new rental properties and sell them when the market yields a profit. look out slumlords !

by The Person | 21st Jul 22, 4:53pm 1658379230

Missed this last week, Saudi is now importing Russian Oil.

https://www.euractiv.com/section/global-europe/news/saudi-arabia-double…

by Jonny.Foe | 21st Jul 22, 4:54pm 1658379247

Worth a listen to the recent OddLots podcast - they get into how currency traders have started to look at trade balance forecasts rather than central bank interest rate forecasts when working out where currency exchange rates will go in the future.

It is also very clear that the Fed is hiking rates to strengthen the dollar to tackle imported inflation. Obviously the impact on other countries that have to buy stuff in US dollars (like oil) is... higher imported inflation. Maybe it is time to work on our energy security?

by realterms | 21st Jul 22, 4:59pm 1658379598

What exactly do you propose? Drilling for oil (the main thing we import) or electrifying transport (the main thing we use it for)?

by Jonny.Foe | 21st Jul 22, 5:12pm 1658380375

Nationalise petrol and diesel infrastructure (cost + margin contracts with existing companies) and use Govt balance sheet to smooth out the troughs and peaks in prices for consumers (whilst allowing price to increase up to a gradually increasing ceiling price). Go hard on electrifying transport. This will take years, but we are going to have to do it anyway and it won't happen by fiddling with incentives or adjusting the number of emissions trading scheme credits on offer.

by The Person | 21st Jul 22, 5:55pm 1658382911

OMG the govt to set the price of fuel for consumers to 'smooth out troughs and peaks'?

Prey tell, is the current price a peak to be smoothed out, or a trough to be filled in? Better get the comcom a crystal ball to set forward fuel prices.

Are there any countries that pull this off? Usually it's associated with a government going broke and the masses rioting when the govt passes through market price increases.

by Jonny.Foe | 21st Jul 22, 8:07pm 1658390864

You have hit the nail on the head. We have an imported product on which we are totally reliant and it is critical to the literal functioning of our society. Yet, this important product is subject to wild swings in price level - we don't know whether we are at the top, bottom, middle or whatever. So, let's say we aim to almost completely move away from petrol and diesel over the next 15 years. To make the transition smooth, we would have to smooth out the price at a country level - holding it steady whilst we move onto alternatives. This is not without precedent at all. In fact have a look at one of the reasons Switzerland currently has relatively low inflation.

by The Person | 21st Jul 22, 8:17pm 1658391426

Certainly, part of the reason for low Swiss inflation is because the cost of living here is already so high.

"One of the aspects of Switzerland is that we tend to have high prices in practically everything when you compare it with our neighbours in Europe," said Nannette Hechler-Fayd'herbe, global head of economics & research at Credit Suisse.

Eurostat figures show the price level for household consumption expenditure was still 60% higher in Switzerland in 2020 than the euro area average.

Is that what you mean?

Other links tend to explain it's cause they aren't so exposed to petrol prices in their energy mix. I guess they have high PT usage in some of their cities, so people aren't filling up with gas.

Nothing about a government plan to set the price of fuel.

by HouseMouse | 21st Jul 22, 5:37pm 1658381850

Will have to track it down.

so your first paragraph would suggest that the NZD might weaken considerably against the yen, given the likely different trade balance profile paths of the countries? (Japan improving NZ declining?)

by Jonny.Foe | 21st Jul 22, 5:41pm 1658382063

My take from the conversation (and others like it) is that currency exchange rates in the short- to medium-term are a function of trader expectations. What shapes trader expectations in usual times is the spread between central bank and market interest rates (how much return can you get by putting a given currency into a bond denominated in that currency).

At the moment, traders are increasingly looking at real things - commodities, oil etc - things that countries often need to buy in a given currency. So the relative value of that currency is shaped by the desirability of the things you can buy with it. So, the US dollar is flying up because the yields on US Bonds are OK AND many countries need US dollars to buy important things like oil on the global market. I am not sure that this impacts on your Yen / NZD trades - whether the Yen would increase in relative value because of high-tech exports from Japan, and, if they did, whether this would outweigh the low desirability of BoJ bonds, which offer basically zero return. The foreign exchange part of macro is pretty new to me though so I am only having reckons here.

by HouseMouse | 21st Jul 22, 6:19pm 1658384341

Thanks for your reckons

by Independent_Observer | 21st Jul 22, 9:46pm 1658396775

Dollar milkshake theory

by Audaxes | 21st Jul 22, 5:38pm 1658381912

Could the $USD be higher because inflated foreign imports to each country demands more $Eurodollar credit which is not freely available because banks seek liquidity in sovereign debt purchases rather than risky lending?

by Peter M | 21st Jul 22, 4:57pm 1658379441

Most worrying is the decline in the quantity of exported milk powder. In June 2022 28% compared with June 2021. And this is on top of a decline in May 2022 of 23% compered with May 2021. The explanation of lockdowns in China is not holding up any more. China is just buying less!

If that trend continue there will be not an inch warehouse space left in this country soon to store the milk powder.

by Foxglove. | 21st Jul 22, 5:21pm 1658380876

While commodity is undeniably less sexy than than ready to retail product etc, it is undeniably too, the foundation for it. It is all very well selling plenty of pretty polished pebbles but if the boulders ain’t moving, then activities start to shorten up very quickly. The historic EEC beef mountains for instance.

by J.C. | 21st Jul 22, 5:36pm 1658381781

You get it. Tell me in which countries NZ dairy brands are killing it. I knew that Anchor was strong in Sri Lanka. Fonterra brands have very low mkt share in China. Westgold butter done very well in Japan, but the Japanese still buy local brands. The Westgold brand is Chinese owned now.

by Foxglove. | 21st Jul 22, 5:57pm 1658383052

I trust that was a rhetorical question. I am long retired now and my comment relied on past experiences which I imagine still hold true. I remember though well enough, from my contacts in Malaysia in the 80’s, the hopeless and hapless antics of the then Dairy Board and their precious pottles of yoghurt that pissed off just about every importer who counted.

by The Person | 21st Jul 22, 5:57pm 1658383061

Maybe the Chinese have decided they don't want diabeties for life.

by stacking_cheddar | 21st Jul 22, 8:01pm 1658390462

Labour Party to surf back into power on a tidal wave of discount tasty cheddar in 2023?

by Foxglove. | 21st Jul 22, 8:12pm 1658391128

At which point the entire congregation is to rise and sing lustily “ Oh What a Friend we Have in Cheeses!”

by Let me be Frank | 21st Jul 22, 6:02pm 1658383373

" Moaners aside, very few people are in serious credit stress."

We are 6 months into an interest rate hike, and around 4 months into an inflationary spike....give it time.

by Current-Sea | 21st Jul 22, 6:38pm 1658385523

I see Vector said today that they added a net 9,300 new connections in the year to June. Take out a few new business connections and you perhaps have perhaps 9,000 new dwellings connected. Someone less lazy than me would be able to compare that to building consent data and see if they correlate. Probably need to do it over time to get a decent idea of what is consented but not built. Infill housing would muddy the waters also. ie rip down one house, build two townhouses is only an increase in one connection to Vectors network but two building consents.

by Hans Brink | 21st Jul 22, 7:08pm 1658387338

What I took as positive from todays comment was that finally NZ citizens are becoming more frugal in their spending. This will be good for our future but I know there will be those who say it is no good for the internal economy.

One thing I wonder about is, What are we importing besides energy that maybe we could do with out.

OK PDK will say it is ALL about energy but just maybe there is something there that we are importing that we don't need?

by Pa1nter | 21st Jul 22, 7:48pm 1658389698

A large amount of consumerism is based on wants rather than needs.

But I guess we could have less stuff overall, and make things like clothes and shoes in NZ again. $80 for a t shirt, don't mind if I do.

by Advisor | 21st Jul 22, 10:13pm 1658398405

Let's try to preserve the few good things we have going for ourselves in this country. We can't afford to lose more homegrown skills and enterprises to greener pastures but our policymakers appear unscathed by this trend.

NZ gaming companies investing in Australia (1news.co.nz)

by agnostium | 21st Jul 22, 9:02pm 1658394179

ICE vehicles.

by Yvil | 21st Jul 22, 8:28pm 1658392085

"That took the annual trade deficit to June was -$10.5 bln and more than twice the annual deficit for any other June year."

Labour government

by HouseMouse | 21st Jul 22, 9:27pm 1658395641

Another absurd comment. Boy you are on fire today.

I am no Labour fan boy, but this is silly.

A big reason for the deficit is covid. Another big reason is the strong NZD. And then for good measure throw in the high cost of fuel.

by GV 27 | 22nd Jul 22, 7:15am 1658430932

Is the NZD 'strong' all of a sudden? Last time I checked it had tanked a massive amount against the USD over the last six months.

by Yvil | 21st Jul 22, 8:30pm 1658392258

"The number of people on the Sole Parent Benefit rose by more than +10% in the year, and the numbers on the Supported Living Payment rose as well, and to a new record high."

Labour government

by Sluggy | 21st Jul 22, 9:04pm 1658394268

So National lead us to godly alliances and are a natural contraception ?

They are all as limp as each other.

Bless you.

by Yvil | 21st Jul 22, 8:32pm 1658392367

"Moaners aside, very few people are in serious credit stress."

Wonderful!

by HouseMouse | 21st Jul 22, 9:10pm 1658394655

Weird!

by Rob Reid | 21st Jul 22, 9:35pm 1658396114

The article draws a conclusion about stress based on bankruptcies; about as lagging an indicator as there could be.

Alas, we have no Martin North to analyse stress by postcode and demographic to tell us where it is building.

by Macrology | 22nd Jul 22, 12:19am 1658405958

David you made me laugh with "more than twice the annual deficit for any other June year". :) (Just you normally see that type of comparison only for seasonal non-annual data).