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
Nothing to report today so far.
TERM DEPOSIT RATE CHANGES
Nothing here either.
WE NEED TO PICK UP OUR GAME
Our terms of trade are now going against us. The ratio between export prices and import prices results in this 'terms of trade' metric, and in the June quarter import prices rose at a +23% year-on-year rate while our export prices rose at just a +20% rate. Rising energy costs are behind the deterioration. We rely on our export trade to buy our flash new EVs, our new and expensive (and vanity) electric bikes among many other of life's modern conveniences. The only way we can pay for them is by either exporting or borrowing. It becomes tough when exports are flagging. Our creditors won't see us as a good risk unless we have good future prospects, and that essentially means selling rural products. The June quarter deficit was the second worst in the past six years from a year-on-year perspective, and the third worst over the same period on a quarter-on-quarter basis.
ANZ UPs ITS MILK PAYOUT FORECAST
ANZ says a fall in milk supply is counteracting soft market pricing at a time the NZD has depreciated. They have raised their 2022/23 farm gate milk price estimate by +25c to $8.75/kgMS. But this rise needs to be seen in the context of being low compared to most other analysts. They have left their 2021/22 forecast at the same level Fonterra is forecasting. Fonterra will announce its prior (2021/22) season final payout level on Thursday, September 22, 2022. All current forecasts are here.
STORMS NO EXCUSE
The Commerce Commission has filed civil proceedings in the Auckland High Court against electricity lines company, Vector (VCT, #25), for failing to meet minimum reliability requirements for four consecutive years. Vector supplies electricity to more than half a million homes and businesses in the greater Auckland region. The Commission is seeking financial penalties from Vector for failing to meet its network quality standards. These standards required Vector to stay within an annual reliability limit in two out of every three years. Vector has co-operated with the Commission’s investigation and confirmed it will not challenge the proceedings.
WARM & WET
NIWA says this past winter was the warmest winter on record. The country now has had 3 consecutive record warm winters. The nationwide average temperature was 9.8°C (1.4°C above the 1981-2010 average). Of the 10 warmest winters on record, 6 have occurred since 2013. It has also been our wettest winter on record due to numerous extreme rainfall events that resulted in severe flooding and landslips across parts of the country.
INFLATION PAST ITS PEAK
In Korea, inflation seems past its peak. It rose 5.7% year-on-year in August, slowing from a 24-year high of 6.3% in July and below the consensus forecast. Energy and food prices have started declining from elevated levels. The country’s annual inflation rate also slowed for the first time since January and marked the slowest pace in three months.
SWAP RATES PAUSE
Wholesale swap rates are probably slightly lower today as yesterday may have overdone it. Our chart will record the final positions. The 90 day bank bill rate is up +1 bp at 3.48%. That is its highest since July 2016. The Australian 10 year bond yield is now at 3.74% and suddenly up +12 bps from this time yesterday. The China 10 year bond rate is at 2.66% and down another -2 bps. The NZ Government 10 year bond rate is now at 4.01% and down -9 bps from this time yesterday and now below the earlier RBNZ fix for this bond which was down -2 bps at 4.04%. The UST 10 year has now up to 3.26% and up another +5 bps from this time yesterday.
EQUITIES HOLD
The S&P500 ended its Thursday session unchanged, which was a good recovery. So far this week they are down -2.2%. Tokyo is down -0.2% so far today and heading for a -2.0% weekly loss. Hong Kong is down -0.7% today and heading for a -2.5% weekly fall. Shanghai is up +0.2% in early Friday trade and heading for a weekly dip of -0.4%. The ASX200 is flat in afternoon trade today but that bakes in a -3.6% weekly loss. The NZX50 is also unchanged in late trade and may end the week with no loss.
GOLD FALLS FURTHER
In early Asian trade, gold is down -US$5 from its level this time yesterday, down to US$1,698/oz. At least it is higher than the New York close.
NZD DEPRECIATION EXTENDS
The Kiwi dollar is now down at 60.7 USc and another dip although this one is small since this time yesterday. Against the AUD we are soft at 89.3 AUc. Against the euro we are at 60.9 euro cents and holding. That all means our TWI-5 is now at 70.2 and down just -10 bps since this time yesterday.
BITCOIN HOLDS
Bitcoin has been marginally softer, now at US$20,014 and down -0.7% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.5%.
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27 Comments
Long covid's deleterious effect on employment.....
https://www.brookings.edu/research/new-data-shows-long-covid-is-keeping…
More overseas students? Will the rising OCR and depreciating NZ dollar inhibit purchase of luxury imports? Hopefully. Although someone said that hope is not a strategy.
Cornell University has been going through the motions for a partnership with the Vingroup in Vietnam to establish an online university with campus being developed. The focus is on being able to provide 'affordable quality education'.
Unless you want a visa, why would you drown yourself in debt for an Anglosphere education?
It should be marketed as a backdoor residency/ working visa route for ANZ, that was always the nudge nudge wink wink business model. Because NZ Tertiary education academics couldn't care less about working NZdrs subsidising their jobs.
"International Education" is not an earner. It's a rort on New Zealanders.
The key data out today is how the goods and services balance is now $2.3 billion deficit for the last quarter compared to a surplus of $700 million for the corresponding quarter last year. [https://www.stats.govt.nz/information-releases/international-trade-june… , and from there drill down into the spreadsheet ]
The deterioration is due in large part to services outflows which have ballooned
This is going to feed into a further increase in the current account deficit announcement on 14 September - my estimate is now something in excess of $25 billion for the year.
Hold on tight for a rough ride as this is digested by the market, with implications (not necessarily immediate) for both interest rates and the exchange rate.
KeithW
This applies to NZ as much as the US.
This chart explains a lot about the current predicament. What boomed and what didn't. The part that did was the worst thing to have done so. The one that didn't was what we really needed. Fake boom because it was fake all of it falling apart. Link
Hi Keith,
Given the Labour/ Green hatred for the farming sector, I'm curiously saddened at where this attack can ultimately lead!
I appreciate this is crystal ball, but how much damage is being inflicted on the sector and what's general consensus on the impacts for NZ's primary industry receipts?
The "changes" appear to be multi-pronged - ETS, land / resource use, water (3 waters, etc), labour, etc, etc. Will Diary be "reset" thanks to central Government decree?
Thanks in advance.
Would be far simpler just to apply user-pays to all pollution and its clean up costs.
KiwiinSpain,
I see it more as ignorance than hatred.
And I don't think any of the political parties have in-depth understanding of the issues. So, to a large extent, I set the issues apart from party politics.
New Zealand's international wealth and its comparative advantage are constrained by both the set of constrained natural resources and NZ's location. And our per capita ability to earn a 'first world' income is declining as those resources hit their limits but are spread across an increasing population. The topography not only impacts on the agricultural potential, but also makes urban infrastructure very expensive. As just one non-agricultural example, building costs are exceptionally high on account of wind-loadings and earthquake risks.
KeithW
The bigger problem is that agribiz is the process of turning fossil fuel calories into food ones. By definition, that is a temporary regime.
Which renders both your comments, as a discussion among the Titanic deckchairs.....
Most of the calories embedded in NZ agriculture come from the sun.
Hence the relatively low CO2 emissions.
Further reducing the role of fossil fuels within agribusiness is achievable.
KeithW
Ah, Keith, the "inconvenient truth"! Our only hope to maintain a life style even faintly resembling first world (& that may be a ridiculous assumption given the constraints you, & PDK describe) is to either, increase (foreign) income, or reduce costs,...right through to the export destination.
Given that farm produce makes up a high percentage of our export income, one can only despair at the hugely inefficient cost burden placed on our export earning industry. One only needs to take an historic look at our land management laws, ..... their intentions versus their efficiency in achieving the intended outcomes. For example, the 1991 Resource Management Act which replaced a slew of much amended and complex set of dubious statutes, has surely cost (if anyone is brave enough to count) billions & with achievement of it's highly ambitious objectives not even in sight. And now, we have thousands of very well paid bureaucrats and fellow consultants beavering away at producing a replacement for the 1991 statute!
Of course industries, purely because they produce export dollars should not be immune from being responsible for any waste or pollution, but surely we should all be aiming at achieving cost efficient regulation. 3 Waters seems to be yet another classic example of spending much to achieve little, but will inevitably have an impact on our old problem of cost of production versus hard dollar income.
Portentous! Rolling thunder to the black clouds rolling in from the horizon. Another grave road marker looming. Inflation has it peaked, probably not, but even if it has the current 7% ish is going to be sticking to its work for quite some time yet.
Funny to call ebikes vanity in the same sentence as trade. If we all ride ebikes and didn’t spend so much on oil, our terms of trade would be much better wouldn’t they?
Not if the import price tag of the ebike is tacked on to the NZD residential property mortgage against upwards revalued collateral and the resultant import/export deficit results in a national USD debt to finance the current account imbalance.
Thanks. I read that and now feel like I just sat 10 IQ tests, back to back.
There was a reason why only NZ export farmers were permitted to import new automobiles from abroad in the 50s and 60s. The rest of us put up with hand me downs. And yes, I know our Aussie banks (via their UK subs) can finance USD borrowing deficits with NZD/USD cross currency basis swaps, but that only works when the term basis is negative and currently that is not the case beyond one year - hence foreign counterparty supranational USD borrowers are not interested because our RBNZ defined core funding rules would be breeched.
And the industry of fixing old cars became widespread. Kiwi ingenuity.
Long gone now.
I have a workshop. With a workbench, vice, hand tools handed down from my grandfather and father.
Would those buying one of Ak Councils unitary plan type houses have one of those? No. No room for that. So the inhabitants will just sit there getting fat watching netflix or playing video games. Woopsie do.
And a Mason Lathe set up in a state house garage in the suburbs.
New Zealand-incorporated registered banks are also subject to a minimum core funding ratio (CFR). The basic notion underlying the CFR is a comparison between an estimate of the funding of the bank that is stable and can be assumed to stay in place for at least one year (‘core funding'), and the core lending business of the bank that needs to be funded on a continuing basis. Core funding is defined as retail deposits plus wholesale funding with maturity of more than one year.
The meat market international student market is ramping up I see. JA was actually there in person giving warm fuzzies. I do hope the new students all get treated fairly by us kiwis. Like when they earn their residencies and some open small shops that the ramraids have stopped.
But why oh why does the new police minister Hipkins not show the same level of support to the small businesses get hitting every-night. Has not been to one business to show support and solidarity. Gee I thought that was the very essence of being "Labour"
Wrong people for the wrong jobs.
They don't seem to be very labour-y, overall. They just decided to increase migrant worker numbers to reduce the pressure to raise wages for kiwi workers.
I think the theory goes that inflation is bad for poorer people and importing more people will decrease inflation. Personally I think inflation is worse for the rich, almost all investments are going backwards at the moment even before inflation. Inflation is great for middle class home owners with debt.
Sarah Palin lost in Alaska. Mary of Inuit (Eskimo) heritage, won. About time.
Dems won in District 19, New York.
The Red Wave, as earlier polls showed, may have slowed. Latest polls show Dems gaining some ground. Kevin McCarthy may not have the chance to replace Pelosi as speaker.
Elections to watch.
Fetterman vs OZ
Josh vs Mastriano
And
Charlie Crist vs Ron Desantis
Trump has another lawyer, who argued on political grounds, rather than legal. Christina Bobb and Evan Corcoran, may be witnesses if the former President is charged.
Dems on top? We are all doomed.
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