What happened Tuesday

Business / news

A review of things you need to know before you sign off on Tuesday; few retail rate changes, eyes on GDT, livestock prices rise, KMD's balance off, swaps hang about, NZD slides further, & more

20th Sep 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
ICBC raised two popular fixed rates today.

TERM DEPOSIT RATE CHANGES
No term deposit rates changed, but ICBC raised its Smart Saver savings account rate by +20 bps to 2.30%.

ANOTHER FIRM DAIRY AUCTION
Analysts expect another strong dairy auction rise tomorrow morning. The expectation is that WMP will rise +4.5% and SMP rise almost +4%. The butter and cheese rises may be more tame. Recall that two weeks ago this auction rose +4.9% in USD terms. Tomorrow's looks like it will be less than that but still a good rise. But there are still risks; the WMP Pulse auction a week ago actually brought a softer result. And remember the NZD has fallen -2.9% since the last auction, so the NZD returns are sure to be enhanced.

SHEEP & BEEF PRICES HIGH
More generally, prices for lamb and beef livestock are all running at record highs in both meatworks schedules and saleyard auctions. Check out our charts to get the full perspectives. Deer prices are lagging however, and wool prices remain in the dumps. You wouldn't want to look at these prices adjusted for inflation. That would be ugly.

BIG SALES, LOWER PROFITS
Clothing retailer Kathmandu (KMD Brands) (KMD, #32) reported record revenues in their full year results, almost touching $1 bln. But their shares sank to just $1.02 today. That was those record sales came with a -40% fall in profits to $37 mln for the year to July 2022. None of the company's cheerleading on the sales results has impressed investors.

NERVOUS NELLIES
In Australia, the RBA released the minutes of its September meeting today. They show they tossed up whether to raise by +25 bps or +50 bps, choosing the latter of course. So markets expect them to scale back future rate hikes, but not perhaps in October which is still seen as rising another +50 bps to 2.85%. That will be on October 4, 2022. After that a more conservative stance looks likely to kick in.

EIGHT YEAR HIGH
In Japan, consumer price inflation rose to 3.0% in August from 2.6% in July. This was the 12th straight month of increase in consumer prices and the fastest pace since September 2014, amid surging food and fuel costs accentuated by a slump in the Yen. Core inflation also rose above analysts estimates to 2.8%. Without food or fuel the rate was +1.6%. Now all eyes will turn to the Bank of Japan to see how they react. But while core consumer inflation exceeded the central bank's 2% target for five straight months, the central bank seems unlikely to raise interest rates anytime soon as wage and consumption growth remain weak, analysts say.

NO CHANGE
China reviewed its loan prime rates today but made no changes to either the 1-year (used as a base for personal lending) or the 5-year (used as a base for institutional lending).

SWAP RATES HANG ABOUT
Wholesale swap rates are probably little-changed today like all financial markets which are just hanging about for the Fed on Thursday. Our chart will record the final positions. The 90 day bank bill rate is unchanged at 3.69% after yesterday's big jump which is a new high since January 2015. The Australian 10 year bond yield is now at 3.70% and down -1 bp from this time yesterday. The China 10 year bond rate is also down -1 bp at 2.69%. The NZ Government 10 year bond rate is now at 4.02%, down -4 bps from this time yesterday and still below the earlier RBNZ fix for this bond at 4.04% which was also down -4 bps. The UST 10 year is now at 3.48% and up +2 bps from this time yesterday.

EQUITIES TURN HIGHER
Wall Street struggled to get traction today in their Monday trade, but when it did it rose and the S&P500 ended up +0.7%. Tokyo is up +0.4% in mid-day Tuesday trade. Hong Kong is up +1.2% in morning trade, Shanghai is up +0.5%. The ASX200 is up +1.2% in afternoon trade. The NZX50 is up +0.3% in late Tuesday afternoon trade.

GOLD FIRMS SLIGHTLY
In early Asian trade, gold is up +US$5 from this morning to US$1,675/oz.

NZD STILL ON DOWNWARD SLIDE
The Kiwi dollar has fallen another -20 bps from this time yesterday and is now at 59.5 USc. Apart from the pandemic dive, that is a 13 year low. Against the AUD we are -½c lower at 88.5 AUc. Against the euro we down to 59.3 euro cents. That all means our TWI-5 is at 69 and down -40 bps from this time yesterday. That is its lowest since October 2020.

BITCOIN RECOVERS
Bitcoin has risen today and is now at US$19,461, up +3.9% from where we were this time yesterday. Volatility over the past 24 hours has remained high at +/- 3.8%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

This soil moisture chart is animated here.

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61 Comments

by hum | 20th Sep 22, 4:04pm 1663646660

NZD is getting slammed. RBNZ need to hike ungently

by JimboJones | 20th Sep 22, 4:20pm 1663647621

But we have already hiked much more than everywhere else! Why are we losing so much ground to AUD when their cash rate is 2.35%?

by Independent_Observer | 20th Sep 22, 4:25pm 1663647927

Probably because the world thinks we have a massive property bubble and because as risk rises, people want to hold other currencies and not the NZD...so we may need to raise, further and faster to maintain parity.

by JimboJones | 20th Sep 22, 4:31pm 1663648319

Or does that make us become a bigger risk. Crashing the economy doesn't sound like a good way to encourage investment in your currency does it?

by HouseMouse | 20th Sep 22, 4:35pm 1663648503

As I have said before, we have snookered ourselves. Carnage is unavoidable

by JimboJones | 20th Sep 22, 4:37pm 1663648640

I thought you said inflation will be under control next year! So why increase the OCR any further?

by HouseMouse | 20th Sep 22, 4:43pm 1663648994

What I think, and what the RBNZ does, are two completely different things.

by Independent_Observer | 20th Sep 22, 4:37pm 1663648655

Yip - the massive stimulus/market intervention in 2020-2021 reminds me of a drunk chugging a bottle of vodka before being thrown into rehab. Just got to get one last hit before I have to face the painful, unsustainable reality of the behavior and its associated consequences.

by Uninterested | 20th Sep 22, 8:17pm 1663661851

Who may I ask is this Drunk?

by Independent_Observer | 20th Sep 22, 4:35pm 1663648555

Do you prefer the rock or the hard place there Jimbo?

Central banks are actively crashing 'the economy' in order to reduce aggregate demand (and thereby control inflation). The only alternative is to keep money supply steading, stop all fiscal spending, and dramatically increase productivity to absorb the additional money supply pumped into the system in 2020-2021....but that isn't what the US, of any of the anglosphere (or Europe) are doing. Left wing governments will continue excessive fiscal spending, while the central banks try to reduce aggregate demand with interest rate rises, and then get confused as to why inflation remains to sticky.

So no need to worry about encouraging investment, when the powers that be are destroying said economy, because it is already over invested but just in the wrong place (residential property).

by JimboJones | 20th Sep 22, 4:36pm 1663648571

Or do we just put up with 7% inflation...

by bw | 20th Sep 22, 4:42pm 1663648932

Then 17%? The 27%? Where do we stop, and how?

by JimboJones | 20th Sep 22, 4:45pm 1663649145

Do you think the next quarter's inflation figures will be higher than the previous? It doesn't feel that way to me: food is up but fuel is down, and I haven't seen much else going up.

by Independent_Observer | 20th Sep 22, 4:48pm 1663649307

Yip you then ask the question....what was the point of having the 1-3% mandate the last few decades, if it was only so that massive debt/asset bubbles could be created with cheap credit/cost of capital, while we imported deflationary forces from abroad.

And now the reverse is happening - people are like...'hey this 1-3% mandate...lets not worry about it!'

by Independent_Observer | 20th Sep 22, 4:44pm 1663649096

Why now and not say this at any point the last 30 years? (honest question).

Does 7% become the new target so that people can plan their economic activites around this level of debasement of the fiat money in circulation?

And if inflation is to stay at 7%, the cost of capital for debt and equity will need to be at 7% in order to make projects/business activities worthwhile - otherwise one side of the creditor/debtor party is going to get a very bad deal!

by JimboJones | 20th Sep 22, 4:55pm 1663649718

I get the need to tackle inflation, but is putting us into recession going to do that? It may tackle local inflation, but will it put our dollar into freefall and seriously increase imported inflation?

by HouseMouse | 20th Sep 22, 4:58pm 1663649918

Yes it’s an ultimately self defeating battle. Destroying our domestic economy by hiking the OCR higher and higher won’t ultimately be good for the NZD.

Its farcical, but hey what do I know

by Independent_Observer | 20th Sep 22, 5:14pm 1663650878

Yes but the US is also in the process of destroying its own domestic economy, in order to save the USD as the global reserve currency (per our thread last night).

To them, causing internal unemployment, is a better outcome for them than losing global power.

But this is the insanity that plays out at the end of a long debt cycle involving a global reserve currency. It often results in geopolitical instability and war as it causes widespread hardship for countries all around the world.

Many countries may grow to seriously dislike the USA when this is done over the next few years because of the harm they will do to protect the USD. And it could give rise to psychopaths who promise revenge against the outside powers that caused the pain, like what happened in the 1930's.

by HouseMouse | 20th Sep 22, 6:06pm 1663654002

In my opinion the USA economy will be significantly more resilient to interest rate increases than NZ.

by Independent_Observer | 20th Sep 22, 6:58pm 1663657120

Yip - but there housing market might be hit just as hard as ours. Their 30yr rate had gone past 6% now some are predicting 30% falls there as this pushes prices down. That is a GFC size fall in prices.

by KBKIWI | 20th Sep 22, 8:10pm 1663661403

There is a massive difference in the USA though - those 30 year mortgages are fixed rates for 30 years, so interest rate rises have almost zero impact on 95% of mortgage holders (only those that are buying and the odd few percent on variable rate mortgages)

by HouseMouse | 20th Sep 22, 8:26pm 1663662417

Exactly, that's the basis for my point just above.

It will hit their housing construction market though, amongst other things.

So....there comes a point where the Fed keeps hiking, the US economy turns down but not too bad, the RBNZ keeps hiking, and our economy turns to absolute shite...surely then we can't keep following the Fed?

by hum | 20th Sep 22, 9:20pm 1663665628

then the NZD will get destroyed and inflation will go absolutely nuts considering everyting we are consuming is imported.

by Clementé | 20th Sep 22, 11:21pm 1663672874

Exactly... house prices are set on the margins and of the current sale price.... so new sales that are reliant on credit will be how much, a lot less that September 2021 ?

by Independent_Observer | 20th Sep 22, 5:01pm 1663650078

Do you understand the concept of the interest rate parity theory? Until you have your head around that, then some of what is discussed above might make sense. If you do already, then we can move onto the economic aggregate demand considerations of what is playing out (as opposed to the financial FX theories).

Interest Rate Parity (IRP) Definition (investopedia.com)

by HouseMouse | 20th Sep 22, 4:47pm 1663649246

In my opinion, yes. And in fact more hikes to the OCR is likely to have limited impact on inflation.

The current OCR will start to have impacts over the coming months. Everyone knows it has a lag effect in NZ (compared to Aus where the impacts of hiking are much quicker).

But again, mine is a very minority viewpoint, and all that matters is what the RBNZ will do, which is keep hiking regardless.

by Independent_Observer | 20th Sep 22, 5:20pm 1663651213

The reverse could also be true in the short term. Raising the OCR feedsback to create even more inflation as increased debt servicing costs flow through the economy.

Bit like how there wasn't much inflation while we dropped interest rates....because debt was getting cheaper, that resulted in very little price pressures flowing through to goods/services (if you looked at the interest rate expense on the balance sheets of all businesses that produced goods and services within the economy that ultimately determine the cost of said goods/services by increasing/decreasing prices to ensure a net profit). Now the opposite is true (to breakeven on the balance sheet, as interest expense rises, so does the revenue required = increase price of goods/services).

by Zack Brando | 20th Sep 22, 4:52pm 1663649531

I think you're repeating talking points. At these low interest rates I'd suggest central banks are happy with inflation.

Real interest rates are deeply negative, historically so.

by Audaxes | 20th Sep 22, 5:00pm 1663650000

NZDM, Wednesday, 24 August 2022:

The 2035 inflation-indexed bonds, which carry a coupon of 2.50%, was issued at a spread of 57 basis points over the 20 September 2030 inflation-indexed bond, at a yield to maturity of 2.19%. Total book size, at final price guidance, exceeded NZ$3.5 billion. Link

by Independent_Observer | 20th Sep 22, 5:10pm 1663650631

Jimbo - I think you might need to watch the video here:

Interest Rate Parity (IRP) Definition (investopedia.com)

by Zack Brando | 20th Sep 22, 4:54pm 1663649650

Because the world needs Australian dollars to buy their iron ore, gold, gas and agriculture to name a few. People also want to visit Australia.

In New Zealand, we ban mining exploration, want to kill off cows and have the Misery Mile in Rotorua. People want to leave New Zealand.

Between Orr, Robertson and PM Ardern they printed and spent a record amount of money (per head of capita), giving it to bureaucrats, state media and often failing businesses.

Hope that clears things up.

You can always just sell your NZ dollars though.

by Audaxes | 20th Sep 22, 6:03pm 1663653820

I strongly suspect those commodities you note are priced in USD.

Australia sells USD export receipts to buy AUD?

The PBOC collects USD export receipts from domestic exporters and buys USD sovereign debt (reserves) and credits locals with RMB.

by Zack Brando | 20th Sep 22, 6:40pm 1663656011

Yes, priced in USD, but depending on the contract paid for in AUD. These companies do have Australian bank accounts and generate demand for the AUD.

by Audaxes | 20th Sep 22, 7:28pm 1663658916

Aussie needs USD to pay for oil and its derivatives.

What's more who needs $Aussie - a pimple on the elephant eurodollar.

Exports are necessary to earn foreign ccy to pay for imports or a store of foreign ccy reserves, not that which Aussie banks can print with abandon if they so wished.

by Audaxes | 20th Sep 22, 5:03pm 1663650200

But we have already hiked much more than everywhere else! Why are we losing so much ground to AUD when their cash rate is 2.35%?

Our year to date annual current account deficit is $27.817bn, and in need of USD funding.

Australia runs a $54.648bn current account surplus over the same time frame.

by K.W. | 20th Sep 22, 5:22pm 1663651327

Demand for the Australian dollar is higher than demand for NZ dollar - due to the tens of thousands fleeing NZ and taking their money with them. Capital flight in action. And to think, Jacinda thinks she can whack a bunch of new taxes on the wealthy. LOL.

by RickStrauss | 21st Sep 22, 11:26am 1663716403

Makes no sense to whack taxes on cash or shares. Put an LVT on the unimproved value of land and you'd get better results for NZ.

by fortunr | 20th Sep 22, 4:24pm 1663647875

We really need at least 100 bps OCR increase next month. Actually, Orr should not wait needlessly - he should act right now rather than wait until the next OCR review date.

by JimboJones | 20th Sep 22, 4:31pm 1663648293

We are hardly in emergency territory are we! 7% inflation isn't that crazy, and a low NZD is good for exporters.

by bw | 20th Sep 22, 4:55pm 1663649723

Exporters rely on imported materials and energy to create whatever it is they want to export. That gets built into prices, and will eventually make us uncompetitive. Tack on wage rises to match Inflation and that makes our export prices worse.

No matter which way you look at it, we are Import reliant, and we can't escape that with our current settings.

by Zack Brando | 20th Sep 22, 5:07pm 1663650449

I'd add that USD 0.59 doesn't buy what it use to either, though the TWI at 0.69 does speak to it being a US dollar story.

As the fed increases rates, USD held offshore will flow back into America, this could easily increase their domestic money supply, thus increasing calls for the Fed to further increase rates. It's easy to imagine such a scenario further depressing the NZD/USD pair.

by Audaxes | 20th Sep 22, 5:33pm 1663652000

Not rate hikes. Happens every $ shortage problem (not that Zoltan can figure it out). Foreigners *buy* tons of LT USTs regardless of price while other foreigners have to liquidate stocks. You might have noticed both this year (NYSE; US inversion) Link

What Zoltan & his BW3 doesn't get; foreigners do *not* trust the Fed because why the hell would they? Euro$ shortages happen *every couple years* and the Fed? No f-ing clue it's happening, or that it happened. Gotta buy USTs because the Fed doesn't matter. Link

Even Krugman figured out $ is a huge global problem, and that it can't be because rate hikes. What is the problem? Euro$ #5 which is largely Tokyo (you might have noticed this, too, and not realized why JPY). Link

Follow today's stream of tweets here to grasp the eurodollar shortage issue.

by K.W. | 20th Sep 22, 5:26pm 1663651562

Except that NZ only exports low or zero value added products, they go offshore where value is added, then New Zealanders pay to import the finished goods back at 10 times the price. So a low dollar costs us far more than we earn. And just check that $27B current account deficit out!

by HouseMouse | 20th Sep 22, 8:31pm 1663662672

I need to refinance my mortgage in about 3 weeks.

Do one year or two?

Probably go for two years. Although I think the OCR will start to be cut next year, it's also going to move up a bit more in the next few months.

And I don't think cuts to it will really start to get going until early 2024.

by JamesM | 20th Sep 22, 9:35pm 1663666514

Why don’t you hedge your bets and do both? Worst case the 1 year rolls off before rate reductions and you float for a period till the timing is right.

by HouseMouse | 20th Sep 22, 9:38pm 1663666683

Thanks, yep an option

by Kiwi Tim | 20th Sep 22, 9:47pm 1663667253

I would go 2 HM, and if your not with ANZ call in morning before your bank follows anz. 2yrs is going to give you far more peace of mind for the chaos to come. Could be wrong which wouldnt be a big loss, could be right and would be a huge win/save.

by HouseMouse | 20th Sep 22, 9:53pm 1663667620

Thx

by bw | 20th Sep 22, 4:59pm 1663649962

Kiwi now down just shy of 15% in the last 6 months. At that rate, we'll have it at 50 cents by March. And, we'll have had the 25 cents fuel subsidy expire (removed?) before then as well.

Interesting times ahead of us.

(NB: "..and is now at 59.5" - 0.5935 as I write. Not much diff, but I just don't see where any support is going to come from absent monetary means)

by dumbthoughts | 20th Sep 22, 4:43pm 1663648982

More chance of the Queen coming back to show Charles how to write with a fountain pen than the fuel subsidy not being renewed I'd say ... political suicide to do so.

by HouseMouse | 20th Sep 22, 4:56pm 1663649808

Agree. The fuel subsidy will stay.

And that’s a key reason I think inflation will be down to not much more than 3% by May/June (another reason is I don’t see this year’s wage hikes being repeated to anywhere near the same levels next year)

by KH | 20th Sep 22, 4:45pm 1663649135

No need to be concerned. Grant "Afterpay" Robertson will just borrow some more. Magic.

by Snow | 20th Sep 22, 11:13pm 1663672390

Now down to 0.5903. Will be an interesting end to the week I think.

by Wrong John | 20th Sep 22, 5:35pm 1663652112

You can say what you like about the Yanks, but we're watching America First Live.

by Baywatch | 20th Sep 22, 6:47pm 1663656468

Sending you thought's and prayers..hope you recover soon

by Rex Pat | 20th Sep 22, 7:46pm 1663659981

Travelling in France right now. NZD/EUR is pretty stable. Prices in Paris are similar to Auckland. Moët is cheaper in NZ and Veuve is cheaper in France, but not much in it.

by Rex Pat | 20th Sep 22, 7:50pm 1663660218

1 COL payment = 2 x Moët or 1.88 Veuve.

by hum | 20th Sep 22, 9:22pm 1663665759

In the us they have the big mac index in France its the Champagne index

by Snow | 20th Sep 22, 11:06pm 1663671988

Le Champagne? Or Champagne Royale?

by J.C. | 20th Sep 22, 6:10pm 1663654215

News aint news without a little of the ol' rat poision.

Despite a 60% decline in price over the same time period, 65% of Bitcoin's supply has not moved in at least a year.

by Squishy | 20th Sep 22, 9:06pm 1663664816

Why would RBA slow rate hikes now? There is little sign of inflation returning to within their target banding any time soon, if anything wage growth supports a hypothesis of persistent inflation.

Jobs not done yet kids! It'll take more than the old college try to subdue inflation.