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 changed today, again. And to repeat, we are unlikely to get many changes until the Reserve Bank releases its November Monetary Policy Statement tomorrow afternoon. And then, a lot will depend on variation from what the market has priced in. Overall, it had priced in +63 bps at the beginning of today. Separately, most local analysts expect +75 bps. Most offshore analysts expect +50 bps.
TERM DEPOSIT RATE CHANGES
None here today either.
PERSONAL LOAN RATE CHANGES
Unity Money have increased their competitive secured personal loan rates by +1.0% and their unsecured personal loan rates by +2% today.
MILK PRODUCTION KEEPS SLIDING
Data for the whole dairy industry to October (Fonterra and all the other diary companies) shows that milk production is lagging quite a bit in the early and heavy part of the current milk season. Production was down -2.9% in October 2022 compared to 2021, and for the past 12 months, it has sagged -4.3%. The La Nina weather pattern will determine how the season ends from here, but October is usually peak production in the overall season.
HUGE DETERIORATION IGNORED
Lower export volumes (of dairy products) isn't helping, but we aren't yet adjusting to our excessive import appetite. In October 2020, we ran a merchandise trade deficit of -$471 mln. In October 2021, that had jumped to -$1.3 bln. Now in October 2022, that has raced down to a deficit of -$2.1 bln. All this is being driven by surging imports, especially of cars (switching to NEVs comes with Government support via subsidies). Imports are up +24% from the same month a year ago, totaling $8.3 bln in the month, our largest splurge ever. The Government agency that reports this worrying data didn't even bother to put out a news release about it (just a standard "information release"). But it is a track that really should worry policymakers. For the year to October, our imports were $84 bln, our highest ever, and our imports were $71 bln. At some point our creditors will notice.
OUR 'FRIENDS' ARE LUNCHING ON US - I
In October, our usual trade surplus with China turned into a big deficit (NEV car imports again, like MGs, Havals, Teslas, etc.). Our surplus with the US turned into a deficit (other Tesla models), and our deficit with Japan swelled further. We are going broke in the 'energy transition'. Year on year, the China surplus fell from +$3.9 bln to just +$700 mln. Our trade with Australia is going bad too, going from +$100 mln to -$700 mln. Our trade with the US has gone from a surplus of +$870 mln to +$270 mln on that same basis. Our net trade with Japan has gone from -$900 mln to -$1.1 bln in the year to October. These four trading partners are out top four and represent 57% of all merchandise exports. At some point our creditors will notice. The next current account deficit is likely to be a shocker (due out on December 14, 2022 for Q3-2022).
OUR 'FRIENDS' ARE LUNCHING ON US - II
Here's a belt-tightening idea from ASB. As the cost of living continues to bite, ASB customer research shows one in five subscription holders are paying for services they don’t use and close to a third spend more than $100 on rolling subscription costs each month. More than 1,000 ASB customers nationwide took part in the bank's survey on subscription spending.
FLP JUMPS NEAR THE END
Yesterday, we missed noting that banks dipped into the FLP for another $1.65 bln on Friday, and taking the total borrowed up to $18.5 bln. There will be a bit more to come as banks look like they will all take up their maximum before this loan window closes in about three weeks. (H/T SH.)
CHINA IN TROUBLE WITH COVID AGAIN
The Covid surge in China is starting to generate some shutdowns. Beijing schools are the first. Beijing, Shijiazhuang (which has now locked down), Guangzhou and Chongqing, all mega cities, are all at risk of widespread shutdowns. If they all happen, the economic impact will be large. And in something of an embarrassment, Hong Kong leader John Lee (hand picked by Beijing) has tested positive for Covid - after meeting Xi Jinping.
SWAP RATE SHIFTS MINOR
Wholesale swap rates may be slightly firmer today, but the real action comes near the close. It is their last positioning before tomorrows RBNZ full MPS at 2pm. Our chart will record the final positions. The 90 day bank bill rate is up +8 bps at 4.31%. (This corner of the interest rate markets expects a +50 bps rise tomorrow.) The Australian 10 year bond yield is now at 3.60% and little-changed. The China 10 year bond rate is at 2.84% and also little-changed. The NZ Government 10 year bond rate is now at 4.25%, unchanged and still above (just) the RBNZ fix for the NZGB 10 year which is up +3 bps at 4.24%. The UST 10 year is now at 3.82% and up +2 bps from this time yesterday.
EQUITIES MIXED
The S&P500 ended its Monday session down -0.4% in New York today. Tokyo has opened up +0.8%, but Hong Kong is only up +0.1% at their open after yesterday's large fall. Shanghai has opened little-changed. The ASX200 is up +0.5% in afternoon trade, and the NZX50 is down -0.3% in late trade.
GOLD HOLDS
In early Asian trade, gold is at US$1743/oz and down -US$2 from this time yesterday. But that is a recovery from much lower earlier.
NZD LITTLE-CHANGED
The Kiwi dollar is marginally softer than this time yesterday, now at 61.2 USc. Against the AUD we are firm at 92.5 AUc. Against the euro we are still at at 59.6 euro cents. That all means our TWI-5 is now at 70.6 and unchanged from this time yesterday.
BITCOIN SLIPS FURTHER
Bitcoin is now at US$15,776 and down -2.5% from where we were this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.5%.
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89 Comments
Yes, it does have that effect. And that is why it is a form of QE, which is exactly what is not required right now.
Ironically, to counter this effect there is more pressure on the RBNZ to raise the OCR and to keep it there for longer.
The reason the banks love FLP is because it is the cheapest source of 3-year money.
And when someone is making a gift, then there always has to be a cost to someone else.
One of the fundamental laws of economics is that a genuinely free lunch is very unusual.
KeithW
If someone from interest is attending RBNZ MPS tomorrow can you please press Orr on FLP...the timing with billions being drawn down seems fitting.
It really does seem like RBNZ has just got away it along with Banks. I'm not sure if this is a coverage issue from MSM, a lack of understanding from the public and/or not caring. FLP is clearly counter-intuitive and someone should be held to account - whether it's RBNZ from letting the programme run so long or how the banks are allocating the funds...
It's part of the insane inflexibility the RB has around all of its programmes.
They say they can't stop the free money, because it has a scheduled end date, and they can't end it earlier because... because they can't.
Same as they can only change the OCR on certain set dates, regardless of circumstances.
The justification is 'stability' and not wanting to surprise the markets. Which is really, really, incredibly stupid, because all you do is tie your own hands with regard to timely interventions, and push the instability forward a little as everyone spends weeks guessing what the next move will be at the scheduled meeting.
Listen to Adrian Orr speak, and he doesn't seem to be stupid. Yet the obvious stupidities continue to accumulate. It's a mystery.
The reason the banks love FLP is because it is the cheapest source of 3-year money.
For how long? Curves are inverting back to O/N cash rates.
The RBNZ is suffering badly paying OCR to QE related bank reserves - Bank Settlement Accounts
Crown Indemnity for Large Scale Asset Purchase Programme - $9,213m
We should be grateful for any offset.
We are definitely in need of an overhaul of central bank regulatory policy.
When the monetary policy provisions of the Reserve Bank Act were overhauled a few years ago this requirement was added
It made sense to separate out this provision explicitly from that for Monetary Policy Statements (in fact, I recall arguing for such an amendment years ago) but the clause has an odd feature: MPSs (and the conduct of monetary policy itself) are the responsibility of the MPC, but these five-yearly longer-term reviews are the responsibility of “the Bank”. In the Act, the Bank’s Board is responsible for evaluating the performance of both management and the MPC, but the emphasis here does not seem to be on the Board. It seems pretty clear that this is management’s document, and of course management (mainly the Governor) dominates the MPC. Since the Board has no expertise whatever in monetary policy, it is pretty clear that the first of these reports, released last week, really was, in effect, the Governor reporting on himself. Link
Audaxes. The overhaul I'd like to see is a scrapping of Monetary Policy. Could we let the currency units that already exist just slosh around and find their own price, let the banks adapt to not being paid or paying the OCR on settlement accounts or overnight borrowing (ie. find some other market mechanism not under central control), no more stimulus (LSAP, FLP) from central planners?
I mean, I'd be interested in your view of what would happen if the RBNZ just stopped doing anything that mattered - just continued with a bit of bank note printing and minor stuff like that.
The government has crowded out productive enterprise bank lending to the tune of bank underwritten borrowing of $81.15bn (2020, 21, 22) because risk weighted asset capital ratios are zero compared to a possible 150 % for business loans.
Rates follow nominal growth, which was boosted dramatically & artificially by massive money creation for consumption in 2020, on purpose, by policy makers, causing the present massive inflation. Rates follow, they aren't leading indicator. For latter, need to see credit creation. Link
yes there used to be a flipside of rising mortgage rates - the NZ TD depositors (many of the elderly, and more recently conservative and cash Kiwisaver funds) would get better returns, But with the FLP, homeowners, TD depositors, and tax payers lose, and the banks shareholders win.
Lamb prices react to global pullback
Slaughter prices for lamb are tumbling at a rate not seen before at this time of year and exporters are facing a very challenging period.
Interesting. There is traditionally a lull after the sea freight chilled shipping timeline for Xmas trade closes and that usually lasts until the uptake for the equivalent period for Easter, for the UK & Continental markets that is. NZ chilled lamb is an excellent product but it is expensive and that coupled with the ever decreasing quantity on offer, has resultantly seen it develop into a niche market. Unfortunately that sort of product is the first to suffer consumer resistance when belt tightening is centre stage. Still the NZ processors have been recording some reasonably high profits this financial year so optimistically there is a bit in the war chest.
The biggest problem at the moment is the cost of inputs very high. With the falling meat schedules hill farmers will be hit on the store market as they have no option but to sell. We are fairly confident markets will recover next year and won't be canceling our annual fertilizer.
On a side note the amount of farms for sale now is a lot, reasons probably vary.
ASB customer research shows one in five subscription holders are paying for services they don’t use and close to a third spend more than $100 on rolling subscription costs each month.
Pretty unnecessary, too. You can turn most subscriptions on and off pretty easily, allowing you to cycle through providers. The only one we keep every month is Tidal, for the audio quality and slightly larger cuts to artists.
Sky TV could be over $100 on its own, for some folk, though that'll be demographically skewed, most likely.
Much better subscription services out there. Depends on the variety of sport you watch I guess, F1TV comes in at about $4-5 per race weekend. 3 practices, quali, sprint, race as well as pre show, post show F2 and F3 if you're into that. Multiple concurrent devices, live onboards, live radio, everything you want to watch during the race is there. It's a fairly decent deal.
I remember a few years back paying $20 for a weekend of sky sport to watch one game of rugby, between the overuse of the term "illusive" from Grant and "Pass!." from Justin, I think I'll take the pass...
Most EV or Hybrid buyers that I have met are educated 30 and 40 somethings.
Sure there are some Boomers buying EVs. However the trend is clear, there are less V6s or V8s being bought every day, and eventually most stock will reflect that.
Not being braggly at all but I have 30 plus years as a Bean Counter and Finance Guy in the industry.
But only 11 years and 11 months on interest.co.nz. I'm so glad that I have not had to wait until I turned 16 to be able to vote here.
One incredibly short sighted decision by the company and even more so by the govt when they decided not to assist it remaining here.
And now the govt is scrabbling around trying to rustle up some on shore storage facilities which just do not exist at present. After just recently selling off (some?) of its tiny amount of overseas "reserve" stocks.
Carriers In "Panic Mode' As Recession Bites, China Bookings Plummet
Biggest drop on record officials said wouldn't happen.
Germany's producer price index plunged by the most ever, and it wasn't even close. The reason it did was energy, mostly natural gas and electricity. Warm weather played a role, but history and recent industrial developments indicate far more going on here that isn't just about Germany. Instead, this is exactly what unprecedented German curve inversion(s) had told you to expect.
Good call. We saw how they're prepared to fudge things with that push for food miles labelling a few years ago. Quite telling that they just wanted to show illustrative miles despite it being less carbon intensive for NZ meat to be raised here, processed and then shipped to the other side of the world than for many EU markets to produce it themselves.
For the year to October, our imports were $84 bln, our highest ever, and our imports were $71 bln. At some point our creditors will notice.
My understanding is that we balance our trade deficit by offering overseas investors the opportunity to swap the NZ dollars they amass for pristine NZ Govt Bonds with a competitive yield. Indeed, over the COVID era, it looks like non-resident bond holdings have increased from about $36bn to $61bn. I am sure Audaxes will correct me if I'm wrong!
Perhaps it could be argued that we pay for our trade deficit by (a) offering generous Govt cash returns to foreign bond investors and (b) by losing control over our monetary policy because we have to offer a premium return to keep our bonds attractive?
Agreed and it will end up in a much higher current account deficit because our Ozzie banks will take about 10% from our domestic circulated money. Also to mention that a considerable chunk of our export making producers dairy, kiwi fruit, apples, plantation forests, are owned overseas.
I am sure Audaxes will correct me if I'm wrong!
Foreign central banks have been significant bidders at a frenzy of government debt offerings over the past 3 years.
Nonetheless, we are forced to sell the family silver and I guess interest bearing government savings qualify.
Can't believe nothing mentioned about Ashley Church's... well churchiness....
With him and perhaps TTP turning we are all doomed.
Perhaps Ed Seykota's sage advice is still relevant.... I think its is very important.
Our surplus with the US turned into a deficit (other Tesla models),
Pretty sure we haven't received any Teslas from the US in over a year, There haven't been any new Model S or X deliveries for a while, and the 3 and Y are all coming from China, which is now the only tesla plant making them in RHD afaik.
Better find someone else to blame for the trade deficit with the USA. (Netflix and other streaming media services maybe?)
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