What happened Monday

Economy / news

A review of things you need to know before you sign off on Monday; no retail rate changes, milk payout raised, job ads retreat, grocery supplier cost rises ease, Gaza reactions muted in financial markets, swaps stable, NZD firm, & more

9th Oct 23, 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/LOAN RATE CHANGES
No changes to report today.

TERM DEPOSIT/SAVINGS RATE CHANGES
None here either.

MILK PAYOUT RAISED
Fonterra announced a +50c increase in their payout forecast for the 2023/24 season, an unexpected rise at this time. The new guidance is a range of $6.50 - $8.00 per kgMS, with a new midpoint of $7.25 per kgMS. You can compare this with prior Fonterra payouts, and with other dairy companies, here.

MORE IMMIGRANTS, LESS JOB AD PRESSURE
The BNZ SEEK job ad monitoring for September shows that the August jump in ads reversed in September and are now back to levels we had in 2019. The 'extremes' of 2022 have faded. Industry trends are very mixed with the science, farming and the resources industries still quite positive, but most others not. Employers report stronger candidate availability, presumably due to immigrant availability.

MISERY REMAINS ELEVATED
The end of September locks in both our inflation rate and our unemployment rate. There are two key components of a simple 'misery index'. With inflation high and the jobless rate low (an unusual situation), how this impacts people and voters will have changed this time. The 'feeling' of being under pressure from the cost of living, including from higher mortgage payments, will affect many so the perception of 'misery' will be felt. Voting will be a key outlet, but 'moving to Australia' could be another. It is likely that the Misery Index in New Zealand has remained higher that the same measure in Australia as at Q3-2023 - and this is now persistent. (This imbalance has been around for seven of the last ninde quarters.) Unless New Zealand has a lower Misery Index than Australia, we will tend to leak workers.

EASING BUT STILL HIGH
Speaking of 'misery', there was a further slowing in the average rate of supplier cost increases from suppliers to supermarkets in September 2023. The Infometrics-Foodstuffs New Zealand Grocery Supplier Cost Index (GSCI) shows a +6.1% increase in what suppliers charged supermarkets for goods in September 2023 compared to a year ago. In August it was +6.6%. A year ago in September it was +9.2%.

SWAPS ON HOLD
Wholesale swap rates are probably little-changed today, unsure what direction to take. But the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is up +1 bp at 5.70% and now +19 bps above the OCR but this rate was set before the OCR. The Australian 10 year bond yield is down -3 bps from this morning at 4.56%. The China 10 year bond rate is unchanged at 2.71% although there is no local market while they remain in holiday. The NZ Government 10 year bond rate is down -3 bps to 5.58%, and still above the earlier RBNZ fixing of 5.49% which was down -1 bp today. After starting the day at 4.80%, the UST 10 year yield has settled back at 4.74% and down -6 bps in a risk-aversion move. The UST 2yr is up however by +5 bps at 5.08%. So the curve inversion has widened today.

EQUITIES MIXED & UNCERTAIN
The NZX50 is down -0.5% to start the week. The ASX200 is up +0.5% in early afternoon trade. Tokyo has opened down -0.3% in early trade. Hong Kong hasn't opened due to a Typhoon closure. Shanghai has opened after its long holiday down -0.7%. The S&P500 futures are down -0.8% ahead of Wall Street;s closed Columbus Day.

OIL UP, BUT NOT BY MUCH
The crude oil price has risen +US$3/bbl today so far on the Middle-East conflict risks. The US price is now US$83/bbl and the international Brent price US$85/bbl. But you might have thought the reaction would have been more severe - these new levels are actually less than th epeaks in the past ten days.

GOLD RISES
In early Asian trade, gold is now at US$1850/oz and up +US$17 on the new global uncertainties. This is the expected gain, but it is still relatively modest in the circumstances.

NZD HOLDS
The Kiwi dollar has flat-lined today to be now at 59.8 USc. Against the Aussie we are firm to, now up at 93.9 AUc and against the euro we are unchanged at 56.6 euro cents. That means the TWI-5 is still at just under 70..

BITCOIN RISES
The bitcoin price is firmer today, now at US$27,965 and up +1.5% from where we were this morning. Volatility over the past 24 hours has been low however at just over +/- 0.7%.

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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60 Comments

by J.C. | 9th Oct 23, 4:23pm 1696821816

Crude oil futures up 4%+. No surprises there.

https://www.tradingview.com/symbols/NYMEX-CL1!/

by kiwikidsnz | 9th Oct 23, 4:24pm 1696821880

https://www.rnz.co.nz/news/election-2023/499759/act-party-port-waikato-…;

"When the by-election is held in Port Waikato and an electorate MP is elected, it will increase the size of Parliament to 121 seats."

I imagine that the parties calculators are already out...

by iliketobike | 9th Oct 23, 5:19pm 1696825188

So Winnie might not be needed after all?

by JimboJones | 9th Oct 23, 5:52pm 1696827132

No one seems to be talking about Raf Manji winning Ilam and getting a few TOP MPs in. National could engineer that if they wanted. However it would probably further reduce the chance of NACT governing alone.

by Jean Valjean | 9th Oct 23, 9:01pm 1696838485

They could 'have' engineered that. Too late now that voting has started?

Even if they wanted to (and the electoral commission allowed it), they might be concerned it would look chaotic to do so now.

I wonder, if a second election did eventuate, and TOP got well in to the 3 percent party vote territory, maybe even close to 4% in the first election, enough handbrake voters might be encouraged to jump to TOP from NZF in the second election, and/or National would hand TOP Ilam.

by JimboJones | 9th Oct 23, 6:29pm 1696829357

They could organise a cup of tea between Raf and Christopher, like what they used to do in Epsom. I assume that’s legit even after votings started? It wouldn’t be anywhere near as desperate as what they will need to do if Winston is kingmaker

by E46 | 9th Oct 23, 6:56pm 1696830979

How does a second election work? Is it just a complete redo including electorates or is it only the party vote?

by JimboJones | 9th Oct 23, 7:05pm 1696831537

It won’t happen. National or Labour will offer Winston deputy PM or similar and Winston will forget about everything he’s promised his voters. Happens almost every election, why would this one be any different.

by Foxglove. | 9th Oct 23, 8:13pm 1696835614

It’s not so much what coalition outcome there is but how long it will last.

by Averageman | 9th Oct 23, 6:58pm 1696831136

Can't see the Blue property ponzi wanting to have a bar of TOPs tax base change. Their portfolios are to large.

by JimboJones | 9th Oct 23, 7:07pm 1696831657

Raf had already given up on that. He said it’s unlikely TOP would be able to get that policy in a coalition. He also said they are more aligned to National than Labour and he wanted Luxon to pull their candidate from Ilam.

by JimboJones | 9th Oct 23, 7:09pm 1696831748

But even if National doesn’t go with TOP, it would still put a huge dent in Winston’s bargaining power if they had two options instead of one.

by Yvil | 9th Oct 23, 11:01pm 1696845686

I would far rather have a Nat-Act-Top coalition, than a Nat-Act-Nzf coalition

by J.C. | 9th Oct 23, 4:28pm 1696822081

In early Asian trade, gold is now at US$1850/oz and up +US$17 on the new global uncertainties. This is the expected gain, but it is still relatively modest in the circumstances.

Price in Kiwi pesos, <5% from its all-time high.

by lonewolfnz | 9th Oct 23, 5:09pm 1696824574

Down quite badly in USD from its all time highs.

Funny enough when Gold hit its new high in 2020, BTC was only $10k

by J.C. | 9th Oct 23, 5:32pm 1696825940

Yes. I'm interested in those who have allocated most of their gold holdings to ratty. In hindsight, you'd be chuffed if you had. I'm still not underestimating gold and still think it can 6x in the next few years. But it's all relative considering money printing. To 6x is nothing when the price has been suppressed for so long and money printing is off the hook.

And let's not get too carried with today's upward gold price. China has been on holiday.

by IT GUY | 9th Oct 23, 8:04pm 1696835089

i can see 10x but who is splitting hairs after 5 x

by Rob Reid | 9th Oct 23, 5:19pm 1696825198

The middle east is suddenly hot again. Lebanon has thosands of rockets aimed at Israel. I wonder if lighting them is the next big move. May depend on how serious the IDF is about sqelching Hamas.

The Iranians no doubt have a cunning plan...

by kiwikidsnz | 9th Oct 23, 5:38pm 1696826306

https://www.newshub.co.nz/home/politics/2023/10/israel-hamas-conflict-p…

"I have also spoken to the Minister of Foreign Affairs [Nanaia Mahuta] and asked her to make sure New Zealand is poised and ready to contribute to any international humanitarian response to the situation."

Labour looking for more ways to virtue signal distraction from their domestic humanitarian failures

https://www.bassettbrashandhide.com/post/alex-holland-labour-s-failures

Let's all just acknowledge the reality & truth that nothing NZ will do will make any significant difference at all & its not our problem, we have enough of our own to deal with.

by Audaxes | 9th Oct 23, 5:39pm 1696826387

Other factors are in play.

Bibi Isn’t Serious About Preventing a Regional Nuclear Arms Race

Benjamin Netanyahu has long warned of the perils of a nuclear Middle East. Now he seems willing to allow Saudi nukes in exchange for normalization. Link

by Rob Reid | 9th Oct 23, 6:11pm 1696828316

Yes, Hamas wanting to stir things up to avoid a nuke deal for Saudi (which would upset Iran) is a potential driver behind the strikes on Israel. Tom Nash does a good job of outlining this in his YT today.

This is a whole other global realignment, and we already had one brewing with BRICS.

When they all come crawling to Aotearoa wanting us to join their financial and military alliances to tip the balance of global power I hope Luxon drives a super-dooper hard bargain and gets us tariff free milk powder exports to everywhere.

by Yvil | 9th Oct 23, 11:08pm 1696846121

"When they all come crawling to Aotearoa wanting us to join their financial and military alliances to tip the balance of global power"

??? LOL, you're joking or you're not talking about little NZ ?

by Squishy | 9th Oct 23, 8:35pm 1696836940

Given the stories coming out I doubt Israel's government have many options but to deploy the most brutal tool available to it's fullest extent, IDF. The public won't be happy until Hamas has been completely removed.

by KH | 9th Oct 23, 9:26pm 1696839973

Israel's government has been employing brutal tools for decades. Why do you think the Palestinians attacked ?

by Carbaloy | 9th Oct 23, 9:27pm 1696840040

War and the constant fear of war is what keeps Israel together, they need a common enemy to unite against

by Yvil | 9th Oct 23, 11:10pm 1696846211

Squishy, learn your history about Israel (the oppressor) and Palestine (the oppressed) before commenting!

by Rob Reid | 10th Oct 23, 8:21am 1696879261

There were no judgements in Squishy's comment, just correctly pointing out that the public will demand the govt "does something". Unleash the dogs of war.

by K.W. | 9th Oct 23, 5:30pm 1696825846

The Kiwis Moving To Australia FB group now has over 20,000 members. It was created just a year ago. What is interesting is the high number of NZ residents who desperately want to get out of here, its not just citizens.

by Zwifter | 9th Oct 23, 5:49pm 1696826971

Probably all going to go only if Labour get back in.

by K.W. | 9th Oct 23, 8:37pm 1696837034

Well that's the reason I joined lol. Getting an escape plan sorted. Hopefully won't need it but best to have one.

by TronMVP | 9th Oct 23, 7:50pm 1696834243

Taylor Swift performing in Australia but not in New Zealand was a catalyst for the jump in numbers on this FB group ;-)

by J.C. | 9th Oct 23, 5:31pm 1696825900

Aussie property funds looking disastrous. Seems to be happening much faster than the Japan commercial property bust.

Almost one fifth of the $30 billion unlisted property sector has moved to curtail withdrawals, as inflows shrink and nervy investors look to redeem their capital, putting pressure on funds to find liquidity.

Distributions, backed by rental income, are mostly being maintained, but withdrawals have been cut in some form, sidelining thousands of investors who may be keen to shift to the safety of cash as interest rates rise amid uncertainty.

Fund managers are caught in a vice: their capacity to meet redemption requests is being squeezed by declining inflows and a softer real estate market which makes it difficult to sell assets for book value, while requests for withdrawals are steady or in some cases increasing.

https://www.afr.com/property/commercial/6b-worth-of-property-funds-slas…

by Te Kooti | 9th Oct 23, 6:19pm 1696828747

their capacity to meet redemption requests is being squeezed by declining inflows

What does that sound like? Begins with P and ends with I

by oscar87 | 9th Oct 23, 6:54pm 1696830846

Sounds like someone has been paying out unrealised capital gains

by Averageman | 9th Oct 23, 7:37pm 1696833478

TK...exactly.

by Yvil | 9th Oct 23, 11:13pm 1696846435

"their capacity to meet redemption requests is being squeezed by declining inflows "

It could equally state:

their capacity to meet redemption requests is being squeezed by increasing outlows, due to higher interest rates

by HouseMouse | 9th Oct 23, 5:43pm 1696826635

Some acquaintances told me today - not here, at ‘the water cooler’ - that I am a bit of an idiot for having my KS in a cash fund. They reckon I should have it in aggressive, since I probably have another 15 years of contributions. My retort was I had it in aggressive previously, and I will again, but for me right now cash is better. That stocks are shaky. They weren’t buying it, and that seems the almost universal view amongst financial experts. Always happy to reconsider my views.

Any thoughts?

by rolande | 9th Oct 23, 6:00pm 1696827618

Can't remember the stats, but over a period of decades, a high percentage (80%?) Of all increases happen within a few crazy weeks.

So to pick the market you need to pick those weeks, or just hold on and dollar cost average.

by kiwikidsnz | 9th Oct 23, 6:17pm 1696828667

No one can time the market, its time in the market that counts.

by HouseMouse | 9th Oct 23, 7:38pm 1696833506

bit of a cliché isn’t it?

by Yvil | 9th Oct 23, 11:21pm 1696846878

It is cliché, but it doesn't make it untrue. Look at the top smart investors, fund managers, and economists with far more experience and resources than we have. They can mostly tell us what the situation is, and where it's going. But a monkey has an equal chance of getting it right, when it comes to predicting WHEN the outcome will occur.

by rolande | 10th Oct 23, 6:24am 1696872261

https://www.visualcapitalist.com/chart-timing-the-market/#:~:text=As%20….

If you miss the best 60 market days over 20 years, your portfolio is 93% smaller.

by False economies | 9th Oct 23, 6:07pm 1696828070

Need to consider return of your money as well as return on your money?

by redcows1 | 9th Oct 23, 6:10pm 1696828232

The bigger the risk the bigger the return. Fact. Well at least fact in from all the experts I've read. High risk is volatile but will ALWAYS outperform low risk over time. Can't get my head around that.

Mines in cash. But only because I don't understand/believe in the fundamentals of why assets are valued as high as they are. Or maybe I do understand but would be better off if I didn't. I can only liken the belief in never ending returns to religious ferver and I've always been anti religion.

by Rob Reid | 9th Oct 23, 6:21pm 1696828913

I feel much the same.

The normies surrounding Housemouse are probably basing their judgement on 40 years of monetary splurge. That period is over and now the costs are becoming evident, but this is barely sinking on. There is even more monetary splurge to come and some short term opportunities from the resultant distortions, but the "oh just buy and sit on it, mate" period has done it's dash. Time to be more nimble and selective.

by nzphoenix | 9th Oct 23, 6:20pm 1696828804

What is the make up of the cash fund? Which provider offers this? Simplicity, for example, has a Defensive fund but this is fixed income / bonds.. and bonds are taking a beating at the moment.

by Norm | 9th Oct 23, 8:04pm 1696835087

Milford has a cash fund, funnily enough, mostly cash. They also have a conservative fund. From memory, this has a sizable % in bonds.

by KH | 9th Oct 23, 9:32pm 1696840364

Cash can be term deposits. Very simple.

by IT GUY | 9th Oct 23, 8:12pm 1696835571

mainly short dated NZ Gov debt but each bank kiwisaver holds a bit of their own bank debt.......

by HughJorgan | 9th Oct 23, 8:39pm 1696837173

Exactly. None of them are true cash funds because they couldn’t justify a fee. Consequently some of us have been smashed Bessie we exposed to fixed income (bonds, not TD’s).

by Independent_Observer | 9th Oct 23, 6:35pm 1696829725

I’m guessing the people around the water cooler don’t understand this chart:

https://x.com/macroedgeres/status/1710714888832614560?s=46&t=MUwQeKa7Mk…

If they could understand it, they might be more open to your position. In my view, we are back to late 2019 again and a shock to asset prices could again be just around the corner. Just wait for the yield curve to normalise.

Like you, I’m still in a cash fund and my share holding is minimal - just cycling through cash funds, term deposits and inflation hedge stocks (energy etc)

by NZGecko | 9th Oct 23, 8:23pm 1696836185

Hey HM, I went cash fund with my generous company based/funded super scheme in 2021, when I saw the equities rebound much too fast.

I naturally prefer the high International Stocks share funds.

I recall vividly switching from the share funds in 2007 and into cash. It was a great call and timing to avoid the GFC chaos. I see the same specter now and still.

So the Cash Fund returns started at .5% and are now 4.5%. Not great - but certain returns, when the risk of a stock market wipeout remains as an obvious possibility. If you want the safest, don't go conservative go pure CASH.

I will get back to the share funds after they taste and react (downwards big time) to the pains of an 8 to 10% debt market. They are defying it currently, but reality is coming!

by HouseMouse | 9th Oct 23, 7:13pm 1696832015

Yean I am cash not conservative. Seems a minority view but good to see others have the same view. I guess i like swimming against the tide, too.

by Averageman | 9th Oct 23, 7:44pm 1696833878

Cash is like amunition. It's all about unrealized potential. Once your shots are all fired and the incoming problem (increasing debt burden) keeps coming, the potential was wasted.

Kaaaarkkkk.

by Justa comment | 9th Oct 23, 7:28pm 1696832907

Cash fund guaranteed 4%+ return this year, with zero risk. Many will take that.

by WellingtonInvestor | 9th Oct 23, 8:12pm 1696835576

Aren't you trying to time the market with what you are doing? What sort of interest do you get in a cash fund these days, don't think it is all that good, when you can get 6%+ in TDs for 1 year, which is about the level of inflation .

by NZGecko | 9th Oct 23, 11:56pm 1696848967

Agree......the funds ticket clippers take the cream off the top (fat cream too!) of the cash funds earnings. So will always be behind the top TD rates.

But all your powder/ammo is dry/safe and can be in major market ructions.

The plan is to liquidate the lot should move roles - "a fully portable" scheme. Or when the next market dives big (crash) get back into the Stock funds, when the max pain is being seen/talked about.

This can deliver real gains of 10 to 25%, in the rebound years after a crash.

No one knows when or exactly or how deep any crash will be, but lofty valuations today, just don't stack up when considering the baseline of 6 or 7% debt rates. These rates will be eclipsed, I believe......

by KH | 9th Oct 23, 9:36pm 1696840579

HM. -- I don't think the market will plunge. But it could. It's decidedly jittery and that's not a good sign.

So I have moved a portion (not all) to cash, just in case. TDs.

by Audaxes | 9th Oct 23, 5:48pm 1696826933

Inflation risks, higher-for-longer, all of that stuff should be killing the 2-year. There has to be some reason why LT yields are rising but ST yields really aren't. And there is; several big ones, actually. https://buff.ly/3ZLmQ1Q Link

by Rob Reid | 9th Oct 23, 8:36pm 1696836999

40 years of monetary policy rewarding asset holders has brought us here - sticky inflation. This has years to unravel.

Bottom line is that there are just too many claims (currency) on production and they can't be satisfied. So all our broke governments can do is allocate the losses - the reductions in standard of living, and apply band-aids to those in most desperate need at a given time.

The poor can't pay, the middle class is now being crushed and the rich are clever at avoiding income tax. So that leaves going after all those piles of wealth the banking sector has gifted to asset owners. They won't want to tax it to pay for more band-aids, but they will be forced to.