What happened Tuesday

Economy / news

A review of things you need to know before you sign off on Tuesday; QV sees lid on house prices, businesses prioritise employees, Council rates rise fast, big fraud, APRA stamps on AT1 hybrids, swaps stable, NZD soft, & more

10th Sep 24, 4:00pm 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
None to report today, so far at least. All rates are here.

TERM DEPOSIT/SAVINGS RATE CHANGES
Kiwibank trimmed its one year 5.45% rate to 5.25%. All updated rates less than 1 year are here, for 1-5 years, they are here.

CUT FROM VERY HIGH TO LESS-VERY HIGH
ANZ today lowered its Business Bank Indicator rate, Agri Current Account, and Business Overdraft base rates by -15 bps. That makes them 13.4%, 11.6% and 15.4% respectively. And homeowners should notice what a great deal they get on mortgage rates compared to what businesses pay for their borrowing.

NOT GOING TO TAKE-OFF
House values slide again as QV warns abundant sale listings 'will keep a lid' on prices. 'Spring has sprung and interest rates are coming down – but don’t expect to see house prices suddenly take off again soon', they say.

DOWN, BUT NOT OUT
More quarterly sector data was released today in the buildup to next week's GDP result. Manufacturing volumes fell -3.0% in the June quarter from the same period a year ago. This is not great, but it is not a collapse either. Sales revenues were down -2.2%, so some price increases are sticking. These declines are the least in a year and far less fierce than those recorded at the end of 2023. Retail and wholesale trade dipped too, but a bit less than for manufacturing.

EMPLOYEES COME BEFORE PROFITS
Over all businesses, revenue and profits are taking a hit. But businesses are prioritising keeping their people, even paying more to do so. Despite the transaction and profit hits, wages and salaries rose by +$1 bln in the June 2024 quarter (+3.3%) from the same quarter in 2023.

NZX EQUITY MARKET UPDATE
Check out our quick update of how the NZX is faring today, as at 3pm. Meridian rises, Kiwi Property falls, Kathmandu falls again.

A KEY SOURCE OF NON-TRADABLE INFLATION
Rates and regulatory income collected by local authorities topped $9.8 bln in the year to June according to the latest Stats NZ update, +$890 mln more than the the June year in 2023, or +10%. Grants and subsidies received were unchanged however at $2.5 bln. Employee costs were up +11.2%. So the whole sector ran a deficit of just under -$2 bln.

EYES ON SOME KEY DAIRY PRICES
There is another dairy Pulse auction tomorrow morning. The dairy derivatives market suggests SMP will hold with a minor gain, and the WMP price will bounce back from its full auction dip last week. From what we know about August China's food prices, these upward movements will not be coming from Chinese demand.

BIG TIME FRAUD
A former IT contractor has pleaded guilty to paying over $4 mln in kickbacks in a Serious Fraud Office bribery and corruption case. The plea was made in the Auckland High Court with the former contractor pleading guilty to two representative charges of giving gifts to an agent. In April 2023, the SFO filed charges against two former IT contractors, both of whom are Australian citizens and have interim name suppression. One contractor has pleaded guilty to paying kickbacks of approximately $4.1 mln in exchange for receiving work. The other was charged with receiving kickbacks in return for favouring the guilty party in awarding work. The defendant charged with receiving kickbacks was contracted to conduct testing of IT systems at a large New Zealand-based company. As part of their role, they also had authority to employ contractors to perform the testing work. Between November 2013 and June 2017, the guilty party received contracts of more than $20 mln of work on the recommendation of the second defendant. The SFO alleges the two parties had a prior relationship.

IT'S MORE ABOUT JOB SECURITY
Australia's Westpac-Melbourne Institute Consumer Sentiment index dipped by +0.5% in September from August, the sixth time of decline in 2024. Consumers are still concerned their economy is heading for a harder landing. They are less fearful of interest rate rises, but more fearful of losing their jobs.

FINDING THE GOING TOUGH
The drop in business sentiment in Australia was a surprise, an outsized slump to a nine-month low and the weakest August since 2021.

NO MORE FUNNY STUFF
Aussie prudential regulator APRA has started the process to have banks cull their hybrid capital issues. They say these won't work as intended in a crisis. They are learning the lessons from the 2023 US and EU bank fizzes. Banks who need more capital will have to raise it directly, as full loss-absorbing shareholder support.

SWAP RATES HOLD
Wholesale swap rates are probably little-changed today. Our chart below will record the final positions. The 90 day bank bill rate is down -1 bp at 5.11%. The Australian 10 year bond yield is down -2 bps at 3.96%. The China 10 year bond rate is down -1 bp at 2.13%. The NZ Government 10 year bond rate is up +2 bps at 4.27% and the earlier RBNZ fix was at 4.19% and up +1 bp from yesterday. The UST 10yr yield is down -3 bps at 3.71%. Their 2yr is now at 3.69%, so that curve is now only positive by +2 bps.

EQUITIES STAY LOWER, EXCEPT WALL STREET
The NZX50 is up +0.1% in its late Tuesday trade. The ASX200 is back up +0.6% in afternoon trade. Tokyo has opened its Tuesday trade up a minor +0.1% at its open. Hong Kong is up +0.3% and Shanghai has opened down -0.3%. Singapore is up +0.2% at its open. Wall Street rose strongly today with the S&P500 up a 'good' +1.2%.

OIL HOLDS
The oil price is unchanged from this time yesterday at just on US$68.50/bbl in the US, and now at US$71.50/bbl for the international Brent price.

CARBON PRICE IN NARROW BAND
Today the carbon price is back today at $61.50/NZU, still in its new narrow band. See our new daily chart tracker of the NZU price for carbon, courtesy of emsTradepoint.

GOLD HOLDS
In early Asian trade, gold is up +US$7 at US$2503/oz.

NZD RETREATS
The Kiwi dollar is down -50 bps from this time yesterday, now at 61.4 USc. Against the Aussie we are down -30 bps at 92.2 AUc. And against the euro we are down -2 bps at 55.6 euro cents. This all means the TWI-5 is -40 bps lower at 69.3.

BITCOIN RISES
The bitcoin price is up +3.1% from this time yesterday, now at US$56,779. Volatility of the past 24 hours has been highat just on +/- 3.1%.

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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38 Comments

by J.C. | 10th Sep 24, 4:32pm 1725942755

A former IT contractor has pleaded guilty to paying over $4 mln in kickbacks in a Serious Fraud Office bribery and corruption case.

Kind of reminds me of the comments y'day about Aotearoa pretending to be more pure than thou, but is as corrupt as anywhere.

A mate worked on the Super City IT framework in a leadership role. Eventually quit not because of corruption but the environment of incompetence, particularly in key decision makers. Think he almost had a nervous breakdown and eventually got out of there to save his sanity.

by David Chaston | 10th Sep 24, 4:32pm 1725942721

Did you read the detail? It was fraud by two fly-in offshore contractors. Not locals. It was the locals that caught it, and brought the prosecutions.

by J.C. | 10th Sep 24, 4:35pm 1725942920

Did you read the detail? It was fraud by two fly-in offshore contractors. Not locals. It was the locals that caught it, and brought the prosecutions.

Yes I did read it. First question asked is level of competence with procurement.

by IT GUY | 10th Sep 24, 7:08pm 1725952139

I wonder who Planned this IT blunder?

just trying to think who could be capable of providing 20mil of services?

there are others. But I know no one so stupid to not monitor segregation of duties, i have contracted and built 25 member teams but I always hate to sign statements re no interest in the providers, mostly i spread work around as I know the perils of concentration risk

by Pa1nter | 10th Sep 24, 6:18pm 1725949111

Aotearoa pretending to be more pure than thou, but is as corrupt as anywhere.

There's corruption anywhere there's people, but you're kidding yourself if you think there's not places way more corrupt than here.

by Azimuth | 10th Sep 24, 6:55pm 1725951325

The problem with decreasing social mobility in society is that you end up with stupid people in top jobs.

by J.C. | 10th Sep 24, 4:31pm 1725942709

Over in Aussie, annual unit & apartment approvals across Australia crashed to just 58,230 in July - a level last seen in 2012

The situation is even worse at the capital city level. Annual unit & apartment approvals across the combined capital cities fell to only 45,600 in July - a level last seen in 2010.

Maccy B says:

There are stiff macroeconomic headwinds facing the homebuilding industry, which will continue to limit new home construction. These include:

The highest official cash rate since 2011.
The circa 40% rise in construction costs since the start of the pandemic.
The residential building industry competing for scarce labour and materials with government ‘big build’ infrastructure projects.
The collapse of around 3000 construction firms over the past year.

The only genuine solution to Australia’s structural housing shortage and the rental crisis is to dramatically reduce demand by slashing net overseas migration.

https://www.macrobusiness.com.au/2024/09/welcome-to-the-high-density-ho…

by HouseMouse | 10th Sep 24, 5:18pm 1725945513

Love MaccyB.

not afraid of the PC / woke nonsense that says ‘being against massive, unprecedented levels of immigration is racist’

The wokesters really are the useful idiots for much of the status quo, powerful elite vested interests!

by J.C. | 10th Sep 24, 5:36pm 1725946608

Immigration has historically been good for the Anglosphere. Had a dialogue with an ex-Merrill Lynch honcho who was using Japan as the contrarian case of low immigration, low population growth. He believes immigration is the answer to everything. Reminds me of Bernard Salt.

by Peter M | 10th Sep 24, 4:32pm 1725942752

https://www.rnz.co.nz/news/national/527590/hundreds-of-jobs-lost-as-win…

This was an export oriented business. Very keen to find out where does the government wants to grow exports? WPI took just over more than 1% of the total radiata pine harvest. Maybe convert some plantations back to beef and lamb?

by ChrisOfNoFame | 10th Sep 24, 5:34pm 1725946458

Am I so old that I am alone in remembering when NZ had the cheapest electricity in the developed world?

And then along came neo-liberalism and the National Party embraced it ... And most of you voted for it.

You were warned. You have reaped what you have sown.

I cry when I see these businesses closing. It should have never been this way.

by solardb | 10th Sep 24, 5:48pm 1725947282

Winstone were offered 12 cents kwh. Wouldn't of thought it was a deal breaker., and hard to see the current electricity system go below that.

Simeon browns answer is reversing the pil and gas ban will fix it. Idiot.

by Hans Brink | 10th Sep 24, 8:13pm 1725956032

Can't help thinking Ernslaw is just using power price as an excuse to shut down. Probably been marginal for some time.

by ChrisOfNoFame | 10th Sep 24, 4:32pm 1725942769

re "NO MORE FUNNY STUFF" Took a while to get APRA to understand the risk but they got there eventually.

by IT GUY | 10th Sep 24, 8:34pm 1725957266

Can you imagine how much more capital will need to be raised and at what low prices once investors realize its needed.

in a word LOTS

by profile | 10th Sep 24, 4:41pm 1725943285

"With Professor Anton van der Merwe of Oxford University, I detailed how it is no coincidence that this virus turned up in exactly the right city at exactly the right time as they were planning exactly the right experiments that would put exactly the right insertion into exactly the right place in exactly the right gene of exactly the right kind of virus. And to do so at exactly the wrong biosafety level.

...Why is this topic taboo? Scientists in the West have become addicted to collaboration with China. They get students and money from China. Ten British universities rely on Chinese students for more than a quarter of their income. Scientific journals get rich on Chinese publication fees. Richard Horton, editor of the Lancet and recipient of a Friendship Award from the Chinese government, went on Chinese television early in the pandemic to say: ‘I think we have a great deal to thank China for, about the way that it handled the outbreak.’

Occasionally, Westerners fret about the prevalence of scientific fraud, scientific espionage and low safety standards in China, but the money is too good."

https://www.spiked-online.com/2024/09/10/there-is-now-no-doubt-that-cov…

by talking sense | 10th Sep 24, 5:28pm 1725946091

"Why is this topic taboo?

For the same reason safe and effective is off limits.

"The money is too good" might be a starter for 10 though....

by the Joneses | 10th Sep 24, 6:20pm 1725949209

Nobody let's us talk about it, these people keep telling everyone.

by IT GUY | 10th Sep 24, 7:15pm 1725952506

You should listen to this it may clarify some stuff....

https://www.youtube.com/watch?v=iOQdjgdRcfA

Joe Rogan Experience #2198 - Bret Weinstein

Do your own research

by Independent_Observer | 10th Sep 24, 7:32pm 1725953543

I enjoyed this one.

by IT GUY | 10th Sep 24, 8:11pm 1725955882

the recent Russell Crowe one is v gd

by Independent_Observer | 10th Sep 24, 9:16pm 1725959766

Got part way through that one but Crowe annoyed the hell out of my baying saying ‘you know’ about 100 times in the first 15 mins and once you hear this sentence filler it becomes extremely hard to listen to.

by Wrong John | 10th Sep 24, 4:50pm 1725943834

Swaps under 4 & a half with the 10Y at 4.2ish. Will it all begin with a 3 sometime soon? Might be time to turn the lights on.

by ChrisOfNoFame | 10th Sep 24, 5:09pm 1725944973

Yup. Trend lines remain in one direction only. All the macro data supports it. Keep an eye on the macro data. It will likewise signal trend reversals.

by solardb | 10th Sep 24, 4:53pm 1725944002

Re winstone's closing pulp mill, it's hard to see how a longterm solution could not be found.

Huge roof area for solar, huge amount of wood waste for cogeneration, mountain nearby for pumped solar.

by Baywatch | 10th Sep 24, 4:57pm 1725944266

Would just need a small amount of Government support ...never going to happen with these clowns in power. Maybe they could build a road through the plant with no speed limit?

by Noncents | 10th Sep 24, 8:32pm 1725957156

Why does every private firm need Govt support?

by IT GUY | 10th Sep 24, 8:48pm 1725958108

because the economy is rooted

by solardb | 10th Sep 24, 5:21pm 1725945691

This may have something to do with it.

https://www.fastmarkets.com/forest-products/pulp/pulp-prices/.

They pay $46a tonne for pulp logs, so seems there used to be quite a bit of margin.

by profile | 10th Sep 24, 8:22pm 1725956575

"Tim Woods, Managing Director of IndustryEdge, an expert in the Pulp & Paper industry, said NZ’s power price hikes (which have jumped 600% in just two years) have left the country’s mechanical pulp and paper mills especially vulnerable:

“This is the case for the WPI mill, which uses energy to produce a ‘mechanical’ pulp and has limited thermal and even less electrical energy outputs,” he said, adding that “these facilities are essentially stand-alone energy sinks and are far more vulnerable to energy price rises than other pulp and paper mills.”

“Couple that with the vulnerabilities created from selling into global commodity markets where ‘the price is the price’, and we can easily see there is also no opportunity to recover higher energy costs,” Mr Wood said"

by IT GUY | 10th Sep 24, 8:33pm 1725957193

lack of china demand real reason

by Jonny.Foe | 10th Sep 24, 4:58pm 1725944320

It is true that total revenue and profits are down - especially in real terms. The mighty RBNZ have crushed demand like a bug and will continue to do so because of 'long and variable lags' etc.

So, profit margins are tumbling, right? You know, firms must be collectively bleeding out as the RBNZ forces them to sell stuff at ever lower prices? No, silly, that's not how it works. Over the last year, businesses in aggregate have increased their operating profit margins thanks in the main to softening import prices and market power in the big sectors (wholesale etc). In fact, if you plot overall profit margins against OCR, what do you see? Margins actually fell during 2021 and 2022 as import prices flew upwards - getting down to a touch over 13% in Q2.2022 when the OCR had just been wiggled from 1.5% to 2%. Margins then held steady while RBNZ went for shock and Orr - and eventually returned to a bit over 13.5% in Q2.2024. Even sectors like construction have managed to restore their margins despite the hikes.

What's going on here? It's really simple. At the aggregate level, businesses have responded to reduced demand by reducing capacity - they have scaled back costs. They buy less stuff to sell and let a few staff go. RBNZ have squished demand and supply. I know that some businesses (retail most obviously) are really struggling, but the big price-setting sectors are just holding margin. Given this stark reality, what difference do you think adding $8bn to business debt-servicing costs has done over this period. Do you think that reduced or inflated prices?

by ChrisOfNoFame | 10th Sep 24, 5:28pm 1725946081

Great post.

Smaller businesses read media for economic predictions.

Big businesses employ experts for economic predictions.

One reacts slowly, and with surprise. For the others, it is business as usual, i.e. reduce cost but preserve margins.

Meanwhile, the public (aka voters) have no clue. So they go to the pub (or BBQ) where 'advice' is free. Meanwhile the big, get bigger - and because they measure their 'success' by percentages - more greedy.

re ... "The mighty RBNZ have crushed demand like a bug and will continue to do so because of 'long and variable lags' etc."

Good choice of words. They are as mighty as our government. How did that happen? [rhetorical question obviously]

The simple fact remains that it is labor (i.e. the lives of real people & their families) that is the primary variable that expands and contracts as these goliaths play their pretend games.

by Let me be Frank | 10th Sep 24, 6:24pm 1725949443

" I know that some businesses (retail most obviously) are really struggling, but the big price-setting sectors are just holding margin. Given this stark reality, what difference do you think adding $8bn to business debt-servicing costs has done over this period. Do you think that reduced or inflated prices? "

Short term or longer?

The desired impact may be a reallocation of labour...especially considering the overwhelming majority of businesses in NZ are small (no price setting capacity and small cash reserves)....there is a case to be made that labour will be forced to areas of shortage providing some wage relief for those industries....or of course they may emigrate (reducing demand)....either way in the medium term it could be considered to relieve cost pressures.

by Jonny.Foe | 10th Sep 24, 7:21pm 1725952895

The movement of labour has undoubtedly happened - low paid and precarious jobs have finally been filled, although this is probably more to do with borders opening than reallocation. That's why the only significant jobs growth has been in health and social assistance.

But has that movement / change in labour made any difference to inflation? What is the theory of change assumed here? How do we test whether the reckons are real? I can't find any evidence of reducing demand leading to slowing of price rises at all

by Let me be Frank | 10th Sep 24, 10:31pm 1725964308

The impacts will vary over time....as said if their strategy is medium/ long term then there may well be a significant movement of labour resources...there are certainly likely to be retail, hospo, construction etc positions disappear.....they will eventually seek employment (in the main) where it becomes available.

How do we test?...only in retrospect...as in what areas of the economy has employment expanded and which have declined.

Again with reduced demand and prices, it will depend upon what is available to support high prices...the cure for high prices etc...but it takes time.

The RBNZ have limited tools to direct the economy....unlike the Gov....and it appears to me these two parties have different agendas.

Yes the attempt to limit inflation is there but from the RBNZs point of view, what is the point if within a matter of months the problematic conditions are reinstated?...a structural change to the economy however...a solution that dosnt require 'the wealth effect' of RE inflation nor increasing pressure on failing infrastructure through high migration....that is a very different looking NZ economy.

by malamah | 10th Sep 24, 5:35pm 1725946501

TM listings for sale have been hovering just under 41,000 over the last few weeks. Many listings dropping off unsold, today nearly 600 new listings. Is this the bottom of the market in terms of listings? Stock levels are so high, withdrawn stock also high. Over 12,000 rentals available. People have been leaving the country in droves. Interesting times.

by IT GUY | 10th Sep 24, 7:18pm 1725952721

dogs getting fatter and lino getting wetter