What happened Friday

A review of things you need to know before you go home on Friday; Heartland cuts, housing sales weak, FMA warns life insurers, rural anxiety, e-invoicing close, swaps take breather, NZD weak, & more

13th Sep 19, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
No changes today.

TERM DEPOSIT RATE CHANGES
Heartland Bank cut all their rates except for 1 month and 5 months. They still do have 3%+ rates for terms of 2 years and longer (also their 15 month 'special'). NBS also cut rates.

HOUSING SALES VOLUMES WEAK, PRICES FLAT
National house sales volumes sank to a five year low in August but prices were flat overall, according to the data released today by the Real Estate Institute of New Zealand. Auckland house sales were at their lowest August level since 2010. Weak listings levels are getting some of the 'blame'.

SHARP WARNING
The FMA is considering prosecuting life insurers over their sales tactics. They say 'there will be more remediation, more repayments to consumers'. The Commerce and Consumer Affairs Minister said NZ isn't immune from a royal commission on financial industry conduct.

SAVED BY THE LOCALS
If it wasn't for local travelers, the tourist accommodation industry would have had a lean July. Total guest nights rose just +0.8% to 2.7 mln in the month of July 2019, compared with the previous July. This was driven by a +2.7% rise in domestic guest nights, which offset a -2.4% fall in international guest nights. International guest nights have decreased for the last eight months, when compared with the same month in the previous year. July is the depths of the low season, but even so, the rise in occupancy rates which has been going on for more than a decade seems to have petered out.

RURAL ANXIETY
Farmers are showing up in "huge numbers" to the small number of public meetings the Government has called for consultation into their Essential Freshwater regulations. This is impressive because the very short consultation process comes at the busiest on-farm period. Rural anxiety levels are high with the feeling the timing of consultation is deliberately timed to be unfriendly.

WASN'T EXPECTING THAT
In Australia, the recent interest rate cuts are flowing through to mortgage rate reductions, but borrowers are making little effort to cut their loan repayment levels. This is worrying their central bankers (see page 13) who had hoped lower rates would have boosted household disposable incomes and boosted consumer spending. More spending is supposed to be the outcome of lower rates, raising economic activity. But if existing home owner borrowers 'save' it by paying off their mortgages faster, the effect isn't there. And that undermines a core reason interest rates are being cut.

TRANS-TASMAN E-INVOICING CLOSE
A meeting of Government ministers from Australia and New Zealand has signaled an intention to implement e-invoicing in both countries by the end of this year.

CHALLENGING END-RUN MANIPULATION
Aussie regulator ASIC has used its powers to ban two payday loan schemes, saying both cause "significant consumer detriment". Both used separate contracts to charge fees so that they met the interest rate limits their law imposes, but when considered together involved a total cost of credit of up to 1000%.

SWAP RATES TAKE A BREATHER
Wholesale swap rates stopped rising today, down by -1 bp across all tenors. The 90-day bank bill rate is unchanged at 1.14%. Australian swap rates are up +1 bps across all tenors. The Aussie Govt 10yr is unchanged at 1.16%. The China Govt 10yr is up +1 bp at 3.09%, while the NZ Govt 10 yr is up another +4 bps to 1.35%. The UST 10yr yield is at 1.79% and also up another +3 bps in a day.

NZ DOLLAR WEAKER
The Kiwi dollar is now down to just on 64 USc. Against the Aussie we are also weaker at 93.2 AU cents. Against the euro we have fallen to 57.9 euro cents. That puts the TWI-5 down at 69.3.

BITCOIN FIRMER
Bitcoin is at US$10,359 and up +2.5% since this time yesterday. The bitcoin price is charted in the currency set below.

This chart is animated here.

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

Daily swap rates

Select chart tabs

Source: NZFMA

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23 Comments

by Foyle | 13th Sep 19, 4:05pm 1568347541

ASB is now hedging its bets, forecasting that Statistics NZ is most likely to report the economy grew by between 0.3 and 0.4 per cent when it releases GDP growth figures on Tuesday, while warning "risks are skewed to the downside".

by Foyle | 13th Sep 19, 4:09pm 1568347759

Coalition continues efforts to ravage NZ's export earnings through policy changes that ignore economics. Oil and Gas evisceration was just the start, now they are coming for the farmers.

by solardb | 13th Sep 19, 4:16pm 1568348207

Oh no , We're doomed.

by RickStrauss | 13th Sep 19, 4:17pm 1568348275

Foyle continues to ravage the internet with Leighton Hosking talking points.

by Foyle | 13th Sep 19, 5:16pm 1568351813

So no sensible counter-arguments and nothing constructive, just snitty ad homs as usual? Try harder. NZ runs a 10billion a year balance of trade deficit, so I take it you're fine with that and the >50% of GDP foreign liabilites we have built up, and happy about the coalition's efforts to further sabotage our economy by these measures to force reduction in dairying and increase oil and gas imports. P.S. I don't listen to radio.

by BadRobot | 13th Sep 19, 6:28pm 1568356094

"I don't listen to radio" .... perhaps you should , just saying.

by frazz | 13th Sep 19, 4:27pm 1568348821

How will the world cope without NZ oil exports...the lights are going out...!

by my2c | 13th Sep 19, 4:36pm 1568349364

Yes in fact we got close this year with GAS outages, low lake storage and poor wind generation.

Lucky we STILL have the option of coal otherwise prices would be extreme and potential for black outs.

Cancelling Oil and Gas exploration IS A FAILURE if you have not got alternatives or even a clue what will replace it aka Labour.

by frazz | 13th Sep 19, 4:49pm 1568350197

TiWai Smelter

by Foyle | 13th Sep 19, 5:20pm 1568352056

Shutting down Tiwai would be another billion in lost export earnings. And >$600million to get Manapouri's power to North Island.

by frazz | 13th Sep 19, 5:30pm 1568352615

Export earnings...I prefer tax paid less rebates. Can you give me those figures for Rio Tinto for the last 5 years less Jonkeys 30 million gift?

by Andrewj | 13th Sep 19, 4:53pm 1568350439

I looked through the Govt's freshwater management plan and actually thought it was very good. Streets ahead of regional councils. I've talked to a couple of other farmers who also thought it was very good. It's regional councils that are scaring the crap out of farmers.

by Foyle | 13th Sep 19, 5:28pm 1568352518

Coalition haven't addressed the economic costs and other follow on consequences in the report. Hugely irresponsible to NZ's to push policy without such considerations being fully assessed. This is a hasty, corner-cutting effort driven by an ideology that doesn't have NZers best interests at heart.

by Andrewj | 13th Sep 19, 6:07pm 1568354847

Well it's one hell of a lot better than what Regional Councils are up to. I don't know about economic costs in the Gov't plan but I'm sure as hell unhappy about what our regional council has in plan which is consents to farm, trust but verify, the big polluters getting a pass at the cost of extensive farmers due to catchment limits rather than individual farm limits.

We are going to have to change and the future will be reductionist, but it's better than the production focus of the Key govt. Reductionist farm systems will focus more on costs, soils and solar capture, I find it a more exciting future if farmers can get on board.

The USA is way ahead of us.
https://www.youtube.com/watch?v=IljJ9E3lsaw&t=686s

by solardb | 13th Sep 19, 4:22pm 1568348522

TRANS-TASMAN E-INVOICING, Does this mean that govt departments in Both countries are still sending each other paper invoices?
If one business sends another a E- Invoice that business can generally read and process it , without the need for any agreement?
Are the Governments 10 years behind businesses. ?

by bw | 13th Sep 19, 4:36pm 1568349411

".. the role of the SEM agenda in driving prosperity in both countries and delivering a smoother trans-Tasman experience for business, travellers and citizens."
Having just fought my way through both Tasman border customs processes, I can say that at our end it may be smoother, but at the Aussie end, they're still just shy of still having to remove your shoes at entry/departure! Throw in a failure of their automatic baggage check-in system, and the whole lot grids to a halt. ( Surely, you'd think that there would be a manual back-up process? But, alas no....)

by my2c | 13th Sep 19, 4:40pm 1568349613

Last time I went which was last year. I had a explosive check and also the full scan aka NUDE image.

Yep that was special.

by Kezza R | 13th Sep 19, 4:38pm 1568349524

Busyest time for farmers and short time frame. Labour/ Greens railroading, NZF not backing a large support base.

by Audaxes | 13th Sep 19, 4:38pm 1568349527

More spending is supposed to be the outcome of lower rates, raising economic activity. But if existing home owner borrowers 'save' it by paying off their mortgages faster, the effect isn't there. And that undermines a core reason interest rates are being cut.

...empirical evidence shows that the central banking narrative on interest rates is diametrically opposed to the observable facts in two dimensions: instead of the proclaimed negative correlation, interest rates and economic growth are positively correlated. Secondly, the timing shows that interest rates do not move ahead of growth, but instead are either coincidental or even follow it.

If there is no empirical evidence for the interest rate narrative, it is reasonable to ask where it came from in the first place.

In other words, what is the origin of the idea that interest rates are the most important economic policy variable? We have ascertained that it did not emerge from empirical facts. Looking into its origin, one finds that it is a claim deriving from theoretical economics. The theory proposing the special role of interest rates can be derived from the central – some say only – graph in economics that shows demand and supply: it consists of an upward-sloping supply curve and a downward-sloping demand curve in price-output space. Under a number of assumptions prices are said to move so that demand equals supply. This seems eminently reasonable at first glance: after all, if prices are too high, excess supply will be left unsold, resulting in price cuts and hence a fall in prices, until demand equals supply. Likewise, if prices are too low, excess demand will quickly drive up prices back to the “equilibrium” level – the point at which demand equals supply. This story is told about virtually any market: in the case of the labour market, the price is the wage. In the case of the money market, the price is the interest rate.

However, this narrative has suffered an abductio ad absurdum by the long period of near zero interest rates, so that it became obvious that the true monetary policy action takes place in terms of quantities, not the interest rate.

Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. Link

by Cowpat | 13th Sep 19, 4:47pm 1568350050

Although its only a bank survey, BusinessNZ Manufacturing PMI for August 2019
July revised to 48.1 from 48.2 in the header to the post.
Contraction for the second consecutive month (last time this happened was in 2012
employment subindex remained in contraction for four consecutive months

BusinessNZ's executive director for manufacturing Catherine Beard:
"The sub-index of new orders (45.6) dived further into decline during August, and at its lowest point in over ten years (May 2009). Given production (49.7) fell from expansion in July to decline in August, further declines in new orders will typically lead to worsening of production levels in the months ahead. "
BNZ Senior Economist, Doug Steel said that
"disconcertingly, the PMI adds to a building case over recent times that there has been a palpable softening in demand - at least for manufactured goods".

by scarfie | 13th Sep 19, 4:51pm 1568350308

So perhaps Australia has a sentiment problem, an underlying unease that the good times are over and debt isn't just a good thing.

by BadRobot | 13th Sep 19, 6:40pm 1568356820

Having just finished listening to the podcast interviewing Robert Shiller (the link to which someone posted the other day - thank you) - there seems to be two schools of thought. On the one side where people are logical and rational and the lowering of interest rates SHOULD lead to house price upswing / more spending and those who believe in a sentiment and narrative driven response ("animal spirits"). The first seems to ignore the fact the people are illogical, irrational emotional beings. Fear runs / ruins markets.

https://www.nytimes.com/2019/09/12/business/recession-fear-talk.html

by Smalltown | 13th Sep 19, 5:45pm 1568353530

Heres one for Guy Trafford. Let the pillage continue as our economy depends on it. https://i.stuff.co.nz/business/115766396/us-seafood-ban-plan-causes-sti…