A review of things you need to know before you go home on Thursday: no rate changes, food prices stir, rents up, KiwiSaver fees a concern, rejecting eWallets, swaps firm, NZD firm, & more

A review of things you need to know before you go home on Thursday: no rate changes, food prices stir, rents up, KiwiSaver fees a concern, rejecting eWallets, swaps firm, NZD firm, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
Nothing to report today.

TERM DEPOSIT RATE CHANGES
Nothing here either.

AN INFLATION BOOSTER I
Food prices were up +2.2% in the year to September boosted by meat prices and restrained by fruit and vegetable prices. Grocery prices were up +1.6% and eating out was up +3.3%. Details here.

AN INFLATION BOOSTER II
Average rents declined
in the third quarter of the year but remain up by +6.5% compared to a year ago. Auckland rents were up.

FEE CONCERNS
The FMA has issued its Annual Report for KiwiSaver, noting they are concerned at the lack of any significant movement in fees paid to KiwiSaver providers. In total, KiwiSaver providers collected nearly $500 mln in fees, up +15% on the prior year.

FEE CUT
Yesterday, Westpac announced cuts to its KiwiSaver fees, cutting the monthly admin by more than half to $1 a month, and the management fees by about -15% to a range of 0.44% (Default) to 0.83% (Grolwth).

A GOOD REJECTION
New research shows that Kiwis are wary of the traps in eWallets. The report reveals that only 16% of all online purchases in New Zealand in 2018 were made via eWallet, trailing the global average of 37%. New Zealand is lucky to have the low-cost eftpos option, and merchants are rightly pushing back at the high fees demanded by the big international eWallet platforms. Rejection of eWallets isn't holding back use of online trade which is growing just as fast as anywhere. But the big multinational payments platforms and their banking partners have low-cost eftpos system rivals targeted.

GOOD SUPPORT FOR VERY LOW YIELD
The 18th tender of the $250 mln April 2029 nominal bond brought a yield of 1.04%, the lowest ever, and down sharply from the 1.29% achieved in the same tender in September. It was well supported, receiving $494 mln in bids.

A DYING HABIT
The proportion of non-smokers has risen to 87% of the 15yr+ population, up from 85% in 2013 and 82% in 2006, according to Census data. That means there are 519,000 smokers in 2019, compared with 603,200 in 2006.

LESS LENDING
In Australia, despite a small improvement between July and August, the value of lending to households fell almost -7% in August compared with the same month a year ago with the biggest fall being for investment property (-10%). Lending commitments to businesses were down almost -5% on the same basis. Overall, that is a fall in finance -A$4 bln in the August month. (Some media is reporting that investor home loans "surged" with "the biggest rise in three years". Sadly, they just didn't look at the underlying actual data, and they are trapped misunderstanding the seasonally adjusted data. Embarrassing.)

EMERGENCY LIQUIDITY INJECTIONS
The RBA has been studying how to make emergency liquidity injections without screwing up the financial system. Apparently lending to banks using secured repurchase agreements (repos) is the preferred way when you need to.

SWAP RATES FIRM
Wholesale swap rates are up +1 bp again today across the curve. The 90-day bank bill rate is down another -1 bp to 1.03%. Even in the GFC this rate never dipped below 2% and now we look like we will be under 1% very soon. Australian swap rates are soft, but only by -1 bp. The Aussie Govt 10yr is unchanged at 0.89%. The China Govt 10yr is also unchanged at 3.14%. The NZ Govt 10 yr is up +3 bps at 1.07%. The UST 10yr yield is back up the +3 bps it fell yesterday, now at 1.57%.

NZ DOLLAR FIRM
The Kiwi dollar has risen back after its overnight dip and is now just on 63 USc. Against the Aussie we are a little softer at 93.5 AU cents. Against the euro we are at 57.4 euro cents. That puts the TWI-5 up to just on 68.6.

BITCOIN UP
Bitcoin is firmer today US$8,537 which is a rise of +4.5%. The bitcoin price is charted in the currency set below.

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The 90 Day Bank Bill Rate and the 10 Year Bond Rate are on a par at 1.04%'ish. I wonder what that means? Probably nothing....

No inflation in the immediate or foreseeable future, in fact one could say downright deflationary.

21
up

If taxing cigarettes disincentivises smoking, does taxing income disincentivise working?

10
up

Taxing also disincentivises spending - another issue the economy is currently facing

It probably would if they work was taxed at the same rate as cigarettes. GST and excise taxes take about 67% of the retail price of a 25 pack of cigarettes. Whereas a $70,000 salary is taxed at about 20.0%. Big difference, so probably a big difference in the incentive impacts too.

Isn't saving on bank deposit at 55%, according to the gubmint, or is it higher after inflation?

Let me see, we have 2.6% interest and 1.7% inflation. So real return of 0.9%.
Tax at 25% of 2.6% = 0.65%.
Tax rate 0.65/0.9 = 0.72 = 72%

Funny NZ has a saving problem, eh?

20% to earn. Another 15% to spend it on anything. And that is if I spend it today.

I feel taxing income and capital gains appropriately should dincentivise meaningless pursuit of wealth accumulation through activities like speculation. I wouldn't put too much effort into earning more beyond a certain threshold, if the taxman grabs 51c on the dollar from it. Scandinavian social market model!
Any thoughts?

Nailed it. Have this discussion with my old man all the time. Using cheap debt to manipulate the housing market in not only counterproductive, its antisocial. I would rather see capital gains taxed and then tax on productive ventures and R&D reduced. It would solve many social issues NZ is facing currently

Perhaps the RBA should hang up a large Pawnbroker's sign? Isn't handing over your valuables for an overnight loan called pawnbroking, rather than banking? Maybe a name change to Reserve Pawnbroker to Banks Who Aren't Too Good With Money? I guess someone has to look after the poor dears.
lending to banks using secured repurchase agreements (repos) is the preferred way when you need to.

The 18th tender of the $250 mln April 2029 nominal bond brought a yield of 1.04%

NZ IR swaps have compressed down against this 10 year bench mark note to 6.82 bps over the sovereign. Won't be long before they are inexplicably negative, just like the US 10 yr IR swap rate. Then we will know for sure the NZ financial system is dysfunctional, beyond the 2.0%, 20/09/25 linker trading at a negative yield.

So what would you do? How to adjust oneself financially to avoid this clusterf****?

You buy now, the physical stuff you would be buying in the future if your money still existed.

Perish the thought.

The adjective implies perfectly preventable, hence physical delivery of 995 gold to a non-bank repository facility. Drawbacks are government denying private ownership of financial assets not representing someone's liability, no interest unless industrial quantities are available for leasing, cash and carry futures trading. Other than that, the future is looking grim for those seeking investments that never phone or complain. Cash is no good, given a long history of official sovereign note devaluations.

so long as you ignore the capital gain on the price (as your linked chart shows). Worth more than the yield ...

That would depend on when the linker was purchased in the past - I can only deal with today's valuation and history does not necessarily predict the future. And, as I mentioned previously, all taxpaying citizens are underwriting the profit of those that could afford to own this security since issuance at par (NB. Kt is 108.62 until Dec '19)

I see BoJ hoping to turn the rates up from negative 0.1%. That might help?

Bloomberg reports: Japan’s Latest Bold—and Desperate—Experiment in Monetary Policy

Haruhiko Kuroda has continually stressed that the bank is very much in easing mode. He said last month that the bank “will not hesitate to add stimulus” if needed, and a number of forecasters expect that he and fellow board members will cut the bank’s short-term policy rate—now at negative 0.1%—on Oct. 31.

Luxon is on board the National bus. Simon's bridge is being burned. Key has been given to Luxon.

BREAKING NEWS!!
On the Newshub TV 3 news this evening an Australian news report says that an Australian research team has discovered a cure for all cancers.
Great news. But hang on. Deja vu? I remember an Australian Sky news report some months ago saying the same thing about a different research team. Come to think of it I also remember a Sky news report about yet a different Australian research group over a year ago saying they had discovered a cure for cancer.
So Australia has at least three separate research groups who have discovered the cure for cancer! Amazing!
The world will duly be super-impressed! But which of these Australian research groups will get the Nobel Prize for medicine or will all three groups get it jointly ? We wait with bated breath.
I'm very grateful for all the medical breakthroughs coming from Australian researchers via the media mentioned. Not so long ago they said their researchers had found cures for most heart diseases. The Aussies are truly amazing.