What happened Wednesday

A review of things you need to know before you go home on Wednesday; No cash for me, thanks, Aussie inflation still missing in action, no rate changes either, blowing the budget and getting some more, swaps up a little, dollar marks time

30th Oct 19, 3:59pm by David Hargreaves

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

MORTGAGE RATE CHANGES
No changes.

TERM DEPOSIT RATE CHANGES
None here either.

NO CASH FOR ME, THANKS
A new survey conducted for the Reserve Bank has found nearly nine in 10 New Zealanders prefer to pay for things without using cash, while just 6% had used only cash to pay for things in the week before completing the survey. “These new survey results reinforce the need for the cash system – the way cash is distributed and circulated – to evolve with the way New Zealanders are using cash,” says Assistant Governor and General Manager of Economics, Financial Markets and Banking Christian Hawkesby. The survey was commissioned by the Bank’s Future of Cash – Te Moni Anamata programme, which is in the final week of a public consultation on proposals for the Bank to take a more active role in the cash system.

AUSSIE INFLATION STILL MISSING IN ACTION
Australia's consumer prices increased by 0.5% in the third quarter, which was in line with market expectations. Annual inflation therefore lifted to 1.7% from 1.6% as at the June quarter. But that doesn't mean the inflation genie is out of the bottle. Once adjusted for seasonal factors prices rose by just 0.3% in the September quarter. Ben Udy, Australia and New Zealand economist with Capital Economics says "looking through the noise", measures of underlying inflation remained weak. He says given the Reserve Bank of Australia's "recent hawkish tilt" the latest data is the final nail in the coffin for any chance of a rate cut in November (leaving Australia's Cash Rate at 0.75%). "Even so, the weakness in seasonally adjusted inflation is further evidence of the underlying weakness in price pressures. And we think that subdued capacity pressures will cause underlying inflation to fall further below the RBA’s 2-3% target in the coming months. That’s why we expect the RBA will cut rates to 0.25% and launch QE in 2020."

BLOWING THE BUDGET AND GETTING SOME MORE
Regulator the Financial Markets Authority blew its litigation budget by about 50% in the past year, according to its just released annual report. The Government has now stumped up $6 million for the FMA's litigation budget for this year. The overspend in the previous year followed extensive and costly litigation for the FMA - notably it's ultimately successful battle with the ANZ over the FMA's sharing of information with Ross Asset Management investors during the period RAM principal and ANZ account holder David Ross was operating a Ponzi scheme. Further results from the FMA's litigation efforts were forthcoming on Wednesday with Steven Robertson, earlier found guilty on 38 charges, getting six years and eight months in jail.

UDC QUIETLY REDEEMS INVESTMENTS
And back on the ANZ, its wholly owned vehicle and asset finance subsidiary UDC Finance has quietly redeemed its remaining outstanding secured investments from the public as of the middle of this month and wound up its debenture programme. UDC, which the ANZ had earlier attempted to sell, stopped taking funds from the public earlier this year.

INCOMING FUNDS A SYMPHONY FOR HARMONY
Meanwhile, it's been a case of money in the door for peer-to-peer lender Harmoney, which has found investors to help bankroll its Australian expansion.

TWO COMMERCE COMMISSION APPOINTMENTS
The Ministry of Business, Innovation and Employment (MBIE) has confirmed the appointments of Dr Derek Johnston, and the reappointment of Elisabeth Welson, as members of the Commerce Commission.

EQUITY MARKET UPDATE
The NZX 50 was playing maverick on Wednesday with some modest gains (although running out of steam as this was being written), while the markets in Shanghai, Tokyo, Hong Kong and Australia were all seeing falls - though nothing dramatic.

SWAP RATES UP SLIGHTLY
Wholesale swap rates have mostly moved up very slightly on Wednesday after very strong rises on Tuesday. Nearly every rate from one month to five years has gained by 1 bp (with the 90-day bank bill at 1.08% and the two-year at 0.99%), while the seven and 10 years dropped by 1 bp (the 10-year to 1.42%) Australian swap rates are mostly down by about -2 bps. The Aussie Govt 10yr is down -4 bps to 1.14%. The China Govt 10yr is up +2 bps at 3.32%. The NZ Govt 10 yr is down -1 bp at 1.30%. The UST 10yr yield is down -1 bp from yesterday at 1.83%.

NZ DOLLAR MARKS TIME
The Kiwi dollar is pretty much unchanged from earlier in the day at 63.6 USc. Against the Aussie we are very slightly up from the morning at 92.7 AU cents and unchanged against the euro at 57.2 euro cents.

BITCOIN HOLDS
Bitcoin is at US$9,360, very slightly higher than earlier in the day and up about 0.8% in the past 24 hours and around 16% in the past seven days. 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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18 Comments

by Henry_Tull | 30th Oct 19, 4:23pm 1572405799

Something to put on in the background, now this week has opened up!

James Rickards, on finance Trump and China. Non MSM takes on all 3.

https://youtu.be/S_UhqAkG-KI

by Henry_Tull | 30th Oct 19, 7:31pm 1572417108

And a k.im update.
https://youtu.be/RuB6wgcxw5U

by Henry_Tull | 30th Oct 19, 7:54pm 1572418486

Re banks creating money

https://youtu.be/3g6-hPFFS_0

by solardb | 30th Oct 19, 4:24pm 1572405885

They could probably do away with some of the coin and paper money denominations to save money on providing cash. Either the 20 or 50 cent coin could go. The $ 2 coin could go to , but is popular with coin machines. I would say the $ 20 note , but it seems to be the most popular one. Maybe the $50 could go, or the $ 100, which seems to be the counterfeiters choice. Getting rid of the $100 may discourage large cash transactions.
But I definitely think one or more of the coins could go

by youngdumbandbroke | 30th Oct 19, 4:43pm 1572407009

or just have all notes. and no denominations under a dollar

by Audaxes | 30th Oct 19, 4:56pm 1572407781

"Even so, the weakness in seasonally adjusted inflation is further evidence of the underlying weakness in price pressures. And we think that subdued capacity pressures will cause underlying inflation to fall further below the RBA’s 2-3% target in the coming months. That’s why we expect the RBA will cut rates to 0.25% and launch QE in 2020."

What Friedman told his stunned audience in 1967 was that the central bank cannot peg either interest rates or unemployment beyond the short run,

“Let the Fed set out to keep interest rates down. How will it try to do so? By buying securities. This raises their prices and lowers their yields. In the process, it also increases the quantity of reserves available to banks, hence the amount of bank credit, and, ultimately the total quantity of money. That is why central bankers in particular, and the financial community more broadly, generally believe that an increase in the quantity of money tends to lower interest rates.”

“As an empirical matter, low interest rates are a sign that monetary policy has been tight-in the sense that the quantity of money has grown slowly; high interest rates are a sign that monetary policy has been easy-in the sense that the quantity of money has grown rapidly. The broadest facts of experience run in precisely the opposite direction from that which the financial community and academic economists have all generally taken for granted.”

What Friedman then said was, if your goal as a central bank was to peg an interest rate the only choice you had was to make larger and larger open market purchases, creating more and more bank reserves, in order to counteract the inflationary effects of “money printing.” You were only hurting yourself by not understanding the interest rate fallacy – the more you did to peg the interest rate, the more you did to undermine the peg.

Again, go back to Friedman: “low interest rates are a sign that monetary policy has been tight.” The reason interest rates aren’t being pressured higher is that there have been no inflationary pressures because there hasn’t been rising nominal incomes nor capital investment which would’ve been stimulated if money had actually been printed at some point. The great non-inflation fallacy of our time is different than what it had been in Friedman’s; and interest rates are telling us exactly that. Link

How much clarity does the RBA need? : graphic evidence here and here.

by Audaxes | 30th Oct 19, 6:09pm 1572412190

China warns US: criticism of Uighur detentions is not 'helpful' for trade talks

When asked if the statement criticising China could affect trade talks, Kelly Craft, the US ambassador to the UN, said: “I would be standing here regardless if it was China or wherever it is, wherever there are human rights abuses we would be here in defence of those that are suffering.”

Britain’s UN ambassador, Karen Pierce, delivered a joint statement to the UN general assembly’s human rights committee on behalf of 23 states including the US, Australia, Canada, France, Germany, Japan, the Netherlands, New Zealand, Norway and Sweden.

“We call on the Chinese government to uphold its national laws and international obligations and commitments to respect human rights, including freedom of religion or belief, in Xinjiang and across China,” Pierce said.

Unbelievable hubris on behalf of our US and UK allies:

"In Iraq, about 300 metric tons of DU [depleted uranium] ammunition were fired by American and British troops. Recently, NATO confirmed the use of DU ammunition in Kosovo battlefields, where approximately 10 metric tons of DU were used," the report says.

by Jock Silver | 30th Oct 19, 6:40pm 1572414018

That's bald faced whataboutism. What is happening to the Uighurs is nothing less than genocide. Genghis Khan's descendents are monitoring this carefully. Needless to say, they are not particularly happy about it. Expect action real soon, but it won't be from a place you expect.

by Audaxes | 30th Oct 19, 7:12pm 1572415920

I suggest you lobby your MP to ask the NZ government to cease and desist from trading with China while we wait for Genghis Khan's descendants to execute the retribution you believe is imminent.

by Lapun | 30th Oct 19, 8:35pm 1572420900

My UK ancestors were happy to trade with Hitler's Germany in the 1930s. This is much the same. The ill treatment of the Uyghurs is astonishing but I think it is the way the media and politicians avoid the subject that is most worrying.
https://unherd.com/thepost/weekend-long-read-inside-chinas-gulags/

by Audaxes | 30th Oct 19, 9:20pm 1572423613

My father's father just got to fight the Germans in WW1.
But I guess we will have to suspend interaction with many nations for abhorrent transgressions, past and present.
Some must find US piracy a little irritating.

by Yankiwi | 30th Oct 19, 10:06pm 1572426367

The "US piracy" you talk about...

Just a bunch of pre-election blather without action on that post election. At least here we get some action on election promises, although not much effective action.

by Zachary Smith | 30th Oct 19, 10:35pm 1572428157

Ha, that Anthony Cordesman quoted in the article claiming that "not even Britain did that" doesn't know much. It was standard practice for the British to bill the conquered for the cost of military campaigns, usually in land or treasure. Ask the Chinese, the Maori or the Germans.

Germany was billed £284 billion for WW1 plus territory, China was billed 450 million taels of silver for the Boxer Rebellion and the Maori lost huge swathes of land for the Maori Wars.

by youngdumbandbroke | 31st Oct 19, 8:46am 1572464796

you forgot to add the Indians

by Lapun | 30th Oct 19, 10:34pm 1572428084

It is difficult to know where to draw the line. Hardly any country interacted with Isis other than to declare war against them once they burned the Jordanian pilot to death and made Yazidis into sex slaves sold in auctions. Many countries trade with Burma but politically keep them at arms length because of the unapologetic ethnic cleansing of Rohingyas. I would put China's behaviour with its Uyghur population as at least equivalent to Burma. However our govt and our leader of the opposition virtually kowtow to the Communist Party of China; if we are not going to criticize them then we ought to be very careful not to criticize any country.

This is from an interview with a Uyghur refugee in Turkey recorded in an academic paper I happened to be reading this evening: ""The secretaries of the Chinese Communist Party openly told us, 'I am the law, what I say would happen’. They were doing and getting what they wanted. They tried to hit us from our most sensitive part, at first, they applied abortion, then they totally forbade our religion and the very last they removed our language from education. They took our 16-year-old girls forcedly to work in China. They resorted to unimaginable ways to test whether we fasted during Ramadan.""
Although Uyghurs are ~1% of China's population they outnumber Kiwis.

by Zachary Smith | 30th Oct 19, 10:26pm 1572427579

I have to say I am highly skeptical of those stories in that link. It just doesn't make any sense if you read it and think about it for a few seconds. I can't believe people would be so embarrassingly gullible to believe that.

“In war, truth is the first casualty.” and that makes sense when you think about it. People are willing to engage in war and mayhem for money, they wont bat an eyelid to tell lies to achieve the same ends.

by Lapun | 30th Oct 19, 10:48pm 1572428884

Truth is the first casualty. So look for evidence - I was persuaded by the satelite photos of large camps being built, by the provincial govt financial figures for a massive building boom which the Chinese authorities claimed was for re-education but they didn't increase the budget for teachers. It is reminiscent of the USSR under Stalin having millions die of starvation in the Ukraine but the UK newspapers would not publish and intellectuals would not believe. Certainly it is very sad that China that accomplished so much in recent decades should be being so ruthless to its own people.

by Zachary Smith | 30th Oct 19, 11:30pm 1572431456

Yeah but you have been posting links to some pretty dubious stuff to be quite frank. The US will definitely try to foment rebellion in Western China, the soft underbelly of the dragon, just like they did when supporting Al Qaeda in Afghanistan against the Russians. They support the Falun Gong and protest movements in Hong Kong. China has no choice but to take counter measures if they want to achieve greatness. It's just the way it is. It's all just a game.