What happened Monday

A review of things you need to know before you go home on Monday; no rate changes, shrinking bank margins, China buys Aussie dairy assets, Beijing routed in Hong Kong, swaps unchanged, NZD firm, & more

25th Nov 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 to report so far today. Update: Westpac has joined most of its rivals by adopting the 3.39% pricing point for one year fixed.

TERM DEPOSIT RATE CHANGES
None here today either. Update: Westpac has cut term deposit rates for terms of 3 months to six months, and raised its 8 month offer by +10 bps to 2.70% (which matches ANZ).

FAST MARGIN SQUEEZE
Tomorrow, the RBNZ releases its Dashboard data which reveals individual bank performance to September. Today they released S20 which shows as an industry, bank net interest margins are falling. In fact, the industry NIM is now below 2% for the first time since 1991 when this S20 record started and fell -10 bps in the past three months alone. In the past year, bank interest income on interest-bearing assess fell by -39 basis points to 4.04% and itself a record low. And bank interest expense on interest-bearing liabilities fell -28 bps to 2.38% (also a record low). Life is harder for banks when interest rates are very low. A related disclosure (S21) shows that bank personnel costs are up +13% in a year.

STAYING LOWISH
Fitch Research doesn't see the NZD rising in the short term. But it does see it strengthening in the longer term. "We expect the New Zealand dollar (NZD) to continue declining against the US dollar in the short-term, maintaining our 2019 average forecast at USD0.6540/NZD, compared to the year-to-date average of USD0.6600/USD. Our view is informed by a weak technical outlook amid bearish speculative positioning, and declining real bond yields relative to the US. Over the long-term, we expect the NZD to recover slightly to USD0.6680/NZD in 2020 and USD0.6800/NZD in 2021, due to the undervaluation of the currency and continued low inflation relative to the US."

DAIRY APPETITE
In Australia, Chinese company Mengnui is rolling up some major dairy assets there, buying Bellamys to add to its Bega Cheese investment. And now it is buying the Australian dairy assets and brands from Japan's Kirin. They are Australia's second-largest milk processor after Murray Goulburn, with about 20% of the Aussie market.

YOUTH VOTE ROUTS INCUMBENTS - & BEIJING
The big international news today isn't directly financial. It is the stunning rebuke to Beijing from the Hong Kong local election results. Beijing's propaganda 'news sites' are strangely quiet, unable to report on the result - so far at least. It is difficult even for them to spin an electoral rout. The Hong Kong chief executive Carrie Lam is on borrowed time. This is one of the first significant instances where the youth vote has turned an election.

AFTERPAY'S AML COMPLIANCE REVIEWED
An AUSTRAC ordered audit of Afterpay's compliance with Australia's anti-money laundering laws says incorrect legal advice resulted in historic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act. However Afterpay's compliance has evolved and matured over time, and its current programme is aligned with the AML/CTF Act.

BNZ CANS BOND OFFER
BNZ says it will not proceed with a fixed rate notes offer having announced on November 14 that it was considering making an offer.

UP AT START OF WEEK
Equity markets in Australia and New Zealand are positive today, The NZX50 is rising on positive gains by the minnows of the market. Early signs are that Hong Kong has risen strongly after the election result, up +1.7%, and Tokyo is up strongly too (+0.9%). Shanghai not so much (+0.4%).

LOCAL SWAP RATES UNCHANGED
Wholesale swap rates are little-changed today. The 90-day bank bill rate is unchanged at 1.21%. Australian swap rates are unchanged. The Aussie Govt 10yr is back down -3 bps today to 1.09%. The China Govt 10yr is unchanged at 3.21%. The NZ Govt 10 yr yield is down -1 bp at 1.35%. The UST 10yr yield has turned marginally higher today, now up to 1.78%.

NZ DOLLAR FIRM
The Kiwi dollar is firm today at 64.3 USc. Against the Aussie we are firm at 94.5 AUc. Against the euro we are firm at 58.3 euro cents. That means the TWI-5 is now at 69.6 and a small rise.

BITCOIN DROPPING FAST
Bitcoin is now at US$6,719 and that is a sharp -4.5% fall from where it opened here this morning. That means the fall is almost -27% from the beginning of November so it is in a strong bear phase having sunk into that realm over the weekend. The bitcoin price is charted in the currency set below.

This chart is animated here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

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24 Comments

by Audaxes | 25th Nov 19, 4:34pm 1574652898

The Hollowing Out Of America

America is being hollowed out, but since we don't measure what actually matters, the decline has been deep-sixed by the government and media. As I explain in my new book Will You Be Richer or Poorer?, there are a number of reasons why what's important --social capital, for example--doesn't get measured.

The most obvious reason is that it's politically inconvenient for those in power for the hollowing out of America to be quantified. To conceal the decline, institutions only measure what can be massaged to appear positive. These statistics include inflation (Consumer Price Index, CPI),the unemployment rate, Gross Domestic Product (GDP), and hundreds of financial numbers: net wealth, bank loans and so on.

Everyone knows from experience that big-ticket expenses such as healthcare (see chart below), childcare, rent, college tuition, etc. have been rising at double-digit rates, while shrinkflation has reduced the quantity and quality of goods even as price has remained unchanged.

In other words, the official statistics are gamed to appear positive even as the nation is being hollowed out. People sense the disconnect but since what actually matters isn't measured, there are few objective indicators of the decline we all experience in everyday life.

When we create a wealth effect on the asset side of balance sheets we also drive up the value of the liabilities. Lower long-term interest rates increase the present value of all future cash flows.

by Andrewj | 25th Nov 19, 4:53pm 1574654005

'Fraction of all US wealth owned by Boomers & Gen-Xers when the average member of each was age 35:

Boomers, 1989 21%
GenX, 2008 8%

The average Millennial turns 35 in 2023. Right now they own 3%.

There will surely be political implications.'
https://federalreserve.gov/releases/z1/da

by Ahuhyeah | 25th Nov 19, 5:58pm 1574657925

What an interesting stat. I wonder what it was at age 35 for the generation before the boomers and what it was at a per person rate at for those generations for those points in time.

by bw | 25th Nov 19, 8:08pm 1574665685

The War Generation would have been born in the late '20s and have been 35 in the early '60s, so it's unlikely that they would have had the chance to build any sort of collective wealth. What wealth there was probably got more widely disbursed. Their 'wealth' was in creating the Baby Boomer generation to rebuild society, and arguably, they did a great job!
But since the 60's:

The median age at death has grown by 12 years, from age 70 to 82.
The typical age of getting the first job is two years later than it was.
The typical age of finishing education is five years later.
The typical age of having a child is seven years later.
The typical age of getting married is eight years later.
The typical mortgage isn't paid off until age 62, ten years later than in the 1960s.

by Fritz | 25th Nov 19, 6:04pm 1574658260

You would think the math of intergenerational inequity will start to bite soon.

by Fritz | 25th Nov 19, 11:25pm 1574677524

I have always said that 'Politics is Math' and this is a good example why.

by refactornz | 25th Nov 19, 7:33pm 1574663612

But there were also more Boomers as a percentage of overall population at age 35. It would be interesting to see related statistics that take the demographics into account.

by murray86 | 26th Nov 19, 7:28am 1574706482

I agree with Ahuh AJ, this is most interesting. Question for debate, who should be blamed (OK Boomer)? I suggest the shift is due to political and wealthy elites manipulating the system, with a small number of outsiders managing to get on board.

The Boomer generation had come back from a world war and as a result were highly politically aware of the consequences of poor Government, and their politicians were open to ensuring they got at least a reasonable deal when they returned from that war. But getting that message across generations has been a problem, and politicians being what they are, manipulate the system to their own favour, and those of their sponsors. Thus every generation since has slowly been deprived of getting a fair deal. The call today to tax boomers is superficial and careless, where it should be demanding of the politicians to ensure regulation protects the rights ordinary people.

Residential property should be firmly regulated to ensure it is affordable for ordinary people earning the average wage. Employment should be regulated - the 40 hour week used to be sacrosanct, but that has been seriously eroded over the last 30 years, as have wage rates.

by refactornz | 26th Nov 19, 11:06am 1574719591

It was the Boomer's parents who went to war. Boomers were born afterwards.
I agree that the majority of them were likely not aware of the effects their combined decisions would have on future generations.

by linklater01 | 26th Nov 19, 9:48am 1574714890

Uadaxes,

The hollowing out of America has been starkly recorded in books such as Glass House, The 1% Economy and the Shattering of the All-American Town, Hillbilly Elegy, A Memoir of a Family and Culture in Crisis and still my favourite, The Unwinding, 30 Years of American Decline.

by solardb | 25th Nov 19, 4:55pm 1574654137

I think we can now say investing in bitcoin is pretty much gambling, with the same inevitable result.

by printer8 | 25th Nov 19, 9:07pm 1574669246

Agreed solardb
I suggested to lonewolfnz when bragging about how well he was doing - when Bitcoin was around $US12400 - that any gambler walks away when ahead. He scoffed at me and boasted at getting a sneaky buy at $US12300. Bitcoin has only been heading in one direction since and nothing more has been heard of lonewolfnz.
Maybe I am missing something, but investing in Bitcoin is simply about following or guessing herd mentality. Other factors seem hard to identify and not necessarily specifically related to Bitcoin movements. So yes, Bitcoin is best described as gambling - even picking the likely winner in a horse race can be considered an investment in comparison.
My bet is that Bitcoin will head down further simply on the basis of herd mentality - but that is not supported by any reason, it is simply a guess and I aren't putting anything on it.

by Audaxes | 25th Nov 19, 4:58pm 1574654329

Amazon To Open Chinese Store As US Consumer Fades Into Darkness

Amazon knows the US consumer is quickly deteriorating, and western markets will likely stagnate in the early 2020s. A recent investor call revealed the e-commerce giant's forecast revenue and profit for this holiday season would be below expectations, setting up a pathway for depressed consumer activity in the quarters ahead.

To get ahead of waning consumer demand in the US, Amazon is rushing to re-establish itself back in China after it closed its Chinese marketplace in July, sources told Reuters.

Amazon is expected to open a store on the Chinese e-commerce platform Pinduoduo on Monday. The company is expected to increase its efforts to sell goods to Chinese consumers via its global platform.

by Advisor | 25th Nov 19, 7:16pm 1574662561

Funny how monopolistic corporations such as Amazon have slowly dismantled purchasing power of the American middle class by offshoring jobs and keeping wealth out of circulation housing it in foreign tax shelters.

Now when there's little life left in household consumption growth, these companies are turning to their next victims, India and China.

by Andrewj | 25th Nov 19, 5:31pm 1574656288

https://www.scmp.com/comment/opinion/article/3034626/restore-peace-hong…

by Audaxes | 25th Nov 19, 5:56pm 1574657816

In Hong Kong, since 1997, all land has become the property of the People's Republic of China while the government of the Hong Kong Special Administrative Region is responsible for its management, use and development. In other words, every piece of land in Hong Kong (with the sole exception of St. John's Cathedral, the only freehold property in Hong Kong) is leasehold property. Link

I suppose the Duke of Westminster's leasehold tenants in central London will be next to demand change.

by Wrong John | 25th Nov 19, 5:47pm 1574657251

What's happening in the west is totally un-Darwin. It's not the survival of the fittest, it's more like the breeding of the weakest - and it's taxpayer sponsored to rub salt into the wound. This is what happens when society gets too soft, too spoilt & too lazy. It dies. As Amazon heads for greener(?) pastures, the rot has truly set in, in America.

by Audaxes | 25th Nov 19, 6:30pm 1574659827

Bank lending policies have a lot to answer for. Germany, once an industrial powerhouse has been thrown under the bus of real estate bank loans suffocating all else.

Over half of all the outstanding bank loans to domestic households and enterprises are loans for house purchase. Furthermore, at 80%, real estate makes up the lion’s share of fixed assets in Germany.2 Prices in the German housing market continued to grow sharply last year at around 8%.3 The Bundesbank estimates that house prices in German towns and cities were overvalued by between 15% and 30% in 2018. Since prices began to surge in 2010, banks have issued more loans for house purchase. In some cases, this has been accompanied by looser lending standards. Link page 9 of 126-PDF

An ECB apologist who thinks the problems of the eurozone since creation of the ECB been caused by criticism of the ECB, instead of the string of wrong monetary policies implemented by the ECB. Where was this powerful criticism? In reality,bad policies & ECB apologists the problem Link.

by Fritz | 25th Nov 19, 8:47pm 1574668020

They also erred in advancing a policy of large scale, low skilled immigration from Islamic countries.
We are only better off in that most of our immigration has not come from Islamic countries.

by Tradersam | 25th Nov 19, 9:02pm 1574668974

Long John it’s not about breeding of the weakest, what’s happening in the west is sponsored by the political and financial elite. The rich getting richer as the poor get poorer - the rich stealing from the poor via the tax system etc. The ‘American dream’ sailed off in the late 80’s early 90’s when the Clinton administration used its veto powers to allow China to join the WTO - the rest is history. The US and capitalism are in decline to socialism, this will be the dark horse that fascism rides in on - those that take the blue pill and those take the red pill.

by Tradersam | 25th Nov 19, 8:53pm 1574668392

by Andrewj | 25th Nov 19, 6:03pm 1574658190

https://www.michaelwest.com.au/stephen-mayne-on-gerry-harveys-fans-in-t…

by Boatman | 25th Nov 19, 7:50pm 1574664603

On Carbon offsetting ........Not since the Catholic Church sold indulgences to reduce time in purgatory has there been such a flourishing market in the forgiveness of sin.

Thanks to climate change, a rash of organisations are offering to absolve guilt over polluting if we pay them to “offset” carbon. While their motives may be admirable, this new gold rush could prove to be a dangerous delusion.

by antonymouse | 25th Nov 19, 8:33pm 1574667220

whaw, well said Boatman