What happened Monday

A review of things you need to know before you go home on Monday; many rate cuts, solid retail start, high terms of trade, stimulus redux, very weak GST growth, swap rates up, NZD firm, & more

2nd Dec 19, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
NZCU Baywide and NZCU South have cut their floating mortgage rate.

TERM DEPOSIT RATE CHANGES
NZCU Baywide and its related divisions have trimmed most tern deposit rates today. So has the Policy Credit Union. Kiwibank has trimmed its 32 day Noticesaver by -10 bps to 1.60% (but not its 90 day Noticesaver which stays at 2.70%). They have also trimmed the only bits of their Frontrunner and Business Performer accounts that pay meaningful interest, those for the $100,000 tier.

HOLIDAY SHOPPING STARTS WELL
Black Friday may have been a fizzer in the USA but the retail frenzy did happen in New Zealand. Spending through the Paymark network totaled $253 mln on Friday, making it the second busiest day of the year, following Easter Thursday. For many in retail it was the busiest day. Over the three days of the extended shopping weekend - and with Cyber Monday still underway - the total value of transactions through Paymark totaled $652 mln, up +12.8% in underlying terms from the Black Friday three-days weekend last year.

ON THE WINNING SIDE
The Q3 Terms of Trade was the second-best on record and now stands within a whisker of the record high set back in December 2017. Today's data makes it three consecutive rises over 2019, rising +4.4% in total over the year. This result is better than was expected, boosted by higher prices being paid by China and analysts now expect a new record high to be set soon. The terms of trade data reports on the relationship between our export prices vs our import prices. When it is high that means export prices are rising faster than import prices.

ON THE LOSING SIDE
The China Caixin PMI which is the private survey, has backed up the small improvement their official survey reported yesterday. But both are barely expansionary. The same surveys in Japan is reporting a deteriorating situation. And in Australia, things are stagnant on the factory front. The data in all these surveys is very current, all for November.

TIGHT MARKET
The housing market remained tight in November with new listings down -7.6% on a year ago. Price signals were mixed according to the latest data from realestate.co.nz. The national average is of 15 weeks of unsold inventory, with Wellington still the tightest market.

HERE COMES DEFICIT SPENDING?
Maybe one reason the Government has launched its new stimulus program is that it has been looking at its GST collections. They don't look flash. In fact for the year to October, GST growth was just +3.3% and that is the slowest since we started monitoring it in 2014. It grew at an average rate of +7.7% in calendar 2016, up +6.2% in calendar 2017 and +6.8% in calendar 2018. So +3.3% in October is very weak (and it has fallen away sharply since May) and Budget spending is rising +8.4% pa. Unless income taxes rise from both individuals and companies to replace the weak GST, the surpluses are toast.

AUSSIE AUCTION FRENZY ...
In Australia, especially in the major east coast cities, there has been something of a house-buying frenzy over the weekend. Their auction clearance rate hit almost 79%, up from 68% in the prior weekend. (We reported auction clearance rates in Auckland last week at 52% with many more transactions.)

... DESPITE UNDERLYING SIGNALS WEAK
There was a bunch of Australian economic data out today and most of it wasn't very good. Company profits are falling, firms are destocking, productivity fell and housing building consents fell.

LOCAL SWAP RATES UP
Wholesale swap rates are up +4 bps for the two year tenor, and +5 bps for the five and ten year tenors. This rise is in big part because of market reaction to the infrastructure stimulus signals from the Government. The 90-day bank bill rate is down -1 bp at 1.22%. Australian swap rates are unchanged across most of their curve. The Aussie Govt 10yr is up +6 bps today at 1.08%. The China Govt 10yr is up +2 bps at 3.22%. The NZ Govt 10 yr yield is also up +6 bps at 1.36%. The UST 10yr yield is up +3 bps, now up to 1.81%.

NZ DOLLAR FIRM
The Kiwi dollar is also firm, now at 64.4 USc. Against the Aussie we are at 95.1 AUc. Against the euro we are still at 58.4 euro cents. That means the TWI-5 is now at 69.9.

BITCOIN BACK WHERE IT STARTED
Bitcoin is back close to where we left it on Friday, now at US$7,367. It was volatile in between, +/- 4%. 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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9 Comments

by waymad | 2nd Dec 19, 4:51pm 1575258716

Re 'weak GST' - well, there's always the option (whisper it) of raising the rate. And that wouldn't be a New Tax....ya heard it here first.....

by Fritz | 2nd Dec 19, 5:12pm 1575259954

No chance.

by Advisor | 2nd Dec 19, 5:36pm 1575261363

Or maybe we could slap a royalty on water bottling and clip the ticket on Chinese companies selling NZ water to Chinese consumers.
The Labour-Green is rightly concerned that a move like that paves the way for future governments with 'perverse' political intentions to exploit our natural resources and, in the process, harm on our environment.

by youngdumbandbroke | 2nd Dec 19, 8:41pm 1575272489

oh no they can't do that. Its far easier to pick on the little guy he can't retaliate

by J.C. | 2nd Dec 19, 5:58pm 1575262738

Read somewhere this morning that NZX50 is up 28% for the year (23% on the Smartshares ETF). This rarely makes the interest.co.nz conversations. The only crowing seems to be about house price booms.

Also, about the Bitcoin price, dollar cost averaging over the past 12 months shows an ROI of approx 12%.

by Audaxes | 2nd Dec 19, 8:11pm 1575270700

... the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..

The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal. Link

...interest rates – long-term market-set ones and official OCRs – are low for reasons that seem to have to do with diminished opportunities, diminished prospects for profitable investments. Link

The RBNZ cut the OCR in half three times since July 2008.

When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures.

But just because we don’t trade our future consumption expenditures on the stock exchange does not mean that the conventions of finance do not apply. The family with savings likely ends up where they started, once we consider the necessity of revaluing their liabilities. They may more readily perceive a wealth effect but, ultimately, there is only a wealth illusion. Link

"ACC posted an $8.7 billion deficit for the year, with record-low interest rates taking a major chunk of out its long-term forecasts. Lower interest rates mean the fund has to invest more now to cover costs down the track." Link

Invested ACC levies collected today will be compounding at a reduced rate due to RBNZ price stability policy actions.

And it's just the beginning of ramping expenditure demands to fund the rising present value of future liabilities such as pensions, salaries, insurance premiums, and general living costs while interest rates are poised to fall further. Link

by mikekirk29 | 2nd Dec 19, 6:58pm 1575266303

Duh GST growth halved because spending is slowing. Go to outdoor markets regularly and this has been evident for about last 2 months

by Narrabeen Boy | 2nd Dec 19, 7:12pm 1575267122

I'm hearing from friends over in Sydney that prices are sky rocketing!!!!
Three to six hundred thousand above price guide.
Why didn't i buy in August when I had the chance!!!!

by bw | 2nd Dec 19, 9:33pm 1575275594

Life is easy looking back, isn't it!
You might find yourself saying in March next year "Thank God I didn't buy in Sydney last December. Price now a million bucks below where they were back then!" but we won't know until we get there, will we?
But, go on! Have a go. Be brave and buy now. After all, you'll kick yourself, again, if prices go up and you don't....
"Craft, Speed and Courage"
( Know what you're doing; Be quick to recognise an opportunity and, the thing that separates dreamers from doers, have the courage of your convictions)