What happened Thursday

A review of things you need to know before you go home on Thursday; a TD rate reduction, more exports, fewer buyers, risk aversion returns, Wuhan evacuation, swaps sink, NZD slips, & more

30th Jan 20, 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 again today.

TERM DEPOSIT RATE CHANGES
FE Investments have ended their 4.80% one year offer, reverting to 4.50%. But the 4.80% rate is still available for an 18 month term.

TRADE SUCCESS ALL DUE TO AGRICULTURE
The December trade data was released today, closing a big year for New Zealand's merchandise trade. Goods exports rose +$2.7 bln +4.7% to $59.9 bln. Goods imports rose +$0.8 bln +1.3% to $64.2 bln. That means the annual trade balance was a deficit of -$4.3 bln. However for December, a +$100 mln surplus was expected but in the end it came in at +$547 mln with exports up almost +5% and imports down more than -5% from the same month in 2018. The whole story is driven by rural sector activity, giving credence to farming lobby claims that urban prosperity is underpinned by rural graft. Almost half of our annual imports are for just four categories of items; mechanical machinery, vehicles, petroleum, and electrical/electronic goods.

HIGHER EXPOSURE TO CHINA
For all of 2019, we ran a trade surplus with China of +$3.8 bln, up from +$1.3 bln in 2018. With Australia our trade surplus slipped from +$1.8 bln to +$1.3 bln. With the USA, our trade deficit of -$900 fell to under -$800 mln in 2019. And with Japan, our trade deficit fell from -$900 mln to -$700 mln. China now takes 28% of all our exports, up from 24% in 2018.

INVESTORS WANT HIGHER YIELDS
The $250 mln NZGB bond tender was well supported with 36 bidders offering more than $800 mln. But only ten were successful for this April 2025 bond that has a coupon of 2.75%. Those successful bidders got a yield of 1.11% pa, and that is up from 1.07% at the last tender for this bond in November (+4 bps) and only 0.84% pa in August.

SUDDEN TURN TO RISK AVERSION
International bond markets have rallied today, pushing bond prices sharply higher and yields sharply lower. There are more details below, but it is notable that the UST 10yr bond yield has fallen from 1.92% at the start of the year and 1.74% at the end of last week to now just under 1.58% and that is its lowest since October 2019. US rate curves have tightened sharply too with the 1-5 curve back negative and the 3m-10yr curve threatening inversion as well. The international bond market is turning risk-averse and fearful quickly, even if equity investors are playing buy-the-dips still. New Zealand swap rates have tumbled today in sympathy (see below) as have our NZGB bond yields (also see below). For investors, the risk is less about a return on their money, but just a return of their money. Gold has risen +US$8 so far today.

EQUITY INVESTORS HAVE SECOND THOUGHTS TOO
Wall Street fell sharply in the final hour of trading, taking the S&P500 to a loss on the day. Hong Kong and Tokyo have opened lower. The ASX200 is also lower, but the NZX50 looks like it will book a gain today.

THANKS AUSTRALIA, BUT NO THANKS
The NZ Government will charter an AirNZ aircraft to fly up to 300 Kiwis out of Wuhan directly to New Zealand. This will avoid having to work with Australia who want to quarantine their recovered citizens on Christmas Island. Australia had made an effort to make this an Anzac mission. The Kiwis will be quarantined here for two weeks.

LOCAL SWAP RATES TURN DOWN
Today, with another big reversal in the financial market's mood, wholesale swap rates have dropped sharply in a flattening way. The two year is down -3 bps, the five year is down -5 bps and the ten year is down -7 bps. The 90-day bank bill rate is unchanged at 1.26%. Australian swap rates are down as well but not quite as much as ours. The Aussie Govt 10yr is down -6 bps today to 0.95%. The China Govt 10yr is holding lower at 3.03%. but of course Chinese markets aren't trading this week. The NZ Govt 10 yr yield is down -5 bps to 1.32%. The UST 10yr yield is down to under 1.58%, an -8 bps fall so far.

NZ DOLLAR SOFT
The Kiwi dollar is still slipping and is now at 65.2 USc. But we have risen slightly against the Aussie to 96.7 AUc. Against the euro we are down marginally to 59.2 euro cents. That means the TWI-5 is back at 70.7.

BITCOIN SLIPS
Bitcoin has stopped rising, slipping -1% to US$9,235. The bitcoin price is charted in the currency set below.

This chart is animated here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Our exchange rate chart is here.

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33 Comments

by streetwise | 30th Jan 20, 4:18pm 1580354309

Take no chances, our quarantine period for this plague should be at least 3 weeks and those brought back should be bl***y grateful.

If overseas banks default in NZ they should be nationalized with only the shareholders missing out, not the depositors.

Sexy 'start-up' tech companies usually end up overseas-owned and only enrich the particular entrepreneur not the general citizenry. Through thick and thin it is only our agriculture that brings home the bacon.

by Masher | 30th Jan 20, 5:44pm 1580359484

The tech scene as a whole is one big circle jerk, made up of narcissistic people who only care about one thing, despite trying to give off the perception that they are saving the world.

I used to work for a London "unicorn". It was valued at $1.5b USD, despite having only $8m USD of revenue per year. It was all fun and games until the VC cash run out and we actually had to operate as a profitable business (like everyone else).

Eight months later it went into administration. The end.

by Audaxes | 30th Jan 20, 4:37pm 1580355425

For investors, the risk is less about a return on their money, but just a return of their money.

From economy to money markets, that private system never performs as desired. There’s always headwinds and they are always transitory. Jay Powell’s missing inflation, like repo’s missing money, isn’t actually so hard to find if you realize you should be looking for them. That’s the key.

The only place where QE does “work” is in the stock market which simply invents new ways to rationalize stretching valuations.

I never said the Federal Reserve wasn’t good. At money, it is terrible. In the economy only false dawns. Complete bungling and incompetence. But money isn’t actually a central bank’s job; managing expectations is. Therefore, the Fed has performed splendidly. After a decade of having to constantly explain away the lack of recovery, it has convinced the world it happened anyway. So successful have they been, the biggest problem for Jay Powell today is stock prices being too optimistic. Link

by Smalltown | 30th Jan 20, 4:53pm 1580356401

https://i.stuff.co.nz/travel/news/119142909/airline-cleaning-standards-…

Airlines including BA have stopped flying to China yet we continue...

Never mind we will throw a bit of No. 8 at it. She'll be right eh.

by antonymouse | 30th Jan 20, 6:09pm 1580360988

https://twitter.com/Nav49767614/status/1222710843604983809/photo/1

by Fritz | 30th Jan 20, 6:43pm 1580363020

Just walked down Queen Street and quite a few young Asian people are wearing masks. Seems a bit weird, given the virus isn't officially here.
Herd behaviour?

by easymoney | 30th Jan 20, 8:34pm 1580369697

And did you notice that non-Asian people were not wearing masks....

by rastus1 | 30th Jan 20, 5:00pm 1580356820

Chris Martenson of Peak Prosperity is doing a nice job on the virus thingy, possibly because as well as his financial bent, he also has a PhD degree in pathology -

https://www.youtube.com/watch?v=X2GZg1qzohY

by Henry_Tull | 30th Jan 20, 5:40pm 1580359231

We get to understand exponential equations.

by powerdownkiwi | 30th Jan 20, 7:59pm 1580367579

It's easy to grow your understanding exponentially

when coming off such a low base.

by Foyle | 30th Jan 20, 6:20pm 1580361646

Interesting. Very clear as he says that PRC is lying like crazy about the numbers - Hubei with 60million people, Wuhan 11 million then given china has ~4 hospital beds per 1000 that means ~250,000 hospital beds in the province and 45000 in Wuhan. So why the pictures of over-burdened hospitals from a week back when there were less than 1000 cases? Pulleth the other one. China has stopped private citizens from an on-the-ground reporting on social media in last few days - censorship is firmly in place.

by Henry_Tull | 30th Jan 20, 6:55pm 1580363759

In today's video he makes the observation that all the "in china" and "in hospital" video on twitter has stopped.
Stone dead.

by Becnz | 30th Jan 20, 8:19pm 1580368761

I would say they have guards removing phones from people to censor what is happening now.

by RCD | 30th Jan 20, 6:28pm 1580362093

NZ officials in naive denial still, with absurd suggestion today that suspected virus cases be sent home to "self-isolate"

try looking at this site each day to see the exponential growth distribution, albeit for the moment centred in China.

https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda759…

Farcical deployment of temperature monitors at incoming flight gates is all for show, there are no external symptoms during the first 10 day period of infection, during all of which the carrier is contagious, as i understand it.

by Fritz | 30th Jan 20, 6:46pm 1580363216

Is it farcical, or merely proportionate to the risk?
There is still insufficient evidence to suggest this is a major threat.
Having said that , in the absence of certainty perhaps a precautionary approach would be the right one?
I think there are valid arguments both ways.

by RCD | 30th Jan 20, 6:50pm 1580363434

Thats ok, if you keep you head in the sand then you probably won't catch it.

In the mean time:
"China now takes 28% of all our exports, up from 24% in 2018."
Not this year, as in the news tonight the first of many casualties to come, our Crayfish fisheries, closed down, cancelled orders from China....who's next.?

by Fritz | 30th Jan 20, 7:06pm 1580364402

Head in the sand? I am merely fairly suggesting there are valid arguments for very precautionary and less precautionary approaches.
I don't rush to believe the conspiracy theories, neither do I deny that there is a significant - *potentially* major - risk.

by Foyle | 30th Jan 20, 7:18pm 1580365089

That is a good position to take. I personally think erring on the side of over-reaction is warranted with regard to people arriving from China at least, as killing even 1% of our population means 50000 unnecessary deaths (assuming we could stop it with a more cautious approach), that's an enormous number, and worth a lot to prevent. Annecdote: Chinese factory I have dealings with (near Foxconn and Huawei headquarters) has just announced it is closing for next two weeks as a quarantine measure. This in Shenzhen which is officially relatively unaffected. Problem is obviously much bigger than PRC are letting on.

by streetwise | 30th Jan 20, 9:34pm 1580373249

If we, the citizens of New Zealand, bow and scrape at this opportune moment in time, perhaps we may be afforded a once-in-lifetime chance to sample some of our very own crayfish at a reasonable price, if Chinese export orders have been cancelled. After all crayfish along with all the other tasty fish in our surrounding waters should first and foremost be used to feed the people of New Zealand.

by linklater01 | 31st Jan 20, 9:04am 1580414645

streetwise,

I like crayfish and will be delighted to buy some at a lower price. But, what you appear to be saying is that fish exporters should be forced to turn down higher prices on offer from overseas to sell at lower prices here. Would you extend that to all goods and services?
What about imports of fruit say from third world countries? Should their exporters be forced to sell at much lower prices to their citizens?

by Fritz | 30th Jan 20, 7:34pm 1580366092

Suggest the coronvirus sensationalist read this balanced article:

https://www.google.com/amp/s/nationalpost.com/news/canada/coronavirus-c…

by rastus1 | 30th Jan 20, 7:44pm 1580366654

Pretty light weight. Chris Martenson is miles ahead.

by Fritz | 30th Jan 20, 8:21pm 1580368914

Whatever...
Let's check back in a month and see if the world's population has been decimated, or not....

by sit23 | 30th Jan 20, 10:20pm 1580376012

Why would coronavirus kill 1/10th of us?

by Fritz | 30th Jan 20, 11:02pm 1580378531

Nice one!
Decimate's original meaning to kill one tenth, but for a long time common usage meaning being to destroy or kill on a widespread basis....

by fat pat | 31st Jan 20, 7:09am 1580407798

Who needs sensationalist articles. The facts are terrifying enough! Asymptomatic contagious 14 day incubation period with an r0 of 2.6. ~20% (unsubstantiated) of people end up in hospital, and of those 31% require intensive care and 16% die. How long do you think our health care system would cope with an outbreak. I think tomorrow the World Health Organisation will declare a global pandemic emergency.

by Hummy | 30th Jan 20, 8:41pm 1580370076

Thanks to agriculture, Well done.

by workingman | 30th Jan 20, 9:06pm 1580371579

With 28% of our exports now going to China, New Zealand moves another step to becoming an economic colony of a tyranny that shares not one of our democratic or human rights - a regime that is, indeed, intensely hostile to them. And yet Bridges, others in National, and Key (in his dubious 'personal' capacity') continue their craven crawling in 'relationship-building' with the CCP. Do they really imagine their spineless behavior wins Chinese respect? It is contemptible in this country, and no less contemptible to Chinese officials.

by loveyourwork | 30th Jan 20, 9:22pm 1580372554

Up 4% over two years under the Labour Govt! Imagine where we would be if that idiot Bridges had his way.

Exactly, wrong on so many levels. Dependence on one country is not a good thing, let alone a totalitarian dictatorship with blatantly obvious ambitions to extend influence.

by workingman | 30th Jan 20, 9:32pm 1580373160

Yes, it's true, Labour are culpable in this too. It's no small thing to Peters' credit in this environment that he has expanded our embassies, missions and presences elsewhere in the world.

by Gummy Bear Hero | 30th Jan 20, 11:45pm 1580381140

... umm.... lest we forget who got us into bed with the PRC in the first place ... Helen Clark .. . Labour PM ... the worlds first free trade agreement with China ...

by powerdownkiwi | 31st Jan 20, 7:48am 1580410102

Mr minor nat party cog, I think Oravida smells worse.

enough of the spin, eh?

by linklater01 | 31st Jan 20, 9:16am 1580415382

workingman,
I agree that we risk becoming too dependent on China and that it does not share our values. But, how would you solve this issue? To reduce our exposure would mean sharply reducing our exports to them and are there other markets just ready to take China's place? I doubt that, so how would that affect our primary producers? How would it affect the broader economy?
I would like to see a concerted effort made to make NZ significantly less dependent on China, but that can happen only gradually without major damage to the economy.