What happened Friday

A review of things you need to know before you go home on Friday; some late retail rate changes, NZ businesses in China hit, Kiwibank profit falls, KiwiSaver funds grow, swaps lower, NZD soft, & more

21st Feb 20, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
Update: SBS Bank has reduced its four year fixed rate by -30 bps to 4.19% and its five year fixed rate by -20 bps to 4.29%.

TERM DEPOSIT RATE CHANGES
Update: SBS Bank has also raised its one year TD rate, up +25 bps to 2.85%.

ORR WANTS MORE FUNDING TO GROW RBNZ’S CAPABILITY
Reserve Bank Governor Adrian Orr is making a bid for more funding ahead of signing a new five-yearly funding agreement with the Finance Minister in the middle of the year. Orr, in a speech delivered on today, said: “[F]or us to continue to be successful we need to grow our capability and capacity, and improve on what we do. There are real operational, legal, financial, and reputational risks to the Bank, and New Zealand’s financial landscape, if we don’t make the appropriate investments in a timely manner.”

DOWN SHARPLY, BUT NOT OUT
New Zealand businesses operating in China are also feeling the pain. A survey of 170 of them shows more than 80% expect China export revenue to be down at least -10% in 2020, and almost 90% expect the reduction to take place before the end of March. Of these, almost one third expected at least a 40% reduction in Q1, although just 11% expected this level of impact to last for the full 2020 financial year results. The survey was conducted 10-16 February 2020. More details here.

STILL KEEN?
There are about 15,200 licenced real estate agents and offices in New Zealand and about 40% of them come up for renewal in March. At the same renewal period in 2019, about 400 flagged it (-7%) and the number of registered slowly atrophied over the rest of the year. But with market prospects looking a little better this year, perhaps that effect won't be repeated. We won't know until May at the earliest.

PROFITLESS GROWTH
The least profitable major bank just got even less profitable. A surge in expenses and a drop in their net interest margin pushed Kiwibank's interim profit down -18%, and they have flagged the need for some major new investment ahead. For the full year to December 2019, their tax paid profit slipped under $100 mln for only the second time in the past five years, the other time when they had to write off a failed technology upgrade in 2017. Other than that, this latest result is the lowest since 2013. (The profit history of all retail banks operating in New Zealand is here.)

XERO, A FAST RISING STAR
After touching AU$90/share earlier this week, Xero has stayed up and now has a market capitalisation of AU$12.5 bln (NZ$13 bln). It is a 'growth' company with revenues exceeding AU$500 mln pa and is yet to make a profit. The largest NZ company on the NZX, Fisher&Paykel healthcare has a market cap of NZ$15 bln, followed by Meridian Energy at NZ$14.2 bln and A2 Milk at NZ$12 bln.

$1 BLN SHORT?
Data released by the RBNZ on the total value of all KiwiSaver funds as at December 2019 (T43) reveals a weakish result for the KiwiSaver industry in 2019. Starting with balances of $52.5 bln, contributions were made during the year of almost $7 bln and yet these funds only rose in value to $64.5 bln or an after tax, after-all-fees rise of +$3.255 bln or a gain of 5.8%. While that is 'good' from the perspective of low rate term deposits, it is far lower than the NZ Super fund's +7.58% gain. On that basis, the shortfall is almost -$1 bln for the year.

COVID-19 UPDATE
Coronavirus deaths are now up to 2247 and infections to 76,200. A week ago these levels were 1491 and 64,400 so there is a definite slowing in these numbers. But are official tallies believable? Economically, supply-chain risk is the next big concern.

DOUBLE WHAMMY
The provisional February PMI for Australia was released today and showed a sharp turn lower into contraction for their services sector. Their factory sector was already contracting and didn't change much in this result. It's a result that could have been worse, and may get worse in March given the two negative shocks that have hit the Australian economy – the bushfires and the coronavirus.

LOCAL SWAP RATES LOWER
Wholesale swap rates are down -3 bps across the whole curve. The 90-day bank bill rate is down another -2 bps to 1.14%. In Australia, their swap rates are also -3 bps lower across their curve. The Aussie Govt 10yr is down -5 bps to 0.97%. The China Govt 10yr is unchanged at 2.93%. The NZ Govt 10 yr yield is down -7 bps at 1.27%. And the UST 10yr yield is down -6 bps at 1.51%.

NZ DOLLAR WEAKER
The Kiwi dollar has slid against the greenback to under 63.2 USc. Against the Aussie we are holding at 95.7 AUc. Against the euro we are lower at 58.5 euro cents. That means the TWI-5 is now down at 69.4.

BITCOIN HOLDS
Bitcoin is virtually unchanged since this time yesterday at US$9,639. 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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31 Comments

by J.C. | 21st Feb 20, 4:13pm 1582254790

Re Kiwisaver, Granny Herald reported that financial hardship withdrawls are at an all-time high. Story looks to be not widely reported.

https://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&ob…

by Audaxes | 21st Feb 20, 4:34pm 1582256086

I would expect nothing else with record low official interest rates. Opportunities to fund prosperous and productive investment endeavours are reserved for the top end of town.

by Hummy | 21st Feb 20, 4:44pm 1582256688

Did hear that story on hoskins show. Believe 2007 was highest until now. We most be close to next down turn.

by David Chaston | 21st Feb 20, 4:47pm 1582256864

Yes, we looked at that same data and I don't think it is a huge deal. The calendar 2019 increase, while it is a record, is only a up by $5 mln from F/Y 2019 and as such effectively not much. From F/Y 2019 from F/Y 2018 it is up by $9 mln. Given there is now $64 bln in these funds, seems to be a rounding error. The individual cases will be sad enough to have to do that. But in fact it is a tiny, tiny withdrawal rate for the 'hardship' reason (0.17%). Makes a good headline though.

by J.C. | 21st Feb 20, 4:57pm 1582257450

Thanks for the clarity David. I guess it's probably best to look at the aggregate of the withdrawls.

by Kezza R | 21st Feb 20, 5:56pm 1582261013

The two previous Fridays the stock markets dropped, that seams to have extended to Thursday this week.
I'm guessing get out of the market before the weekend incase bad news comes in over the weekend.
Big call but I think gold upto $1650, silver up close to $19 US by the close of world business.

by J.C. | 21st Feb 20, 4:42pm 1582256537

Silver closer to USD18.50. But very strong momentum at moment. Wonder if it has to do with JP Morgan having to back off from any manipulation as regulators are watching them closely. Mind you, don't be surprised if the U.S. govt has been quite happy for JPM to do what they do. Might sound conspiratorial, but reality doesn't seem to be any stranger than the fiction right now.

by Kezza R | 21st Feb 20, 5:05pm 1582257953

If PM's take off it is over for the US dollar. They definatally don't want that to happen.

by Withay | 21st Feb 20, 6:39pm 1582263596

What exactly is the rational behind that Kezza?

by Kezza R | 21st Feb 20, 7:25pm 1582266319

If there is a flight into PM's the stock market would most likely be dropping fast.

by Sammy D | 21st Feb 20, 7:44pm 1582267453

USD like the yen and swiss franc are safe-haven currencies, they do well when the s@#$ hits the fan (like precious metals). NZD and AUD are commodity/risk currencies and go down when the s@#$ hits the fan.

by J.C. | 21st Feb 20, 9:27pm 1582273635

USD like the yen and swiss franc are safe-haven currencies, they do well when the s@#$ hits the fan (like precious metals)

If the case of JPY, it's not behaving like you would expect now. It's possible that something's changed. Because of Japan's net external position, it was the case that yen would be repatriated in times of crisis, which would strengthen the currency. It's relatively weak at the moment (111 yen to the dollar).

by Sammy D | 21st Feb 20, 10:17pm 1582276636

True. I think it's in part a direct result of Japan's economic weakness, they're on track for a recession, have a rapidly aging and declining population, she ain't as s stable as she used to be.

by Kezza R | 22nd Feb 20, 8:56am 1582315015

The virus numbers in Japan are starting to get concerning and containment measures looking likely.

by Kezza R | 22nd Feb 20, 8:38am 1582313901

Different this time arround. First into the virus, first out of it.
A antivirus at least a year off and the world will be playing containment and FIAT taking hit.
Gold came in not far short of my $1650 call. Silver to do its typical catch up next week.
Infection numbers in Japan getting highish and drastic action looking likely.

by Kezza R | 22nd Feb 20, 8:29am 1582313392

Close but no cigar on gold $1647. Silver to do it's catch up next week.

by Brock Landers | 21st Feb 20, 4:48pm 1582256900

Instead of giving the RBNZ more money we should replace them with a bot.

The bot will simply emulate what the RBNZ currently does and cut interest rates any time house prices think about heading towards reality.

We can use the money saved to open food banks for all the kiwi renters Orr has dispossessed with his monetary vandalism.

by J.C. | 21st Feb 20, 5:01pm 1582257674

I was thinking the same thing myself. Why is it necessary to have people sitting around making decisions on interest rates? This could all be done by algorithms. You can even build sentiment analytics into the model.

by Roger Witherspoon | 21st Feb 20, 7:49pm 1582267750

Just set the OCR at the 2 year bond level. Done.

by RollingOn | 22nd Feb 20, 8:19am 1582312758

It shouldn't be done by humans or algorithms. Algorithms are written by humans with all their stupidity, arrogance and bias baked in. The market can set rates itself. "Creating liquidity" should be impossible, even algorithmically.

by Wrong John | 21st Feb 20, 4:54pm 1582257283

Supply chain risk is always an issue in any business. The Wu Flu thing was always going to happen - sooner or later. The fact that it's come from where it has is not surprising & the numbers coming out with it need to be taken with a pinch of salt. Perhaps a couple of pinches. This will be a good test of our relations with the dragon. From recall it tends to have long memories & can be very selective with it's buying power when it wishes, so I'm picking a slight reset from here, which we can only watch & wait for. It's hard being the little guy at times.

by MisterB | 21st Feb 20, 4:57pm 1582257441

Re Kiwisaver - does that include First Home withdrawals... that will be a pretty material impact

by Andrewj | 21st Feb 20, 5:05pm 1582257933

I've been at the Fielding sheep sale. Most buyers were from the South Island, good lambs made $100 good useful mixed sex lambs mid 80's. Still hot and dry, i was just a spectator, it's still over 30 degrees here at 5pm.

by Cowpat | 21st Feb 20, 5:12pm 1582258363

Thankfully Mr Orr has saved us, given our current OCR setting at 1.0 percent and 1.3 trillion in real estate.
"We are in a relatively favourable position at present, given our current positive inflation and
employment outcomes, and with the OCR at 1 percent, above many of our OECD central
bank colleagues. But we need to be prepared for the unanticipated. "
NZD primed to go sub 63 tonight , our Reserve Bank should pat itself on the back as we close in on negative rates.
He nui to ngaromanga, he iti to putanga.

by J.C. | 21st Feb 20, 5:33pm 1582259608

Yes. Let's get to 1.43 trillion by 2021. That should translate intro greater consumer spending through the wealth effect. This planned economy stuff is simple.

by custard | 21st Feb 20, 5:35pm 1582259730

Yes indeed - just checked out live forex rates – looks like we’re very quickly on our way to scoring a US$ 0.62

We already seem to be hitting “wanted” inflation targets – this may send us above and beyond.

Never mind though – Mr Orr will look through higher inflation and maintain an emergency level OCR, saying again – “suck it up savers – you’re on the wrong course”.

by Audaxes | 21st Feb 20, 6:13pm 1582262031

“suck it up savers – you’re on the wrong course”.

We are doing our bit to underwrite cheap bank funding, primarily for speculative asset purchases, which begets cheaper funding every decade - who knows why the central bank monetary policy process is colloquially called "stimulus"?

by Henry_Tull | 21st Feb 20, 5:55pm 1582260903

Physics Friday.
Until the End of Time.
It's a cosmos thing...

https://youtu.be/r4wQsmAtZoc
JoeR. Doing great work.

by streetwise | 21st Feb 20, 6:28pm 1582262932

If the NZ Super Fund did so much better than private Kiwisaver funds then it would make sense to let the Super Fund administer them. There would be advantages of scale and ticket clippers could be dispensed with.

Fortunately, Mr Orr is no longer with the Fund so the days of lending multi-millions to basket case Portuguese banks are well behind us.

by RollingOn | 22nd Feb 20, 8:21am 1582312913

Sounds juicy, got any more details?

by Roger Witherspoon | 21st Feb 20, 7:57pm 1582268276

I see Adrian Orr is fulfilling his role of creating more jobs for his tribe, not to mention extending the grip of their claws on the levers of power. Knighthood to follow?