Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
Kāinga Ora/Housing NZ has changed some fixed rates, with their one year rate down -11 bps to 3.94%. Their two and five year rates have risen.
TERM DEPOSIT RATE CHANGES
None here today.
SUV SALES POWER CAR SALES UP, COMMERCIALS DROP HARD
The proportion of new car sales that are SUVs reached a new all-time high in February, now at 71.5%. That is the third time in the past year this level has exceeded 70%. 7911 new passenger cars were sold in the month, a +4.4% rise on the same month a year ago and only the third month in the past year that has recorded a rise. Pure electric vehicles remain steady with 124 units sold in February, with PHEV’s up slightly at 113 units and 551 hybrid vehicles. These electric types accounted for 10% of passenger car sales. Sales of new commercial vehicles however dived more than -14%, the largest monthly drop since 2009.
PRICES DOWN, VOLUMES DOWN HARDER
The extent of the price falls for the log trade is becoming clearer. Sharply reduced international demand for sawn lumber has also seen two local sawmills shut down in the past month. The sudden loss of capacity has seen local prices stay high. China inventories are blowing out, India can't handle more supply, and EU spruce exports are adding extra pressures. The at-wharf, pruned P40 grade is down -15% since December, and down -24% in a year. Price falls are the least of the problems. Orders have sunk far more sharply.
CORONAVIRUS IMPACTS NO LONGER AN INSURABLE TRAVEL EVENT
Insurance agents are reporting that insurance companies now deem coronavirus to be a ‘known event’ globally. Travel insurance purchased after 2 March no longer covers losses or additional costs associated with Covid-19; for example, Medical costs, Cancellation/Delay, Loss of deposits etc. anywhere in the world. Travel insurance still offers cover for other unforeseen events as outlined in individual policies - such as a broken leg, lost baggage or the impacts of a significant weather event.
THE UPSIDE TO BEING A HARD-NOSED BANKER
Finance Minister Grant Robertson urges banks to keep lending to even their more 'challenging' dairy farming customers, noting banks are best-placed to support cash flow. But the Government is not offering to back them up if those dairy businesses go belly-up or the rise in bad debt undermines the bank's credit rating. Hard-nosed banks who had already backed away from dairy lending in 2019 will be smirking now.
LONG RUNNING DECLINE
The number of building consents issued in Australia in January was -10.5% lower than the same month a year ago. This means that in 18 of the previous ninteen months, there has been a decline. Compared to January 2018, building consents are down by -36%. This trend is all to do with apartment consents and their steep decline.
DIG IT UP, SHIP IT OUT
Australia recorded a +AU$1.8 bln current account surplus in Q4-2019, taking the annual surplus to +AU$10.3 bln in 2019. That compared to a 2018 current account deficit of -AU$39.1 bln and a 2017 deficit of -AU$46.5 bln. Surging mineral exports to China underpins the 2019 result. It is hard to see that being repeated in 2020.
CORONAVIRUS UPDATE
The latest compilation of Covid-19 data is here. There are now 11,761 cases outside China, a rise of +3203 in one day as the numbers jump in South Korea, Italy and Iran. A week ago that outside-China number was 2690 so it has quadrupled in a week.
BIDDING UP IN THE HOPE OF FREE MONEY
Wall Street hit full 'buy' mode at the end of their trading today, shooting the S&P500 up by +4.6% in something of a frenzy. The expectations of US Fed stimulus are now running rife, and maybe coming before their next formal meeting. Similar expectations are driving the NZX50 which is up +2.8% so far, and the ASX200 which is up +1.8%. The open in Tokyo is flat, in Hong Kong it is up +0.4% and in Shanghai it is up +1.4% where there are also stimulus expectations.
CUT OR HOLD?
The RBA has its regular monthly Cash Rate review today at 4:30pm NZT. Market rate pricing "expects" a -25 bps cut to 0.50%. (Although the Reuters survey of economists is for a 'hold'.) We will update this item after the decision is released. Update: The RBA has cut by -25 bps, taking their policy rate to 0.50%.
LOCAL SWAP RATES RECOVER SOME
Wholesale swap rates have recovered +5 bps today of yesterday's -10 bps fall. At present, the two year is down to just 0.77%. The five year rate is now at 0.86%, and the ten year now at 1.16%. These are all up off yesterday's record lows, a day where the recovery started near the final session. The 90-day bank bill rate is also up +3 bps to 0.90% as markets get a little less certain of RBNZ rate cuts. In Australia, their swap rates have gone the other way, down -8 bps across the curve and pricing in a full -25 bps RBA rate cut later today. The Aussie Govt 10yr is up +10 bps at 0.81%. The China Govt 10yr is also firmer, up +7 bps to 2.83%. The NZ Govt 10 yr yield is firmer too, back up +10 bps at 1.07%. And the UST 10yr yield is up +5 bps today, now at 1.15%.
NZ DOLLAR RISES
The Kiwi dollar has turned back up nearly +½c, now at 62.6 USc. Against the Aussie we are firmer too at 95.8 AUc. Against the euro we are stayed lower at 56.3 euro cents. That means the TWI-5 is back up to 68.2.
BITCOIN SLIPS
Bitcoin is up almost +4% today at US$8,522 although most of that happened over the weekend. 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 ».
30 Comments
We saw something extraordinary late Friday in the US-
Someone (and I know exactly who it was) came in as a massive buyer of S&P 500 Eminis contracts -worth a huge US$25b was bought right into the close – hence the gigantic +3% rally on the close – so the US didn’t look as bad.
So who was the buyer??
I suspect the US Government via the rarely used “ Plunge Protection TeamIts also worth just mentioning that most times in the last 30 years that I have seen these massive selloffs & then big recoveries – almost every one has a 2nd downturn.”.
Only on Friday?!
https://www.livewiremarkets.com/wires/this-is-a-huge-buying-opportunity
So the underlying assumption from the markets is that governments and central banks will more than make up for months of interrupted productivity in production, logistics, business travel & tourism as well as its lasting ripple effect on every other aspect of the global economy with QE, interest rate cuts and tax slashes. Huh!
Big disconnect in the US today between US Treasuries and Stocks.
Bond market is much larger – where the big money comes out to play, and not really Mr and Mrs Average’s cup of tea, or coffee.
Stock market says here comes stimulus, all sorted – Bond’s say hang-on, there’s no way this looks pretty.
Who’s right?
The RBA has cut by -25 bps, taking their policy rate to 0.50%
What else can a central bank overseeing a building society banking system, concentrating it's lending efforts on non-GDP qualifying collateralised, but nonetheless leveraged asset sales and purchases do, without injecting actual liquidity into the real productive economy? Adjusting the present value discount factor of perceived future residential property asset cash flows downwards is not a viable nor sustainable substitute.
These rate cuts will do what they do best, inflate property prices further.
House prices in Aussie capitals are already testing new highs.
Not sure that is guaranteed. Real household gross disposable income per capita has been negative in Australia for some time according to the following data.
https://twitter.com/tomjconley/status/1234341610298601472/photo/1
Audaxes,
"Without injecting actual liquidity into the real productive economy". Indeed, but how do we get banks to lend less to property and mores to business? It's clearly no use just appealing to them to do their bit for the country, so something else is needed. Perhaps they could be required to hold a lot more capital against these loans above a certain percentage of their total loan book? How feasible is that?
the Narrative Matrix
RBA:
Excellent, now just two “baby steps” to a zero interest rate policy – quite a monetary fiasco they’ve brought upon themselves – well done all.
As others have pointed out - the “cost of money” has very little to do with the current situation – key components of the world economy have, or possibly soon will, come grinding to a halt - a .25% cut means diddly in this scenario.
And maybe they think they’re clever with .50% left up their sleeve – again, they might as well wave a big flag saying “we’ve simply run out of ideas” – and ammunition.
I think the issues will be more one of jobs, income and business survival.
If it starts to really bite there will need to be smart and well directed government intervention – assisting in job retention, income and business survival – for those businesses that deserve to survive.
The ridiculous .25% rate cut I’m sure will be of great comfort to those that have lost or will shortly lose their lively hood – in many cases probably through no fault of their own.
Now those saw-mill companies that have littered the countryside around Gisborne and the East Coast with flood -scattered debris and broken farm fences will have plenty of time on their hands to repair and generally clean-up the surrounding countryside.
I have little sympathy for those logging companies that have caused this vandalism.
Dow futures currently heading down again – US Bond yields following in suit.
After a series of major falls today’s bounce is typical – followed by a continuing downtrend.
This story still has legs – and appears to be getting stronger by the day.
Cheap money won’t get people into planes, hotels, malls. stadiums or at worse, outside the safety of their home.
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