A review of things you need to know before you go home on Thursday; bond and currency markets freezing up, in panic mode. More mortgage cuts, yields jump, swaps leap, NZD crashing, & more

A review of things you need to know before you go home on Thursday; bond and currency markets freezing up, in panic mode. More mortgage cuts, yields jump, swaps leap, NZD crashing, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
ANZ has lowered its one year fixed rate 'special' to 3.05% and Kiwibank has lowered the same rate to 3.09%.

TERM DEPOSIT RATE CHANGES
Both ANZ and Kiwibank have cut term deposit rates across the board.

RETREATING FASTER
There has been a big drop in the number of farms sold over the last 12 months to February with dairy farms leading the decline. The annual fall is -15% overall. In December alone, farm sales were only 84 farms sold nationwide, more than -20% fewer that the same month a year ago.

OFF THE GRID?
Lifestyle block sales however are relatively buoyant. 650 such properties were sold in February which is +20% higher than the same month in 2019. For the full year to February, the growth is only +2.7%, so February sales represent a sharp improvement on that longer term level.

ONE LAST LOOK AT 'GROWTH'
December quarter economic growth in the New Zealand economy was reasonable even if it was slowing. It is the last 'growth' data we may see for quite some time. There are a lot of 'growth' numbers bandied about, so be careful when you compare them. 'Real' (excluding inflation) growth between Q3 and Q4 was +0.5%. Q4 growth at an annual rate was +1.7% over the the Q4-2018 level. Full calendar 2019 growth compared with 2018 was +2.3%. All are valid measures (to the extent that GDP itself is a valid measure or not - I'm looking at you PDK). Just make sure you understand which one you use when you think about how the New Zealand economy is expanding. And kudos to the AI team at Massey; their model had picked the 2019 expansion to show +2.28% annual and 0.493%, almost exactly as officially reported.

INVESTORS WANT MORE, A LOT MORE
Today's $150 mln NZGB tender for $150 mln brought sharply higher yields. The average yield the Government has to pay is 2.56% pa. At the previous tender a month ago that yield was 1.75%. We haven't seen a yield as high as today's for almost a year, twelve tenders ago. The coverage was low, with the lowest level of bidding since late 2018. Clearly, investors are not keen to be funding a sharp rise in Government debt. Interestingly, yields for this 15 year bond now exceed the five year TD offers of most banks, something we haven't seen in a very, very long while.

MORE TREASURY BILL AUCTIONS
Treasury says Treasury Bill tenders will take place weekly instead of fortnightly from March 24. This comes after the Government said on Monday Treasury Bills on issue are forecast to be $4 billion at June 30, up from its previous forecast of $3 billion. Treasury Bill tenders will take place every Tuesday at the usual time of 1.30pm to 2.00pm, with results being published from 2.05pm.
 


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EXPLOSIVE RISES
The latest compilation of Covid-19 data is here. The global tally is now 218,000 of officially confirmed cases, up +70% in a week. There are now 136,000 cases outside China and almost all of them are in five core countries. Spain (up +6% since this morning), Germany  (up +9% since this morning), Italy (up 13%), France (up +18%) and the USA (up +26% since this morning). The explosive rise in the US is very worrying but the rises in the other four are also concerning. The global official death toll now is almost 9000. New Zealand has eight new cases of Covid-19, all overseas travel related. This brings our total to 28 confirmed cases in NZ and all directly overseas travel related. Events where more than 100 people gather have been banned in New Zealand, but workplace, schools, supermarkets, or public transport are excepted.

DOWN, DOWN
Earlier today, Wall Street closed sharply lower, with the S&P500down -5.2% although that was less than during the session. Asian markets have all opened lower by at least -1%. On the ASX, their main index is currently down another -1.7% in advance of an RBA announcement. The NZX50 Capital Index is down -2.9% near the end of trade.

LOWE TO SPEAK
The RBA is making a major announcement at 4pm today and we will update this paragraph when it happens. Update: Here are the details.

LOCAL SWAP RATES RISE YET AGAIN
Wholesale swap rates have risen and steepened yet again today and the moves are very chunky indeed. The two year is up another +7 bps on the day, the five year is up another +13 bps and the ten year is up another +21 bps from this time yesterday. The 90-day bank bill rate is also up +1 bp to 0.69%. Sharply rising risk is resulting in much fatter yield demands and at some point this will impact business and mortgage rates (but probably not TD rates). In Australia, their swap curve is up sharply too, but not by quite as much as NZ. The Aussie Govt 10yr is up +47 bps to 1.47%. The China Govt 10yr is only up +3 bps at 2.77%. The NZ Govt 10 yr yield is up +53 bps to 1.76%. The UST 10yr has also risen during today's trading to now be at 1.20%, a daily rise of +40 bps. Daily increases like this are very rare indeed.

NZ DOLLAR DIVES
The Kiwi dollar has fallen sharply today continuing an overnight trend, now at 55.4 USc and down -2½c from this time yesterday. And that is the largest and fastest weekly fall since October 2008. Against the Aussie we are still flirting with parity at 99.1 AUc. Against the euro we are now at 50.6 euro cents and a very big -3½c drop. That means the TWI-5 is lower at 62.9 and down from 66.3 this time yesterday. By the time you read this, all these levels will probably be lower. Markets are very disorderly, panicked, with major liquidity problems. The RBNZ is probably contemplating intervention, although their public statements are still they are not considering that yet.

BITCOIN UNCHANGED
Bitcoin is now at US$5,374 and down -0.5% from this time yesterday. The bitcoin price is charted in the currency set below, and today it is worth taking a look.

This soil moisture 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 (including bitcoin) is here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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48 Comments

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Two dynamics define the economy in the 21st century:
1. We have substituted productive investment with debt-driven speculation
2. We have substituted debt for earnings
This is why the repricing of speculative-bubble assets can't be stopped: debt-driven speculation is not a sustainable substitute for investing in increasing productivity, and debt-fueled consumption masquerading as "investment" is not a sustainable substitute for limiting consumption to what we earn and save.
All bubbles pop, period.

(CH Smith)

So spot price of gold in NZD up almost 4% today. Over the past month (9%), YTD (15%), and P1Y (40%).

Yip - looks like its dropped 6c this week so far if I'm correct....any guesses on where the bottom? Looks like 40c during the dotcom bubble, then around 50c for GFC...

I've got a decent amount of USD and a few EUR...will start bring some back at some point the next few weeks/months.

Yip - looks like its dropped 6c this week so far if I'm correct....any guesses on where the bottom? Looks like 40c during the dotcom bubble, then around 50c for GFC...

Against the carry trade target currencies (NZD and AUD), JPY was the biggest win during the GFC. NZD went from 96 yen down to 44 yen.

Guess we'll see what happens with JPY. Holding one stock in JPY, but its taking a bit of a beating!

No doubt there'll be a dip when the Olympics are cancelled but given the shit show which is about to unfold in the US it's probably not a bad bet.

For gawds sake shut up! This in no way fits with the narrative of the editor of this website (that gold is a poo investment from the dark ages). Don't you be pointing out that gold is acting as a superb hedge against a declining NZ$, no-one here wants to hear that!!! After all everyone who purchases gold in NZ uses some other currency like the US$ don't they......oooeerrrr hang on a minute.......

This in no way fits with the narrative of the editor of this website (that gold is a poo investment from the dark ages).

Gold and Bitcoin really get up the goat of some people Not sure why considering they're not mainstream asset classes.

The less said the better. You don't want queues for gold like they do for toilet paper. Let the people buy what they value most.

Hang on a mo King! The price of spot Gold is priced in US $ which is just a paper contract, it’s not the physical price. Fiat currencies eventually become worthless they’re not backed by anything, it’s Government money. Look at Argentina, Venezuela, Greece & Mexico. Gold and crypto’s are people’s money. Fiat currency is easy money, it’s easy to inflate, gold is hard money, it’s hard to inflate. Ever looked at US greenback - ‘IN GOD WE TRUST’ ...says it all really.

Ask Americans how much over spot price they are paying at their local dealer for an ounce of silver right now. Some are paying US$25 bucks an ounce. Paper silver is at $11. Total decoupling going on.

I have most of my "stuff" in gold now, and its gone up today mainly on the back of our dollar going down. It may go down again tomorrow, but overall im comfy with my decision to go the gold way a year ago.

Yes, but it's also appreciated against USD. Good move. Moving to overweight in gold has been good. All I can say is pay attention. Things can change quickly.

quite right, still up 13% in USD over the last year, 35% in NZD... better than most investments i would think.

Despite taking a large drubbing the last week, the NZD change makes a big different for bitcoin. Now up 65% in one year.

And on the subject of toilet paper – the NZ$ now has 4.5% wiped off.

Any idea how council debt instruments are faring in this bleak investment environment?
The CEO of InfraCom reckons the centre bringing large projects forward and councils cancelling penalty on rates and removing weekend parking fees to soften heavy blows to our economy.

With most councils neck-deep in debt, they don't have the budgetary headroom to navigate a fiscal easing programme of their own. Perhaps a piece of all the GST action could help?

If the whole thing does turn turtle the council may not have the luxury of cancelling the penalty on rates – the ratepayers may simply not pay – and not by choice, but just by the financial inability to do so.

if the Councils have no penalties on late payments, who would pay? not me.

""The explosive rise in the US is very worrying""

Not explosive yet, just the tip of the iceberg as actual testing gets underway and results start rolling in, this will double every 2 days as the numbers tested grows rapidly and exposes what we knew all along

With so many cases seemingly undetected in the wild the death rate may be significantly lower than everyone is panicking about.

YES YES!

Remember there's a significant lag between detection and death - 14 days in China. US cases are increasing 10x every 9 days.

With and estimated CFR of 2% and current deaths of 150, let's assume for ease of maths that it's 10 days from detection to death on average and also cases increase at 10x every 10 days that suggests 75,000 cases in the wild.

Let's round the R0 down to 2 and it's 5 days on average until you become infectious which suggests up to 300,000 cases by the end of the month if unchecked.

Do we trust the combination of Donald Trump and the US healthcare system to get on top of this? I sure as hell don't.

Today's $150 mln NZGB tender for $150 mln brought sharply higher yields. The average yield the Government has to pay is 2.56% pa.

The interpolated IR outright swap quote is 1.8271%, minus 73.87 bps to the tender yield - market dislocation at it's best? Who is the better credit risk - banks' derivative counterparty dealing franchises or the government?

My thought is that bond investors might not want to take on the currency risk? Is this what you are indicating?

Not necessarily, because the same is happening in the US - UST 10 year yields have rocketed from a recent 32 bps low to around 126 bps and the USD index is at recent highs. Could it be global sovereign bond revulsion - governments have no intention or capacity to pay down existing and forward projected government debt structures within a generation (~33 years)? And yet there is no reduction in demand for shorter date UST securities (collateral) - US 3mth T Bill yields have gone from ~145 bps to minus 8 bps over ~ two weeks.

Conventional monetary policy just exchanges treasury debt for money, without increasing the overall supply of money and debt. Whatever arguments there are that this action might affect overall demand for goods and services vanish when interest rates are near zero as they are now. Now, Treasury debt and money are nearly perfect substitutes. To inflate, the government needs to increase the overall quantity of government debt, not alter its composition.

To inflate, the government also has to make it clear that it will not pay back new debt. If we expect that debt or money will be retired with future taxes, then there is no great incentive to go out and spend to get rid of either. Only if it’s clear the debt or money will soon be inflated away does it make sense for people to try to get rid of money or debt now, and go out and buy. Link

What inflation requires is public revulsion to government liabilities, and what produces public revulsion is the creation of government liabilities at a rate that destabilizes the expectation that those liabilities remain sound.

Ironically, the revulsion to government liabilities that would be required to produce inflation has been actively prevented by regulations that are intended to allow central banks to impose negative interest rates, in the hope of producing inflation. Link

Trends on the charts here for cases/deaths aren't overly appealing:

https://www.worldometers.info/coronavirus/

We are still coming to grips with the scale of the economic impact of the current situation.
"On the ASX, their main index is currently down another -1.7% in advance of an RBA announcement."
Despite pumping in money in money and rate cuts in a number of countries this has not quelled the fears. As a barometer; the NZ OCR cut and $12b package only had temporary intra-day rise in the share market.
So here and overseas at the moment it seems that share market believes that the economic impact has a lot lot further to go and attempts at stimulus is not effective.

"lot further to go"
Unfortunately yes but how much further, time wise and in what areas of the country and field of business. You have a lot of expertise printer8 so I ask this question.

Markets are very disorderly, panicked, with major liquidity problems. The RBNZ is probably contemplating intervention, although their public statements are still they are not considering that yet.

What might the RBNZ achieve? The US Federal Reserve has injected $162.00 billion in reserves, via permanent open market operations security purchases since Monday, which is on top of ~$305.00 billion since 17th September 2019. And temporary open market security purchases have injected a further net $441.00 billion as of last night, in addition to a dramatic 100 bps Fed Funds interest rate cut.

Now don’t be underestimating the impact of the RBNZ when they swagger into the fray, raise their pop gun to the air - and say “bang”.

I have been growing despondent with the horrid xenophobia and beneficiary bashing on this site’s discussion section. Your comment, however, put a smile on my face. For that I am grateful!

My questions on the current situation regarding Covid-19 virus:

How is our equipment for TESTING for Covid-19 holding out?

How tight and effective is our CONTACT TRACING?

How is our POLICING of SELF-ISOLATION?

Apparently these are the most important procedures for keeping the virus in check.

What responsibilities do the airlines have in all this? Surely by now they have to take some responsibility.
They can acquire useful information during flight and can warn passengers of the dire consequences of not obeying self-isolation procedures once on the ground; it maybe that these consequences should be made more draconian because all our diagnosed cases so far are from arrivals.
Contract tracing must be absolutely faultless and anyone not fully cooperating in this regard should also be subject to the same consequences.
Finally, Jacinda must resist any pressure from the likes of MP Chris Faafoi (Pacific Islanders) and other ethnic representative MPs to give their demographics any 'special' (favourable) treatment. Incoming Pacific Islanders should be made to self-isolate.....I can't understand why they are exempted.

Airline responsibility ah. Back in the day when you checked in it was always face to face with the airline staff and they often asked awkward questions like "where is your visa". The wrong answer led to a refusal by the airline to allow boarding.
Shut down the automated machines and make this face to face happen again. If they don't have a kiwi passport ask questions such
as "show us your booking for your self isolation". If they start stuttering and obviously are lying tell them to FO.

Update for my above post: the GOOD NEWS !!!

Just caught the 6pm news and I saw they are now to ban Pacific Islanders from entering the country. This measure will help both the Pacific Islands and New Zealand avoid the Covid-19 virus.

THE WORRYING NEWS: the Prime Minister has stated that the biggest problem is new arrivals flouting self-isolating rules. This reckless or deliberate flouting of these rules could cause a huge number of deaths to law-abiding NZ citizens. I regret to have to say this but I seriously believe that the only way to stop this is to make it a treasonable crime that will incur the death penalty. I am serious!

Stand for this years election please SW

Question for All.

Does anyone know if these for a group similar are modelling for New Zealand, running the NZ numbers?

https://www.smh.com.au/national/it-s-not-magical-pandemic-modeller-demys...

A pandemic modeller advising the Australian government has declined to tell the public how many Australians they expect to die or become critically unwell in the course of the coronavirus crisis.

But Professor Jodie McVernon, director of epidemiology at the Doherty Institute, has shed light on the behind-the-scenes work, including the reason the government is keeping schools open and why their worst-case scenario has proven correct.

"The Kiwi dollar has fallen sharply today continuing an overnight trend, now at 55.4 USc and down -2½c from this time yesterday."

My figures show the kiwi was at 59.6 ish at 3:40 pm our time yesterday - an actual drop of 4.2 cents today which is crazy.
Figures taken from FXstreet.com

Yip - was thinking it was a bit more than in the article. I see its recovered back up to about 57c

Yep, and the other WTF article linked on that page;

https://wolfstreet.com/2020/03/17/after-blowing-4-5-trillion-on-share-bu...

Yep, I'd be option 2 with caveats as well - though that said I do fear no matter what, the US is headed for anarchy.

In NZ, my caveats would include quarantine of all 60yo+. Take out of circulation those most likely to overwhelm the system with need for ventilators and acute care.

As I mentioned yesterday, we have a superb QALY system that has been used by Pharmac for years. That same model needs to be applied to the managfement of and allocation of resources in acute care in this crisis.

Quite eye opening. Standout point; ‘America is filled with whiney, entitled adult-children across all demographic groups‘

After 9/11 all flights in USA were grounded for 3 days. And unexpectedly the average temperature went up 1 degree because of the lack of aircraft vapour trails (contrails). Providing two useful lessons (a) climate warming was real (b) the climate change experts didn't know everything.
I've never trusted record high temp readings as proof of climate change. Well not until the Northern hemisphere just had its hottest ever winter by a 1.5 degree margin - just too many reading merged together to produce that astonishing statistic.
Now we not only have planes grounded worldwide but also many vehicles off the road and industrial factories closed down so NO2 readings are already low in China and Italy. Could this removal of pollution permit global warming to really let rip? OK less CO2 being emitted today but there is a 200 year backlog that now can exert maximum effect. What happens if next summer (Northern Hemisphere) is say 2 or 3 degrees above average - middle east and mediterranean heat deaths? And then icesheets melt.

Excellent thinking.... Hmmm

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