What happened Tuesday

A review of things you need to know before you go home on Tuesday; business confidence stays weak, Barfoot's auction activity firm, hospitality lags retail's bounce, swaps steepen, NZD firm, & more

7th Jul 20, 3:59pm by David Chaston

ID 22702269 © Daniaphoto | Dreamstime.com

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

MORTGAGE RATE CHANGES
None to report today, yet.

TERM DEPOSIT RATE CHANGES
Rabobank was one to cut term deposit and saving account rates today. WBS also cut rates.

CUTBACKS BUILD
The latest NZIER Quarterly Survey of Business Opinion shows businesses still very downbeat, with 25% of them expecting weaker demand in the next quarter; construction sector most pessimistic. 28% of businesses plan to cut staff in the July to September quarter.

SELLING WELL
Barfoot & Thompson's auction rooms are twice as busy as this time last year. Sales rates ranged from 45% to 100% at this Auckland realtor's auctions last week.

TWO TOP ROLES FILLED
The RBNZ has made two new appointments to its 'Money Group'. Ian Woolford, who oversaw RBNZ's review of bank capital requirements, moves to new role as RBNZ's Head of Money and Cash. Steve Gordon has been appointed to head up a new Payment Services Department

TOO MANY TRYING TO RETURN
Government is now trying to limit the flow of people back into the country as quarantine facilities fill up and it has persuaded Air New Zealand to halt inbound bookings in the meantime.

HOSPITALITY THE LAGGARD
Paymark is reporting that retail shops are experiencing higher-than-trend growth rates, up +11.6% in June after taking a big hit earlier. Hospitality merchants are not getting this rebound however and are still negative on a year-on-year basis. This data is also reflected in the positive survey by Retail NZ.

COALITION CONFUSION
Update: The Government launched a somewhat lame and confusing primary sector plan that emphasised "productivity", "sustainability" and "inclusiveness". It confuses 'productivity' with production, consigns strong wool to an secondary 'other' category, and yet sees primary export earnings grow by $10 ~~$44~~ bln in ten years to $57.65 bln pa. This is wildly unrealistic given that their own SOPI says the growth from now to 2024 will average about +2% and be slowing over that period. Few of the heavy hitting primary sectors who could achieve the required increases get much encouragement and a few minor ones (favoured by NZ First) get a lot. The document also includes support for "small scale water storage". Thanks to KW for clarifying what some of the unclear press release claims actually mean.

MORE HOUSES
Stats NZ says there were +33,200 more dwellings in New Zealand as at June 30, than a year ago. 10,600 of those were added to the rental stock. All up there are now 1,928,900 private dwellings, up +1.8%.

THE BUSINESS LOAN MARGIN SQUEEZE
The weighted average yield on all business loans from all banks is falling faster now that for mortgages. In May, the RBNZ reported it at 3.43%, down sharply from 4.57% a year ago. Most of that fall has happened since February 2020. In that time, lending to businesses has risen +5% to $117 bln.

SECOND WAVE STARTS IN VICTORIA
Community transfer in Victoria, Australia is now almost out of control and the State is about to go back into lockdown. More community transfer cases are popping up in NSW and Queensland (although small by comparison). The economic impact won't be helping their economic bounceback. And the trans-Tasman bubble is even less likely now.

EQUITY MARKET UPDATES
The equity market gains continued on Wall Street today, ending up +1.6%. Overnight European markets rose similarly. Now Shanghai, which rose a spectacular +5.7% yesterday, is up another +0.7% in opening trade. Hong Kong is however down -0.4% and Tokyo is down -0.6%, neither able to keep up with China. There are growing speculation that the Shanghai boom is from coordinated buying by the 'home team'. In late trade, the NZX50 Capital Index is up +0.5% while the ASX200 is up just +0.1%.

SWAP RATES UPDATE
Swap rates are probably unchanged at the short end and firm at the long end today. We don't have final wholesale swap rates movement details yet but we will update this later in the day if they show a significant movement. The 90-day bank bill rate is unchanged at 0.31%. The Aussie Govt 10yr is down -3 bps to 0.91%. The China Govt 10yr is up strongly again, this time by another +10 bps to just over 3.10%. The NZ Govt 10yr yield is down -1 bp however to 1.00%. The UST 10yr is also down -2 bps at 0.67% although it did get up to 0.71% earlier.

NZ DOLLAR FIRMER AGAIN
The Kiwi dollar just keeps on firming, now at 65.6 USc. Against the Aussie we are softer at 94.1 AUc. Against the euro we are little-changed at 58 euro cents. And that means the TWI-5 is now just at 70.3.

BITCOIN TURNS UP
The price of bitcoin is up +2.2% from this time yesterday at US$9,322. The bitcoin price is charted in the currency set below.

This soil moisture chart is animated here.

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

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

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45 Comments

by King of the whiners | 7th Jul 20, 4:04pm 1594094677

Hospitalizations due to COVID-19 went from 2000 to 8000 in just 27 days (between June 8th and July 5th) in Texas. That'll be a quadruplin' in the good ol' lone star state. Pretty soon the hospital system there is gunna be busted...........

https://www.cnbc.com/2020/07/06/coronavirus-hospitalizations-grow-in-mo…

by Foyle | 7th Jul 20, 4:37pm 1594096630

One of the fascinating things about the rise in case numbers in USA over last 3 weeks is that deaths have continued to trend slightly down (and yes I realize there is a 2 week lag). Could it be more of about increase in testing revealing more infected than an actual increase in cases? Seems also that America is finally getting wise to the idea of masks, so maybe their outlook isn't so bleak as it seems, add to which there have been a few significant improvements in treatment protocols that will reduce IFR by 30% or more.

by Kezza R | 7th Jul 20, 4:57pm 1594097845

In the last two weeks we have seen infection numbers double and looking like they will double again in the next few weeks to arround 100k per day. The last few days due to the US holiday have been down by 10k per day but will be revised up in the next few days.
Death stats will not be relevant for about another 7 or so days. Also the hospital system in a few states looks to be nearing saturation point which will see death numbers skyrocketing.
The US is in a very dangerous position, their only hope is a vaccine to be found in the next few months.

by Lanthanide | 7th Jul 20, 5:10pm 1594098614

The US is in a very dangerous position, their only hope is a vaccine to be found in the next few months.

Eh, a little bit overstating it. Other methods that are effective: widespread wearing of masks, varying degrees of lockdown and social distancing. This requires a compliant population. They haven't been particularly compliant so far, but that doesn't mean they couldn't change, and change quickly, given the right impetus (eg, probably not anything Trump says).

Effective treatments for COVID could also help ease hospital pressure.

by Kezza R | 7th Jul 20, 10:54pm 1594119282

The US knew exactally how many people were dying in China due to sat imagery, spys etc and did not control what was coming. Nothing has changed, the US infection rates will increase massively as they are not capable of handling it.
Blaming Trump... it was also the Dem mayors and all the others who screwed it.

by paashaas | 7th Jul 20, 4:50pm 1594097432

from the sketchy data available it seems that the drop in death rates is mostly due to younger people getting Covid than before. The oldies isolated themselves .

by Lanthanide | 7th Jul 20, 5:08pm 1594098497

Could it be more of about increase in testing revealing more infected than an actual increase in cases?

No, because over recent weeks the number of tests has increased (from around 500k per day to around 650-700k per day) but the positive rate is *also* increasing, to around 6-7% positive, up from 4-5%.

So more tests are being done, but also more of them are positive. If the rate of infections was steady but the only change was more tests, you'd expect the positive rate to drop or stay flat at worst.

One possible explanation is that they're targeting their tests better now, at people who are more likely to have it. But that seems unlikely given the fairly large increase in overall testing, which is likely to be a similar situation to NZ where tests became more readily available for anyone who wanted to receive one, rather than testing becoming more targeted.

by Glitzy | 7th Jul 20, 4:07pm 1594094846

https://www.bloomberg.com/news/articles/2020-07-06/china-imposes-checks…

Behind the paywall but PRC now getting more nervous about bank runs

by Foyle | 7th Jul 20, 4:40pm 1594096829

Xi must be in a precarious position - this is just the kind of stuff that ambitious underlings hope to use as a wedge to allow them to ascend further. That likely makes Xi dangerous - he will be more likely to throw his weight around with aggressive moves against local and foreign targets if embattled.

by bw | 7th Jul 20, 4:42pm 1594096946

A good read.
" China is one of few subjects these days about which there is a genuine bipartisan consensus. It is a sign of the times that Democratic presidential candidate Joe Biden’s campaign clearly intends to portray their man as more hawkish on China than Trump. On Hong Kong, Nancy Pelosi, the Democratic speaker of the House, is every bit as indignant as Pompeo."

by waymad | 7th Jul 20, 4:13pm 1594095238

Niall Ferguson labels it 'CWII'.. RTWT. Reposted via ZH if the Great Paywall of Bloomberg harshes yer mellow....

by JimboJones | 7th Jul 20, 4:11pm 1594095111

Victoria is about to go into lockdown. Why did they wait? Surely it would have been a lot easier to eliminate it a week ago?
This same mistake seems to be repeated almost everywhere: shut down too late, open up too early.

by Masher | 7th Jul 20, 4:46pm 1594097197

Hope I'd say.

The sad thing is if they shut down early and there were less of a spread people would be more critical of them for "overreacting" then they are currently.

by Lanthanide | 7th Jul 20, 5:12pm 1594098732

Seems like such parrots who squak that are much quieter in NZ now, thanks to Victoria's situation I think.

by Ahuhyeah | 7th Jul 20, 9:23pm 1594113827

Dammed if they do dammed if they dont. Shut down early get under control - average punter says they over reacted and ruined ecomony/cost jobs. Wait till more cases less resistance to lock down, told waited too long cost more lives/jobs.

Democracy has an achilles when it comes to tough unpopular decisions.

by youngdumbandbroke | 7th Jul 20, 10:32pm 1594117949

Humans achilles heel is to avoid tough situations or decisions at all costs, hence why we find ourselves in our current dilemma

by J.C. | 7th Jul 20, 4:22pm 1594095748

Bank of America analysts forecasting gold price to hit $3000 (an approx 70% gain from current prices) by end of 2021.

https://markets.businessinsider.com/news/stocks/gold-price-target-recor…

by Foyle | 7th Jul 20, 4:43pm 1594097007

doubling the average of the last decade seems highly unlikely. 'Analysts' have no idea where gold will go. If they did they would all be billionaires. They are just trying to talk the market up.

by Kezza R | 7th Jul 20, 5:08pm 1594098481

Close to 60k infections per day in the States and rising sharply. That will have a drastic effect on the fear factor. No rule book for this one but gold is the money of fear.

by Masher | 7th Jul 20, 5:09pm 1594098578

Gold is the money of Kings.
Silver is the money of Princes.
Barter is the money of peasants.
Debt is the money of slaves.

by frazz | 7th Jul 20, 5:12pm 1594098749

Bitcoin is the future

by Lanthanide | 7th Jul 20, 5:14pm 1594098856

No one uses it as money because it takes 30+ minutes to settle transactions. Lightning doesn't work either.

by Masher | 7th Jul 20, 5:24pm 1594099472

Digibyte.

Don't forget the name.

by Rhumline | 7th Jul 20, 9:56pm 1594115778

Hahahahahaha...

by Lanthanide | 7th Jul 20, 5:13pm 1594098827

Bitcoin is the money of anarchists?

by frazz | 7th Jul 20, 7:17pm 1594106246

Yes anarchists dont use cash...too dirty on their soft hands.

by J.C. | 7th Jul 20, 5:20pm 1594099229

doubling the average of the last decade seems highly unlikely. 'Analysts' have no idea where gold will go. If they did they would all be billionaires. They are just trying to talk the market up

Not sure why it's "highly unlikely" mainly because I don't know. However, I do understand stock to flow models and I would not be surprised if gold goes to $3000 by end of 2021. I think the price of gold is suppressed to some extent and as a store of value it is highly attractive in these times of unlimited money printing.

Compared to what I've seen, this is a positive forecast. I've seen more extreme forecasts (north of $30k / oz).

by Masher | 7th Jul 20, 7:17pm 1594106230

Agreed.

I'd rather it went to $3,000 than $30,000, otherwise a loaf a bread will be costing you $100.

by J.C. | 7th Jul 20, 10:26pm 1594117597

Not necessarily. There is no meaningful correlation with the gold price and the price of bread.

by printer8 | 7th Jul 20, 4:37pm 1594096675

"Stats NZ says there were +33,200 more dwellings in New Zealand as at June 30, than a year ago. 10,600 of those were added to the rental stock."
Some seemingly pleasing aspects to this:
Presumably then that 68% are owner-occupier - reflects a realistic desirable level of home ownership. Hopefully a good number of the new build owner-occupied are FHB.
The 10,600 rentals will go a little way in addressing housing shortages.

by bw | 7th Jul 20, 4:47pm 1594097234

Hopefully, whoever wins, and with whatever policy they use, we will get the housing market moving in the right direction.

"National’s new housing spokesperson has admitted the party was wrong to sell and convert more state houses than it built when it was last in office."
https://www.stuff.co.nz/national/300050892/national-party-admits-it-sol…

by Casual Observer | 7th Jul 20, 4:56pm 1594097777

I hope the govt has a Plan B. Plan A appears to be predicated on the rest of the world consumerism, trade etc being pre COVID19 BAU.: https://www.stuff.co.nz/business/farming/122055134/prime-minister-jacin…

by Henry_Tull | 7th Jul 20, 5:16pm 1594099003

Life imitating Art.
In a playbook way.

https://youtu.be/RS0KyTZ3Ie4

by bw | 7th Jul 20, 5:03pm 1594098220

Just had a call from a supplier in Hong Kong who was most apologetic that "he couldn't send the order right now as it's too hard and costly to get it done. Hopefully, things will ease up soon".

by Kezza R | 7th Jul 20, 5:06pm 1594098361

Had a quick yarn to a $2 shop owner and he was haveing supply issues.

by Glitzy | 7th Jul 20, 5:37pm 1594100223

I had a meander around one the other day. Every single product I looked at was made in the PRC. That went for the tools section of Mitre10 too.

by Henry_Tull | 7th Jul 20, 5:08pm 1594098507

Confusing Primary Sector Plan
Further important background:
Policy & COL negotiations

https://www.dailymotion.com/video/x3frf2
Tommy Less says.....

by oldbloke1 | 7th Jul 20, 6:08pm 1594102122

I see the leakers of the covid patients details have outed themselves - Michelle Boag passed the information to Hamish Walker, who sent it to the media.

by Boatman | 7th Jul 20, 7:10pm 1594105857

Worth a read , Authors cite "precautionary savings increase " as an effect of a pandemic ,dont say we were not warned .......... there is historical empirical evidence supporting what is unfolding .............. A new working paper by the Federal Reserve Bank of San Francisco looks at the issue of a pandemic through an assessment of rates of return on assets in the wake of 19 major pandemics, going back to the Black Death of the 14th century. One of its findings is that relatively low interest rates may be with us for quite some time. Or maybe not.

The authors of the study, entitled “Longer-Run Economic Consequences of Pandemics,” ask: “What are the medium- to long-term effects of pandemics? How do they differ from other economic disaster

Significant macroeconomic after-effects of pandemics persist for decades, with real rates of return substantially depressed, in stark contrast to what happens after wars… capital is destroyed in wars, but not in pandemics; pandemics instead may induce relative labour scarcity and/or a shift to greater precautionary savings,” the authors, Jordà Òscar, Sanjay R Singh and Alan M Taylor, note.

by Boatman | 7th Jul 20, 9:28pm 1594114125

I reckon the Kiwi$ could get to 70 US Cents not too long from now .

by Rhumline | 7th Jul 20, 10:00pm 1594116000

So Boatman... I've just sold my shares and cashed in my Kiwisaver. What next? Buy some Euros... another property... or buy a bigger boat?

by Wazim | 7th Jul 20, 10:35pm 1594118120

Gold Patek Phillipe Nautilus. Increasing in value but not subject to CGT, and no one charges import duty on your personal watch.

by TuaWai Smith | 8th Jul 20, 9:46am 1594158415

A bigger boats always nice. Otherwise if you have the patience, wait out the next few weeks/months/into 2021 and put your money back in equities. If they dont drop significantly again from present standings then Ill personally be folding my cards re equities maybe for the rest of my life because it will mean I have no idea what Im doing. The values are just not justified, NZ or US markets. Im 95% cash and quite happy to play the waiting game.

by avatar99 | 8th Jul 20, 1:06pm 1594170411

Whatever you do, don't put all your eggs in one basket. Not sure why you cashed it all out - why not cash out half or three quarters? All or nothing thinking in investing is very risky.

by J.C. | 7th Jul 20, 10:27pm 1594117678

It could. But "I reckon" is not a strong case to support that happening.