What happened Wednesday

A review of things you need to know before you go home on Wednesday; the credit squeeze start to bite, big NZGB issue, AT public transport ridership dives, swaps stable, NZD firm, & more

15th 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
No changes announced today.

TERM DEPOSIT RATE CHANGES
Christian Savings cut rates today.

THE CREDIT SQUEEZE IS ON
The country's banks report that both demand and availability for credit over the next six months are set to be sharply down, with things looking particularly tough in the commercial property sector

TWO-SPEED HOUSING MARKET
The REINZ HPI shows that property prices were probably a bit stronger in Auckland than they were in many other parts of the country in June. Queenstown took a hammering.

LOTS OF MONEY, VERY CHEAP
In the latest syndication, Treasury issued $4.5 bln of 21-year NZ Government Bonds after $8.5 bln of bids. Investors outside New Zealand and Australia won 70% of the deal. This bond was priced with a yield just 1.64% pa.

EXPERIENCED ADAPTION
A lot is made of the east coast drought this year, but North Canterbury farmers have coped well with plenty of resilience and adaption, says a deep survey by the local Rural Support Trust. But challenges remain for the upcoming season.

THE INVESTMENT CASE EVAPORATES
Public transport is in deep trouble, not showing the bounceback or recovery that the rest of the economy is exhibiting. Auckland Transport's daily reports show it with an average weekly patronage drop of -40%. Private cars are displacing shared ridership post-lockdown. This is on top of the pre-lockdown situation that showed a small decline anyway. Massive investment in public systems are now chasing riders who no longer need to get to the CBD in the numbers they used to. Bus, train and ferry ridership in Auckland were all slipping before lockdown and have come back with massive losses of patronage after lockdown.

BUBBLE ALERT
In China, their banks extended a record US$1.73 tln of new loans in the first half of 2020, up +25% from the same period in 2019. But now it seems that some of this leaked illegally into high-risk property raising the stakes of an unstable bubble in that sector.

SECOND/THIRD WAVE ALERT
Australia, Hong Kong, and Tokyo are all facing the re-emergence of COVID-19. The social discipline to tolerate new lockdowns to beat the pandemic is proving far tougher the second (or third) time around.

A SECOND WAVE DROP
Australian consumer sentiment has dived in July, especially in Victoria, in the latest Westpac-MI survey. There were also declines in the rest of Australia, but they were 'milder'. In the absence of the pandemic shock, those wider declines would likely have attracted a stronger description.

OPTIMISTIC, BY NOT LOOKING OUT THEIR WINDOW
Not everyone sees problems in the second half of 2020. The Bank of Japan said today a steady slow improvement is expected.

EQUITY UPDATES
On Wall Street, the S&P500 ended its session earlier up +1.3% with a strong finish. Earlier Eropean markets ended all lower, generally by -1%. Shanhgai has opened down -1.2% today. Hong Kong however is flat (+0.1%). Tokyo has opened up strongly, up +1.4%. Locally the ASX200 is up +1.2% in ear;ly afternoon trade, mainly on the back of iron ore miners. The NZX50 Capital Index is up +0.6% in late trade on the back of Genesis, Fletcher Building, and Auckland Airport gains.

SWAP RATES UPDATE
Swap rates are probably unchanged again today although the curve may have flattened at the long end. 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 unchanged at 0.90%. The China Govt 10yr is down by -1 bp to 3.12%. The NZ Govt 10yr yield is holding lower at 0.94%. After dipping to under 0.61%, the UST 10yr is back up to under 0.64%.

NZ DOLLAR FIRMS
The Kiwi dollar has gained a little back from what it lost yesterday and overnight, now at 65.6 USc. But against the Aussie we are lower at 93.6 AUc. Against the euro we are holding lower at 57.5 euro cents. And that means the TWI-5 is holding at just under 70.

BITCOIN HOLDING
The price of bitcoin is little-changed again but on the firmer side at US$9,256. 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

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Source: RBNZ

Source: CoinDesk

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43 Comments

by Audaxes | 15th Jul 20, 4:49pm 1594788558

In the latest syndication, Treasury issued $4.5 bln of 21-year NZ Government Bonds after $8.5 bln of bids. Investors outside New Zealand and Australia won 70% of the deal. This bond was priced with a yield just 1.64% pa

Are we expecting an uptick in the NZD value against foreign currencies?

Some may wish to note that the continuous RBNZ purchase of this NZ government issuance since the end of March has caused a significant uptick in the RBNZ's bond lending operations. In fact ~$1.925 billion O/N transactions have been executed to date compared to ~$0.069 billion over the same period last year.

When the government competes with the private sector for pristine collateral purchases dislocation in the market is apparently inevitable.

by Roger Witherspoon | 15th Jul 20, 5:08pm 1594789729

My thought ran along similar lines. Foreigners exchanged foreign currency for that NZD$3.15 billion, thereby pushing up the NZD versus where it would otherwise have been. A currency inflow from overseas of $3.15 billion must be balanced by a reduction in currency inflow elsewhere, presumably by a reduction in export sales of goods and services of exactly $3.15 billion. NZD is a closed system. This is not make believe economics, this is the double entry mathematics of finance.

by Audaxes | 15th Jul 20, 6:12pm 1594793553

And the same if a similar foreign ownership percentage is applicable to this $7.0 billion syndicated issue.
I suspect the lead NZ bank book runner monetises the government IOU with freshly NZD created credit and makes these bank deposit dollars available to the foreign bond issuers through a swap process. (assets and liabilities). Foreigners get the bonds, NZ banks get foreign a CCY loan and Government gets the savings to spend into the economy.

by Rosenstein | 15th Jul 20, 6:26pm 1594794399

But who pays for it?

by Audaxes | 15th Jul 20, 10:29pm 1594808965

Taxpayers service the market NZ government debt and the interest on the RBNZ reserves exchanged for QE bonds sold by the banks. Banks will service the FX swap liabilities in the normal hedged manner and lend the NZD proceeds to Kiwis to cover those costs.

by Henry_Tull | 15th Jul 20, 4:28pm 1594787287

Why are we so worried about Climate Change.

Here is a great policy approach, making intelligent moves without busting the bank.

https://youtu.be/sl9rTxdSZWg
Bjorn Lomborg

by powerdownkiwi | 15th Jul 20, 5:13pm 1594790001

Lomborg appeals to those who need to believe, but are a cut above the talkback intellect level.

He's been overtaken in recent years:
https://andrewmcafee.org/more-from-less/overivew

As with Lomborg, there'a buried flaw (alway is with spin, it's an endemic problem - as I suspect you well know). But McAfee goes to another level in burying it; his target is much closer to my echelon. A fascinating read. Bit like a 'where's Wally).

by Roger Witherspoon | 15th Jul 20, 5:17pm 1594790242

Henry, "climate change" is just a device to transfer power to a global elite who think they know best. They changed the label from "global warming" so that any change in climate could be misprepresented as human caused and therefore (illogically) bad. Everything is labelled good or bad. The device is to get us to fight amongst ourselves and allow them to proceed unhindered and unnoticed. For example, the carbon tax is simply a tax on New Zealanders payable to unidentifiable and unaccountable foreign entities. Nothing is as it seems. Sane discussion is verboten. You must believe what you are told to believe, or else.... It is a form of Stalinism in disguise.

These are not the amiable hippy greens we grew up with.

by frazz | 15th Jul 20, 5:30pm 1594791037

Could climate change and biodiversity loss raise the risk of pandemics?...no evidence to date of this happening? The elites have it all under control as part of their grand plan.

by RickStrauss | 15th Jul 20, 5:41pm 1594791681

Sane discussion would be great...but looks remote from this post.

by antonymouse | 15th Jul 20, 5:16pm 1594790160

Yes indeed, why are we so worried?
Maybe the MSM never reporting any argument against the AGW theory??

One person got brassed off with the one-sided reporting:

On Behalf Of Environmentalists, I Apologize For The Climate Scare

On behalf of environmentalists everywhere, I would like to formally apologize for the climate scare we created over the last 30 years. Climate change is happening. It’s just not the end of the world. It’s not even our most serious environmental problem.

I may seem like a strange person to be saying all of this. I have been a climate activist for 20 years and an environmentalist for 30.

But as an energy expert asked by Congress to provide objective expert testimony, and invited by the Intergovernmental Panel on Climate Change (IPCC) to serve as Expert Reviewer of its next Assessment Report, I feel an obligation to apologize for how badly we environmentalists have misled the public.

Here are some facts few people know:

https://environmentalprogress.org/big-news/2020/6/29/on-behalf-of-envir…

by powerdownkiwi | 15th Jul 20, 6:22pm 1594794133

Climate Change is indeed happening. And it is anthropogenic.

No, it's not the most pressing 'environmental' problem facing us. Population beats it (even if we consumed equally) as does resource depletion as does biodiversity loss as does pollution.

But Climate Change will indeed be the end of the (Human) world. And it is tracking faster than ALL the IPCC projections - they were too conservative, possibly worried about being called Cassandras. Given that spin and lobbying were going to be applied anyway, in hindsight they might as we have been properly alarmist.

Either way, we are now out of time. Funnily enough, it may be the collapse of global trading which has the most impact.

by Lapun | 15th Jul 20, 6:42pm 1594795365

PDK - I agree with the points you make (certainly the probability of under-estimating the speed of warming is higher than over-estimating it) although I would put pollution and biodiversity loss as the end of the human world not temperature. Human being have adapted to climate changes in the past (usually very painfully) and technology is capable of stopping warming but politics will not permit it (would Russia ever want to see its farmland get colder?). Population does bother me too but human beings are rapidly moving to cities - we will end up living like termites or ants and effectively be a different species - one with little contact with 99.9% of the natural world.

Query: after 9/11 no planes and the USA jumped a degree F warmer in 3 days. Covid-19 has greatly reduced high flying planes and their exhaust contrails. Has there been any evidence collected of a suddent temperature rise worldwide - and specifically Europe and the Atlantic?

by J.C. | 15th Jul 20, 4:28pm 1594787322

Aussies are ripping money out of super and it's getting worse. 2.5 million people have withdrawn approx $19 bio (approx $7,511 per withdrawal).

https://www.smh.com.au/politics/federal/350-000-workers-tap-superannuat…

by Hook | 15th Jul 20, 4:37pm 1594787836

Yeah, and their regulator and taxman are looking to audit a lot of those withdrawals. Apparently many were not actually eligible but took the money anyway and blew it.. who could have known??

by Masher | 15th Jul 20, 4:56pm 1594789015

No one will be audited despite what the ATO says. Even the prime and finances minsters have said as much. Its a bonafide stimulus package that the government didn't want to pay for themselves, with an application process and eligibility criteria that pretty much made it a free for all. Theres a lot of people who have experienced zero drop in income that are eligible, and there is zero way for the ATO to know who was genuinely eligible and who wasn't at this point in time.

Vague rules got vague interpretations. Most people over here don't care and wish taxpayers money would be spent elsewhere.

by J.C. | 15th Jul 20, 6:24pm 1594794251

No one will be audited despite what the ATO says

I thin you're probably right. Imagine the backlash if the govt started cracking down on what is essentially an individual's 'money' during these times. Scomo would be hung from a tree (which I don't condone despite him being an awfully medicore leader who constantly protects his own ruling elite).

by J.C. | 15th Jul 20, 6:21pm 1594794066

Yeah, and their regulator and taxman are looking to audit a lot of those withdrawals. Apparently many were not actually eligible but took the money anyway and blew it.. who could have known??

What's important is that people need cash. Locking people into compulsory super plans that enrich the 'game of mates' is wrong.

by Andrewj | 15th Jul 20, 4:32pm 1594787567

USAF starting to make move
https://www.defenseone.com/business/2020/07/us-may-need-nationalize-mil…

by Audaxes | 15th Jul 20, 4:44pm 1594788266

They better get something more robust than the F35 if they wish to confront this partnership on Israel's behalf.

by Fritz | 15th Jul 20, 4:38pm 1594787908

Careful with interpreting that Auckland Transport data, David.
Tertiary students are big users of PT, and they are absent right now. They will be returning en masse (obviously less many of the international students) from 27 July, when semester two commences. That will push numbers up again, although probably not as high as what they were pre-covid for the reasons you mention.

by Advisor | 15th Jul 20, 5:55pm 1594792531

The recent weekly data still looks well below usual uni holiday trend. Something else is also at play here for sure.

by Fritz | 15th Jul 20, 6:43pm 1594795432

Sure, and for the reasons David mentioned. But just be cautious on the data, students haven't been coming into uni for months.
Accounting for different holiday dates this year compared to last year, my calcs suggest PT patronage is down about 25% on similar time last year.

by waymad | 15th Jul 20, 6:53pm 1594796018

It's a pure structural change, Fritz, and its also early days. But the WFH, the aversion to the Covid Cruisers, the changes in shopping and consumption habits - all are starting to feel permanent.....

by JimboJones | 15th Jul 20, 6:55pm 1594796154

Also you have to assume it will return to normal one day. I wouldn’t be surprised if hospitals are less busy at the moment too, but I doubt we should rush to change anything.

by Wrong John | 15th Jul 20, 4:39pm 1594787983

Stock market up on the back of Judith's rise to the top - of the opposition anyway. At least we've got a real election now.

by northman46 | 15th Jul 20, 5:21pm 1594790515

Stock market is up regardless of what happens in the world. There's no point trying to find logic in it anymore.

by J.C. | 15th Jul 20, 6:25pm 1594794341

Stock market up on the back of Judith's rise to the top

Unfortunately many wingnuts would believe this is a credible explanation.

by Advisor | 15th Jul 20, 5:07pm 1594789654

by antonymouse | 15th Jul 20, 5:27pm 1594790832

Singapore plunges into recession as economy shrinks 41 percent

41 percent !! that's a lot

https://www.thenews.com.pk/print/686852-singapore-plunges-into-recessio…

Singapore: Singapore´s economy shrank more than 40 percent in the second quarter as the coronavirus plunged the Southeast Asian financial hub into recession for the first time in more than a decade, official data showed on Tuesday.The 41.2 percent quarter-on-quarter drop was the worst ever recorded in the city-state, which is considered a barometer for the health of global trade.

by Masher | 15th Jul 20, 5:32pm 1594791144

A recession? I'd call that a cratering.

Queue comments that Kiwis returning from Singapore will push property prices up!

by RickStrauss | 15th Jul 20, 5:43pm 1594791783

Most Kiwis who live in Singapore probably have a property here already. From the folk I know, admittedly a relatively small sample.

by J.C. | 15th Jul 20, 6:29pm 1594794595

Yes it's dire. I'm based in HCMC and regularly communicate with S'pore (not travel to anymore). Many people still working remotely. You need to be tracked (QR) when entering cafes. If you don't have your ID, you can't enter.

Expats are a dime a dozen in S'pore and retrenching them in these situations is not difficult.

by keithwoodford | 15th Jul 20, 8:07pm 1594800457

Antonymouse,
There are lies, damm lies and statistics. And sometimes all three at the same time.
I believe the Singapore economy dropped 12.6 % in the second quarter from the first quarter. But that was then 'annualised' to a meaningless 41.2 % by compounding the 12.6% to the power of four. And the world's media than sprayed that to all corners of the world.
Keith W

by Squishy | 15th Jul 20, 6:51pm 1594795863

It's interesting to me that sales demand (residential, commercial etc.) has been so strong when so many renters are deferring payments.

by Boatman | 15th Jul 20, 6:56pm 1594796209

I wonder if David Norman , Auckland's Chief economist has done some probing into the reason for the fall in use of public transport ?

Until we know the truth from research data , all our assumptions are just surmises , guesswork

by Fritz | 15th Jul 20, 7:07pm 1594796834

But they are educated guesses:

- Much more WFH
- Some employment loss

I don't really buy into the argument that people are avoiding PT for fear of catching covid-19, given there is no community transmission. Sure, there might be a small minority of paranoid people who are doing that.

by Eudaemonic | 15th Jul 20, 9:13pm 1594804407

Depends on what you mean by minority. Because if you're looking at East Asians for instance, they're generally more risk averse in this sense, being the only mask wearers you would've found pre-Covid. The issue isn't about community transmission, it's about merely being one of the 71 infected from a single elevator incident. Just because your risk trade-off puts these as negligible, does not mean that others do.

by Fritz | 15th Jul 20, 10:09pm 1594807741

The issue *is* about community transmission. With none, why should you stop taking PT for fear of catching covid-19? It's paranoid / irrational.

by waymad | 15th Jul 20, 7:14pm 1594797252

Well, Boatman, if the patronage decline is semi-permanent, it will blow a hole right through any c/b and other financial ratios they are banking on.....so my guess is that the AKL economist will stay schtum....

And as to Research, it's hard to survey customers that don't turn up on the platform.....

by Fritz | 15th Jul 20, 7:19pm 1594797554

But the same can be said for new roading projects too, if one of the key reasons is more WFH.

by JimboJones | 15th Jul 20, 7:33pm 1594798395

It kind of reminds me of the GFC when national decided not to invest in housing and infrastructure because demand dropped. That is actually the best time to do it.

by Fritz | 15th Jul 20, 7:47pm 1594799240

But what if much of the drop in demand is permanent?