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A review of things you need to know before you go home on Friday; more TD rate cuts, better trade results, farmer confidence slumps, homeowners stay put, IAG makes hay in NZ, swaps stable, NZD soft, & more

A review of things you need to know before you go home on Friday; more TD rate cuts, better trade results, farmer confidence slumps, homeowners stay put, IAG makes hay in NZ, swaps stable, NZD soft, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
No changes to report.

TERM DEPOSIT RATE CHANGES
TSB has cut term deposit rates today. Kookmin Bank cut as well.

BETTER TRADE RESULTS
Our trade balance in June was a surplus of +$821 mln before accounting for the arrival of a $395 mln navy ship (the Aotearoa, a new Polar-class support vessel built by Hyundai in South Korea). The trade surplus was much larger than the equivalent one in June 2019 of +$330 mln, due in part because other imports were down -8.2% from the same month a year ago. Exports however rose +2.2% on the same basis. For the 12 months to June, exports are up +1.4%, imports are down -4.6% and we have a -$1.2 bln merchandise trade deficit.

COVID DOWNER
Farmer confidence in economic conditions has slumped to the lowest level since 2009, the Federated Farmers July Farm Confidence Survey shows. It's grim forward-looking as well. For suppliers and towns where farmers shop is that a net -13% of respondents expect their spending to reduce over the next 12 months, a 30 point decrease on the January 2020 survey, when a net +17% expected their spending to increase.

LARGER LOANS, SMALLER INTEREST
According to the latest full market reconciliation by the RBNZ for residential mortgages, the average interest rate charged by banks in the June quarter was 3.88% pa, down sharply from 4.61% in the same quarter a year ago. (These are averages across all clients, not the lowest of the rate for new lending). The amount of interest earned by banks in the year to June 2020 was $11.3 bln, and little different from the $11.5 bln they earned on a mortgage book that was -29% smaller in 2015.

MORE HOMEOWNERS STAY PUT
New residential mortgage lending bounced back in June to near year-ago levels at +$5.4 bln for the month. First home buyer activity actually rose +17% on that basis, while investor borrowing was flat. It was existing owner-occupiers who pulled back, reducing their new lending by -$248 mln in the month or -7% less year-on-year. The lock-down and immediate period after has seen these homeowners less inclined to take on more debt to trade up to a new residence.

IAG NZ CARRIES IAG AUSTRALIA
Giant Aussie insurer IAG has released its half year results today (but only to December 2019), detailing a AU$283 mln group tax paid profit which was down significantly from AU$500 mln in the same period the period year. It gets 23% of its premium income from New Zealand and is the dominant general insurer here (after a surprising Commerce Commission approval). That premium income grew more than +6% in New Zealand (compared with zero growth in Australia) on rising premium rates and increased market share, taking it to $1.3 bln in the half year. 44% of IAG's group profits are earned in New Zealand. (It only pays tax at the rate of 25% on its Group profits, sheltering some of them in Singapore. But it is not possible to assess from their financial statements how much their New Zealand operation pays in tax.) IAG's insurance brands in New Zealand are NZI, State, AMI and Lumley.

THINKING BIGGER THAN US
Recently New Zealand launched a rural export plan, seeing farm products as the basis of our economic recovery. But our goal of an additional $44 bln over ten years, taking food exports from NZ$X bln to NZ$Y bln in 2030 is modest compared to what the Aussies are planning. They are aiming to raise their AU$65 bln/year farm gate export level to AU$100 bln/year by 2030, based heavily on grains of course. And now they want to build on the current farmgate target to encompass a AU$300 bln value chain target.

EQUITY UPDATES
Wall Street closed with the S&P500 down -1.2% today on pandemic worries. Shanghai has opened down -1.3%, Hong Kong has opened down -1.2% and Tokyo has opened down -0.6%. The ASX200 is down -1.0% in mid-afternoon trade. If it stays like that, it will result in an unchanged weekly result. The NZX50 Capital Index is heading for a -0.4% retreat today and that will end the week with a +0.5% gain.

SWAP RATES UPDATE
Swap rates were probably unchanged 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 0.30%. The Aussie Govt 10yr is softer by -1 bp at 0.87%. The China Govt 10yr is also down by -1 bp to 2.92%. However the NZ Govt 10yr yield is down -3 bps to 0.83% but only back to where it was on Wednesday. The UST 10yr is softer by -2 bps to cycle lows at 0.58%.

NZ DOLLAR SOFT
The Kiwi dollar is staying elevated and it is still at 66.4 USc and where it was this morning. Against the Aussie we are unchanged at 93.4 AUc. Against the euro we are weaker at 57.2 euro cents. And that means the TWI-5 has drifted lower to 70.1.

BITCOIN FIRM
The price of bitcoin has risen slightly from this time yesterday, now at US$9,562. 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 ».

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32 Comments

Tit for tat, China orders closure of US Chengdu consular office. ( perhaps NZ can limit the size of the Great South Rd consular building).

Farming production.
Ozzy gives a target they want to hit, NZ splashes cash and hope's it will do better than what it is now.
Oh joy we have a Govt that is just in fairy land. Just smile and be nice.

Hard to see farming getting out of survival mode for long, unless the drivers of our current account deficit/capital account surplus are addressed. Our dear leaders kow tow to foreign capital instead of prioritising the creation of our own. This can only be done by enhancing the profitability of kiwi owned businesses. Every NZD$ that comes in as foreign capital must be balanced by either a dollar of our own going out, or $1 less export income. It is just the arithmetic of double entry accounting.

Aussie produces around 20 million tonnes of wheat, Russia towers over them with nearly 80 million tonnes.

Australia has planted a lot of Almonds but they are now oversupplied prices are falling.

https://www.bloomberg.com/news/articles/2020-05-18/forget-export-limits-...

When I was in California 2015 they were pulling out orange trees and replacing them with almonds. And I mean miles of ground. Was told almonds used more water to produce. I wonder how it's going?

Finally entered ETFs after a lifetime on the sidelines. Down 1.2% in just a day. Should have just stuck to gold, bitcoin and property.

18
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If you're determing your investment strategy from a single day's trading you should probably seek some advice

This is the second day in a row that Japan has been noted as being down 0.6% 'today'. Actually three times now as was referred to in the morning update. Japan stock exchange is closed Thursday and Friday! It's just Wednesday's movement.

The NZ Government 2.0%, 20/09/25 inflation-index linked note traded negative for the second time this month at today's RBNZ LSAP operation down at -0.06%.

5-Year, 5-Year Forward Inflation Expectation Rate is estimated around 1.10%.

https://www.tvnz.co.nz/one-news/new-zealand/high-profile-iranian-journal...
This report repeats Mr Boochani's comments about Manus being "terribly violent". I object to this assertion. Manus Islanders may be poor but are naturally friendly. Even a Papuan who is biased against other parts of PNG admits Manus is the nearest place to the Garden of Eden - with the bluest ocean, the most golden sand and the greenest natural vegetation you will ever find.
A close NZ relative lived in Manus for over six months last year. She walked to town but the refugees had a bus; she owns land but is having to work in NZ to save the money to build a house on it whereas the refugees had accommodation provided. She said many refugees were highly educated, some with multiple degrees but they did get local girls pregnant which caused problems.
To enter NZ is far easier for a border jumping middle-class refugee than for a subsistance farmer. It is all a matter of who you know.

13
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Yes it is who you know

Boochani obtained a 1 month visa to attend a book-writers festival. Then he broke the terms and conditions of the visa and disappeared down a rabbit hole with the aid of Golriz and others. Immigration have known since last year. And done nothing. That is either turning a blind eye or an example of the level of competence of our civil service. You can almost guarantee there has been pressure from those aiding and abetting the breaking of our laws. Then out of the blue he is granted refugee status. More pressure from above. To top it off he has been given an instant adjunct professorship at Canterbury University. News of this is released into the public domain while the parliament is in turmoil in the knowledge it will go away

A law for one and a different law for others. The corrupt exercise of power and influence

Go Labour, it's your election to loose and you are going a great job and 10 weeks of further cracks appearing.

Watch this space
In a case commenced in 2018 two people were charged with among other things "aiding and abetting" the breach of immigration visa laws. This case has just been revisited this week in 2020. Do you think Golriz and others will be charged or are they a protected species
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12020158

Here is the latest 2020 follow up
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12334201

A friend married a Manus lady and they have lived in Auckland for decades. His wife's elderly mother lives in Manus and about 3 years ago she had eye trouble. My reasonably wealthy friend was able to pay for his wife to fly to PNG and bring her mother to NZ for an eye operation at an Auckland private hospital. She has visited NZ on a visitors visa before so they expected no problem with getting another visitors visa. In brief Immigration NZ delayed processing for so long that the medical certificate that was a requirement for the visa expired so this Manus lady had to travel from Manus to Port Moresby twice for the medical required for a visitor visa. Including the costs of extra flights by my friends wife the unnecessary extra costs caused by INZ bureacracy was well over $5,000. Nine months of pain just for a visitors visa. Pity he didn't have a friendly MP helping. FYI the elderly lady is now back in Manus where she is happy.

14
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So it seems we don't need tourists or "students"! With the continuing favourable terms of trade, maybe we should keep the border closed for a couple of years

Gold just broke 2850 heading for 1900 resistance level then 2k,3k,5k. Who knows where silver will be - one thing I know it’ll be north of where it is now.

As a long-term owner of gold and gold miner shares, I'm a little perplexed at all the sudden attention. Even post-GFC (2011) when gold last hit its high, it wasn't talked about at all.

It was talked about a lot back during gfc times. There is probably just more prominent voices now. Attention is tied to money printing (and the detachment from being tied to gold reserves). It isn't so much about being a way to make money, but rather retain your net worth and given the federal reserve has increased the money supply substantially more than ever it makes sense goldbugs are shouting their lungs out

It was talked about a lot back during gfc times. There is probably just more prominent voices now. Attention is tied to money printing (and the detachment from being tied to gold reserves). It isn't so much about being a way to make money, but rather retain your net worth and given the federal reserve has increased the money supply substantially more than ever it makes sense goldbugs are shouting their lungs out

Not among my community and the gold commentators I follow. Even until very recently, most predictions on gold have been relatively sober. Anybody that has owned gold for some time is far more circumspect in my experience.

Its 1892 now on the off-markets I'm watching. ATH at 1920. Should hit that around Tuesday, which if we pass through will clear the previous ATH. At that time expect fire-works.

Very much need to get into the silver game somehow, maybe via ETFs.

Yes, everyone thinks it's a great time to buy, so buy buy buy!!!

....

If you don't hold it in your hand, you don't own it

Pleased to see this is being treated seriously. $24m may persuade the fishing fleet to obey the rules.
https://www.tvnz.co.nz/one-news/new-zealand/sealord-ordered-forfeit-24-m...

They self reported and still get smashed. That just encouraged all the others to shut up and cross their fingers.

People responsible for this:
A) Sealord
B) Anyone who supports this industry

Louis Christopher from SQM Research outlining his 30% price correction for Aussie housing on ABC radio.

https://www.abc.net.au/radio/newsradio/property-faces-30-declines/12488234

This is why NZ should be charging for room and board at the isolation and quarantine hotels
https://www.stuff.co.nz/national/health/coronavirus/300065159/tired-and-...

Important thing to note with those mortgage statistics is the high LVR loans being issued to FHBs. It's picking up quite dramatically, which puts our financial system at risk. 16% higher than this time last year, 60% higher than this time 2 years ago...

Like sitting ducks just so the banks can make their sales targets

Aided and abetted by 'our' banks. How long until these rates arrive here? Not too long...

"Borrowers looking for big savings on mortgage repayments are being offered introductory variable rates of 1.99 per cent, a move which follows the launch of the first fixed rate of less than 2 per cent."
https://www.afr.com/property/residential/variable-lending-rates-crash-th...

Wow, that smells like the gfc

Days to the General Election: 26
See Party Policies here. Party Lists here.