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A review of things you need to know before you go home on Wednesday; TD cuts by banks, bond markets signal risk off, more dodgy Chinese milk scandals, swaps slip, NZD slips, & more

A review of things you need to know before you go home on Wednesday; TD cuts by banks, bond markets signal risk off, more dodgy Chinese milk scandals, swaps slip, NZD slips, & more
ID 22702269 © Daniaphoto | Dreamstime.com

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
ANZ has reduced its TD rates by about -10 bps. Heartland has also cut TD and savings rates.

RISK OFF?
Bond markets internationally are signaling rising concerns, with falls in yields and benchmark bond prices rise on demand for low risk assets. It's a view equity markets haven't adopted yet although Wall Street sold off sharply at the close today and the futures market is signalling more falls tomorrow (which is when the US Fed will report).

MAJOR REPUTATIONAL RISKS
Giant dairy companies Yili and Mengnui, both of who have locally significant ventures in New Zealand, are getting beaten up in their home Chinese markets because of some very dodgy practices. More detail here. In addition, some daigou traders are closing up here as direct online trade booms for trusted brands rendering their services passé.

RECOVERING SOME OF THE $479 MLN FROM KIWIS WHO DON'T PAY TAX HERE
Kiwis abroad who visit New Zealand for less than 90 days to be charged for staying in managed isolation, as will New Zealanders who leave the country now, and some temporary visa holders.

RE-SHORING
Westpac Australia has announced it is re-shoring 1000 jobs. It offshored them via Concentrix about three years ago, with services delivered from the Philippines and India. This move doesn't involve Westpac NZ. A spokesperson said, "This has no impact on Westpac NZ’s operations. Our contact centres are all based in New Zealand which means when our customers call us, they’re connected with one of our New Zealand based staff."

EASING UP
Aussie prudential regulator APRA has replaced emergency guidance on dividends with a 50% cap on dividend payout ratios.

DEFLATION IN AUSTRALIA
The steep fall in CPI inflation in Australia predicted happened, but just a whisker less than expected. They reported -1.9% deflation in June from the March quarter, and annual deflation of -0.3%. This was the largest quarterly fall ever in Australia. Since 1949, this was only the third time annual inflation has been negative. The previous times were in 1962 and 1997-98. The pandemic benefit of the public provision of free pre-school childcare was the main contributor, along with lower petrol prices. Without both they would have had a small amount of inflation. Food prices were up +4.1% pa in the year to June.

DOWN BUT NOT OUT
The international air cargo market is far, far healthier than the passenger market, but it has it's own steep decline to report. Overall aircargo volumes were down -19% in June from the same month in 2019 (which was a smaller decline than in May) and Asia/Pacific markets were down -20%. The smallest drop was in North America, down -9%.

EQUITY UPDATES
Wall Street tailed off sharply at the end of its trading session today and ended down -0.7%. Shanghai has opened up sharply, up +0.8% while Hong Kong has opened up +0.3%. Going the other way, Tokyo has opened there down almost -0.8%. The ASX200 is flat (unchanged) in early afternoon trade, while the NZX50 Capital Index is up +0.3% in late trade.

SWAP RATES UPDATE
Swap rates were probably lower today as risk worries grow internationally. 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 different movement. The 90-day bank bill rate is unchanged at 0.30%. The Aussie Govt 10yr is sharply lower by -6 bps at 0.87%. The China Govt 10yr is firmer at +2 bps at 2.94%. However the NZ Govt 10yr yield is -3 bps lower at 0.81%. The UST 10yr down -5 bps from this time yesterday and now at 0.58%.

NZ DOLLAR SLIPS
The Kiwi dollar has slipped today and is now at 66.5 USc. And against the Aussie we are down to 92.9 AUc. Against the euro we are marginally weaker at 56.7 euro cents. And that means the TWI-5 has slipped to 69.8.

BITCOIN STAYS FIRM
The price of bitcoin has held its new higher level, unchanged from this time yesterday at US$10,916. 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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41 Comments

Feels like every investment (property, gold, shares) is basically at the top. Technically bitcoin and silver isn't at the top but they are going the most nuts.

Can anyone think of ETFs or investments that have fallen behind ? Maybe a DOW Jones ETF? Or some industries that are still battered ?

Cash, of course!
No one wants to touch it at the moment. It's the pariah of the investment world.
In a Deflationary environment, cash (or credit balances earning 0% or even less) is the unloved asset to have.

I have a medium cash holding that 50% of which would pay off the remainder of my mortgage on an investment property bought in 2014. I suspect that your principle doesn't apply to paying down debt like in this example?

Not really.
Having No Net-Debt is the way to go, ( otherwise, whatever it is you're financing will likely fall in value against a static Net Debt) but having as MUCH Gross Debt as you can muster, is.
Why? Because lending is going to dry up.
No point paying off your debt (mortgage, say) is you can't borrow it back to buy whatever it is you want when prices are more attractive.
Lenders (banks) shovel debt ( an asset in their books) out of the door when times are good, and 'ask' for it back when THEY need it.
So my suggestion is to keep as much GROSS debt as you can muster ( Hey! It's dirt cheap at the moment anyway!) and have the OffSet 'cash' ready and waiting.
(NB: Be aware "I would say all of that" as that's how I've set things up)

Geez... I hate agreeing with you BW but so have I in my own (perhaps more modest?) way. I've got a couple of investment properties to refinance in the coming months and can basically zero out both properties with cash on hand (or put it back into shares which scares the heck outa me at the moment). My call is to wait till October to see whether the madness settles down.

looks like an asset crash is on the way

Not necessarily. AUD and NZD have performed quite well relative to USD since March.

bw, absolutely, only sane investment at the moment.

Investing 101, buy valuables (USD) when on sale. Y'all on here are constantly preaching about buying houses low and selling high but then you all chase the temporary bubbles triggered by the FED.

You are on the wrong side of the trend as usual, but of course the herd can be 'right' for a while.

Btw, I have found that most people that 'hate' fiat currency are actually the ones that carry most of it in debt. Makes you think aye.

Oil & gas stocks are still ~35% down from earlier this year.

https://www.spglobal.com/spdji/en/indices/equity/sp-global-oil-index/#ov...

Reasonably local example:

https://www.asx.com.au/asx/share-price-research/company/WPL

There's potential for rebounds as and when travel opens up, but also the potential for long-term decline in the business as (/if) fossil fuels use finally starts to fall.

If you want something even more battered, take a look at airlines and tourism businesses.

IMO PM’s aren’t at the top or anywhere near it - we are in unprecedented times globally, central banks have no other choice put to print money. I’m long on PM’s

To think that PM's will not go further is to think that we are at the peek of CV19 and the economic fall out.

Long on PMs results in a massive tranafer of wealth in the world.

Yes, those who lose out in shares will likely benefit from PMs, but the beneficiaries will also be those where PMs already play a part in that nations culture. India for example, where gold purchases make up about 25% of the average wedding budget.

20,000,000 Indian weddings a year costing on average $65k USD....

Bond markets internationally are signaling rising concerns, with falls in yields and benchmark bond prices rise on demand for low risk assets.

When this inflation stupidity falls apart, again, that’s when we’ll see UST demand pushing most of the yield curve into negative territory.

We’re a hair trigger away from *negative* nominals, *not* runaway inflation.

Strikes 1, 2, & 3.

https://alhambrapartners.com/2020/07/28/str

Westpac Australia has announced it is re-shoring 1000 jobs. It offshored them via Concentrix about three years ago

From a data privacy standpoint, it's easier for Westpac to collect consumer data through these support activities, clean up and feed this data into AI/ML technology the corporation has been investing billions in, and ultimately implement these technologies all in the same country than have these activities span across different parts of the world.
This could also explain why NZ has been carved out of this job repatriation effort, despite lower labour costs.

This is an interesting point. New Zealand could do very well as a back office processor for large AU firms. Sure we're not as cheap as the Phillipines but we do have a good work ethic and similar culture, with the added benefit of being open an hour earlier.

Possibly political? It's a good news story that you're bringing all the jobs back home at a time of rising domestic unemployment.

It’s subterfuge to cover up the news that by the end of August Westpac branches in Australia will no longer accept cash deposits.

eh?

He is correct.

Cash stopping end of August, cheques end of the year.

This did come through John Adams, which a lot of his stuff I meet with a degree of skepticism, but this appears to be the case for Westpac Australia.

Any links? I googled but couldn't find anything.

If currency in circulation (NZ$7.49bn) is a small fraction of bank loans (~NZ$476.00bn) and the same in Aussie, who will miss it other than black market traders and earthquake ridden territories with no relevant digital banking infrastructure due to power outages.

well the tooth fairy to start with

Prezzy Card under the pillow with $2 loaded.

Bingo. Call centres in NZ regions.

Bitcoin may be an alternative speculation for your money but the Gold price will help you understand the risks apparent to the system.
So, I would think it warrants a mention on this page.
Interesting that over the years when the price of gold was going nowhere, it used to be noted on this page.

There was a graph up until a few months ago.

I just drove out to the coast and there are a lot of very sad looking farms, they wouldn't want a big cold snap to come through.
Talked to a calf rearer and he said his supplier has 10,000 less calves on order than last year. This is going to get so interesting.

Anyone else get John Authers daily email? It's often a good read

https://www.bloomberg.com/opinion/articles/2020-07-29/retail-investors-o...

Gold is not over-valued (the price maybe at record highs but that's due to the devaluation of the dollar) relative to stocks or real-estate. The dow to gold ratio is high by historical standards. Don't look at the price, rather you need to assess its value relative to other investment classes.

https://goldsurvivalguide.co.nz/dow-gold-ratio-how-gold-compare-to-share....

It has only just started to move.

Your last sentence is bang on!

Gold is highly overvalued. Production costs are generally closer to $1000/oz. High price will push far higher production by the industry looking to cash in, and use in jewelry has been declining for a decade (and is likely to continue so). This is a speculative bubble just like all the others in history. Sure there is money to be made in the short term, but long term there will be huge losses for holders of gold.

Sounds like it's best to invest in gold miners then.

If we are not in a deflationary cycle then we are at least still in a disinflationary cycle, and it appears some of this is " imported "

I had to buy a new waterpump for our tank -water supply , and have been putting it off for almost 2 years .

I got quotes in Feb last year and decided to wait until the 20 year old noisy Chinese rough-but-robust pump had finally given up .

Imagine my surprise when I got a new quote for the Italian -made pump that I was quoted on last year, only to find its DOWN BY 30%!

I duly enquired about the price drop , and at first the bloke jokingly said it was a " Coronvirus special "but later admitted it was the weaker Euro, and also the main agent in Sydney had been told by the Italians to move the stock by dropping the price to sell more units .

Its now on a par with the Chinese pump in terms pf price , the Italian job is quieter , uses less power and comes with a 2 year warranty and a local service agent .

Now I have never really trusted Italian made stuff ( my first car was a Fiat , a rusty piece of unreliable junk ) , so now what do I buy ?

Either way , by delaying the purchase I have now got the pump for significantly less than I would have paid in February last year.

Ssssshhh, the economists will be having kittens if that deflationary mind-set becomes contagious ;)

The perfect justification, for negative yield sovereign debt in Euroland? - HT bw

"my first car was a Fiat , a rusty piece of unreliable junk"

Same here. Actually it was reasonably reliable, until I slapped a couple of sidedraught Webers and some lumpy cams on it. Then it went like a rocket - until it ultimately exploded like one. Fun times!

Communist Polish steel was the culprit.

Personally would not go Italian.. had a DAB it was rubbish. Just got a Chinese multistage its almost silent and its cheap. If it lasts 10 years you just bin it and buy another one.

Days to the General Election: 24
See Party Policies here. Party Lists here.