A review of things you need to know before you go home on Monday; more bank TD rate cuts, jobs back up, Synlait reveals results, A2 Milk warns, SME revenues up, NZGB 10yr yield a new record low, NZD holds, & more

A review of things you need to know before you go home on Monday; more bank TD rate cuts, jobs back up, Synlait reveals results, A2 Milk warns, SME revenues up, NZGB 10yr yield a new record low, NZD holds, & 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 today.

TERM DEPOSIT RATE CHANGES
Kiwibank have cut their TD rates today, down matching the lows of BNZ and Westpac. Christian Savings cut again too, as did Wairarapa Building Society.

JOBS BACK TO PRE-COVID LEVEL
As Westpac has noted: "Stats NZ’s monthly employment indicator showed a +0.3% rise in filled jobs in August. This measure has more or less returned to its pre-Covid level after a sharp drop during the April lockdown. However, it hasn’t kept up with the growth in the working-age population over that time, which reconciles it with the ongoing rise in Jobseeker benefit numbers."

SALES UP, PROFIT DOWN
Synlait Milk published it annual result to July, 2020 today, reporting a +27% rise in revenue and a -9% fall in profits. Commissioning new facilities undermined the earnings this year. They also reported a milk price to supplying farmers of $7.30/kgMS and up from $6.58 last year. (Fonterra paid $7.19/kgMS.)

REALITY CHECK
A2 Milk said today it is struggling with a sharp drop in daigou sales in both Australia and New Zealand, even as its direct China business is growing well. The dive in the daigou channel will mean that their local sales will underperform significantly in the first six month of their 2020 financial year. ATM shares fell -10% on the news.

SAME OLE'
The Labour Party signaled it was surrendering to the owners of the Tiwai Point aluminium smelter with a lower price for Manapouri electricity over the next "three-to-five" years. It fits the well-established pattern of saying this is so that alternatives for Southland can be developed. This is the third time the NZ Government has used this rationale.

ANOTHER PERSONAL LOAN COMPETITOR
Suncorp-managed AA Money has launched a personal loan offer to 'members' with a -4% discount from their usual risk-based pricing range of 8.95% to 15.95%. They claim "requests from customers to borrow money for reasons other than a vehicle purchase". Seems unlikely.

NZ SMALL BUSINESS REVENUE RISES FOR 3RD STRAIGHT MONTH
Xero says its latest monthly Small Business Insights, for August, shows NZ small businesses recorded a 4% increase in revenue year-on-year. It's the third consecutive month of revenue growth. However, small business jobs dropped 1.4% in August from July, to be 2.9% below their pre-crisis level. In Auckland the second Alert Level 3 lockdown saw small business revenue fall 4.4% year-on-year and employment figures dropped to 4.3% below pre-crisis figures. Meanwhile the average time for small businesses to be paid was 25.1 days in August, which is 0.8 days faster than pre-crisis.

GOLD PRICE SOFTER
The gold price is trading at US$1,859/oz today in Asian markets, -US$2.50 lower than last week's New York close. Silver is slipping similarly.

EQUITIES UPDATE
The NZX50 Capital Index has opened the week with a fall, down -0.6% near the close. The ASX200 is down -0.2% in early afternoon trade (remember they are three hours behind NZ this week). Shanghai has opened up +0.2%, Hong Kong is up +0.5% and Tokyo has opened up +0.7%. The S&P500 futures index suggests Wall Street will open tomorrow up just +0.4% and that is a -1% retreat from the indication this morning.

SWAP & BOND RATES STOP FALLING
We don’t have the final data for today yet and if it is significant we will update it here. The 90 day bank bill rate is unchanged at 0.30%. The Australian Govt ten year benchmark rate is down -3 bps at 0.84%. The China Govt ten year bond is up +3 bps at 3.15%. The New Zealand Govt ten year is down -2 bp3 at 0.45% but above the earlier RBNZ-recorded fix of 0.44% which is a new record low. And the NZGB five year is still negative at -0.06% pa. The US Govt ten year is unchanged from this morning at 0.66%.

NZD HOLDS
The Kiwi dollar is holding at 65.4 USc. Against the Aussie we are a little softer at 93 AUc. Against the euro we are at 56.3 euro cents. That means our TWI-5 is at 69.2

BITCOIN HIGHER
Bitcoin is up +1.6% to US$10,902.

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64 Comments

11
up

"The Labour Party signalled it was surrendering...."
If this is the transformational Government we are expected to elect, then abandon all hope ye who live here.
This election is our last shot to rebalance our economy, and using the 'excess' power from Tiwai for alterative production would have been a good start

10
up

'transformational' nonsense is the kind of rhetoric designed for low IQ voters with a messianic rescuer complex.

Explain that comment to me, please.
We vote, for the status quo or change? Change is transformational is it not?

Bw
Transformation should be a slow, structured process not a short, sharp shock. An abrupt closure of Tiwai would trash Invercargill. Much better to taper things off while new opportunities, if indeed there are any, can be identified.

Strongly disagree with that statement. Transformation can be slow or fast, however, it has to bring about a change or a new paradigm. While I wasn’t and aren’t in favour of many of Labour’s promised “transformations”, the endless kicking of the can down the road and continuing with the status quo by successive governments is what does my head in. Sometimes transformation needs to be fast to shake things up and show decisiveness and resolve - something that is too often lacking. If we the people are not happy with a government’s decision we can show it in the ballot box.

10
up

As I understand it, there simply isn't anything ready to go in Southland that could take anywhere near the generation that Tiwai does - 17%+ of our grid. It takes time and investment to build something that can consume that much power. Of course, that's the excuse that has been used the last however many times the contract comes up for renewal, so begs the question what exactly has been done to progress alternatives?

Could always use the water for it's original intended use, that is, run it down the Waiau river as the natural environment intended, there is value in both that and not putting that extra fresh water into deep cove.

Perhaps we could just tax the smelter workers more to cover the government cost of keeping it open? (about 75% sarcasm)

Welcome to modern capitalism, here we pay subsidies to high-value business on the one hand and more than make up for it by taxing the wages and business incomes they directly and indirectly generate. Now you know how manufacturing businesses remain financially sustainable in high-wage economies.

Economically speaking, this is still a far better deal to the taxpayer and the community than the billions of dollars in capital gains that go untaxed each year.

Seems mad to me - to keep it open, funded by the state, when the private sector no longer wants to touch it sounds like something out of a comminist playbook. If the price of power is wrong, then the free market should take care of it. If it’s right, the free market should take care of the smelter. All of these state interventions are creating zombie companies that will be a drag on the economy going forward.

national paid them 30mil in 2013 to keep it open , 800 jobs so $37500 per person
if you add in the downstream jobs i guess, 2000 jobs, so basically $15k per person over 7 years, and they have most likely recovered that in PAYE
if we wanted a truly capital system it would be let go, and what about all the other industries that survive off low pay due to distortions in the market from WFF , accommodation supplement and low paid immigrants.
we have changed from the seventies where government departments (railways, air nz, MOW, telecom) employed large workforces and trained a lot of our trades people to corporate welfare for private companies to do the same and as they wont without inducements we end up paying them

using the 'excess' power from Tiwai for alterative production would have been a good start

The government shouldn't be in the business of economic transformation, instead focus its efforts on building sector strategies and removing developmental roadblocks, starting with eliminating inefficiencies in its own functioning.

A mate working at INZ tells me he had difficulty turning around MIQ requests for a handful of highly-specialised engineers needed here urgently on high-risk civil works.

Turns out there isn't a proper channel for departments within MBIE (literally housed in the same building) to work with one another in such pressing matters, forget running large initiatives as a coherent public sector.

The bureaucracy of INZ is a nightmare. It was bad when I arrived 18 years ago and judging by the debacles reported regularly and the experiences of various family and friends it has probably become a lot worse since. It starts with no publically discussed and agreed aims. Then it is badly underfunded. Obviously anyone who has inteligence or a kind heart leaves. There are many govt departments that quietly do a good job - for example our passport office but INZ is the opposite - anyone who has had a decent service from them has been lucky.

production of what?

I picked up a nice couple of parcels of Contact and Genesis shares at a good price when Tiwai Pt accounced the closure, they've since gained 15%+ and both paid out handsome dividends. Today obviously their best day yet. A nice untaxed capital gain on paper, thanks to the generosity of the NZ taxpayer. Perhaps it's time I hang up my DGM hat?

Maybe add some Taranaki oil and gas shares ready for when Labour lift the exploration ban?

Unless Rio Tinto dont want to keep going and guarantee the jobs. If they dont then the share prices will revert back down.
On a side note, it seems obvious to me that if Labour and its affilliates get a few % of their voters to strategically vote The Greens then they are guaranteed election victory.

Doubt Labour would have announced it like this unless they were pretty much certain of it, if Rio went that way it would blow up on them badly. Risky move this close to an election.

I picked up a nice couple of parcels of Contact and Genesis shares at a good price when Tiwai Pt accounced the closure, they've since gained 15%+ and both paid out handsome dividends.

Nice punt. I had thought about that but didn't act on it.

After Labour threw tens of millions at Tourism Holdings and doubled their share price, the writing was on the wall - taxpayer is here to save you.

NZ government cannot afford the stock and housing market to fall so will keep on pumping it till they can so can buy at any level specially with really low interest rate and expect tax free profit.

This, is what 'free' money does.

Estimated mortgage repayment $21,278/month

https://www.domain.com.au/news/sydney-auctions-vaucluse-house-smashes-au...
"A young Australian Chinese couple – who had never bid at auction – walked away with the keys."

Yes I have personally spoke to numerous property investors who wish for a National goverment with immigration opened up, removal of foreign buyer ban, and a 1.5 million median Auckland house price within 5 or 6 years.

And National have already signalled bringing the bright line test back to 2 years for the tax free speculator brigade.

19
up

Yes, National’s key policies seem to be reverse the foreign buyer ban, ignore climate change, trash the rivers, and cut tax for the rich.

Lucky they have nearly zero chance of winning the election...

Looks that way, latest odds sportsbet.au is Labour $1.10 (up 2 cents from $1.08 since todays poll), and National $6.00.

@pietro. Won't vote National for those policies alone.

Ditto. And I’m not a leftie by any means.

Same here. I caught myself recommending Labour-greens to a first-time voter who move to NZ less than 2 years ago.

Thanks to the inactions from the likes of NZ National, Republican Party and UK conservative, and their inability to rein in rogue markets and crony capitalism, I have move from die-hard centre-right to centrist. I still view Lib-Nat somewhat positively though.

Have we learned nothing? The foreign buyer ban did nothing, NZ action on climate change will achieve nothing and labour's new tax bracket will achieve nothing.

It might make us feel good I guess. We really are that stupid folks, and it really is that simple.

Are they stupid? how a National government can work more in their favor than the current government? they increased the house prices, average by year, more than National ever did in their 9 years, while banning foreign buyers, and locking down the country (due to COVID offcourse). The same was true for Labor government between 1999-2007. They idealogical commitment to National despite their inferior performance is either laudable or laughable.

NZ government cannot afford the stock and housing market to fall so will keep on pumping it till they can so can buy at any level specially with really low interest rate and expect tax free profit.

They will fail eventually (if not already). And the fall out's going to be nasty.

11
up

All central banks around the world are doing the exactly the same. Pumping up asset prices with masses of debt in the hope they can keep the ponzi scheme going a bit longer. The fallout will be unbelievable for many.

The cracks in the system seem to be appearing wherever you look

Small business revenue up 4.4% with jobs down
It will be interesting to learn more about these developments. I wonder if Covid is driving our small businesses to lift their productivity through remote working and digitisation.

Property analysts are predicting New Zealand's beach towns will soon become 'Zoom towns' as remote working and cheaper property prices attract city workers out to the coast.

The property analyst quoted doesn't understand economics. While the premise is OK, the analyst also goes on to say (in the radio slot) about boomers downsizing and moving to smaller towns. The guy seems to be really ignorant of reality.

The problem is that if all these people think that try to realize the gains on their properties en masse, they're going to be hugely disappointed as there is not the volume and income to 'meet the expectations'. Furthermore, digital company Shuttlerock located to Nelson for a better cost-of-lifestyle. But even Nelson is somewhat unaffordable as the downward wage press is high as the ad, digital, and media agencies globally struggle and cut costs. They're better off running their business in Vietnam for production.

https://www.stuff.co.nz/life-style/homed/real-estate/300116990/fringe-to...

That’s bs. Remote towns tend to lack good internet, and while one job might allow remote working, no guarantee the next one will. Also, while many can work from home much of the time, there’s often a need to get into the office, warehouse etc at times. So you need to be within an hour or so. A lot of lockdown home workers I know were so glad to get back to the office!

I agree it's BS. It's likely to happen but only on a very small scale.

Anyone here read The Price of Tomorrow by Jeff Booth, a Canadian tech entrepreneur?

Great read..highly recommend it

We're all this way down the comment thread, no homework done yet.

https://www.abc.net.au/news/2020-09-10/weipa-bauxite-mine-to-shed-250-jo...
https://www.odt.co.nz/news/decision-2020/pm-pledges-keep-smelter-life-su...

"But there is a catch.
If the company wants cheaper power prices it needs to maintain current employment at the site, agree to work on remediation and work with the Government when it comes to the future use of the plant.
If the smelter does not meet these "bottom lines," the deal will be taken off the table".

I wonder if those are "bottom lines" or "priorities" ?

What an unbelievably high hurdle to jump over. Both National and labour had decades to come up with their plans for Southland if the smelter is closed. So it is absolutely disingenuous way of communicating that they have no plan, they have no alternative to caving in to the smelter demands, and that they have a dream someone will come up with any idea in the next 3-5 years, something that has not happened in decades.
NZ government is like a poker player who has transparent cards, showing an absolutely crap hand, yet bluffing with vigor. The smelter laughing knowing that they will win with a pair of 2s.

IRD to begin probing crypto-currency investors

Inland Revenue is upping its attention to crypto-currency investors by asking companies dealing in them to hand over their customer details.

https://www.rnz.co.nz/news/national/427113/ird-to-begin-probing-crypto-c...

Not sure what the Inland Revenue will be doing with those details. Anyway, I very much doubt that EasyCrypto is dealing with any whales or active traders It's really for those who want a small piece of the space.

I know their CEO and they definitely have some whales. IRD has all the withdrawal addresses - all they need to do with go to blockexplorer / ethscan, following the money, and see that you are using FTX / binance etc, or even that you have a cold wallet with lots of BTC moving in and out. They then compare to your tax return filings to see whether you have disclosed trades in the past. On the other hand, the audit only goes to 31 March 2020, when crypto prices were still depressed.

I know their CEO and they definitely have some whales.

Whale action is not on the exchanges. It's OTC. They 'may' have some whale pups. I would not be doing OTC in NZ.

With the 10 year NZ bonds at all time lows and presumably 10 year swaps close who will be the first bank to offer 7 and 10 year fixed rate mortgages ?

David, your bond prices and yields on the bond page look out. E.g. 33s are around 136.30 at the moment. Likewise yield for that issue may be a bit higher than 49bps.

New Zealand 15-Year Bond Yield

Above yield is not far from today's RBNZ LSAP successful purchase yield for 33s declared at 0.62%.

Today bitcoin broke a record - longest consecutive daily closes above $10k (63 days I think).

Out of interest I checked my Jan prediction early this year on the prediction article post. I said top $12k, bottom maybe $4k, end of year around $10k. Pretty happy with that as a guess, a bit better than my other predictions.

The longer BTC stays at these levels, the more I think we're in for some serious moon time.

lonewolf
Some serious questions:
1. You have been making predictions for some time - what factors (especially those in the wider economic environment) do you base these predictions on (examples would be great) or are they simply guesses at best based on Bitcoin trends?
2. For your January prediction - on what basis did you make those predictions other than simply guesses?
3. What effect has Covid had on Bitcoin and your original predictions?

Not addressed to me but what the heck. Covid has been good for bitcoin. It has enhanced its store of value property immensely. This is great at a time when fiat currencies are being destroyed.

Hello. I will admit there is a bit of guess work here and the Jan prediction article was just a bit of fun (I made another 15 or so predictions on that same post).

My main thesis was the halvening (a 4 year event) and having experienced the last cycle and halvening.

I picked $12k as slightly below the blow off top of the 2019 mini-bubble - I figured we won't quite get there, and 4k as the upwards region of the ultimate bear market of late 2018. Note that 4k at that time closely aligned to the 200-week MA - the ultimate support line for bitcoin through its history (now at 6.6k or so I believe)

Covid-19 took me by surprise, but has massively increased my outlook - long term. Massive massive money printing, a banking crisis, China launching its own crypto, it has to be positive.

The big spanner in the works is the role of other currencies like ETH - here is where I was completely wrong. I suggested bitcoin dominance would grow, but Ethereum is the winner this year and DEFI proving to be a huge use case - case in point, fees are x9 that of bitcoin each day on ethereum, and over a billion dollars of BTC has moved onto the ethereum network.

This is just a bit of fun. I do not claim to be an oracle or I would have sold all at 12k.

The big spanner in the works is the role of other currencies like ETH - here is where I was completely wrong. I suggested bitcoin dominance would grow, but Ethereum is the winner this year and DEFI proving to be a huge use case - case in point, fees are x9 that of bitcoin each day on ethereum, and over a billion dollars of BTC has moved onto the ethereum network

I don't agree with this. The use cases are different so there is no 'competition.' And if you look at the Grayscale Large Cap Fund, the BTC allocation is 80% while ETH is only 12%. DeFi is a completely different proposition to BTC. The fact that BTC is being utilized on the ETH network is irrelevant. $1 bio is less than 1% of the total BTC market cap.

I didn't agree either! I just turned out to be completely wrong

lonewolf
Great to see a bit of honesty - "I will admit there is a bit of guess work . . ."
I would probably put it a more than a "bit" of a guess in absence of identifiable factors.
Rather than a roulette wheel, personally I like to invest on the basis of some rationale. While J.C. will disagree, I see housing to likely show some upside in the short term as RBNZ has indicated likely action with FLP possibly in November and possibly OCR cut from March next year. Many have ben critical of RBNZ pumping the housing market for wider economic stability reasons - however, whether this action is right or wrong and while there may be some short term correction, housing is a long term investment (short term fluctuations are less significant) and RBNZ will be taking action in endeavouring to maintain the market.
That is all about a rationale which makes investing different to guessing. So I will stick with housing - it is seemingly more than simply guess and luck.
J.C. disagrees . . . but he is confident for his reasons and me for my reasons.
Cheers

Rather than a roulette wheel, personally I like to invest on the basis of some rationale

You are investing on a roulette wheel because of sentiment. Housing is very much sentiment driven. So is Bitcoin. So are tech stocks. You cannot control sentiment.

In fact, sentiment analysis has been adopted in the world of crypto. Very useful.

THat's all good Printer 8. Regarding housing, I have 1000% more money invested in housing, but that includes my main home. Its just very dull and boring. And I agree with all your points here - especially regarding FLP. Dear god things are going to get crazy. I am a huge property bull, but also a fan of crypto - and both are right - both hard, scarce assets. Same with gold (I'm investing in gold miners tomorrow as its pay day)

Bitcoin is absolutely a long term investment with an asymmetrical risk reward profile. It has significantly more upside potential than the chances of it going below 4-5k for any extended period. Hence MicroStrategy putting their entire $500m cash reserves into bitcoin recently. But primarily, it is the best store of value in the world, no one can print more and when fiat is being printed ad nauseam what happens to the price of scarce goods....

A couple of good reads: