A review of things you need to know before you go home on Monday; no retail rate changes, more house building, weak service sector, low bankruptcy levels, high life satisfaction, NZD firm, & more

A review of things you need to know before you go home on Monday; no retail rate changes, more house building, weak service sector, low bankruptcy levels, high life satisfaction, NZD firm, & more
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Here are the key things you need to know before you leave work today.

No changes to report.

First Credit Union trimmed rates today.

Residential construction is booming in Auckland with a big jump in new dwelling completions. More than 16,000 new homes were built in Auckland in the 12 months to September. (Auckland Council corrects its Code Compliance Certificate figures for July and August.)

BNZ was disappointed by the October PSI report. They said: "Much like the Performance of Manufacturing Index (PMI) for October, the Performance of Services Index (PSI) warned about not over-forecasting the economic recovery that is broadly underway. To be sure, its seasonally adjusted index did rise. However, it was only by a point, to 51.4. As such, October’s PSI was still shy of its historical average of 54.0. And this was perhaps more disappointing than was the case for the PMI. This is because the service sectors should arguably have been exhibiting a stronger rebound, from the winding back of COVID-19 restrictions over September and into October, after the pinch point of August."

One thing 'missing' from this COVID recession is severe debt stress, as social and business support programs keep bankruptcies unusually low despite the rise in unemployment. In fact, despite the continuing impacts of COVID-19, most New Zealanders rated their life satisfaction highly in the September 2020 quarter, and said they fared well across a range of wellbeing measures, Stats NZ said today.

Latest Reserve Bank figures on household debt to income ratios show more mortgage money being borrowed at in excess of five times annual income - but Auckland may be reaching limits.

More than two years ago we lost access to corporate CDS spreads. We haven't regained access to them specifically, but we have started a new series tracking NZ Govt 5 year sovereign credit default swap spreads. We hope to add a similar series for Australia soon. Although less sensitive than the corporate spreads, they still give a good background indication of the changes in market perceptions of default risk.

Aussie regulator ASIC has issued its signaled report into the Buy-Now, Pay-Later sector. It identifies some interesting consumer behaviours that the sector enables, a number described as "harms". It is a payment method that 25-34 year olds are using aggressively. And overall, more than 20% of users miss a payment thereby subjecting themselves to penalties. These penalties make up a substantial revenue source for the BNPL businesses - 44% of all their fees and 12% of all their revenues. Further, users who pay their BNPL obligations by credit card are much more likely to miss a credit card payment and then incur interest. BNPL schemes all try to stop merchants "surcharging" and ASIC reports this is not entirely successful. But all customers pay to cover the merchant fees imposed by BNPL.

Border restriction fights
between States in Australia over the South Australia COVID outbreak is casting a pall over their generally good pandemic track record.

The price of gold risen in Asian trade, now at US$1896/oz and up by +US$16 from this time on Friday and by +US$6 from the closing New York price last week.

The NZX50 Capital Index has opened this week with a strong +1.0% rise in late trade today. The ASX200 is up even more at +1.2% - but then a market IT glitch has had everything there 'frozen' until it is resolved. On the major Tokyo markets, they are up +1.5% in early trade. Shanghai is up +0.3%, and Hong Kong is also up +0.3% also in early trade. The S&P500 futures trade suggests New York will open up +0.7%.

Wholesale swap rates held steady. If there are material movements today, we will update them here later. The 90 day bank bill rate is down -1 bp today at 0.26%. The Australian Govt ten year benchmark rate is unchanged at 0.90%. The China Govt ten year bond is up +1 bp at 3.29%. And the New Zealand Govt ten year is still at 0.84% and almost the same as the the earlier RBNZ-recorded fix of 0.83% (-1 bp). And the US Govt ten year is still at 0.90% which is where it opened at this morning.

The Kiwi dollar is noticeably firmer than this time Friday, now at just on 68.7 USc and recovering some of Thursday's level. Against the Aussie we are marginally softer at 94.2 AUc. Against the euro however we are much softer at 58 euro cents. That all means our TWI-5 has held at just under 71.5. Westpac is bullish on the NZD.

Bitcoin is very much softer than this time Friday (or even this morning), and now at US$15,913. The bitcoin rate is charted in the exchange rate 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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How robust is the PSI? That's looking like an L to me. Could it have missed the the recovery?

I suspect much of the positive swing in the PSI could be from real estate services, financial services and owner-occupier activity.

Reminds me of an article in NY Times titled when numbers mislead : In 2001, the average income of the 7,878 households in Steubenville, Ohio was $46,341. But if just two people, Warren Buffet and Oprah Winfrey, relocated to that city, the average household income in Steubenville would rise 62 percent overnight, to $75,263 per household

Warren Buffet claimed his secretary paid more tax than he did.

What positive swing? The index is a differential from month before.
We had a level 4 lock-down and got a 26.6 (well below 50) contraction from the month and then it show flat sentiment and conditions from there on. It reads like things are barely better than during lock-down.
You would expect a large positive as conditions improve back to normal for a V or U recovery. See the PMI where we got a 59 spike which is a significant improvement but nowhere near high enough to be a complete recovery.
Did we miss our large positive month due to an error or we have an L for the index? (or was the 26 not as bigger impact as at looks?)

Auckland Council loses $1.4b 'bet' on interest rates - report

It's being reported that the Auckland Council has lost $1.4 billion in what is being described as "an interest rate bet".

The NZ Herald's investigative journalist Matt Nippert has been delving into the council's financial reports and joins Jesse.

RBNZ QE collateral damage:
RE: Interest Rate Swaps - The marked to market liquid collateral (govt debt?) demands placed upon loss making counterparty agents paying fixed is a financial stability factor of great seriousness in it's own right while relentless fixed IR swap yield compression causes remain undisclosed.

If true no stone will be left unturned....


Hazell v Hammersmith and Fulham LBC [1992] 2 AC 1 is an English administrative law case, which declared that local authorities had no power to engage in interest rate swap agreements because they were beyond the Council's borrowing powers, and that all the contracts were void.[1] Their actions were held to contravene the Local Government Act 1972.

Cunliffe - who Goff appointed finance spokesman when he was Labour leader from 2008 to 2011 - said: "Could there be a clearer case of a sackable offence?


A real test of the PM. Here a Labour poltical operative on the decline (aka "has beens") has been popped in as Mayor (not unlike Christchurch & SFO problems)


And brining local government maladministration on an industrial scale.

Those with Netflix, and wanting to see life imitating art, should binge watch Rake.
The Cal McGregor character is a classic.


The upside is, watching it makes you feel like you just had a weekend in Sydney.

They lost over a billion dollars because they bet interest rates wouldn't fall? Those gormless clowns should be locked up.

Banks should have been more cautious entering into IR swap contracts with a counterparty ill-equipped to fathom the risks associated with such tactical financial management practices.

Banks are obliged to undertake "know your customer" investigations.

thats the thing, for years, every financial operaterative, even in wholesale markets too, has had the use and application of KYC hammered into them from beginning to end.

You have never fixed a mortgage?

It's not a loss as much as an opportunity cost.

Having said that though, it is extremely poor balance sheet management - borderline incompetence in fact.

Closed out, it's a loss. There was no obvious signal term interest rates were under pressure to record a bond rout.

Actually, it looks a lot lot worse than I was expecting, this could really blow. They have reported net derivative interest rate risk of $630m per 100 bp's - an extraordinarily large position - bigger than most large investment banks. Swap rates fell about 100 so that's a loss of $630m which they have taken through fair value in P&L - so that's the real loss. The other $750m loss is via OCI reserve so will have an accounted for positive value.

Still, that is a catastrophic loss in my books - should be a wholesale clear out of Finance Executives.

OCI for learners, I could have cared less, marked to market is all I cared about - possible extra capital usage costs - hence a real dealing opportunity cost.

It's all marked to market, it's just how it's accounted for - through p&l or straight to reserve.

After the fact, not real time.

What does that even mean? It's a single snapshot at 30 June.

As a dealer who traded IR swaps in conjunction with UST, I had no concept of an accounting date, other than year end, when it had to be determined whether the profits were too great to jeopardise for bonus purposes or the bank wished to minimise collective annual dealing room losses. At best each quarter, position was "bed and breakfast" transferred to wealthy private counterparty clients to present a less leveraged position to auditors.

How much was transferred to the counterparty IR swap bank dealers from Auckland Council at close out, given the ongoing losses would have been collateralised in advance, at cost?

As an example, the fixed-rate payer receives floating rate interest and is said to be 'long' or to have 'bought' the swap. The long side has conceptually purchased a floating- rate note (because it receives floating rate interest) and issued a fixed-coupon bond (because it pays pays out fixed interest at intervals) - that is, it has in principle borrowed funds.

How can that hedge a council that already issues fixed term coupon debt and is in receipt of floating rate rates income?

The biggest crime is they locked in pretty much all there long term liabilities for 10 years! Who does that? Sure they locked in certainty, but with out any upside for downward rate movement for 10 years... numb skulls

WTF (indeed): Entire ASX paused in rare announcement. Seems to be still down.


I wonder how many of the 16k new homes are occupied, and how many sitting waiting for the value to go up , then flick .

Paypal has now gone live with rat poison, Ethereum, Bitcoin Cash and Litecoin. Crypto purchases are limited at $20,000 a week which is 2x that first announced. No fees are being charged on crypto transactions until the end of the year.

Big news, missed above, is that China (or at least a province of it) has claimed NZ meat import is covid infected. If wrong, it's defamatory and damaging...

If so? What could we have done to incur China's wrath?

If so? What could we have done to incur China's wrath?

Might not be anything to do with NZ, but an issue related to the importer / distributor. Hands need to be greased along the supply chain as well as the hands of the right officials.

Let's be patient and stop hurling insults.

At least buy me dinner first, Adrian!