A review of things you need to know before you go home on Monday; ICBC cuts mortgage rates, retail sales up, IAG get most but not all, services take larger share, bond rates slip, NZD firmer, & more

A review of things you need to know before you go home on Monday; ICBC cuts mortgage rates, retail sales up, IAG get most but not all, services take larger share, bond rates slip, NZD firmer, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
ICBC have cut fixed rates today, following TD rate on Friday.

TERM DEPOSIT RATE CHANGES
No others here today. Also see Lending Crowd rate reduction item below.

RETAIL SALES BOUNCE
They rose by +8.3% year-on-year, though not by as much as expected. Statistics New Zealand says retail sales values had the largest September quarter rise since the series began in 1995, but his did not make up for the historic 15% fall in the COVID-affected June quarter.

GAMBLING BOOMS
If you think the +8.3% year-on-year gain for retail sales in the September quarter is good, that pales compared to the +116% increase in GMP (where GMP stands for Gambling Machine Profits, or profits from pokies). This rise is compared to +3.2% in each of the previous five June to September quarters.

LENDING CROWD EXTENDS
Peer-to-peer company Lending Crowd today announced that it has cut interest rates and is offering unsecured loans for the first time, up to a maximum of $50,000. It had previously only specialising in secured lending. Lending Crowd is a rate-for-risk lender that caters to a wide spectrum of good credit risk customers. They have expanded its risk grades from just 4 risk bands to 16, and the interest rate range for unsecured and secured loans starts from a low of 5.03% p.a. (top credit grade, 3yrs, secured) to a maximum of 20.3% p.a. (weakest credit grade, 5yrs, unsecured).

HARDLY A RINGING ENDORSEMENT
IAG has completed its capital raising in Australia, getting AU$650 mln for 129 mln new shares at a discount of -7.5%. You may recall last week they indicated they were looking for AU$950 mln so this isn't a full endorsement. They say they are also looking to raise another AU$100 mln in a Share Purchase Plan but that will only get a -2% discount. IAG operates the State, NZI, Lumley and AMI brands in New Zealand.

EXPENSIVE WEED
The insurance payouts for the South Island Ohau fires (from the wilding pine risk) on 4-5 October, have totaled $34.8 mln so far. That covers 154 house and contents claims, 19 business and commercial claims, and 24 vehicle claims.

BACK TO NORMAL
Electricity demand seems to be rising. Over the past two weeks it is up about +1%, with a noticeable (+5.8%) rise in the past week. Our hydro lakes are still at normal levels for this time of year.

NEW NORMAL
Stats NZ updated a tool that shows just how each sector contributes to the NZ economy. In 1972 the rural sector contributed 12%, the goods producing sector 35% and the service sector 52%. Fast-forward to 2019 and the service sector now accounts for 66% of our economy, with the goods producing sector shrinking to 19% an the rural sector shrinking to just 7%. (Taxes take 8%.)

GOLD PRICE RISES
The price of gold has risen in Asian trade, now at US$1874/oz and up by +US$7 from this time on Friday and +US$4 higher than the closing New York price at the end of last week.

EQUITIES UPDATE
The NZX50 Capital Index is heading for a +0.4% rise today. The ASX200 is up +0.6% in mid-day trade. The S&P500 futures trading indicates Wall Street may open little-changed tomorrow. That is a recovery from earlier today. Tokyo is closed for a holiday (Workers Day), Hong Kong has opened down -0.2%, while Shanghai has opened up +0.4%.

SWAP & BOND RATES LOWER
Swap rates fell at the long end on Friday, but were virtually unchanged at the short ten. We are awaiting today's wholesale swap rates. If there are material movements today, we will update them here later. The 90 day bank bill rate is unchanged today at 0.25%. The Australian Govt ten year benchmark rate is up +1 bp at 0.87%. The China Govt ten year bond is down -5 bps at 3.32%. And the New Zealand Govt ten year is down -1 bp at 0.80% and the same as the the earlier RBNZ-recorded fix of 0.80% (-2 bps). And the US Govt ten year is down -1 bp to just on 0.82%.

NZD FIRM
The Kiwi dollar has risen steadily today and is now up to 69.6 USc. Against the Aussie we are also a little firmer at 95.1 AUc. Against the euro we are up at at 58.6 euro cents. That all means our TWI-5 has risen to 72.2.

BITCOIN SLIPS
Bitcoin is down -1.7% from when we checked it this morning, now at US$18,163. 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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13 Comments

IAG has completed its capital raising in Australia, getting AU$650 mln for 129 mln new shares at a discount of -7.5%. You may recall last week they indicated they were looking for AU$950 mln so this isn't a full endorsement. They say they are also looking to raise another AU$100 mln in a Share Purchase Plan but that will only get a -2% discount. IAG operates the State, NZI, Lumley and AMI brands in New Zealand.

ACC announces $8.7 billion deficit for year as interest rates plummet
ACC has posted an $8.7 billion deficit for the year, with record-low interest rates taking a major chunk of out its long-term forecasts.The corporation presented its 2018-19 financial results to Parliament on Wednesday, with a huge increase in its "outstanding claims liability" (OCL) producing its highest-ever deficit and overshadowing other results.The OCL is the amount of ACC estimates all its current claims will cost over the next 100 years. Lower interest rates mean the fund has to invest more now to cover costs down the track.

How can a decrease in the rate of interest have the effect of destroying the capital efficiency of cash flows? Well, the present value of the cash flow is just the price one must pay when buying it. Paying a higher price for the same cash flow is a clear indication of the decrease in the efficiency of the purchase. It shows that the terms of trade of the purchaser has deteriorated. In spite of the utter simplicity of this concept it has been the source of great confusion and theoretical errors.

In each instance the capital efficiency of the float has been seriously undermined. As a result the ability of the insurance companies to increase their capital base has been destroyed. The diagnosis is that the industry is a dead man walking. The prognosis is 'sudden death syndrome'. When it becomes known that it has been denuded of capital, the industry will follow Lehman Brothers to Hades (where the god of the dead, Hephaistos, reigns).

An ad hominem argument can be made that this scenario is indeed inevitable. The rate of interest is reduced through Fed open market purchases of government debt. Thereafter the account carrying insurance premiums will be compounding at a reduced rate. It will increase more slowly. In addition, the capital efficiency of the industry is ruined. It has to pay more for generating the same premium-income while getting no relief in the form of risk reduction. In effect, the insurance industry is forced to shoulder ever more risks without the possibility of increasing premium income. Insurance companies are forced by Quantitative Easing, so called, to take ever greater risks just to keep abreast. But there is a limit to this imprudence. At one point the industry will find that it could no longer meet claims. Under ZIRP insurance companies are deprived of any return to assets with no compensation in the form of a reduction of liabilities. Link.pdf

I coming around to the fact that insurance in the future won't look anything like the past. Im going to have to be insurance lite whether I like it or not, already the crazy rise in premiums has made me shudder from 3k to 8k on the farm in a few years, I also cut my cover over that period.

Yeah I am with you Andrew we are well Nth of 10k per annum in insurance costs. Add in rates and it's a part time income to pay it.

Rat poison action has finally hit the mainstream media here (behind paywall at the AFR).

"We have so many clients asking us about bitcoin and what to do and how to get access. Large institutions have stayed away so far, but high-net-worth clients and wholesale investors are leading the charge," Pendal's Mr Gor said.

Pendal refers to Bitcoin as a cockroach that can't be extinguished.

https://www.afr.com/policy/economy/bitcoin-a-cockroach-to-supplement-dea...

A good weekend for XRP holders.

Once they get their btc they'll ethereum! Up nearly 300% this year!

If these high net worth individuals are inclined, they could simply follow Grayscale's allocation and do it themselves. Mind you, they'll be looking to optimize any tax obligations.

10
up

The so-called rural figure of 7% is highly misleading - actually the Stats dept calls it 'primary' rather than 'rural'. It only includes the value that is added on-farm. In effect it is measuring the value of farm labour plus profit. Even the value added by contractors including shearers is not included. Purchased farm inputs are deducted from the value of output and the value of those inputs - such as fertiliser - goes to other sectors involved in manufacturing and transporting those inputs. The tragedy of this is that the broader community then thinks that rural industries are not important. The concept of agribusiness, capturing the whole supply chain, was first developed back in the USA more than 60 years ago and is a much better measure.
KeithW

Check out this 'Top 10 industries' over time infographic;

https://public.flourish.studio/visualisation/975970/

I had a quick search on the Stats site to (try to) understand what 'Owner-occupied property operation' was (as it zooms to the top around 1987 and then stays in the lead three thereafter). I think it includes what they call 'accommodation sharing' (i.e., Air BNB and the like)? What could the rest of it be, I wonder?

You will be dismayed at the agricultural depiction in comparison.

Great infographic

Yes, but quite disturbing as well. The top three as at 2019 I think show the dependence of our economy on the housing/accommodation industries. I suspect the No. 1 category will include a large chunk of the professional services being planning, accountancy and legal services associated with housing/accommodation industries. And No. 2 and No. 3 spots are taken up by housing/accommodation as well.

We have become an economy based on property and property and property - and that's about it.

Yes Keith the same happens with forest production down stream income to engineering, roading, transport, factory, general consumerism all equates to feeding the economy. So put all rural activity together and you have a substantial slice of the real money coming in to NZ.