A review of things you need to know before you go home on Friday; more TD cuts, consumer confidence low, KiwiSaver balances high, freight subsidy extended, swap rates flatten, NZD stable, & more

A review of things you need to know before you go home on Friday; more TD cuts, consumer confidence low, KiwiSaver balances high, freight subsidy extended, swap rates flatten, NZD stable, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
None here today. Update: SBS Bank cut its fixed rates for 2, 3 and 4 year terms effective  November 30. They also cut their 6.20% reverse equity mortgage rate to 5.85%. This new rate applies from Monday, except for existing clients for whom it applies from December 30, 2020.

TERM DEPOSIT RATE CHANGES
TSB has cut its term deposit rates. ICBC has as well.

A GLUM, WARY LOT
The ANZ-Roy Morgan Consumer Confidence Index eased 2 points in November. Unlike businesses, consumer confidence remains well short of levels prevailing last year. ANZ has chosen to highlight a very sharp jump in this survey of inflation expectations - the highest in more than ten years. It might be a signal (and there are some good temporary reasons), but also might be just a random outlier. The rise in house price expectations however doesn't look like an outlier.

STRONG PROFIT RISE FOR THE CO-OPERATIVE BANK
The Co-operative Bank posted a 40% increase in half-year profit after tax to $6.8 million. The bank says its net interest income rose 5%, with expenses down 4%. Home loans increased almost $100 million. Bad debt expenses rose 37%, although Co-op says thus far there has been limited bad debts expense relating to the impact of COVID-19, albeit uncertainty remains as to the forward outlook. Co-op has assisted nearly 20% of its home loan customers with either a repayment deferral or interest-only term, this year. Co-op also says it has closed three branches this year with COVID-19 accelerating customer preferences for digital service.

A STRONG KIWISAVER INVESTMENT IMPULSE
COVID hasn't restrained KiwiSaver contributions, or the rise in balances. As at the end of September, the value of all funds in KiwiSaver accounts was $73.2 bln, up +$10.1 bln or +16.1%. This is the second largest year-on-year rise ever. The quarter-on-quarter growth was impressive also. Interestingly, growth in New Zealand investments were up almost +20% while offshore investment rose only +12% in the year. Investments in long term Government bonds rose +$1.3 bln as fund managers went conservative, and exposure to other local debt was up almost +$1.5 bln. Exposure to local shares rose +$1.9 bln, and into local unit trusts +$1.5 bln. Offshore, we saw a +$3.0 bln rise mostly into investments in listed shares and unit trusts. KiwiSaver funds now represent more than a third of all industry FUM (funds under management). That total is up to $216.9 bln and includes many other categories like superannuation funds. Total FUM rose +6.0% in the year to September, and obviously KiwiSaver was a key driver. (At $216.9 bln, that is 75% of the total owed on mortgages. Of course, FUM is an asset while mortgages are liabilities. But the size of the funds management industry probably surprises many readers.)

HIGH COST OF KEEPING PLANES IN THE AIR
Air New Zealand has been awarded four months of additional cargo flights under the Government’s International Air Freight Capacity (IAFC) scheme. This comes after the Government announced Phase Two of the IAFC scheme which runs from 1 December 2020 through to 31 March 2021. Under the scheme, the Government provides financial assistance to all airlines that are awarded flights under the IAFC to support the cost of flying, thereby ensuring continuity for aviation freight in and out of New Zealand. Air New Zealand has now been awarded an average of 55 flights per week. The Government financial support for these flights is expected to contribute between $100 million and $145 million towards Air New Zealand's cargo revenue over the four month period.

YOUI IN TROUBLE IN AUSTRALIA
The Australian Federal Court has declared that insurer Youi, infamous in NZ, breached its duty of utmost good faith under the Insurance Contracts Act in its handling of a building and contents insurance claim lodged by a policyholder. Following a severe hailstorm in Broken Hill in November 2016, the policyholder made a claim to Youi in January 2017 for damage to their property. Youi took close to two years to settle the claim and repairs were not completed until November 2018. The Australian Securities and Investments Commission commenced proceedings against Youi in April.

RISING DEMAND
The rise in electricity demand is starting to get remarkable. It is now up +5.6% over the past two weeks, and comes after a long period of flat or falling demand. Inflows into our hydro lakes are now starting to fall away, but they are exactly at 'normal' levels at the moment. Without significant rain, however they won't stay like that.

STANDOFF
Off the Chinese coast a fleet of 82 ships carrying blacklisted Australian coal worth more than NZ$1.2 bln is held up as Beijing tries to coerce Canberra into kowtowing to its policy positions.

GOLD PRICE STILL IN TIGHT RANGE
The price of gold has firmed marginally in Asian trade, now at US$1812 and up by +US$2 from this time yesterday and up by +US$2 from yesterday's closing New York price of US$1810. The afternoon London fix was US$1807/oz.

EQUITIES UPDATE
Wall Street is closed today for their Thanksgiving holiday. The ASX200 is down -0.5% in early afternoon trade, while the NZX50 Capital Index is flat near its close. That means the ASX200 is heading for a weekly gain of +1.0% and the NZX50 Capital Index is heading for a weekly gain of +1.3%. Tokyo has opened up +0.3% and Hong Kong has opened down -0.3% while Shanghai is up a very minor +0.1%, all in early trading.

SWAP & BOND RATES FLATTEN
Yesterday, swap rates were unchanged at the short end but noticeable lower (-6 bps) at the long end. If there are material changes today when the end-of-day swap rates are available, we will update them here. The 90 day bank bill rate is unchanged today at 0.25%. The Australian Govt ten year benchmark rate is down -3 bps to 0.90%. The China Govt ten year bond is little-changed at 3.33%. And the New Zealand Govt ten year is down -2 bps at 0.90% and just above the earlier RBNZ-recorded fix of 0.89% (-3 bps). And the US Govt ten year is down -2 bps to just under 0.86%.

NZD HOLDS HIGH
In thin trading the Kiwi dollar has moved very little today. It is now at 70.1 USc. And on the cross rates it is up slightly against the Aussie at 95.2 AUc. Against the euro we are firm at 58.8 euro cents. That all means our TWI-5 has changed little at 72.6.

BITCOIN VOLATILITY SPIKES
Bitcoin is down sharply from this time yesterday, now at US$17,212 and a substantial 8.8% retreat. In between, it reached a high of US$18,909 and a low of US$16,243 so volatility has been +/-7.0% in the past 24 hrs. The bitcoin rate is charted in the exchange rate set below.

This soil moisture chart is animated here.

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39 Comments

If boomers aren't buying additonal property, they're stashing funds in their Kiwisaver?

Yeah it's all the "boomers" fault.. nothing to do with FHB FOMO, low interest rates and or low returns elsewhere. Don't hear too many complaints about equity markets that have probably increased by more than the housing market since March, mind you.. can't live in a share portfolio.

Nifty
Could well be likely.
With falling term deposit rates now so close to zero after tax, retirees will be looking to alternative ways of generating some return.
For over 65s KiwiSaver is a great vehicle whatever risk level - and potential return - they feel happy with.
KiwiSaver management fees (around 0.5%) are considerably less than those for similar bank managed funds (around 1.1% and with an entry fee). KiwiSaver funds also have considerable more oversight.
The additional advantage of KiwiSaver over term deposits is that there is no fixed term or break fees and 30 days delay: with KiwiSaver one can have funds in one’s everyday account in about 5 working days.
Unfortunately many closed their KiwiSaver accounts when they turned 65 thinking that was it - I think it is now possible to reactivate it.
KiwiSaver is probably the best vehicle for exposure to the share market with ability to off set a proportion to more conservative risks.

With falling term deposit rates now so close to zero after tax, retirees will be looking to alternative ways of generating some return.

They might even own digital assets one day. If I were them, I would be questioning the financial advisors, Granny Herald, etc.

J.C.
Us oldies have a low risk tolerance due to short time frame, and have been brought up on investing tangible assets (as in you know what), so digital assets don't fit the criteria.
We will leave digital assets to the up-and-coming young wonderful new generation sharp operators - we need to leave some things for you. :)
However, thanks for the thought though.

You mean digital tulips! Long term zero.

Agree printer8, FUM Kiwisaver and they're away without much thought like a term deposit.

I can't afford to buy property so I am just stashing all my extra income into my Kiwisaver

So the government is subsidising air freight, to the tune of over half a billion a year at this rate.
If they weren't doing this, prices for air freight would be higher, or much higher.
This would cause inflation.
The lack of inflation is a key driver in interest rates declining, which is a key driver in the property boom which they don't like.
Huh.

Dream on. Air freight is essential and doesn't have an iota of effect on overall inflation

Other than the cost of all the stuff we import. Which is pretty much everything.

Dream on what?
I was just pointing out the silliness of conflicting policy.
Interesting how you default to polarity.

Could the government fix the housing bubble by creating inflation and forcing RBNZ to increase interest rates. Would a few tax increases do it? Or maybe a few draconian policies that are known to up prices?
Seems like a funny situation: “so you can afford a house we need to make sure you can’t afford everything else.”

I would imagine that rates, public transport and other Council charges and fees are in the CPI calculation, so they are already doing that in spades.

it would be like the 'old lady who swallowed a fly'.

If we have inflation it means the general price level of goods and services rise. If companies are loaded up with debt and costs go up are they going to say..‘ we better increase wages’. No they’ll say we better service our debts or we default. If we have inflation I think stagflation is more likely - costs go up but wages are stagnant. If we don’t have that we turn into Japan and struggle with deflation.

It would be higher, and supply chains would dry up.
There's four or five airlines you need operating for freight, without them the country will be screwed.

Nah, it's a taxpayer funded handout to AirNZ wrapped in brown paper instead of Christmas wrapping.

PS David, I'm increasingly seeing ad's on mobile and desktop, when logged in with Presspatron account, has been happening for last week or so.

Yikes. Not supposed to happen. I need more details. I will email you.

Thanks for incredible quick response mate

Maybe we could up NZ productivity by getting David and his team to run half the country, they do a top job.

China just announced tariffs of up to 212% on all Aust wine. Congratulations to all who have ramped up this conflict & turned their backs on diplomacy. U have hobbled one of Australia’s few value-added exports & a great Australian success story. Many smaller producers will close. Link

Australian wine used to be very popular in the UK. Australia could cut prices a little and sell more in Europe. Meanwhile presumably the Chinese will be buying wine from other countries including Europe. Wine is an international commodity when one route is blocked it will flow in another direction. Unlike Scottish Whisky or French Champagne. Some disruption caused by the arbitrary change but wise suppliers would avoid dependence on single customers and especially a capricious customer/Government.

who owns the coal sitting in the ships off the chinese coast? when does it get paid for? who owns the ships going no where? I'm guessing these ships will eventually be unloaded in china, or they would have turned west to india long before now

I hope its a merry-go-round. If China doesn't buy Ozzie coal it will buy it from elsewhere. And Oz can sell its coal to whatever country that foreign coal was going to go to.

Correct but someone is loosing a lot of dough at the moment, are they AU businesses, or Chinese?

12
up

With the Government announcement today that 2000 seasonal workers will be admitted through quarantine it appears some industries have not made progress towards weaning themselves off cheap, seasonal imported workers: https://www.rnz.co.nz/news/national/431628/fruit-picking-worries-remain-...

For the lowest paid workers in our society we continue, under a Labour government, to dilute their market power and ability to negotiate better wages by flooding the market with cheap workers from overseas. We should be ashamed of this kind of exploitation in New Zealand.

It's pathetic & embarrassing. If ever it was a chance to change the industry it was now.

It's actually dangerous for our democracy as well because people in low wage jobs get displaced or lose the ability to earn a living through employment. They start to blame immigration (when actually it's the system) and start voting for far right politicians. Look at UKIP in the UK, AfD in Germany, National Front in France, Golden Dawn in Greece etc. Why would New Zealand court the policies that lead down this well worn path?

Because for some reason, our leaders view Europe as some kind of utopia that NZ should try and replicate.

Look at Act this election. It’s already starting.

Squishy. Please let us know what productive export earning industry you operate in so I can make ill informed comments. Latest batch of RSE workers on my orchard paid $24hr, slave labour rates for sure. Even daughter refuses to do it, she would rather work minimum wage for fast food outlets & get treated like $h1t by the invariably immigrant owner/manager. RSE schemes put $ directly into pacific island villagers willing hands instead of govt aid into some corrupt bureaucrats bank ac. Only NZ'rs we can get to work on orchards are supervisors. Work is physically hard, just spent all day out there myself & I'm knackered, just cannot get kiwis to do it. PS. In orchard parlance 'squishy's' or 'softs' are commonly reject fruit!

GordanC. Horticulture in view from my house in all directions. Never seen $24 offered. And income not reliable - the risk is put on the worker.

Hi KH, The minimum wage set for these workers is at $22/hr as I recall reading it the other day. The reason this is low is because there has been such a surge in cost of living, predominantly driven by housing costs. This is a systemic problem rather than an issue with operators within industries.

You have just worked hard all day. What income would make you do it again?

Thanks Gordon, I read your post and sympathize with your plight. My comments where not directed at operators but government. I work in technology/finance, we realise that what we do and the way we do it will need to be revolutionised if we intend to stay in business. The world is changing, so must we.

Hope you have a great year! :-)

Do you think $200 h/r would see kiwis lining up for the work?

How about $100? $50? I think they would.

The fact the government allows low wage imports to do the work prevents natural price discovery, supports wages staying low, and prevents inflation.

It's not that kiwis don't want to do it, they just don't want to do it at the rates you offer, the fact you feel entitled to the government policy that helps subvert natural labour market price discovery is despicable.

Let's not make this personal. Business is business, food production is cut throat and growers will always have to use any edge they can find to reduce costs in a very competitive industry. This is about setting the local economic environment to be conducive to positive social outcomes so all NZ growers are operating from the same cost base and can plan accordingly (e.g. manual v.s. automation, scale v.s. efficiency, this crop v.s. that crop.) I agree however that the current immigration setting subverts price discovery and disadvantages some low wage workers.