What happened Tuesday

A review of things you need to know before you go home on Tuesday; affordability a mirage for FHBs, first FLP drawdown, FMA get some restitution, Aussie retail booms, swaps stable, NZD soft, & more

22nd Dec 20, 3:59pm by David Chaston

ID 22702269 © Daniaphoto | Dreamstime.com

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
There are no changes to report today.

TERM DEPOSIT RATE CHANGES
Heretaunga Building Society trimmed rates. Christian Savings advised they will be cutting TD rates slightly on January 1, 2021.

LOW RATES BRING NO BENEFITS TO FHBs
Home loan affordability isn't improving. The benefits of rising wages and lower interest rates on mortgage payments for first home buyers have been more than wiped out by rising house prices.

$1 BLN DRAWDOWN, BUT NO LOWER LOAN OFFERS YET
The first drawdown of the Funding for Lending program happened last week to the tune of $40 mln. [See update later.] But that is tiny in the grand RBNZ scheme of things. The FLP has had up to $28 bln assigned to it. And the Large Scale Asset purchase program was drawn by another $4.1 bln in November, taking its total to $49.6 bln so far in a program that has had $100 bln assigned to it. Last week's $40 mln FLP draw (at a cost of 0.25% pa) has not yet resulted in any bank publicly offering lower loan offers yet. But someone is getting ready as they are funded now. Update: A $1 bln was drawn down today on the FLP.

VICTIM RECOVERY
The FMA has welcomed two court decisions that will see victims of convicted fraudsters Steven Robertson and Rodney McCall receive a portion of their money back, about 59c in the $1. McCall (also known as Rodney Crichton) has also been sentenced to 12 months’ home detention for his crimes.

RETAIL BOOM
November retail sales in Australia came in far better than anyone expected. They were pretty average in October, but rose +7% from there to November when a flat rise was expected. In fact the November level is more than +13% higher than the same month in 2019, a huge make-up. Every category benefited. Not only was their Black Friday retail event a strong one, but the emergence from the Victorian lockdown also played a big part. (South Australia was in lockdown in November so they didn't really share in this boom.)

EQUITIES UPDATE
The S&P500 finished today's Wall Street session down -0.4%. The ASX200 is currently down -0.8% in early afternoon trade. The NZX50 Capital Index is up +1.4% near our close. The very large Tokyo exchange is down -0.4% in early trade today. Hong Kong is down -0.2% and Shanghai has opened -0.5% lower.

SWAP & BOND RATES ALL IN TIGHT RANGES
We don't have todays swap rate movements yet. If there are material changes when the end-of-day swap rates are available, we will update them here. The 90 day bank bill rate is up +2 bps at 0.27%. The Australian Govt ten year benchmark rate is unchanged at 0.98%. The China Govt ten year bond is also -1 bp lower at 3.30%. The New Zealand Govt ten year is up +2 bps at 0.97% and now above the earlier RBNZ-recorded fix of 0.95% (-1 bp). The US Govt ten year is down just -1 bp at 0.93%.

NZD HOLDS BUT SOFT
Against the US Dollar, the Kiwi dollar is down at 70.8 USc and holding its lower overnight level. On the cross rates we are little-changed against the Aussie at 93.6 AUc. Against the euro we have dipped to 57.9 euro cents. That all means our TWI-5 is now at 72.4 and just a tiny slip.

MORE BITCOIN VOLATILITY
Today the bitcoin price is currently at US$22,839 and down -3.8% from this time yesterday which is a fall of -US$900 in 24 hours.. The current price is almost the same as where it opened here this morning.

FINAL
This is our final "What happened today" for 2020. Our morning briefing will continue, even if in a slightly different form. This afternoon briefing will return on Monday, January 18, 2021. Happy holidays.

This soil moisture chart is animated here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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17 Comments

by Audaxes | 22nd Dec 20, 4:05pm 1608606332

The first drawdown of the Funding for Lending program happened last week to the tune of $40 mln.

$1.040 billion today.

by David Chaston | 22nd Dec 20, 4:08pm 1608606511

Ah, you are right! I missed this, thank you. Another $1 bln drawn today. Must be a major doing that.

by Audaxes | 22nd Dec 20, 4:22pm 1608607336

Someone needs to draw attention to the fact the security type collateralising this repo loan is not declared.

by Uninterested | 22nd Dec 20, 7:11pm 1608617499

I'm picking that this money is just going to substitute what the banks were going to lend anyway. And they may not drop their lending and mortgage rates much if any. So it will go into increasing bank profitability. (Thankfully dividends are in abeyance right now but look for higher than historical dividend payout ratios in future (partly) due to this).

by Audaxes | 22nd Dec 20, 7:55pm 1608620103

This money, the RBNZ collaterlised loan serves to refinance an existing asset, possibly funded by higher wholesale funding rates, at OCR (currently 25bps). The banks retain an economic interest in the posted collateral.

Banks are at liberty to issue new loans, theoretically at OCR plus. To whom is an unknown.

Banks will need to retain earnings in order to meet RWA capital requirements to issue new loans, unless they expand current lending volumes to government, so the RBNZ can meet it's predetermined QE purchase target.

by Audaxes | 22nd Dec 20, 4:37pm 1608608238

SIFMA Issues Paper To Assist With Planning For Negative Rates In The US

If one listens to the Fed, or looks at market-implied odds of subzero rates...

... the US will - unlike Europe or Japan - avoid the devastating central bank experiment that is negative interest rates, which not only does not encourage inflation but in fact ensures even greater savings, even less spending...

by Audaxes | 22nd Dec 20, 4:34pm 1608608079

And it did not take very long for some quite astute observers to recognize how it had all gone very wrong. Positive Economics had intended to be the set of guiding principles to lead the transformation into a true science but instead had gotten itself entangled in other matters only tangential to what was supposed to have been the focus of the whole damn effort.

Don’t take my word for it, here’s Nobel Laureate Ronald Coase saying exactly this while accepting that very prize.

"This neglect of other aspects of the system has been made easier by another feature of modern economic theory – the growing abstraction of the analysis, which does not seem to call for a detailed knowledge of the actual economic system or, at any rate, has managed to proceed without it."

Thus, the father of modern monetarism, Friedman, had come to believe (plucking model), violating his own principles, that permanent shocks to any industrialized, central bank-guided economy had been eliminated from even consideration. Hard-wired into econometric equations, there would (could) be no unit roots among the variables – as a matter of rationalization rather than rational science.
Link

by Henry_Tull | 22nd Dec 20, 4:58pm 1608609484

After the disease, the debt. After the plague, the pile of IOUs. It is a veritable mountain — a reminder that the original public debt in medieval Venice went by the name monte.

https://www.bloomberg.com/amp/opinion/articles/2020-12-13/after-coronav…

But history also teaches us that debt and power are connected: A great power or empire that accumulates too high a mountain of debt and fails to keep growth ahead of debt service is destined to decline. The Bourbons, the Ottomans and the British all learned this hard lesson. So the post-pandemic debt dynamics matter not just for markets but for geopolitics.

For mine, JA & GR have spectacularly wasted the time. The time to throw money into the economy, for investment & productivity.
Rather their collective ideological dogma sees them regulate down production & incomes.
https://genless.govt.nz/

# where is Rob Fyfe.

by powerdownkiwi | 22nd Dec 20, 4:58pm 1608609512

It's not money you have to 'throw into the economy' (and that is presupposing that 'the economy' is something long-term valid.

Which, in current form, it isn't.

But it's energy (fossil energy, predominantly) and resources to apply the energy to, which you need to allocate.

Try driving your tractor with a tank full of credit cards; you may catch on.

by Henry_Tull | 22nd Dec 20, 5:20pm 1608610847

Here is the contrast....

https://mobile.twitter.com/ajthompson13/status/1341145270571057153
Auckland City Mission says the Working Poor are now making up a big chunk of people they are helping.
What’s this say about the state of our economy

And the response.....
https://mobile.twitter.com/1NewsNZ/status/1341172328789549056
Jacinda Ardern says she sometimes suffers from 'imposter syndrome'

Now cause & effect (who to feel more sorry for?):
It is the reason that things happen. In essence, cause is the thing that makes other things happen.
Effect refers to what results. It is the what happened next in the text that results from a preceding cause.
To put it concisely, cause is the why something happened and effect is the what happened.

by Officebound | 22nd Dec 20, 6:30pm 1608615005

I'm pretty sure the mission has run with the same lines for 10 years + now..

by Millennial_Woman | 22nd Dec 20, 7:01pm 1608616916

Because it has been getting worse for 10+ years, and now its worse than ever. Make sense?

by Cowpat | 22nd Dec 20, 5:22pm 1608610948

Both Canada and New Zealand currently have the same Reserve Bank interest rate settings .Although mortgages in Canada are structured differently to New Zealand, and generally do not come with a Fiji holiday or hamper package, their current two and five year rates , many around the 1.5 percent mark, are significantly lower than those currently available in New Zealand . Could we see a New Year offer from one of big four , if not ,the likes of HSBC, (who is also active in Canada ) with a Xmas present to jolly the market along.

by Fritz | 22nd Dec 20, 7:25pm 1608618316

Just shows, yet again, how much kiwis get fleeced.
It's pretty pathetic really.

by J.C. | 22nd Dec 20, 5:45pm 1608612303

SEC going after Ripple for essentially selling XRP to raise money. This will probably mean that the SEC backs off on privacy for those who own cold storage wallets. Fundamentally different issues but I can't see the SEC having enough time and energy to burn on the digital assets world.

https://www.wsj.com/articles/ripple-to-face-sec-suit-over-xrp-cryptocur…

by Yvil | 22nd Dec 20, 9:53pm 1608627207

Merry Christmas to the whole team at Interest

by Nzdan | 22nd Dec 20, 11:24pm 1608632681

Agreed. Thank you the Interest team for providing the platform for this content.

Merry Christmas to you too Yvil!