What happened Friday

A review of things you need to know before you go home on Friday; a TD rate cut, sellers market for housing, eyes in inflation, RBNZ updates on security issue, swaps unchanged, NZD firmer, & more

15th Jan 21, 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
No changes today.

TERM DEPOSIT RATE CHANGES
Heartland Bank has cut its term deposit rates, but their offers are still higher than the main banks.

UNBALANCED IN SELLERS FAVOUR
2020 was capped with a +19% rise in house prices for the year despite a sharp jump in volumes sold. Prices were up +$323/day in December in Auckland, according to REINZ data. Infometrics called the market "scorching", Kiwibank called it "a feeding frenzy", and Westpac sees it "red-hot". The REINZ themselves said that this will continue if more "stock" (=listings) don't come on to the market soon.

INFLATION SCARCE
Eyes now turn to inflation prospects with the Q4-2020 CPI due out next week on Friday. A tame +1.1% or +1.2% is expected and 'tame' is usual for Q4s. We have asset price inflation in spades, but no consumer price inflation. We are little different to other countries in this regard, and are relatively high exchange rate helps keep prices depressed. BTW, Stats NZ is adjusting CPI for the disappearance of the costs for international travel in household spending.

TAURANGA'S CREDIT RATING CUT
Update: S&P Global Ratings have cut the city's credit rating by one notch to A+.

ANOTHER UPDATE
The RBNZ has given a third update on what it is doing to recover from a security breach in its File Transfer Application system. (It wasn't directed at the RBNZ, but it did involve them as a client of the contractor attacked.)

ONLY 1800 SKIPPED WHEN THEY COULD
The Aussies are noting that overseas visitor arrivals from New Zealand increased to 1,800 in November 2020, the highest number of arrivals from any country since COVID-related border closures were imposed. This increase comes off the back of the recently announced one-way Safe Travel Zone with New Zealand. It isn't an arrangement that New Zealand reciprocated.

ALL OWNER-OCCUPIER DEMAND
The total value of new loan commitments for housing in Australia and their value of owner occupier home loan commitments both reached record highs in November 2020. They were up +5.6% from October to AU$24 bln, and were +24% higher than in November 2019. This latest level is a record high for them. Interestingly, the owner-occupied rise was +31% whereas the rise of investor lending was only +4%, year-on-year.

SAYING NO TO COAL
Policy changes announced by Vietnam, Indonesia, Bangladesh and a full stop on new coal plants in the Philippines may mean the industry will be lucky to see any significant expansion of new coal-power projects in the region in 2021.

GOLD FIRMS
Gold ended its New York session up +US$2/oz earlier today to US$1847/oz and +US$5 above the eralier afternoon fix in London. In subsequent trade it is making a good further gain and is now at US$1853/oz in Australian trade and heading into the Asian sessions.

EQUITIES UPDATE
Wall Street ended today tailing off lower and ending down -0.4%. So far this week they are down -0.8%. The ASX200 is up +0.3% in early afternoon trade and heading for a flat weekly result. The NZX50 Capital Index is down -0.7% in late trade today and heading for a weekly loss of -4% shedding all of the first week's run-up. Shanghai has opened flat, Hong Kong has opened down -0.2%, while the very large Tokyo exchange is down a small -0.1% and holding on to all of yesterday's big gain. They are up +4.4% since the start of 2021.

SWAP & BOND RATES HOLD
We don't have today's swap rate movements yet. They were marginally flatter across the curve yesterday especially at the long end. If there are material changes when the end-of-day swap rates are available today, we will update them here. The 90 day bank bill rate is unchanged at 0.28%. The Australian Govt ten year benchmark rate is up by +2 bps at 1.06%. The China Govt ten year bond is unchanged at 3.14%. The New Zealand Govt ten year is up by +1 bp at 1.04% and well below the earlier RBNZ fix at 1.08% (+2 bps). The US Govt ten year is up +3 bps at 1.11%.

NZD FIRM
The Kiwi dollar is marginally firmer than at this time yesterday at 72.1 USc. On the cross rates we are unchanged against the Aussie at 92.8 AUc. Against the euro we have risen slightly to 59.4 euro cents. That all means our TWI-5 is now at 73.4 and a relatively small daily rise.

BITCOIN UP AGAIN
As we reported this morning, the bitcoin price is rising sharply again, up another +5% from this time yesterday at US$39,160. (It breached US$40,000 again earlier in the day.) Volatility is still high however, +/- 4.5% today.

BACK AT FULL STRENGTH
The full interest.co.nz team of journalists is back on Monday led by Gareth Vaughan, so you will get a better, more in-depth standard of news then.

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

Select chart tabs

Source: RBNZ

Source: CoinDesk

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29 Comments

by Mark Hubbard 1965 | 15th Jan 21, 4:25pm 1610681159

On my screens the NZ10yr is down by 4 basis points? Indeed there's a nice little rally across the boards, particularly at the short end of the curve.

by powerdownkiwi | 15th Jan 21, 5:01pm 1610683276

A zero-sum game, is betting in the non-productive world.

Correction: a less than zero-sum game, in the longer term.

More important, Biden's near-2 trillion debt injection, atop an already eye-wateringly unrepayable total, raises a question:
When will disbelief in debt repayable-ness reflect in disbelief in money?

Because when that happens, all bets are off.

by MLSmith1 | 15th Jan 21, 8:46pm 1610696763

Simulation and simulacra will not allow it!

by Mark Hubbard 1965 | 16th Jan 21, 8:31am 1610739115

To poweredowndoomsdayprepper

So, are you going to stalk me across every serious post to bore me with this tiresome repetitive doomsday prepper bilge?

In the nicest possible way, if you want to interact on topic, fine. If you're just going to push this obsession of yours, then bugger off. I'm so bored with it. And it's disrespectful.

Your comment here doesn't even interact with my comment on any single nexus. None. My comment is simply questioning the report showing NZ treasury yields are up when my screens show them down.

by Hook | 16th Jan 21, 9:46am 1610743617

Well said Mr Hubbard.
The person you refer to is a perennial flatearth believing, tinfoil hat wearer who never engages in direct dialogue. He's even been challenged by the likes of Keith Woodford and never replies. I think he must be Chaston's close friend or perhaps relative to be able to trot out his repetitive dialogue like a stuck record over and over without being removed

by solardb | 15th Jan 21, 4:39pm 1610681991

NZ imports coal from Indonesia to run Huntly power station, when required. Could get embarrassing.

by Rosenstein | 15th Jan 21, 4:48pm 1610682515

nothing a few smiles and hugs can't cure

by powerdownkiwi | 15th Jan 21, 4:58pm 1610683103

That's a coal-ition Government for you.

Like it or lump it.

by frazz | 15th Jan 21, 5:52pm 1610686375

Really?

by Noncents | 15th Jan 21, 8:03pm 1610694230

Save a Kakapo... kill an Orangutan

by Uninterested | 15th Jan 21, 8:57pm 1610697440

Used to be half import half local. Not sure what it is now.

by nigelh | 16th Jan 21, 7:33am 1610735613

Easy fix. Shut down Huntly or make sure it runs on gas only, the lesser of two fossil fuel evils. As someone on another post on another article said "At the stroke of a pen" The gas option. Hang on I think the gas comes from Taranaki but they could well be running short or the price is not right.
But wait, shutting down Huntly would have unintended consequences like rolling blackouts or trying to persuade consumers to reduce their consumption.
Too many talking the talk about emissions but when it comes to the crunch quietly look away.

by Rosenstein | 15th Jan 21, 4:47pm 1610682464

Intersting CPI is at 1%. Cost of new build is 8% of the weight in the CPI if I read the graphs right. Without a 20% increase in houses, maybe we would have gone negative in the CPI. Maybe this is the only source of inflation the RBNZ can muster. Maybe this is why they dropped LVRs. Negative inflation = bad news for bankologists.

by J.C. | 15th Jan 21, 6:05pm 1610687119

The CPI is such a crock. I steer away from conspiracy but the BS runs so deep with how inflation is actually measured.

by iconoclast | 15th Jan 21, 5:20pm 1610684448

Listen to the Chatter

I don't have any skin in the Bitcoin game

The gymnastics of BTC, plus Global QE, plus insane flight into property, plus global stock markets hitting highs

Is telling me the smart money is betting on rampant inflation

by scarfie | 15th Jan 21, 5:25pm 1610684702

I suspect supply chain disruptions in the shipping business may add fuel to the fire.

by J.C. | 15th Jan 21, 6:07pm 1610687248

As a BTC owner, in the parts of the community I belong to, we believe that inflation is off the hook for quite some time.

by Andrewj | 15th Jan 21, 6:16pm 1610687763

I'm not so sure. Last week in the States 1,000,000 people signed up for unemployment. As insane as the world we live in is, I think Von Mises is right either you restrict credit of face a currency crisis. This in spite of Bidens 1.9 trillion stimulus plan.

The consequences of Covid lockdowns haven't hit yet but it has to be coming. I just spoke to my fertiliser spreader, he's at the beach out of work, he said no one is spending it's dead.

https://alhambrapartners.com/2021/01/14/rising-probability-for-a-second…

by J.C. | 15th Jan 21, 6:21pm 1610688074

I think Von Mises is right either you restrict credit of face a currency crisis.

Yes. But the money supply is so out of control and has been for some time. So if you consider that money supply is "inflation", we're already there, don't you think? That is not to say that deflation in asset prices can't or won't occur. That just depends what assets you're focusing on.

by Audaxes | 15th Jan 21, 6:34pm 1610688840

Can banks justify rising concentration and credit risks by extending mortgage debt to a minority of NZ households and at the same time starve the debt dependent means of production and wages anymore than they already do?

Real capital is grounded in the production of real things of real value, of course, and when it’s detached from all that, it’s no longer real capital. Money represents capital, and when the capital isn’t real, the money represents…nothing! And ceases to be real money. Just now, America is producing almost nothing except money, money in quantities that stupefy the imagination — trillions here, there, and everywhere. The trouble is that money is vanishing as fast as it’s being created. That’s because it’s based on promises to be paid back into existence that will never be kept, on top of prior promises to pay back money that were broken or are in the process of breaking. The net result is that money is actually disappearing faster than it can be created, even in vast quantities. Link

by Andrewj | 15th Jan 21, 6:46pm 1610689609

Biden is going to spent 5k a head, after a few weeks it's gone and then what? My daughter got a covid payout but said after a few weeks in AKL, it's all gone in rent and food and my jobs not back.

by MLSmith1 | 15th Jan 21, 8:54pm 1610697280

Question is do they have to justify it... no.
Another question to our banks.... at what point does their over-exposure to residential realestate equate to a risk they are no longer able to bear. That is when NZ inc income no longer supports the ability to pay interest when rates increase

by Andrewj | 15th Jan 21, 6:33pm 1610688782

but the bond market isn't signalling inflation, it a rush to safety. I grew up in a high inflation environment and this doesn't feel anything like then, perhaps due to Chinese influence in markets.
Low interest rates inflate assets until they are no longer affordable.

by J.C. | 15th Jan 21, 6:55pm 1610690126

I grew up in a high inflation environment and this doesn't feel anything like then, perhaps due to Chinese influence in markets.

NZ is a very high-cost consumer market and I cannot see how it can go through a deflationary cycle without the whole consumer economy going under. It's not like Japan, Europe, and North America where they have the production efficiencies and scale to transition from a high-cost market to lower-cost market.

by Andrewj | 15th Jan 21, 7:03pm 1610690622

The amount of debt being racked up needs the capital paid back at least.
https://www.rbnz.govt.nz/statistics/c5

You will notice in my business , farming ain't going anywhere.

by brisket | 16th Jan 21, 8:30am 1610739010

It is the crucial question, isn’t it?— whether massive inflation in asset prices must lead to either CPI inflation, or an asset bust, or whether it can somehow keep going.

by Galloleous | 18th Jan 21, 9:57am 1610917061

The sad thing is people rate inflation by the CPI, which is a basket of goods CHOSEN by the banks/government with an agenda to push, and that is that there is low to no inflation. But when you can choose what to put in this basket, it doesn't do its job very well. We all know htat any goods you might aim to buy in the future (luxury goods or assets) are going up at rates significantly higher than CPI.
Monetary Inflation is what you also need to watch https://fred.stlouisfed.org/series/M2 the more they print the more worthless your $$ becomes. It might not feel like it now but it will arrive eventually.

by Andrewj | 15th Jan 21, 6:51pm 1610689877

John Authers Bloomberg

A Ludicrous Indicator
For all the uncertainty, there is plenty of extreme behavior going on. It’s possible to debate whether this is indicative of a bubble, or merely of speculative froth at the margin, but the signs of excess not seen in 20 years are unmistakable. My favorite new indicator of this is the Bespoke Investment “ludicrous” indicator. This adds up the total number of U.S. companies that have a market cap of $500 million or more (so they’re not tiny), trade at a multiple of 10 or more times last year’s sales, and have doubled in the last three months. Even Tesla Inc. didn’t quite make all these criteria. But the number of companies that did is startlingly high:
The fact that more than 600 companies meet all of these ludicrous requirements, and that this number dwarfs anything seen in a decade, is deeply alarming. On the other hand, this is still less than half the number of stocks that met all of these criteria at the top of the dot-com bubble 21 years ago. That suggests we are still a way from matching such insanity. This could be January 1999, with much more money to be made before the crash, rather than February 2000. Presumably, such thinking motivates the people prepared to buy such stocks.

However construed, these numbers are both ludicrous and perilous.

by Andrewj | 15th Jan 21, 7:01pm 1610690466

It's always someone elses fault
https://twitter.com/i/status/1306622896677117959