A review of things you need to know before you go home on Tuesday; no retail rate changes, retail trade eases, $300 bln of mortgages rise fast, $400 bln of deposits rise fast too, swaps unchanged, NZD stays high, & more

A review of things you need to know before you go home on Tuesday; no retail rate changes, retail trade eases, $300 bln of mortgages rise fast, $400 bln of deposits rise fast too, swaps unchanged, NZD stays high, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
There are no changes to report here.

TERM DEPOSIT RATE CHANGES
None here either.

RETAIL EASES IN DEC FROM SEPT, BUT UP STRONGLY Y/Y
Real retail spending fell by -2.7% in the December quarter
from the September quarter when it rose a massive +28% after the economy exited lockdown. On a year-on-year basis using nominal values, the December quarter retail revenues were up +4.9%, compared to the September rise of +7.4%. Stats NZ says car sales are driving this retail growth. But all this feeds into the December GDP and analysts now expect that to come in with a contraction of -0.7% real from the very strong September.

A 44 MONTH HIGH
Debt data published by the RBNZ is seriously delayed given their Accellion troubles. Today they released this data for December and it showed total housing debt almost touched $300 bln ($299.4 bln), up +8.2% in a year. It has likely risen from there in January and February given the hot housing market. That December growth is the fastest in almost four years (April 2017). Debt owed to financial institutions by both the business and rural sector is actually shrinking (-3.3% and -1.2% respectively on year-on-year basis).

A 22 YEAR LOW
Included in this C5 data release is more evidence the Buy-Now, Pay-Later sector is eating into bank and finance company personal lending (credit cards and personal loans). This is down -12.2% year-on-year, and that is the fastest decline ever recorded in a record that goes back monthly to June 1999.

TWIST TO AT-CALL
Total deposits
in banks exceeded $400 bln for the first time even in December, rising +10.6% in a year. Household deposits rose +9.8% in the same time to a record $203.1 bln and that was the fastest growth in 54 months. But term deposits withered by -11.4% in a year to just $90.3 bln which is back to levels in TDs in late 2017. It is leaking away at the rate of about $2 bln/month. The proportion of household deposits in TDs is now down to just 44%, and down from 57% just 18 months ago.

CHILD POVERTY DOWN SLIGHTLY, BUT ...
In the year ended June 2020, 18% of New Zealand children (208,400, or about 1 in 5) lived in households with less than 50% of the median equivalised disposable household income after deducting housing costs and compared to the median income from the June 2018 baseline year. This is a reduction from 23% percent of children in a similar situation in the preceding year. But this data is old. Stats NZ sopped collecting it during the pandemic lockdown, so it is unknown what impact that has had on child poverty.

"V-SHAPED RECOVERY"
NZIER forecasts annual average GDP growth to pick up to over +6% by the end of this year, before moderating to average around +3% in the subsequent years. They say, "while disruptive, the brevity of Alert Level 3 for Auckland and Alert Level 2 for the rest of the country means that the V-shaped recovery for New Zealand should remain. Construction demand is growing strongly after weakness over the first half of 2020, and we expect it will continue to lead the recovery over the coming years”.

ANOTHER VIEW
Massey's GDP Live reckons the Dec-20 result will be much lower than most other forecasters, but that we are already on our way back to a more steady state.

A FAST RISING COST - OR IS THAT NOW AN ASSET PRICE?
The price of carbon is rising again after a brief hesitation. It is now up over $39/tonne for a NZ Unit (NZU), which is equivalent to a tonne of carbon dioxide-equivalent emissions. A month ago it was priced at about $38/NZU. A year ago it was about NZ$25/NZU. So that means it has risen more than +55% in one year. Perhaps it is no surprise that carbon farming is taking off.

WHOLESALE ELECTRICITY PRICE JUMPS
The wholesale cost of electricity has jumped recently, and the reference Hawyards cost is now up to $319/MWhr. That is its highest since late 2018. We have been on a steadily rising trend since early November. Lake inflows are falling and lake storage is falling away from its long-term trend for this time of year.

SURPLUSES CONTINUE
In Australia, their trade surplus came in at AU$8.8 bln in January. January import of goods fell -10%, while export of goods fell -9%. Exports of meat (down -39%) and coal (down -8%) drove the decline in January. Exports of iron ore fell too.

GOLD FIRM
Gold is trading in Australia, and soon in Asian markets. So far today it is at US$1812 and up +US$24 from where it was this time yesterday, and up +US$1 from where it closed in New York earlier today.

EQUITIES UPDATES
The S&P500 closed down -0.8% on Wall Street today. The NZX50 Capital Index is down -0.6% in late trade this afternoon, while the ASX200 is up a minor +0.1% in early afternoon trade. Tokyo is closed today for the Emperor's Birthday. Hong Kong has opened down -0.4% and Shanghai has opened down -0.1%.

SWAP & BONDS RATES TAKE OFF AT LONG END
Yesterday the 10 year jumped +14 bps and the 7 year was up +12 bps. From 3 years duration and longer, there have been outsized rises. We don't have today's closing swap rates yet. If there are movements today, we will note them here later when we get the data. It is likely there will be little-change from yesterday. Today the 90 day bank bill rate is up +1 bp at 0.28%. The Australian Govt ten year benchmark rate is up another +6 bps at 1.62%. The China Govt ten year bond is unchanged at 3.30%. But the New Zealand Govt ten year is unchanged at 1.65%. That is now below where the earlier RBNZ fix was, at 1.69% (+10 bps). The US Govt ten year is down -1 bp from this time yesterday at 1.37%.

NZD SLIPS
The Kiwi dollar has held its new recent higher level at just over 73.3 USc. On the cross rates we are softish at 92.5 AUc has the AUD makes gains. Against the euro we are also softer at 60.2 euro cents. That all means our TWI-5 is down at 74.2.

BITCOIN SLIPS FASTER
The bitcoin price is now at US$53,058 and -6.6% lower than this time yesterday when it was -1.6% lower. At one point in the past 24 hours it got down as low as US$47,780. Volatility over the past 24 hours has been an extreme +/- 9.9%.

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38 Comments

45
up

" housing debt almost touched $300 bln up +8.2% in a year. It has likely risen from there in January and February"

And what did our bold Finance Minister have to say about that in Parliament today, when asked by the Opposition why he wasn’t doing something about the runaway property market?
“If that Member had done something about it during the 9 years his Party were in Government……”
Grant! YOU are in Government now, not National. YOU are supposed to be acting in our country’s best interest NOW. What happened a decade ago has happened. It's immaterial to what you decide to do, or not, today.
By your own admission, given in the answer to the Opposition question, you acknowledge that there is a massive problem, so why aren’t YOU doing something about it, NOW?

21
up

And we are supposed to call these people "leaders"

It's the Age Old Story - people never want to take responsibility:

Woman: 'The serpent tricked me'
Man: 'The woman YOU Gave ME offered it to me'

Age Old Story!!.. knowledge of good-n-evil.. meanwhile.. "another child waits" lol

29
up

More evidence that after 9 years in opposition Grant didn't have a plan ready to unleash. Now, after 39 months in power he still doesn't have a plan

21
up

He really has some nerve trying to deflect with such obnoxious responses. His reaction really shows his lack of any sense of responsibility to his country. Ever time he opens his mouth offers further proof he is rotten

11
up

bw
Agreed.
While Labour - aided by RBNZ - have arguably done a great job with Covid and minimising it’s economic consequences by both ensuring businesses remain afloat and minimising unemployment there are a considerable number of pressing and growing issues - housing, homelessness, and (what was considered a priority in 2017 but still unresolved) child - and family - poverty.
This time last year (at the same time of implementing a Covid response) GR mooted that there was urgent need for an economic reset. A year later there is no evidence of discussion or policies around that urgent need.

Imagine, the nerve of him - not fixing in 3 years the problem national ignored for 9....

22
up

I know right. After campaigning on fixing it, imagine expecting Labour to deliver what they promised

13
up

Yet he moved so damn fast to change LVRS "because covid" that his double-chin sustained a whiplash injury

10
up

especially after engineering a 19% rise in prices in the last year alone ..

Imagine having nine years to come up with a plan only for it to be unworkable garbage and then bleating that it's everyone else's fault. Don't worry though, people will still rush to his defence even though he's doing less than National, who were apparently ignoring it. So what does that say about Labour's response? Also, how many years of floundering and going backwards is acceptable before we start expecting some basic accountability? Do we need to wait for four terms for this tedious talking point to die, so we can hold people to their own damn campaign policies?

bw - It must never be forgotten that house prices before the 9 year Key era in the 9 year Clark era prices increased even more.
Seems a pattern more house price inflation under Labour !

12
up

Quite right.

But the same applies. It's history. We should have learned from it, and we haven't - none of us. (present company excepted!)

We knew when Helen Clark told us she had 7 investment properties because 'they were her retirement fund" that we had a problem (What about your Parliamentary Pension Plan, Helen? Most New Zealanders would do very well on that!)

We've known for 20 years or more that we had a problem, but most of us chose not to look because 'it was making us rich!". But now, many see that it was all an illusion. The Nation; our children, are WORSE off for what we have allowed to transpire in the property 'market'.

Labour came into this Parliament with no ignorance of the problem - it was out in the open for all to see. They more than us (they have the better figures to view) and what have they done?

Nothing.

Disgraceful.

He comes across as fat and lazy, I must say.
And like he doesn't give a rat's ass.

What do you expect from a diversity hire?

You are better than this sort of low comment - or are you?

19
up

"CHILD POVERTY DOWN SLIGHTLY, BUT ..."

Another PR story from Labour designed to hit the headlines and have your average kiwi think all is well. Yet as again with Labour, the devil is in the detail...or for that fact no detail since Covid lockdowns. Hopefully the public can see through this facade but I suspect not.

They may be a shit government but they seem to have a stellar bullshit...sorry 'PR', department...

Why would Stats stop collecting the data during lockdown? What do they do go door knocking?

I don't 'buy' that as a reason for the old data one little bit.

Stats has much of its data collated and given to them by other government departments. It is likely the data they needed was not supplied by other departments who were at home during the lock down and/or had limited access to their data. A lot of private data cannot be accessed by government employees when they are working from home, even in Stats. Every public CIO is absolutely scared s*#tless of data breaches. Well not breaches per-se, but breaches which get out to the press and make them look bad as it will affect their potential to land the next cushy role.

So I take it those civil servants who couldn't process data took the 80% paycut many others were forced to take?

14
up

“Debt owed to financial institutions by both the business and rural sector is actually shrinking”

And a good thing too – these sectors just do useless things like providing employment and creating export receipts – best they simply dry up and disappear.

Thankfully housing is doing all the heavy lifting now, enabling everyone to prosper without all that work and toil carry-on that inflicts other less enlightened nations.

Some big moves in silver miner stocks and across the funds (SIL,SILJ) and even the goldies (GDX, GDXJ).

Something brewing or just more shenanigans?

I noted in today's morning report US short rates (T Bills) are collapsing:

I gave one longer-term explanation for heightened(ing) bill demand here(NPL’s and possible bank downgrades on an economy that stumbles rather than gets stimulated). I offered another technical possibility last Friday, one that would account for both sides of the yield twist:

If it requires offsetting positions to make sure that a bank’s balance sheet hasn’t grown “too much” during the SLR relief period, this might entail having to sell assets to get in under thresholds. Given a choice, while these banks can use bank reserves to satisfy some surcharges, maybe they’d prefer selling off long end UST’s in favor of holding onto T-bills (or even buying more). Link

Follow the embedded links in the linked article and also note the U.S. Mortgage Refinance Index is exhibiting a setback as mortgage rates rise, which causes bond traders to further disengage from the negative convexity hedge to buy 10 year US Treasury bonds when mortgage rates fall and energise refinance activity. Which in turn maybe related to the covid alteration of SLR last May being reimposed on 31st March 2021 - hence banks possibly dumping position to reduce the impact.

Too Much TBA could also be a potential factor.

Just for the record I traded this spread for a profit until Volcker hiked rates : Commodities; A Lesson On Futures Spreading

House prices up all over the world, wondering where all that people came from. Or is something else behind that?

Quite some years back I looked at the size of the money supply versus the size of debt (same thing). At that time housing was 75%, and personal loans 8%. I've not kept a watch on them, but those figures could be used as a proxy for true inflation, or expansion of the money supply.

So real inflation at 10%.

14
up

Expansion of the money supply is inflation. Not the garbage about the CPI on the state news broadcaster.

How few people will accept that. You'll be put in stock over a comment like that!
"Inflation is CPI - no if's or buts....."

Quantitative Easing and the Quantity Theory of Credit - Richard Werner

2. The origin and definition of QE
The QTC suggests that neither interest rate reductions nor fiscal expansion, nor reserve expansion, nor structural reforms would be able to stimulate nominal GDP growth. Based on this model I proposed in 1994 and 1995 that a new type of monetary policy be implemented in Japan, which aimed not at lowering the price of money, or expanding monetary aggregates, but at the expansion of credit creation for GDP transactions.4 Since the expression ‘credit creation’ was considered difficult to understand in Japanese, I prefaced the standard Japanese expression for monetary stimulation (‘monetary easing’ or ‘easing’) with the word ‘quantitative’ to declare that ‘Quantitative Easing’, defined as credit creation for GDP transactions, would create a recovery (Werner, 1995). ‘Quantitative easing’, or, in long, ‘quantitative monetary easing’ are literal translations of the Japanese expressions 量的緩和 (ryōteki kanwa) or 量的金融緩和 (ryōteki kinyū kanwa), kanwa, respectively. These expressions had until then not been used to refer to the money supply, bank reserves or deposit aggregates. I suggested in numerous publications that the central bank purchase non-performing assets from the banks to clean up their balance sheets, that the successful system of ‘guidance’ of bank credit should be re-introduced, that capital adequacy rules should be loosened not tightened, and that the government could kick-start bank credit creation and thus trigger a rapid recovery by stopping the issuance of bonds and instead entering into loan contracts with the commercial banks (e.g. Werner, 1998).

My articles caused consternation among economists of diverging schools of thought. The Keynesians, such as Richard Koo, disputed that further monetary stimulation of any kind was needed and that fiscal policy on its own was going to be ineffective. The government listened to Mr Koo, and Japan continued to expand its national debt in massive spending programmes, while credit growth continued to stagnate. So did the economy. Monetarists, such as Peter Morgan or Alan Meltzer, likewise argued that a lack of bank credit was not a problem and ‘quantitative easing’ in the form of credit creation was not needed. Instead, they argued, an expansion in bank reserves at the central bank would do the job. But massive reserve expansions failed to make any impact and due to stagnating bank credit, economic growth remained well below its potential for most of the following decade and a half. Supply-side economists and proponents of real business cycle models argued that a lack of bank credit could not be the problem — after all, their models did not include banks! I warned during the 1990s that fiscal expansion funded by bond issuance was likely to crowd out private demand, that the expansion of bank reserves would have no impact as idle reserves do not translate into bank credit growth when banks are risk-averse, and that structural reform, if able to increase productivity (which is doubtful) would merely boost potential growth, while Japan’s economy had remained in recession due to a lack of demand. Link and long version

Gold & Bitcoin

Gold holders will be happy with today's pop given global-weekend-trading was trending down. With the rising NZ Dollar, Kiwi investors will be facing 'opportunity cost' scenarios. Gold is still near its all time high - still higher in NZD than after the GFC.

Silver is holding strong and up significantly from this time last year [USD $12-20}.. yet nowhere near its all time high [approx USD $50]. Though the 2011-Run-Up was due to J P Morgan unwinding their short position and Nelson Bunker Hunt (and partners!!) monopolization attempt. Silver has often been a widow maker.

Bitcoin: holding bitcoin and increasing holdings via dollar-cost-averaging is a proven strategy. Expectations are for Bitcoin to be much higher come the end of the year. Bitcoin is DOWN 9.5% in the past day, yet UP 2% the past 7 days.

Retail and Institutional Holders may be profit taking - YET, if capital inflow don't support a near USD $60,000 Bitcoin, the price decreases. However, Bitcoin's IMEDIATE success is in its ability to bank the unbanked and offer an alternative, cheaper remittances system [example; US to Mexico].

Bitcoin being a Deflationary-Monetary-System means the price will increase with it's expanding network effect. The applications and implications of decentralized currency will likely be akin to technology - people never realizing how far and quickly it would go.

MicroStrategy is likely to purchase over a billion dollars worth of Bitcoin, over the coming weeks.. the 'Saylor Bot' buying the dips will surely add some kind of sell floor.

Great assessment all round.

16
up

Poor old Grant – it’s bordering on comical – what lunacy have they unleashed?

He is too make sure house prices don’t rise too rapidly – but he is also to make sure that they always rise steadily and are never to fall.

Quite absurd really – he and Ardern have painted themselves into a marvelously impossible corner.

Little surprise over delay and dither tactics - a by-product of being horribly out of their depth

The NZ command economy. Goldilocks. Not too hot, not too cold.

Goldilocks you say – sadly more a case of Goldilost as far as Ardern and her command economy is concerned.

Is Canada's liberal phoney leader Ardern's long lost twin?

https://www.google.com/amp/s/amp.scmp.com/news/world/united-states-canad...