What happened Monday

A review of things you need to know before you go home on Monday; service sector struggles, a $½ bln FLP drawdown, the IRD targets realtors, yields rise sharply, swaps up, NZD holds, & more

15th Mar 21, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
No changes to report today.

TERM DEPOSIT RATE CHANGES
None here today either.

SERVICE SECTOR STRUGGLES
Activity in New Zealand’s services sector is stuck in contraction for a fourth consecutive month, according to the BNZ - BusinessNZ Performance of Services Index. It was a result that confirms the weak retail (electronic cards) data we reported last Wednesday.

NINE YEAR LOW
There has been some dramatic falls in migration trends across the board, with the number of New Zealand citizens returning diving to a nine year low as one example.

RISK OF CAPITAL LOSS HIGHER THAN IMPROVED YIELD OFFER?
Mercury's $250 mln "green bond" raising is indicating a +85 to +100 bps margin over swap for this 5½ year unsecured, unsubordinated fixed rate issue. The swap rate is likely to be something in the order of 1.25% when the issue is priced on Friday, March 19, although that is now a wide guess given how fast wholesale rates are shifting around at present. Still investors in these bonds are looking at a yield well over 2% - and the prospect the price of their bond will fall if you subscribe to the basis of the reflation trade swirls.

NEW REGIME FOR FINANCIAL ADVISERS IN PLACE
A new regulatory regime for financial advisers begins today (Monday March 15). Anyone who gives regulated financial advice to retail clients must now either hold, or operate under, a Financial Advice Provider licence. All providers of financial advice are now subject to the same obligation to place the interests of clients first and must follow a new Code of Conduct, the Financial Markets Authority says. FMA Director of Market Engagement John Botica says more than 10,200 financial advisers are included in the new licensing system, with more than 1700 transitional licences approved and nearly 1000 authorised bodies. Anyone not operating under a transitional Financial Advice Provider licence needs to apply for a full licence. The transitional period gives advisers two years to complete all the competence, knowledge and skill standards required.

WHO IS IT?
On Friday, another bank took $500 mln in the RBNZ Funding for Lending program. That takes the total drawn to $1.64 bln of the $28 bln allocated. The RBNZ doesn't reveal who is drawing these funds. It may take us a short while to work out who is this latest borrower. So far the Cooperative Bank ($40 mln), Westpac $1 bln) and Kiwibank ($100 mln) have each taken a small piece.

IRD WANTS TO TALK TO REALTORS
The IRD has issued this statement: "Inland Revenue is turning its hidden economy focus on to the real estate sector, including both the under reporting of income and the overstating of expenses. Inland Revenue spokesperson Richard Owen says “Real estate is one area that is booming during COVID and our analysis of the sector suggests real estate salespeople/agents commonly claim high level of expenses relative to their income.”

IRON ORE PRICE SLIPS
The iron ore price has slipped another -2% in early trade today.

SOME GOOD DATA, SOME QUESTIONS
In China, data for industrial production, and for retail sales both came in better than expected for the January-February period, and recorded gains far above the December month as well. Year-on-year data isn't so relevant as the 2020 bases were hugely affected by the onset of the pandemic there (and even if they do look spectacular in a chart). Chinese electricity production slipped sharply on a daily average basis from December and was even lower than for November, so that might be indicating a real economy slowdown, and something that isn't expected.

CHINESE HOUSE PIRCES RISE A LITTLE FASTER
House prices are rising a little faster in China than they have been recently. Of their 70 to cities, only nine had price falls. The range is from a fall of -1.5% year-on-year to +14.9%.

GOLD FIRMS
Gold is trading in Australia, and soon in Asian markets. So far today it is at US$1732 and up +US$4 from where it closed on Saturday.

EQUITIES GENERALLY HIGHER AGAIN
The NZX50 Capital Index has kicked off the week strongly with a gain in late trade of +1.2%. The big infrastructure deal announced today and rises for Tilt (+17.3%) / Infratil (+4.2%) has helped but Genesis has dipped -0.8%. The ASX200 is flat in early afternoon trade. In opening trades, Tokyo is up +0.4%, Hong Kong is +0.3% but Shanghai is down -0.7%. The S&P500 futures index suggests Wall Street will open tomorrow up +0.3%.

SWAP & BONDS RATES FALL FURTHER
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. They probably rise sharply but only back up to levels of mid last week. The 90 day bank bill rate is unchanged at 0.32%. The Australian Govt ten year benchmark rate is soft at 1.77% after it reached 1.81% on Saturday. The China Govt ten year bond is up +2 bps at 3.29%. The New Zealand Govt ten year is up +14 bps at 1.86% and a big catchup. And that is now above the level of the earlier RBNZ fixing at 1.79% (+10 bps). The US Govt ten year is +7 bps firmer from this time Friday at 1.61% but back from the 1.65% it reached in Saturday.

NZD HOLDS
The Kiwi dollar is now at 72.1 USc after having fallen to under 72USc over the weekend. It is not quite back to where it was this time on Friday. On the cross rates we are holding at 92.8 AUc. Against the euro we have stayed at 60.3 euro cents. That all means our TWI-5 is just over 74.

BITCOIN FLIRTS WITH RECORDS
After rising to a record high US$61,556 yesterday, it slipped away, then rose again reaching US$61,337 at about 5:30am this morning. But it has fallen since, now all the way back at US$59,743. But that is up +4.8% from this time on Friday. Volatility over the past 24 hours has still been realtively low at +/- 2.2%.

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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24 Comments

by richard1965 | 15th Mar 21, 4:23pm 1615778597

Has NZ targeted on Rising House Price or does he mean notification that Robertson has send to Mr Orr to add.

https://www.ft.com/content/c8959502-7dae-43b1-b993-3bf85fb4325a

If Jacinda Arden really wants to TARGET than should soon announce policy to TARGET speculative Demand but will she ?

Real opportunity to Jacinda Arden but will she rise to the occassion and not be influenced or pressurised by so called experts, lobbist, speculators - so called investors.

Wait and Watch

by Hummy | 15th Mar 21, 5:41pm 1615783309

It's all directed from overseas.

by Audaxes | 15th Mar 21, 4:30pm 1615779040

Chinese electricity production slipped sharply on a daily average basis from December and was even lower than for November, so that might be indicating a real economy slowdown, and something that isn't expected.
Hmmmm....
Yet Another Reminder: Listen To Xi Spell It All Out

Becoming more capitalist was instead a desperate exigency; necessary only to keep China from swallowing the same Soviet fate. These were not ideologically friendly reformers moving the Chinese state on its path toward Western ideas of free markets and freedom in general; on the contrary, they were opportunists who would harness and ride the wave of eurodollar-inspired, eurodollar-financed globalization to create a cushion of national wealth which would provide the necessary buffer to prevent China repeating the Russian demise at any point in the future.

Implicitly, Socialism with Chinese Characteristics had always meant ditching this post-eighties version of it whenever the timing suited. Around 2012-13, just as Xi Jinping was unexpectedly taking hold, the Communists began to seriously suspect the timing sure was about to suit another change. Ben Bernanke eventually admitted to false dawns the Chinese had already surmised were permanent changes.

Apparently, divisions and politics again, it wasn’t until after 2016’s final Western experimentation (Keynesianism) that finally settled the matter once and for all. While the world celebrated “globally synchronized growth” in 2017, Xi’s minions were already hard at work rearranging Chinese socialism in light of how they all saw it had been nothing more than a hollow slogan.

And then explicitly, outright telling the world about it (19th Party Congress).

Our Global Inflation Tour Chock Full of Normal

However, taking a closer look at Chinese prices we therefore expect to find that this is somehow different to qualify up to “robust”; prices in that sense rising in a manner unlike the way they had during at least the last decade in China. After all, over the past ten years the Chinese economy has only underperformed and failed to contribute “expectations for robust growth” every single time.

Not even close. In fact, when the NBS published its PPI and purchaser index figures it also released estimates for broad consumer prices in China, too. While commodities have clearly boosted the price trend on the production side of everything, though to a much smaller degree here than is being hyped up, consumer prices only exhibit mild yet outright deflation; their CPI fell 0.2% year-over-year in February 2021, in what had been the third decline over the past four months.

by taimaiakka0 | 15th Mar 21, 4:32pm 1615779157

Happy Realisation ( Now the turn of Mr Orr to admit) :

https://www.livewiremarkets.com/wires/rba-to-apra-we-ve-set-house-price…

by JimboJones | 15th Mar 21, 4:46pm 1615779992

Bit of a worry if their governor didn't know that! Apparently he thought interest rates didn't affect house prices; which implies he believed house prices would be the same at 50% interest rates as they are at 0.1%!
All theories can be tested at the extremes.

by stuart786786 | 15th Mar 21, 4:47pm 1615780030

Reserve Bank and Government infighting now exposed....passing the blame on each other exactly what is happening in NZ.

https://www.abc.net.au/news/2021-03-15/why-the-rba-and-the-government-d…

Time to act.

Mr Robertson should come out with serious measures / policies to control speculative demand and not just toothless tigers.

by J.C. | 15th Mar 21, 6:05pm 1615784740

Always thought the Aussie govt was pro-property bubble at any cost. By that I mean not apologizing for anything.

by Audaxes | 15th Mar 21, 5:21pm 1615782104

How about that:

5) Capital weights for higher risk loans

On its own, or in conjunction with restrictions on higher risk loans, APRA could increase the capital weights on these mortgages. If banks were facing a greater difference in capital costs for higher risk loans, they would likely respond by creating tiered pricing that rewards lower risk borrowers.

by stuart786786 | 15th Mar 21, 5:39pm 1615783195

Interesting Time Ahead.

When things go wrong their will be lot of infighting and passing of blame.

Keep popcorn ready for the show

by dago | 15th Mar 21, 6:02pm 1615784556

"Lowe’s speech followed a week after a lower profile Q&A session with Jonathan Kearns. His comments went several steps further than Lowe’s, noting interest rates are a key part of the valuation process for most asset classes. This is obvious to financial market participants, but it is something that the RBA had previously sought to downplay. He also acknowledged that while the positive wealth effect from rising assets prices stimulates the economy now, it comes with the likelihood that asset prices will fall in the future and that will have a negative wealth effect." - this is going to be the fatal mistake they're making, this last sentence, because the negative wealth effect will occur prior to house prices falling

by Justa comment | 15th Mar 21, 6:59pm 1615787986

Exactly. The way they try and seperate themselves from causing a 250k rise in house prises in 9 months is laughable. Re your link, could NZ have a 4.5x DTI the same as the UK, only if the employers are happy to give an across the board 35% pay rise lol.

by JimboJones | 15th Mar 21, 6:58pm 1615787918

Latest 1 news poll has labour on 49%. Seems like a lot of the comments on this website have little relevance to real world voters.

by Brock Landers | 15th Mar 21, 6:56pm 1615787784

Most kiwis aren't known for being the sharpest tools in the shed.

by Yvil | 15th Mar 21, 7:13pm 1615788806

Indeed Brock, indeed!

by Palmtree08 | 15th Mar 21, 7:30pm 1615789857

Or, maybe they just don't suffer medium term memory loss, like some here?

by Fritz | 15th Mar 21, 7:28pm 1615789687

A large chunk of them will be property owners and investors. Jacinda is like a God for them!!!
Would be interesting to see a poll of renters 2 years ago vs today

by alittle | 15th Mar 21, 8:18pm 1615792691

It is relative... The pricess of fall is in intial stage.... Wait for next survey and will be lower again from 49%..........

by Cowpat | 15th Mar 21, 7:25pm 1615789530

Westpac Overview July 2011( the first one I looked at)
"The third and final key message is that interest rates are going up.
It may not happen immediately, or even soon. But it will happen. We
are forecasting a three percentage point rise in interest rates over
the course of two years, which is a lot more than markets are
currently pricing in. " Dominic Stephens Chief forecaster
The Reserve Bank would lift the OCR 3 years later in March 2014 and lower them in 2015 and by 2016 they were 75bps lower.

by Fritz | 15th Mar 21, 7:30pm 1615789812

He's actually got a terrible track record. I mean it's not precise science, *but*....
One of his flaws is he doesn't caveat enough.

by Beanie | 15th Mar 21, 8:10pm 1615792227

I recall Tony Alexander was saying the same thing...encouraging borrowers to fix their rates before they went up. Banks must have been laughing all the way to the ....

by Squishy | 15th Mar 21, 7:27pm 1615789645

The only thing that's being stimulated is the price of fixed assets. Time to dam the Manukau Harbour inlet, pump it out and auction off sections.

by Zachary Smith | 15th Mar 21, 7:57pm 1615791446

I can see why folk are looking at buying a rental. The figures seem to add up. For example if you bought a 2 bedroom unit for 700k and put 200k of your own money into it that 200k will gross about 4% while also retaining its value. That's factoring in rates, insurance and management fees. That's a whole lot better than 1% in a term deposit. That 200k will be earning what 800k does in the bank.

Income streams is where its at surely so every little income stream, even a small one like that, will be worthwhile.

Yeah there's a bit of risk but money in the bank seems guaranteed to lose. Plus it's a bit boring. Could be fun to go hunting again.

by stuart786786 | 15th Mar 21, 8:46pm 1615794417

Jacinda and her team does not listen to advise but when they do not want to act, use advise as a tool to avoid or delay - standard reply that we are waiting for reply as they want to do nothing or play with time as much as possible as in the case of housing ponzi

https://www.newshub.co.nz/home/politics/2021/03/treasury-warned-governm…

by PonziKiwi | 16th Mar 21, 6:40am 1615830030

This happened on Monday

https://www.federalreserve.gov/monetarypolicy/reservereq.htm