What happened Wednesday - a giant edition

A review of things you need to know before you go home on Wednesday; light rail runs off track, business confidence slips, Auckland DTIs blow out, another $1 bln in FLP, swaps rise, NZD stable, & much more

31st Mar 21, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
Nothing here today.

TERM DEPOSIT RATE CHANGES
Nothing here either. But BNZ did cut -5 bps from its RapidSave account taking it to 0.20%.

THE TRACKS AHEAD
Auckland’s population may rise from its current 1.7 mln to over 2 million early in the 2030s according to Stats NZ projections. The exact timing depends on how migration resumes. Auckland is currently home to 34% of New Zealand’s population and by 2048 it could make up 37%. Population growth rates in Waikato, Bay of Plenty, Canterbury, and Northland are also important contributors to New Zealand’s increasing population, they said. These projections indicate that by 2033, the national population could grow from the current 5.1 mln to as much as 6.2 mln - or as low as 5.2 mln.

BACK TO SQUARE ONE
Auckland light rail proposals have run off the tracks. The Government has announced a new 'establishment unit' to 'progress this important city-shaping project', and concedes the previous attempts have failed to get project running. They now say there will be decisions at end of this year.

'SLIPPING'
The final ANZ business confidence survey for March reported slippage. Business confidence fell 11 points to a net -4% in March from February, while firms’ own activity outlook fell 4 points to 17%. All forward-looking activity indicators were lower in the second half of the month. The construction sector reported being much less busy, though they still had the strongest activity expectations across the economy. Inflation pressures remain strong.

DTIs BLOW OUT
Latest figures from the Reserve Bank confirm that the massive surge in house prices toward the end of last year saw buyers stretch themselves much further financially.

TONY KINZETT RETIRING AS FIRST MORTGAGE TRUST CEO
Tauranga-based First Mortgage Trust CEO Tony Kinzett is retiring after 15 years in the role. Nearly 5,000 investors have more than $1 billion invested in the Trust. First Mortgage Managers, which manages the Trust, will select Kinzett's successor.

EASING BACK
The RBNZ has eased some of the restrictions it had placed on banks regarding their ability to pay dividends. They will now allowed to pay dividends of up to 50% of earnings, but the RBNZ will keep some restrictions in place until July 2022.

BRIGHTENING
Farmer confidence has improved quickly in 2021, surging to highest level since early 2018. All rural sectors are now more buoyant about the outlook for the agri economy, with both dairy farmers and sheep and beef farmers significantly more optimistic than last quarter.

NOT SO SIMPLISTIC, PLEASE
Fonterra has released the details of its Climate Change Commission submission. It is generally supportive, but is critical of the assumptions the Commission is making about dairy farming productivity, saying the simple assumption that historic productivity gains will continue in spreadsheet-fashion into the future isn't realistic. It also points out that some strategies like once-a-day milking will actually raise per-unit emissions and push the goal of improvement further away. (Pg 19)

MAINZEAL ECHO
The Court of Appeal has held that director Richard Yan is liable under s135 and s136 of the Companies Act in relation to the Mainzeal collapse and has liabilities as a director.

NOT SETTLING DOWN
The wholesale electricity price, which had been retracing, has turned back higher, and is now well above $300/MWhr again, in fact back up to $317/MWhr. Recall that the average over the past year (including the recent spikes) is $139/MWhr, so we are currently at 128% higher than that average.

RISK COST RISES
Since early March, the cost of "insurance" of NZ Government debt (the CDS spread) has risen. CDS spreads for Australian Government debt have risen too, and they are marginally above the NZ premium.

ANOTHER BILLION
Another bank, presumably one of the big four Aussie-owned ones, has drawn $1 bln in the RBNZ's Funding for Lending program, taking the total to $2.64 bln of the $28 bln allocated. Westpac was the first of these big banks to receive $1 bln (on Christmas Eve). This is one of the other three because it has been tagged as an "initial allocation".

MORTGAGE LENDING SPEEDS UP
For the first time, bank home loan lending has breached $300 bln and it did so at the end of February. Overall home lending rose +9.0% year-on-year, the fastest growth rate since February 2017.

PERSONAL LENDING SINKS
Lending by RBNZ regulated institutions for credit cards and personal loans (including car loans) is sinking fast, down -12.9% year-on-year and being eaten away by the Buy Now Pay Later schemes. That is the fastes decline this type of personal lending has suffered since records began in May 1999.

SHRINKING DEMAND?
Bank lending to businesses fell -4.1% year-on-year to February, and that was the steepest fall in more than 10 years, since November 2010.

TD INVESTMENT SINKS
After rising fast, growth in household deposits has started to tail off with February balances now lower than December balances. Transaction and savings account balances are still growing but savers are dumping their term deposits faster now. TD balances are now -14.5% lower in a year, down to $86.5 bln. (Household TDs peaked at $103.9 bln in August 2019.)

GOLD MUCH SOFTER
Gold is trading in Australia, and soon in Asian markets. After a heavy fall overnight in New York and London to US$1686, it is fallimng further and is now at US$1683/oz. Silver has fallen to under US$24/oz.

EQUITIES STILL MIXED
The NZX50 Capital Index is up another +0.4% in late trade today. The ASX200 has turned positive after a string of declines, and is up a strong +1.7% in early afternoon trade. At their session opening, Tokyo is down -0.7%. Hong Kong is up +0.5% and Shanghai has opened down -0.4%. The S&P500 ended on Wall Street down -0.3% earlier today.

SWAPS & BONDS FIRMER
We don't have today's closing swap rates yet. If there are significant movements today, we will note them here later when we get the data. They are probably higher. The 90 day bank bill rate is unchanged at 0.35%. The Australian Govt ten year benchmark rate is up +4 bps from this time yesterday at 1.82%. The China Govt ten year bond is up +1 bp at 3.23%. And the New Zealand Govt ten year is up +5 bps at 1.82% and well above the level of the earlier RBNZ fixing at 1.78% (+7 bps). The US Govt ten year is currently at 1.74%, unchanged from this time yesterday but in between it has swung between 1.71% and 1.77%.

NZD LITTLE-CHANGED
The Kiwi dollar is marginally softer from this time yesterday at 69.9 USc. On the cross rates we are a little firmer at 91.9 AUc. Against the euro we up at 59.7 euro cents. That all means our TWI-5 is up marginally to 72.7.

BITCOIN UP AGAIN
Bitcoin has risen +2.6% from this time yesterday to US$59,005. Volatility over the past 24 hours has been moderate at +/- 2.0%.

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

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

38 Comments

by thewanderer | 31st Mar 21, 4:11pm 1617160319

One million more people in just over ten years. I'm sure our infrastructure will be fine.

by sharetrader | 31st Mar 21, 4:29pm 1617161382

can we vote on this, no as both major parties support this growth as do the bureaucrats in charge.

by Kauri | 31st Mar 21, 4:46pm 1617162385

Can I please vote for the 5.2 million option?

by Mark L | 31st Mar 21, 5:01pm 1617163273

Is there a 3.2M option?

by Lapun | 31st Mar 21, 6:09pm 1617167353

Yes of course you ought to be able to. Another 200,000 is trivial compared to what has happened during my lifetime. I'd prefer a reduction in total population - admittedly that is hard for a govt to manage but not impossible; just needs more able bureaucrats. But if you want growth you should be able to vote for it.

by powerdownkiwi | 31st Mar 21, 4:50pm 1617162657

According to my Plunket book, I should be 78 feet tall.

I'm not.

Just as funny - perhaps the comment of the day:
" saying the simple assumption that historic productivity gains will continue in spreadsheet-fashion into the future isn't realistic."

Tell that to the teachers of economics, you farmers. Couldn't have agreed more.

by Justa comment | 31st Mar 21, 7:22pm 1617171727

Yes policy announcements from Labour and National recently will guarantee The Greens ans Act at least 5% in the next election. The greens could go over 10% again. (I have never voted for either by the way)

by Fritz | 31st Mar 21, 6:26pm 1617168401

They have developed scenarios and that's the high growth one, so perhaps unlikely.
But even 500k would be too many.
We need a party in this country that takes s stand on immigration, but of course not an xenophobic one. One that questions the environmental and social ramifications of high rates of immigration.
The Greens should be the ones but they are too woke (note - I voted for them)

by ham n eggs | 31st Mar 21, 9:36pm 1617179762

The greens are idiots
They have yet to work out its people doing the non green stuff

by bw | 31st Mar 21, 4:15pm 1617160553

"Bank lending to businesses fell -4.1% year-on-year" + "Another bank has drawn $1 bln in the RBNZ's Funding for Lending program " = "massive surge in house prices ....Overall home lending rose +9.0%"

Now that's how to build a 21st century, go-get-'em, first world economy.

by Audaxes | 31st Mar 21, 5:10pm 1617163815

Michael Hudson:

Everything that made industrial capitalism rich, everything that made America so strong on the 19th century, through its protective tariffs, through its public infrastructure investment all the way down through world war two and the aftermath, was that we had a mixed economy in America. Europe also had a mixed economy, and in fact, every economy since Babylon has had a mixed economy.

But in America you’ve had something entirely different since 1980. Something that was not foreseen by anybody, because it seemed to be so disruptive: namely, the financial sector saying, “We need liberty – for ourselves, from government.” By “liberty” they meant taking planning and subsidy, economic and tax policy, out of the hands of government and put into the hands of Wall Street. The result was libertarianism as a “free market.” In the form of a centralized economy that is concentrated in the hands of the financial centers – Wall Street, the City of London, the Paris Bourse. What you’re having today is an attempt by the financial sector to take on the role that the landlord class had in Europe, from feudal times through the 19th century. It’s a kind of resurgence of feudalism.

If you look at the last 200 years of economic theory from Adam Smith and Marx, onward, everybody expected a mixed economy to become more and more productive, and to free itself from the landlords – and also to free itself from banking. The expectation was to make land a public utility, the tax base, and to make finance basically something public. Government would decide who gets the funding. hus, the idea of finance in the public sector was going to be pretty much what it is in China: You create a bank credit in order to finance capital investment in factories. It means the production of machinery, agricultural modernization, transport infrastructure of high-speed trains, ports and all of that.

But in the United States and England, you have finance becoming something completely different. Banks don’t lend money to build factories. They don’t create money to make means of production. They make money to take over existing assets. Some 80% of bank loans are mortgage loans to transfer the ownership of real estate.

But of course, that’s what created a middle class in the United States. The middle class was able to buy its own housing. It didn’t have to pay rent to landlords or absentee owners, or to warlords and their descendants as in England and Europe. They could buy their own homes. What nobody realized is that if you borrowed the money to take a mortgage, there’s still an economic rental value. Most of it is no longer paid to the landlords. It’s paid to the banks. And so in America and Europe, the banks now play the role that landlords played a hundred years ago.

Just as landlords are trying to do everything they could through the House of Lords in England and the upper houses of government in Europe, they’re trying to block any kind of democratic government. The fight really is against government that would do anything that is not controlled by the 1%, and by the banks. Essentially, the merger between Finance, Insurance and Real Estate – the FIRE sector. So, you have a relapse of capitalism in the West back into feudalism, but feudalism with a financialized twist much more than in medieval times.

by Independent_Observer | 31st Mar 21, 6:59pm 1617170365

Great summary!

by Rosenstein | 31st Mar 21, 6:56pm 1617170188

If credit is increasing 9% per year for housing and the CPI is two thirds of sweet f.a. and business lending is down 4% and personal borrowing is down 12%... If this trend holds, we will have more property price increases, higher unemployment and depressed consumer spending. All done before in Japan, all being done again as if for the first time. I'm not sure whether to laugh at Orr or hold his hand in pity.

by Independent_Observer | 31st Mar 21, 7:05pm 1617170704

Yip and look at the market cap of housing vs stock market. Housing market cap multiples of business (listed at least). Not a good thing.

by alittle | 31st Mar 21, 4:52pm 1617162724

Same economist who were crying and shouting that housing announcement will finish the housing market. Now after having failed are singing different tune

https://www.newshub.co.nz/home/money/2021/03/housing-changes-likely-to-…

by J.C. | 31st Mar 21, 5:43pm 1617165810

The usual suspects. All of them media tarts.

by Fritz | 31st Mar 21, 6:30pm 1617168628

It's curious how these economists don't at least caveat with the possibility of an offshore financial crisis triggering a crash here.
As economists they should know that modern economic history shows that there are financial crises every 8-10 years. It's part of the cycle. And the last one was 2008....

by Rob Reid | 31st Mar 21, 8:37pm 1617176265

Yes, completely blinkered, which would be sort of fine if this was the US and it was the 1960s.
But this is a tiny place and the world is on a runaway currency debasement orgy. To run up this much debt denominated in just another fiat currency is like sticking out a wing feather in a hurricane.

by Fritz | 31st Mar 21, 9:41pm 1617180083

These economists and 'property commentators' love talking up cycles, but only when it suits their narrative. Part of the economic cycle is boom and bust.
We will have another financial crisis some time in the next few years - my pick has been 2022 for quite some time - and there won't be enough ammo left to save the housing market.

by fortunr | 31st Mar 21, 5:02pm 1617163352

"TD balances are now -14.5% lower in a year".

The shrinkage of term deposits will continue unabated until interest rates start rising again - and they need to rise significantly before this trend starts reversing.
The rate of disappearance of TD balances is currently only really limited by the maturity profile of existing deposits. This is limiting the magnitude of the wave of TD balances disappearance, which otherwise would have been unprecedented. Very few savers would be renewing maturing term deposits, given the current ridiculously low rates.

by Justa comment | 31st Mar 21, 7:15pm 1617171347

Exactly, most will go when they mature, unless TDs are above the break even 2.5% again.

by Philby | 31st Mar 21, 5:04pm 1617163459

Any Government that declares a climate change emergency, which they believe is man made, and then supports an increase in population of one million can not be taken seriously. They are totally without credibility.

by richard1965 | 31st Mar 21, 5:14pm 1617164074

Talking about climate change is a in thing to look good ...killing the social fabric of the society for greed and talking about climate change....hypocrats.

by mikekirk29 | 31st Mar 21, 5:52pm 1617166331

A catalogue of indicators that really say the economic woes of CV19 are here, having been postponed last year.
This is what I meant when I said "the turn" would arrive 18th February. The trend will now assert itself. notice debt recoiling, except for house debt? But house market cannot ignore general economy and latter is now coming fully to the fore

by linklater01 | 1st Apr 21, 8:54am 1617220492

mikekirk29,

But why that particular date? What was the importance of Feb 18th? From memory, the real collapse is to come in Oct. Do you still stick with that? By collapse, what do you see happening? Wholesale bank failures? Stockmarket falls of 50/60%? Will this be global?

by gnx | 31st Mar 21, 6:14pm 1617167672

Just watched a Christopher Luxon video pop up on my Facebook...

If you were hoping for change in Nationals thinking you might be disappointed....

Just the usual claptrap about mum and dad investors being disadvantaged by Labour’s changes...

God give me strength to accept the things I cannot change I guess.

by Fritz | 31st Mar 21, 7:14pm 1617171271

You will never get any meaningful change out of the Nats. They are conservatives

by powerdownkiwi | 31st Mar 21, 7:18pm 1617171495

What they should pray to their mythical deity for

Is a higher IQ

by Albert2020 | 31st Mar 21, 7:28pm 1617172090

I can’t give that guy the time of day knowing he was one of only 13 people who voted against a law banning protesting outside women’s health clinics in NZ.

by Mountie | 1st Apr 21, 5:53am 1617209625

Agree. He's from a different era. Just like Muller was and look how that worked out.

by guwop | 31st Mar 21, 7:26pm 1617171960

I am wondering how many here made a loss on Gold over the past year, as it is now down about USD 400. At the same time that USD seems to be getting stronger.

Am still believing that Gold will drop further in the months to come.

by Rob Reid | 31st Mar 21, 8:52pm 1617177163

I've taken a bit of a loss (15%). I don't mind - it's a small hedge against a collapse.
Have mulled over buying more, or silver (I listen to Peter Schiff) but I'm skint.
Gold should benefit from what I think is a coming collapse in confidence in fiat currencies, but that could be delayed by years as govts roll out CBDCs and most of us think they are different and happily convert.
And surely Bitcoin is taking some of the action from PMs.

by Ngrrk | 31st Mar 21, 10:06pm 1617181591

Haven't taken a loss but it's been a hard road. Certainly wish I'd put it in BTC!

by bw | 31st Mar 21, 8:02pm 1617174160

Bankers reckon that Archegos's net capital – essentially Hwang's wealth – had reached north of US$10 billion. And as disposals keep emerging, estimates of his firm's total positions keep climbing: tens of billions, US$50 billion, even more than US$100 billion.

It evaporated in mere days.

“I've never seen anything like this - how quiet it was, how concentrated, and how fast it disappeared,” said Mike Novogratz, a career macro investor and former partner at Goldman Sachs who's been trading since 1994. “This has to be one of the single greatest losses of personal wealth in history.”

by Dr Who | 31st Mar 21, 8:17pm 1617175040

Re Wholesale electricity prices: Am I correct in understanding that the wholesale price reflects costs at the margin but is the price paid for all electricity produced, including hydro which has a very low variable cost of production?

by Nzdan | 31st Mar 21, 8:49pm 1617176982

With Hydro it really depends on how much water is "accidentally" spilled out the dams at 3 am.

by Lanthanide | 31st Mar 21, 10:04pm 1617181446

Yes. The theory is that the owners of the low cost power, ie the dams, will get windfall profits which they can then use to build new generation, which by definition has much higher generation costs (once capital construction is amortised over the productive life) than their existing assets.

When Labour was proposing Kiwipower as a monopsony buyer of electricity in response to National's privatisation of the power companies, Gareth Morgan criticised the Labour plan as ineffective, and instead proposed a large tax on the hydro power specifically, so that the government got the windfall profits as tax that they could then direct back into the electricity market.

by Dr Who | 1st Apr 21, 7:48pm 1617259684

I could see some logic in the current approach if there was not a huge difference between thermal and hydro variable generation costs. If, for example, our electricity system was largely thermal with similar construction and variable generation costs, prices at the margin would more likely to accurately reflect construction and running costs across the generation system and thus send appropriate price signals. As I see it the current system creates incentives for gaming. Given the great differences between hydro and thermal cost structures, the relatively small size of our country and our generation system, I think its wishful thinking that efficient and effective competition could be created. And since the system was set up in the 1990s, wind and solar generation is or has the potential to be a significant chunk of generation capacity - adding a complexity factor in that they are not generating at night or when there is no wind - which could result in spikes in the price. It would seem logical to reconsider and assess the costs and benefits of reverting to a wholly integrated national generation and transmission system.