What happened Friday

A review of things you need to know before you go home on Friday; no retail rate changes, record exports, less misery, FHB borrowing rises, Fonterra stumbles, Comvita succeeds, swaps stable, NZD firms, & more

25th Jun 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 so far today.

TERM DEPOSIT RATE CHANGES
None here either.

MORE CONFIDENT BUT THE BAR IS LOW
Employment confidence rose further in June, led by a strong rise in perceptions of job opportunities. However, workers were a little less confident about their future earnings and job security. Employment confidence was falling in the six months pre-pandemic, and we are now back to those ropey levels.

POST-PANDEMIC RELIEF
Farm sales fell seasonally in May, but farms sales are relatively buoyant as farmers become more confident. Dairy farm sales more than doubled in the year to May. However the May monthly level of 133 is only about the same as the 137 average for a May in the past four years.

NORMAL NUMBER, ABNORMAL PRICES
There were 804 lifestyle block sales in May, only marginally above the 780 average for a May from 2016 to 2019 pre-pandemic. However, the average price of the 2021 transactions was $905,000 and a massive +25% higher than the same month in 2020 and 31% higher than in May 2019.

RECORD EXPORTS, RECOVERING IMPORTS
The annual trade surplus has now vanished, where these surpluses were an unusual pandemic situation. The May monthly goods trade balance was a surplus of +$469 mln. The average monthly surplus in the previous five May months was +$415 mln. For the year to May it is now a -$62 mln deficit. Fast rising imports especially for motor vehicle is behind the rebalancing. Exports rose to $5.9 bln in May, the highest monthly level ever.

FHB BORROWERS GRAB BIGGER SHARE THAN INVESTORS
First home buyer borrowing is rising and lending to investors is falling. In May, on a value basis first home buyers borrowed $1.8 bln and investors $1.6 bln, the first (significant) time FHB borrowers have bested investors. On a numbers basis, it is about even now with 3205 new FHB borrower loans in May and 3298 new investor loans. This is the closest this has been since this data series began in 2014. There is no evidence that FHBs are being excluded from home loans (despite some shrill opinions). There is evidence that RBNZ policy changes are restraining investors.

LESS MISERY
We have updated our Misery Index tracking. The Misery Index is the sum of the CPI inflation rate plus the unemployment rate. This metric has been slowly declining since the 2011 GFC spike - and interestingly did not spike during the pandemic. It now sits at an index level of 6.4 (CPI = 1.5% and the jobless rate of 4.9%) a level it has been at since 2015. The Australian misery index is 7.1 (CPI inflation at 1.1% and their jobless rate is 6.0%). An advantage to NZ helps keep the flow of people to Australia lower than it would otherwise be. NZ has had this advantage since the 2009-2012 period.

NOT POPULAR
Time to check the Funding for Lending program. Still only $3.0 bln drawn of the $28 bln allocated for it. it has now been 44 days since the last draw by any bank, a very modest $200 mln access on May 12 (by Kiwibank?). This is modest by the standards of new mortgage lending which is ran at $10 bln in April.

AMATEUR HOUR?
The Fonterra share prices are very low with the FCG price at $3.16 and the FSF price at $3.65. It's a long way down from the $5.12 in March 2021 and represents about a -$3 bln in value destruction. Most of the recent falls have occurred since the farmer-controlled board Fonterra signaled it is reviewing their capital structure with the aim of holding it more closely in farmer hands. But that has been a value killer move. And many Fonterra farmers are grumpy. However there can't be too much surprise given the conflicted thinking on this "back to basics" board. You get the sense that this board is out of its depth in promoting this back-to-the future 'reform'. It is important because Fonterra is our largest commercial enterprise. Fonterra responded today reassuring its shareholding farmers its all under control. The price rose +4c today or +1.2%.

PROFESSIONAL BRAND SUCCESS
Comvita is winning in online selling in China. It was the leading brand in the category in the recently completed 618 shopping festival in China, outperforming all other Mānuka honey brands on the two leading e-commerce platforms Tmall and JD.com. Their sales jumped +31% from a year ago. Comvita also made the Tmall Top 10 brands in the healthy food category and was the leading International brand in this list reflecting the fact that Comvita is being recognised more and more as a broader lifestyle brand.

A KEY SIGNAL?
ANZ analysts are pointing out that margins at China’s steel mills have collapsed more than 20% since May and are now in negative territory for rebar. This could take the heat out of the iron ore market.

NO RELIEF
There is no relief from the unusually high wholesale electricity prices. Large users must be tiring of the extra 'tax'. Consumers will only be insulated for as long as their fixed rate contracts are in place, then there may be some uncomfortable surprises.

STAY AT HOME
The Sydney pandemic outbreak is spreading. Large sections of the inner eastern suburbs, including Woolhara, Waverley, Randwick and the central City of Sydney have been issued with a 'stay at home' lockdown restriction "for at least one week"- but because it is NSW there are plenty of exceptions. A failure to act decisively earlier looks like it hasn't worked to keep the Delta variant from spreading. New Zealand extended its travel bubble pause with NSW for another 12 days last night. (The Level 2 restrictions in Wellington will run until Sunday night.)

GOLD HOLDS
Compared to where it ended yesterday, the gold price is essentially unchanged at US$1778/oz in early Asian trading.

EQUITY MARKETS RISE
The S&P500 ended the earlier Wall Street session up +0.6%. Tokyo has opened up a firm +0.8%. Hong Kong has opened up +0.9% while Shanghai is up +0.5% in very early trade. The ASX200 is up +0.4%, while the NZX50 Capital Index is trading up +0.3% today and heading for a minor weekly gain of +0.5%.

SWAP & BONDS YIELDS HOLD
We don't have today's closing swap rates yet. If there are significant changes again today, we will update this item. They probably held, little-changed. The 90 day bank bill rate is unchanged at 0.33%. The Australian Govt ten year benchmark rate is unchanged at 1.52%. The China Govt ten year bond is also unchanged at 3.11%. The New Zealand Govt ten year is unchanged as well at 1.82% and still above the earlier RBNZ fix of 1.79% (-1 bp). The US Govt ten year is up +1 bp to 1.50%.

NZ DOLLAR FIRMS AGAIN
The Kiwi dollar has firmed again from this time yesterday and is now at 70.7 USc. Against the Aussie we are unchanged at 93.1 AUc. Against the euro we are firm at 59.2 euro cents. That means the TWI-5 is now a bit firmer at 73.1.

BITCOIN REGAINS
The bitcoin price is now at US$35,117 and up +7.6% from where we were at this time yesterday although most of that rise happened last night. Volatility in the past 24 hours has been very high at +/- 4.8%.

This soil moisture chart is animated here.

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Source: RBNZ

Source: CoinDesk

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54 Comments

by Audaxes | 25th Jun 21, 4:16pm 1624594616

The Dark Side of Solar Power

Economic incentives are rapidly aligning to encourage customers to trade their existing panels for newer, cheaper, more efficient models. In an industry where circularity solutions such as recycling remain woefully inadequate, the sheer volume of discarded panels will soon pose a risk of existentially damaging proportions.

by realterms | 25th Jun 21, 4:27pm 1624595261

"Existentially" is getting rather carried away with it.

by Beanie | 25th Jun 21, 8:03pm 1624608212

It makes no sense to discard old panels that still produce 80% or more of original output. You can have new panels in addition to your existing ones. Unless you have completely covered all available area.

by Foxglove. | 25th Jun 21, 4:27pm 1624595264

In the old days I used to drink at the old Market Hotel in Christchurch. It was an old building, bare wooden plank flooring, which used to pop up. That is as soon as you re-nailed one down another would pop up. The pursuit of energy similarly seems bound by Einstein’s well known theory. Doing one thing causes a compensate reaction elsewhere. For every positive there is a relative negative?

by Henry_Tull | 25th Jun 21, 4:36pm 1624595798

Lets stack em up next to the spent batteries & other E waste.

by Foxglove. | 25th Jun 21, 4:52pm 1624596729

Seymour of ACT took that line of questioning to the PM in the house. That is what’s the disposal plan for all the batteries. The answer was little more than frowns and pouts. When he pressed again the speaker intervened and closed it down. That really sums up the state of the nation doesn’t it.

by Pragmatist | 25th Jun 21, 7:24pm 1624605881

Put them in containers and ship them off overseas where they will have recycling facilities like they do for most other recycling. Not hard to understand.

by youngdumbandbroke | 25th Jun 21, 7:34pm 1624606478

On those solar powered ships that we have?

by Halfway To Paradise | 25th Jun 21, 7:39pm 1624606765

Otherwise known as landfill in India, after children have ripped useable parts from them that they can sell for pennies.

by Lanthanide | 26th Jun 21, 8:40am 1624653643

Er, no. Used EV batteries can be reused for immobile storage such as in houses with solar panels. And even those that are beyond that are going to be worth hundreds of dollars in raw materials, not pennies.

by Lanthanide | 26th Jun 21, 8:37am 1624653454

Here's the actual exchange:

David Seymour: Could the Prime Minister please now answer my previous question: what is New Zealand’s plan for disposing of EV batteries? It’s a serious question.

Rt Hon JACINDA ARDERN: I could be forgiven for not taking the member’s question as seriously as he intended, given the nature in which he asked it. But when it comes to the issue of batteries, these of course are things that the likes of the Ministry for the Environment continue to work through. But I would still caution the member around the idea that somehow that is a reason for us to continue, as I’ve said, to be the dumping ground of vehicles that many, many other countries we import from are banning.

Not exactly "frowns and pouts". Better answer would of course be that the government was expecting the free market to provide a solution - be difficult for Rimmer argue against that.

by marewa | 25th Jun 21, 8:54pm 1624611251

Its interesting that the first few panels assembled in the deserts of the western USA are still generating power. And a NPV somewhere.

by Henry_Tull | 25th Jun 21, 4:33pm 1624595603

AMATEUR HOUR?
You are assuming that listing of units was a good thing & not an aberration.

Rather you get the feeling its being run like a co-operative.
Note to self:
Its owned by supplying Dairy Farmers.
Its faced unparalleled government intervention & specific legislation.

by Squishy | 25th Jun 21, 4:37pm 1624595823

The electricity debacle has been ongoing for years. There have been new projects brought online but they've barely kept pace with demand which is why we keep having those recurring issue, perpetually promised we're just a few wind farms away from balancing supply...and we always will be.

by Henry_Tull | 25th Jun 21, 4:41pm 1624596080

Um wind projects do not balance anything, especially the network.

Then there is the regulator & subsidies arbitrage examples:

Wind power generators are willing to pay the state grid operator to take their output so that they can get federal tax credits. An inadequate transmission system is to blame. Or is it?

https://www.greentechmedia.com/amp/article/texas-wind-farms-paying-peop…

by realterms | 25th Jun 21, 5:06pm 1624597573

What country do you think we're in?

by dictator | 25th Jun 21, 5:19pm 1624598384

He reminds me of the people that contact the Minister of Police here stating that our firearms laws violate the second amendment of the constitution.

by DD62 | 25th Jun 21, 5:26pm 1624598778

The electricity "free" market has been a government scam from the moment Bradford and co set it up. Firstly the bulk of generation and retailing is still controlled by the government. So basically no competition there. Government still wants maximum dividends every year so keeping the market tight keeps prices up and coffs out more dividend. Secondly the way the wholesale price is set is a total rort! i.e. wholesale price set by highest generation cost of the moment! A scam! Also the govt owned generators (mostly hydro) set a return on assets. Taxpayers paid for all these assets decades ago. They have been paid for many times over by electricity sales. The dams will never need to be replaced in our lifetimes providing a massive earthquake doesn't take them out. The dams are very low maintenance and cash cows! Why do we still have to fund the waste of space Electricity Authority? It achieves literally nothing useful and should have been closed down a long time ago. Under the current setup electricity prices will keep rising with generation capacity always lagging behind.

by JimboJones | 25th Jun 21, 6:42pm 1624603362

Yes, people complain no end about their rates bill, but we pay more per month for some water to fall down a hill and turn some turbines that the public paid for 60 years ago! Gotta wonder where all that money goes.

by iconoclast | 25th Jun 21, 6:58pm 1624604332

Electricity prices will continue to rise. Under the current government system, all government, local and central, revalue their assets, which then becomes the foundation for higher prices to give e return on assets

Boring as it may sound, what should have happened when the governemt sold off 49% of the generators for $5 billion plus, they should have used half of that to subsidise roof-top solar. The purpose being to get the control into the hands of the individual. No. Power stays in the hands of the powerful and the few. Now solar is being seen as part solution, guess who is doing the big solar farms? The big and the few

by Zack Brando | 25th Jun 21, 4:38pm 1624595887

I Read; NZ now has the Most Unaffordable Rents in the OECD.

Has anyone reading this been affected by crime, harassment, staffing issues or anything else now fast coming-down-the-pike?

by frazz | 25th Jun 21, 4:43pm 1624596237

The EV charger in Levin is broken..just made it to Otaki.

by Zack Brando | 25th Jun 21, 5:03pm 1624597434

That does sound stressful tbh.

by David Chaston | 25th Jun 21, 6:29pm 1624602570

The trouble with OECD data is that it is so old. New Zealand rents have been pretty stable for years (+11% in three years nationally, zero in Auckland), probably growing almost as fast as incomes (+3% per year nationally). So old data will overstate the picture. Of course there will be exceptions (Wellington) but nationally that is how it is playing out now. Large parts of New Zealander are better off affordability-wise with renting (but this is no claim that the quality of the houses themselves are up to standard). I am usually disappointed in OECD data in how relevant it is for New Zealand - usually very superficial (even if accurate).

by Zack Brando | 26th Jun 21, 1:22am 1624627360

Very reasonable arguments/points, probably a mine of truth there.

by Zack Brando | 26th Jun 21, 1:23am 1624627407

Very reasonable arguments/points, probably a mine of truth there.

by Officebound | 25th Jun 21, 4:41pm 1624596111

Amazed the broken energy market isn't getting more attention, thanks interest.co for giving it some attention.

Recently I've been selling electricity (solar) for more than I'm buying it for, and long contracts have gone up 60% this year.

Water, Electricity, Rates, all set to increase rapidly for the forseeable future, interesting times ahead!

by Galloleous | 25th Jun 21, 4:42pm 1624596134

Well the misery index is clearly a joke if it didnt spike during covid...
When it is based on such a broken input as the CPI, no wonder it too is broken.
Inflation at 1.5%.... Yea Right!

by Advisor | 25th Jun 21, 5:18pm 1624598313

Thank China for the cheap TV sets, apparels and phones they ship us that offset soaring accommodation, food, fuel, medical, insurance and power costs we face here in NZ and make us all better off.

by Mountie | 25th Jun 21, 5:24pm 1624598661

Galloleous, it didn't spike because the Govt threw insane amounts of tax payer money out the door. Yes, some of that money was warranted but not all of it.

by stuart786786 | 25th Jun 21, 4:43pm 1624596216

"FHB borrowing rises"

It should be good but could also be bad as highly likely that FHB under FOMO are paying premium on top of premium and borrowing in extreme - dangerous situation.

Why it may be bad - observation :

Two houses (cross lease) next to each other on same section were up on sell, rear house went for $950000 ( being rear house, so better as more private but slightly smaller than the other house in front but both house are 3 bed/ 2 bath) and the other house in market is asking more than 1150 though no buyers since last two moths but hoping for FHB under FOMO to fall and pay. Result FHB, if falls end up borrowing $200000 More, so FHB are borrowing more but is this good ?

This is in Howick near around area.

Imagine a house goes 950000 and similar house at same time on same section is asking 1150000 plus - even if the other house is better presented and bigger - still 25% more than the already high premium price.

Cherry on the cake, when check with RE agent, the price, other house was sold ( as both were listed with same agent), response is, cannot disclose unless the second house is sold - WHY, this are the same RE agent who throws sold price in face of FHB to raise price....

This will continue unless FOMO is calmed, FHB will be exploited, even if they buy the house, may end up living under fear till the house does not shoot up by another 20% to 30% from here - ponzi ....

by Galloleous | 25th Jun 21, 4:49pm 1624596561

And in Bitcoin News:
Paraguay Proposes a Bill to Make Bitcoin Legal Tender:
https://coingape.com/breaking-paraguay-announces-a-bill-to-make-bitcoin…

El Salvador develops their own digital wallet and will give every one $30 in BTC to kick start the countries adoption. Thats a shit load of Bitcoin that they will have to source from the open market...
https://twitter.com/DocumentingBTC/status/1408257115462975488

by realterms | 25th Jun 21, 5:03pm 1624597417

> Thats a shit load of Bitcoin that they will have to source from the open market...

Is it? I make it a shade under $200M, if they are in fact willing to front that much (it's something like 1% of GDP so not to be sneezed at.) But on the current ~800B market cap I'm not sure it qualifies as "shit load".

by lonewolfnz | 25th Jun 21, 5:16pm 1624598166

Given the small liquidity (there are barely 1-2M bitcoins on exchanges around the world), a $200M buy order can seriously move the markets

by realterms | 25th Jun 21, 5:49pm 1624600149

Surely they wouldn't be foolish enough to do it that way.

by Rosenstein | 25th Jun 21, 6:52pm 1624603935

You're right, maybe they'll mine some.

by JimboJones | 25th Jun 21, 6:49pm 1624603789

If a country like El Salvador can’t buy $30 Bitcoin each without causing a price spike, how does anyone suppose this could become some kind of useable world currency?

by Galloleous | 28th Jun 21, 9:27am 1624829247

It readjusts to a higher price more reflective of its demand, so the same dollar equivalent purchases less sats....supply and demand? Once it reaches a sufficient level of distribution and price, it will level off and volatility will decrease, thats when i will stat to consider using it as a day to day currency (20-30 years down the track maybe)

by Mountie | 25th Jun 21, 5:18pm 1624598294

As stated above. There is evidence that RBNZ policy changes are restraining investors. Excellent. Go you FHB. Pleased for every single one of you that has secured a home for you and your family. Long may this trend last.

by Mountie | 25th Jun 21, 5:22pm 1624598520

There seems to be less aggression on this platform now. Nice.

by J.C. | 25th Jun 21, 5:29pm 1624598993

Has someone been removed?

by Beanie | 25th Jun 21, 7:44pm 1624607063

Not the slightest bit aggressive, but I miss the farm updates from andrewj, also missing gingerninja's interesting and intelligent posts. Hope she returns one day.

by Mannering | 27th Jun 21, 1:51pm 1624758694

Beanie

So do I. What were their crimes ? I remember andrewj admitting that he had read Zero Hedge, which is a crime apparently on this blog. I paid my $100 in response to David's plea for support during Covid and will be very pissed off if I am deleted because of " hate speech" or other similar. I would regard it as fraud.

by HouseMouse | 25th Jun 21, 8:23pm 1624609405

Well at least one troll has voluntarily removed himself, and the site is much better for it.

by Albert2020 | 25th Jun 21, 5:28pm 1624598901

Another great article by Bernard.

https://thespinoff.co.nz/business/25-06-2021/bernard-hickey-how-hope-fo…

by JimboJones | 25th Jun 21, 7:05pm 1624604712

Quite sad isn’t it.

by EdwardD | 25th Jun 21, 7:18pm 1624605515

Makes extremely sad reading. As a boomer, I hate the idea that we are leaving the next generation worse off.

by Nzdan | 25th Jun 21, 7:32pm 1624606370

And then you have superannuation. In the 70's they voted against a recently created Kiwisaver style superannuation scheme claiming it to be communism. Not prepared to put a little of their own money away for retirement, now reaming the next generations for rents, while expecting them to foot the burgeoning superannuation bill, fund their own tertiary, save for their own retirement and save many multiples of income more for a down payment on a house.

"We paid our taxes all our lives" they proclaim. So they paid $350k in surplus taxes to cover 20 years of superannuation (65 to life expectancy) at current super rates???? Equivalent of 43 years worth of PAYE for a $50k income earner.

by Beanie | 25th Jun 21, 7:59pm 1624607948

Dan, would value your thoughts on changes you would make to universal super. I figure your views on this topic probably represent the majority of voters in a few years time.

by Nzdan | 26th Jun 21, 9:10am 1624655400

Means testing for starters. If not means testing, then one must actually retire before they can claim it. There's no point having someone toddling about at 65 in a job, while claiming a "benefit". It's bad enough younger people are being locked out of home ownership, let alone waiting for people to drop dead before they can advance their careers.

Example: We have an external sales person in our business approaching 65. They're already pre-occupied with side hobbies rather than calling on customers. Once they hit 65 they have no intention of quitting, they'll just "take the pay rise courtesy of the tax payer" while driving around in their full personal use company vehicle. Middle finger to anyone else in our company who may want to progress into that sort of role from internal sales.

by Beanie | 26th Jun 21, 9:47am 1624657631

Thanks. Its certainly a tricky one.
I have thought ever since kiwisaver was introduced that some form of means testing is inevitable. It is widely used overseas. Those affected will spit tacks but the demographics make the current system unsustainable in the long run. Also watch for a stepped level of entitlement depending on what age you sign onto the benefit. And death duties could make a comeback.

by Beanie | 25th Jun 21, 7:58pm 1624607893

by Dave Moderato | 25th Jun 21, 7:45pm 1624607122

I'm reading a different article it seems. It resembles lengthy sanctimonious handwringing "The hope has gone!"

by Pragmatist | 25th Jun 21, 7:27pm 1624606078

"There is no evidence that FHBs are being excluded from home loans (despite some shrill opinions)"

*chuckle*