What happened Monday

A review of things you need to know before you go home on Monday: Kiwibank raises TD rates; exports swell, importing less from the US, another $100 mln via the FLP, June mortgage interest a record low, swaps lower, NZD holds, & more

26th Jul 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
Kiwibank raised five TD rates, for 6 months (+15 bps), then all from 2 to 5 years (+35 bps for two years and +20 bps for all others).

TRADE SURPLUS SHRINKS DESPITE RECORD EXPORTS
Our exports reached a new high in June 2021, off the back of record export values for logs and beef, Stats NZ said today. In June, the value of all goods exports rose +$871 mln (+17%) from June 2020 to just under $6.0 bln eclipsing the previous record in May of $5.9 bln. But we are importing faster, so the June trade surplus slipped. For the year to June, we exported $60.4 bln and imported $60,4 bln so the annual result is a tiny -$252 mln deficit over those twelve months. You have to go back to 2011 to find an annual trade surplus in any June year.

MORE PERSPECTIVE ON JUNE EXPORTS
Our trade surplus in the year to June with China has risen +18% from the same period in 2020. (We exported a record $1.9 bln to China in June alone.) Our trade surplus with Australia has decline by half on the same basis. The big mover however is with the USA where we improved from a -$332 mln deficit in the year to June 2020, to a +$978 mln surplus in the current year. That is twice the improvement we had with China, but is due to us buying much less from them, especially aircraft. Our trade with Japan is now a -$403 mln deficit as the post-pandemic rush to buy upgraded cars replaced vacation travel. (For all this progress, our record June exports of $5.7 bln represent less than the off-season June value of all house sales of $6.0 bln.)

ANOTHER DIP INTO THE TROUGH
The RBNZ's Funding for Lending program disbursed $100 mln to another bank, this time Kiwibank again, taking the total to $3.7 bln of the $28 bln allocated to this program.

MID-WINTER MORTGAGE HEAT
The latest Reserve Bank monthly figures show $8.5 bln of mortgages were advanced in June, which was easily a record for a June. Over $50 bln of mortgages were taken out in first six months of year.

A 'RECORD' LOW IN ABSOLUTE TERMS
Banks charged mortgage borrowers $2.362 bln in interest in the June quarter, according to updated RBNZ data (C35). That is interesting because that is the lowest amount in any quarter since the RBNZ started publishing this data in September 2014. And that is -24% less than the peak in this data at December 2017 - and this is despite the June mortgage balances being +29% higher than December 2017 (C5). For the full year to June, the total interest banks billed their home loan clients was $9.9 bln, also the lowest for any twelve month period since Q3-2014. And there's more; borrowers paid off the most ever in scheduled repayments in the June 2021 quarter, and the most ever in 'payoff in full" transactions.

RBNZ, FMA CONSULTING ON FINANCIAL MARKET INFRASTRUCTURE ACT
The Reserve Bank and Financial Markets Authority have published an overview of their plan to implement the Financial Market Infrastructure Act and have issued two consultation papers on this. The Act became law in May and governs financial market infrastructures, referred to as the plumbing of the financial system.

THE PRESSURE STILL INTENSE
There were 145 new community cases in NSW today with a record 79 not assigned to known clusters, and another 11 in the community in Victoria where their lockdown is in extension with the border closed to NSW. South Australia is also in lockdown. Queensland has closed it border with NSW, which is a last-resort action for them. There were no new cases in New Zealand, none in the community.

GOLD'S FIRMS
Compared to where we were this time on Saturday, the gold price is up +US$3/oz to US$1805/oz in early Asian trading.

EQUITIES MIXED
The NZX50 Capital Index is down -0.3% near the end of its Monday session. The ASX200 is up +0.1% in early afternoon trade. In Asia however, the openings are grim Hong Kong down -2.4% and Shanghai down -1.5%. However Tokyo is up +1.4% after their 4-day holiday weekend. For what it is worthy, the S&P500 futures point to a -0.3% dip on tomorrow's opening.

SWAP & BONDS RATES LOWER
We don't have today's closing swap rates yet and if there are significant ongoing changes we will note them here. They probably flattened again. The 90 day bank bill rate down -1 bp at 0.45%. The Australian Govt ten year benchmark rate is down -1 bp so far at just on 1.19%. The China Govt ten year bond is down -2 bps at 2.92%. The New Zealand Govt ten year is actually down -3 bps at 1.49% and now below the earlier RBNZ fix of 1.50% (-2 bps). The US Govt ten year is down -2 bps to 1.26%.

NZ DOLLAR UNCHANGED
The Kiwi dollar has hardly moved today and is still just at 69.7 USc. Against the Aussie we are unchanged at 94.8 AUc. Against the euro we are a teeny bit softer at 59.2 euro cents. The TWI-5 is still just over 72.8.

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BITCOIN TAKES OFF AGAIN
The bitcoin price is now at US$38,140 and a huge move up, gaining +11% in a move that started just before 11am this morning. Unconfirmed reports that Amazon may accept it for transactions could be behind the shift (but remember, it is still unconfirmed and could just be rumour). Volatility in the past 24 hours has been low at +/- 1.6%.

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Source: RBNZ

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30 Comments

by JustAnOpinion | 26th Jul 21, 4:06pm 1627272367

Amazon accepting it would be a game changer. With the processing power reduced by dictate in China I imagine processing costs will be approaching Visa like levels of gouging. The King may be dead, long live the King.

by frazz | 26th Jul 21, 4:13pm 1627272807

Your comment shows a total lack of knowledge of the subject..who is setting this price gouging?

by J.C. | 26th Jul 21, 4:25pm 1627273529

Would have been better just to have posted the news about Amazon and Bitcoin. It's definitely an interesting move. But let's be real. Nobody will be spending Bitcoin on Amazon. Better to spend dirty fiat.

by J.C. | 26th Jul 21, 4:25pm 1627273534

by Galloleous | 26th Jul 21, 4:30pm 1627273842

What?
So I gather you are talking about the China miner crack down a few weeks ago. This is great for Bitcoin, all the FUD at the top was dirty mining in China and that they "control" half of the network. Well that is completely gone now so China is no longer a problem.
I think the thing you are missing is the difficulty adjustment mechanism that Bitcoin is based on. Because it aims for an average 10min block time, if more computing power comes on line, then it will automatically adjust every 2016 blocks (or 2 weeks usually) to make it harder to find a block.
When there is a massive reduction in mining power, sure the blocks will take longer to find on average for the remainder of that 2016 block period:
Block 679,786 took 122 minutes to be mined. Assuming blocks come in every 10 minutes, this has a probability of 1 in 200,000.
This is the longest block interval time since Oct. 13, 2011, when it took 141 minutes to mine block 149,097.
But then along comes a -28% difficulty adjustment, and block times go right back to the 10 min average. The Bitcoin network has one job, and that is to produce a block every 10 min, and nothing will stop it from doing that :)

Also....Lightning?

by JustAnOpinion | 26th Jul 21, 4:34pm 1627274066

Lightning is the answer to the problem you are right, new blocks are good and I appreciated that explanation but it is the cost of the settlement against the chain that I was alluding to. Lightning solves that.

by Galloleous | 26th Jul 21, 4:39pm 1627274364

Depends on what level of security you want to pay for.
But also, the meme pool has been empty for the last month or more, se you can send 1-10 sat/vb transactions (so basically free) and have them go through basically straight away :)
https://jochen-hoenicke.de/queue/#BTC,2w,fee

by MortgageBelt | 26th Jul 21, 4:14pm 1627272843

21st June 1 NZD = 0.9263 AUD. Now 94.8 .. Keep going to parity (as long as the market believes the forecast hikes).
Cars are selling very quickly - especially C2C. Maybe a shortage looming just like property listings?

by realterms | 26th Jul 21, 4:31pm 1627273884

According to my tracking of stock levels, AKL housing stock for sale is now at its lowest level in at least 4+ years. Not just for time of year, but including xmas lows. There's not much out there.

by Galloleous | 26th Jul 21, 4:18pm 1627273108

Well that really rekt the shorters:
$111,000,000 in liquidations. Gotta love the market, slaughters anyone and everyone
https://twitter.com/WClementeIII/status/1419465773119066116?s=20

by J.C. | 26th Jul 21, 4:28pm 1627273703

Yes but the short sellers are as nuts as the leveraged long positions who were whacked recently.

by Galloleous | 26th Jul 21, 4:31pm 1627273891

See that FTX and Binanace have also limited leverage to 20x now. Get rid of that degenerate 125x bullshit

by J.C. | 26th Jul 21, 4:40pm 1627274458

20x is still extreme. Some of the best of the best traders operate at max 3x.

by Jonny.Foe | 26th Jul 21, 4:21pm 1627273296

How can anyone look at those super-low mortgage interest payments and still conclude that the housing market is going to stall or even slow down?

by JustAnOpinion | 26th Jul 21, 4:37pm 1627274273

I know :( ,as BH has pointed out serviceability of these eye-watering mortgages is still low historically. If interest rates ever go up it would be doom so they will not. Stagflation is real.

by brisket | 26th Jul 21, 4:41pm 1627274476

Yep. The corner, we are backed into it. As a non-property-owner, I have no doubt whatsoever that the powers-that-be would much rather destroy my purchasing power than risk the wrath of the propertied classes. It's class warfare, but the war is very one-sided.

by J.C. | 26th Jul 21, 5:16pm 1627276597

It's class warfare, but the war is very one-sided.

Yes it is. TBH, I stand with the dispossessed. The feigned concern, furrowed brows, and hound dog empathy from the ruling elite doesn't make me angry. I just expect it now.

by Officebound | 26th Jul 21, 5:18pm 1627276694

Interesting perspective,
As a homeowner who'd be happy to see decent falls in 'value', I think they've thrown a lot at improving affordability
- Tax changes reduce investor income
- HH standards add cost
- RBNZ asked to consider affordability
- Urban upzoning

Seems like a fair whack for their first year without Winnie

by pacifica | 26th Jul 21, 6:43pm 1627281814

I think you are stretching the definition of improving affordability beyond all meaning. Increases in prices far above most investments with double digit % returns for investors, reducing supply, increasing demand and stalling low wages (especially across critical staff sectors), several factors below living cost inflation is not an improvement. Even worse the rates of immigration before covid were so astoundingly high that most added house construction across the country could not even approach it. When they had Winnie they did far less damage to the country and FHB had a far better chance of accessing mortgage or even emergency and state housing support. Even worse the fact they have created more restrictions to FHB and spruiked the property market with FLP and loose LVR investor restrictions is just further nails in the coffin of the lost generations. Better to encourage them to Australia now even with the covid outbreaks.

by Hardly | 26th Jul 21, 6:44pm 1627281866

I agree, exceeded my expectations and they were pretty high.

by Audaxes | 26th Jul 21, 5:19pm 1627276740

Banks charged mortgage borrowers $2.362 bln in interest in the June quarter, according to updated RBNZ data (C35). That is interesting because that is the lowest amount in any quarter since the RBNZ started publishing this data in September 2014.
Financialization’s business plan: Privatizing rents and paying them as interest and fees

Financialization requires going into debt in order to get basic needs – housing for instance. Instead of paying rent to the landlords, like you did ever since feudalism through the 19th century, housing now is bought on credit.

by J.C. | 26th Jul 21, 5:46pm 1627278417

Over in Aussie, the govt says it can't afford to raise JobSeeker so more people living below the poverty line. Yet the RBA has created $300bn of new money out of thin air, money sitting on deposit with the central bank earning zero interest.

Oh, and a warning to prepare for negative interest rates from APRA.

https://www.michaelwest.com.au/money-for-nothing-debts-for-free-the-rba…

by Audaxes | 26th Jul 21, 6:43pm 1627281813

Hmmmm.. Term Funding Facility to Support Lending to Australian Businesses (TFF) was announced on 19 March 2020 as part of a package of measures to support the Australian economy.

Another repurchase transaction deal executed by banks with the RBA. Same facility documented by RBNZ as FLP here.

A review of this accounting diagram Exhibit 2 (secured borrowing) sets out the reality.

by Jonny.Foe | 26th Jul 21, 8:24pm 1627287862

I've given up trying to explain that Govt banks repurchasing the bonds that Govt Treasury departments sold does not equal 'printing money'. The mainstream economics journalists are the worst - I wish a few more of them understood double-entry book-keeping.

by CWBW | 26th Jul 21, 6:39pm 1627281588

"Banks charged mortgage borrowers $2.362 bln in interest in the June quarter... the lowest amount in any quarter since the RBNZ started publishing this data."

No surprises that the Aussie banks are pressuring RBNZ to raise the OCR through their "economic forecasts" and colourful drama on the last RBNZ announcement day.

by MisterB | 26th Jul 21, 7:03pm 1627283007

Err, so you think banks want to see their funding costs on variable loans go up? How would that help them?

by Jonny.Foe | 26th Jul 21, 8:30pm 1627288233

The general view is that banks stand to benefit from a change up in rates - evidenced most obviously by the fact that bank stocks increase in value significantly when an interest rate increase is on the cards. Important to remember that we live in an era where share buybacks and bonuses drive incentives - and banks are so poorly regulated that they basically set their own margins based on what they think they can get away with. The quaint old rules of micro-economics no longer apply.

by MisterB | 26th Jul 21, 8:50pm 1627289403

Sounds oversimplified. Interest rate increases affect deposits and lending and an increase in interest rates isnt necessarily beneficial to banks. After all, low interest rate environments prompt borrowing…. The bread and butter for retail banks

by Jonny.Foe | 26th Jul 21, 11:03pm 1627297434

The oversimplification is thinking that low rates = higher profits (or vice versa). My point is it is more complicated than that. My read of the data is that banks want interest rates to go up - their economists are banging on about it most days (although maybe that is cover for increasing mortgage rates)

by Zack Brando | 27th Jul 21, 1:40am 1627306823

Hard to say, I enjoy the free debit-card transactions and the automatic/bill payment facilities my NZ bank accounts afford me. I suppose bank statements have been good for prof-of-address..

All the above can be done in alternative ways. 'The Banks' have their credit-card, personal-loan, over-draft and mortgage debt-slaves.. these debtors think they're benefiting from the current banking system [asset prices, access to credit] yet perhaps they're more akin to dependent heroine addicts?

I'm grateful to owe the banks nothing, in fact they're my creditors. I don't entrust them with much capital, they are poor performers.

I'm happy to continue being an early adaptor of alt-fintech. I have no loyalty to NZ retail banks, they are simply payment rails and at worst a cartel of property speculators eroding the purchasing power of the NZD.