What happened Tuesday

A review of things you need to know before you go home on Tuesday; some minor TD changes, imposter scam warning, household inflation low and even, Christchurch house building strong, swaps & NZD stable, & more

27th 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
Wairarapa Building Society (WBS) has cut its 1yr and 18mth TD rates by -5 bps. ICBC Bank has raised their TD rates for all terms from 6 months to 5 years.

IMPOSTER SCAM
The FMA is warning investors to be wary of scammers impersonating New Zealand-based derivatives issuer Rockfort Markets Limited. They are using www.rockfortmarket.net, www.rockfortcrypto.com, and www.rockfort-markets.com instead of the correct we address to perpetuate this scam. Most of the investors caught up in this are based overseas. It is a risk that obviously extended to every other institution and there seems little NZ authorities can do about this type of imposter scam.

KICKING THE COAL HABIT
Fonterra converted from coal-fired to a wood pellet boiler at its Te Awamutu plant today (#20 as coal-free) and announced its next site to exit coal - its Stirling cheese plant in Otago as #21. After that, eight out of Fonterra’s 29 sites will remain to be removed from using coal.

CHRISTCHURCH HOUSE BUILDING STRONG
Analysts at Blackburn Management are reporting that there were 553 residential dwellings consented in the greater Christchurch area in June. Despite all of the talk about the rising cost and limited supply of building materials, the number of new residential dwellings being consented is remaining strong in the Garden City. Year to date there have been 2,955 new dwellings consented, which is an increase of +22% compared to the 2,415 dwellings consented for the same period in 2020.

NET WINNERS OR LOSERS? ANSWER IS, IT'S ABOUT EVEN
Reserve Bank analysis has found the reduction in term deposit and mortgage rates between 2016 and 2020 lifted households' net incomes by just +0.1% - other things constant.

SURPRISINGLY LOW AND EQUAL ACROSS THE BOARD
Stats NZ released its household living cost data to June today, a delayed release from the July 9 CPI release. It paints a picture of a remarkably shallow dispersal across a range of key demographic groups. CPI rose +3.3% in the year to June, but this Household living-costs price index rose just +2.5% overall. For Māori the increase is +2.6%, for superannuitants it is +2.8%, for beneficiaries it has been +3.0%. It will be no surprise that for the wealthy (the highest-expenditure household group) the increase is the lowest, just +2.3% while at the other end of the scale, the lowest-expenditure household group it is up a higher +2.6% per year. What will be a surprise is how low these HCPI rises have been, less that CPI, but more than the last time average weekly gross earnings were reviewed at +1.1% in the year to March. The spread between household groups is very low. The June labour market statistics are due out on August 4.

PROFITS HOLD UP
Chinese industrial profits are up strongly in June, up +45% above the pre-pandemic level in June 2019, an encouraging result after more concerns about a loss of economic momentum there.

UNRELENTING PRESSURE
There were 172 new community cases in NSW today with a record 87 not assigned to known clusters, and another 10 in the community (but isolated) in Victoria and where their lockdown has been lifted. But the border with NSW remains closed. South Australia is also in lockdown but may be out of it soon. Queensland has closed it border with NSW, which is a last-resort action for them. There was one new case in New Zealand, none in the community.

GOLD SOFT
Compared to where we were this time on yesterday, the gold price is down -US$6/oz to US$1799/oz in early Asian trading.

EQUITIES MIXED AGAIN
The NZX50 Capital Index is down another -0.5% near the end of its Tuesday session. The ASX200 is up +0.5% in early afternoon trade. In Asia however, the openings are grim again in Hong Kong which is down a further -0.5% but Shanghai up +0.3%. Tokyo is up another +0.4% in early trade today. The S&P500 ended today's session up a modest +0.2% but that was a new record high.

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 are probably unchanged. The 90 day bank bill rate is up +2 bps at 0.47%. The Australian Govt ten year benchmark rate is up +1 bp so far at just on 1.20%. The China Govt ten year bond is down -1 bp at 2.91%. The New Zealand Govt ten year is actually down -3 bps at 1.49% and now below the earlier RBNZ fix of 1.52% (+2 bps). The US Govt ten year is also up +2 bps to 1.28%.

NZ DOLLAR FIRMISH
The Kiwi dollar has firmed slightly today to 69.9 USc although most of that firmness happened last night. Against the Aussie we are unchanged at 94.8 AUc. Against the euro we are also unchanged at 59.2 euro cents. The TWI-5 is now just over 72.9.

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BITCOIN SETTLE'S BACK
The bitcoin price is now at US$36,521, down -5.2% in partial retreat after yesterday's big jump. Earlier today it did very briefly hit US$40,000 and since has fallen steadily. Volatility in the past 24 hours has been very high at +/- 5.6%.

This soil moisture chart is animated here.

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Source: RBNZ

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34 Comments

by CWBW | 27th Jul 21, 4:09pm 1627358979

So household living costs went up only 2% plus across the board. All that inflation scare seemed a little exagerrated in context.

by keithwoodford | 27th Jul 21, 4:23pm 1627359782

The quarterly rate of 1.1% as reported by the Stats Dept would compound if maintained for a year to 4.5%. That is far from trivial.
KeithW

by CWBW | 27th Jul 21, 4:35pm 1627360538

I don't think we will be able to replicate the same inflation rate for the next 2 quarters.

by JimboJones | 27th Jul 21, 4:47pm 1627361252

Sounds fairly trivial to me, particularly as a component of that is transitory. The question is how big is that component.

by CWBW | 27th Jul 21, 5:40pm 1627364425

It's a game between the internal tussle within OPEC and North American fracklers. The vegetable part happens every winter. We should also account for the effect of the LSAP suspension and consumer confidence. The inflationary pressure don't seem to be sustainable moving forward.

by Carlos67 | 27th Jul 21, 5:11pm 1627362678

You must be the government advisor on inflation and hence they are doing SFA. They cannot interpret the numbers either. We have inflation on inflation, its compounding at a fast rate of knots or maybe your just being sarcastic, its getting hard to tell on here, there are more clowns than you need to start a circus.

by CWBW | 27th Jul 21, 5:38pm 1627364303

A gust of wind sure adds a few knots. But to keep the sail everytime there's a gust and you'll never reach your destination.

by brisket | 27th Jul 21, 4:38pm 1627360697

Some interesting instability afoot in China, with several US-listed 'tutoring' companies (which appear to have had almost entirely fraudulent books) cratering amid warnings that they'll effectively be nationalised. Billions of (theoretical) value vaporised. Will be interesting to see if the tumbling boulders set off any landslides...

by keithwoodford | 27th Jul 21, 4:56pm 1627361767

The Chinese tutoring system is unlike anything we know in New Zealand. It reflects an incredible focus on academic success, and some would say that leads to unrounded individuals who spend all of their days and evenings studying right through to bed time. The rationale for bringing it under control may well be appropriate - time will tell.
KeithW

by J.C. | 27th Jul 21, 5:33pm 1627363998

The Chinese tutoring system is unlike anything we know in New Zealand.

And which existed in Japan. All designed to pass entrance exams into the best (most prestigious) universities, which would guarantee entering the right company or govt dept. Fortunately, this is slowly disappearing as Japanese are realizing that the glorious corporate path isn't what it used to be and there are better ways to live a life (skilled trades are respected in Japan) without the selling of one's soul. Interestingly, there are some interesting English language education alternatives combining coding / robotics for kids with basic language skills needed in the tech space and to communicate with other tech-minded people globally. Steve Wozniak is endorsing one of the similar education programs being pushed in Asia.

by frazz | 27th Jul 21, 5:37pm 1627364234

What I learnt in Japan..4 hours sleep pass, 6 hours fail

by keithwoodford | 27th Jul 21, 5:49pm 1627364977

Yes, the Chinese education system has always focused on rote learning. And that is what the examination system rewards.
The Chinese leadership understands that this produces people who are excellent at replicating existing knowledge but does not produce people who push back the frontiers of knowledge. This is why even Xi Jinping's daughter went to Harvard for her post-graduate education. But when people have been trained for more than 15 years to absorb and use knowledge rather than to extend knowledge, it can be challenging to then change to become independent learners who subsequently go on to challenge the frontiers of knowledge. Of course some people do make the transformation and then become fervent knowledge explorers and frontiers people, but they tend to be the exceptions.
KeithW

by Audaxes | 27th Jul 21, 6:05pm 1627365902

Chinese ‘Artificial Sun’ Experimental Fusion Reactor Sets World Record for Superheated Plasma Time
World's first 600 km/h high-speed maglev train rolls off assembly line

by HouseMouse | 27th Jul 21, 7:18pm 1627370329

And your point, presumably, is that the Chinese system is already producing innovation?
Well, anyone can pluck a couple of exceptions out of their backside.
The Japanese would have done 600 km/h years ago if they needed to, but they don't.

by Audaxes | 27th Jul 21, 5:19pm 1627363148

China does seems to be in a mood to counter Western Allies' rules-based international order.
US ‘rules-based intl order’ is ‘law of the jungle' to contain others: Chinese vice FM tells US envoy

The so-called "rules-based international order" put forward by the US is a disguise that packages rules set up by a few Western countries. It is the US version of the "law of the jungle" where it abandons the widely accepted international law and trample on the international system, so that it can profit and bully others, Xie noted

by Audaxes | 27th Jul 21, 4:53pm 1627361615

Reserve Bank analysis has found the reduction in term deposit and mortgage rates between 2016 and 2020 lifted households' net incomes by just +0.1% - other things constant.

If, as the RBNZ has claimed in the past, two thirds of households are without mortgage debt the OCR reduction from 2.5% at the beginning of 2016 to 0.25% at the end of 2020 has had a catastrophic impact in respect of bank deposit returns tied to this rate.

$400,000.00 deposited at 2.5% per ann.returns $10,000.00
$4,000,000.00 deposited at 0.25% per ann. returns $10,000.00

by refactornz | 27th Jul 21, 5:22pm 1627363338

Why should you expect to profit from having the bank look after your money? Invest in something with risk to earn a return.

by Audaxes | 27th Jul 21, 5:44pm 1627364697

Because depositors underwrite the NZ banking system.

According to the Reserve Bank, the new capital requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.

Profits and return on equity at New Zealand's major banks surge higher on the back of the red hot housing market

Core funding defined by RBNZ:
New Zealand-incorporated registered banks are also subject to a minimum core funding ratio (CFR). The basic notion underlying the CFR is a comparison between an estimate of the funding of the bank that is stable and can be assumed to stay in place for at least one year (‘core funding'), and the core lending business of the bank that needs to be funded on a continuing basis. Core funding is defined as retail deposits plus wholesale funding with maturity of more than one year.

by J.C. | 27th Jul 21, 5:37pm 1627364255

Because depositors underwrite the NZ banking system.

Thank you for your underappreciated appreciation of all this Audaxes. The banking system really is a rort of epic proportions. Yet most people have no idea or being under-rewarded for their capital and assuming all the risk directly and indirectly.

by Audaxes | 27th Jul 21, 5:57pm 1627365476

Thanks J.C., I often don't thank you enough for your kind thoughts.

by Audaxes | 27th Jul 21, 5:40pm 1627364424

Why should you expect to profit from having the bank look after your money?
Banking faces seismic changes

Ever since the goldsmiths in London began in the seventeenth century to take in deposits upon which they paid six percent, with the agreement that they were not trustees of the money but proprietors of it, banking has contravened the spirit of Roman law by taking in deposits and using them as they please, without depositors fully realising the arrangement. This breach of “natural” law was originally a ruling by the Roman juror, Ulpian (170—228 AD), later codified by the Emperor Justinian (527—565 AD).

Ulpian had a point. If a depositor is unaware that his property is to be possessed by another without a banking licence, even today it would be ruled in the courts as fraudulent behaviour. But in 1848 English Judge Lord Cottenham in Foley v. Hill and others ruled otherwise in the case of banking relationships, that a deposit becomes the property of the bank, despite the majority of depositors unaware they no longer possess it. Ever since, the practice of a bank taking into its possession someone else’s property and disposing of it as it sees fit has been indisputably accepted in banking law.

by scarfie | 27th Jul 21, 9:29pm 1627378186

It would be nice to test that under New Zealand law. As former Police Officer I believe money, in general, fulfulls the requirement for criminal fraud. Banking behaviour through deposits and loans are of particular interest.

by Audaxes | 28th Jul 21, 1:43pm 1627436588

by Audaxes | 27th Apr 21, 11:14am
A regulatory impact statement released by the Government alongside its plans for the incoming Deposit Takers Act. last week highlights some of the key points the IMF made. [my emphasis]

Can someone point to a reference on the RBNZ's website where a record of banks' deposit taking actions can be viewed as opposed to deposit creation actions?
Because banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source.

Same principle as central bank QE.

Demand deposits referred to by the public as “cash in bank” is recorded and reported by monetary financial institutions (MFI) in units of account by double-entry bookkeeping in a process which the MFIs call “lending ” — but which is effectively a nullity — by debiting loans receivable and crediting demand deposits.

These so created units of account are then denominated at will in dollars, pound sterling, euros, etc., depending on the terms of the documentation or underlying promissory note, or whatever is the legal document giving rise to this type of “lending,” using whatever is the name of the currency in the jurisdiction in which it takes place, but legal tender the “demand deposits” are not.

Banks do not have pre-existing funds in the form of legal tender to lend, except in miniscule amounts relative to the size of their loan portfolios.1 In other words, banks create demand deposits out of nothing, and it therefore remains a nothing. The malpractice continues because public accountants as auditors sanctify the aforementioned practice by “certifying” the banks’ financial statements, provoking credit expansion, moral hazard, asset bubbles, liquidity-stressed financial markets, bank runs, and eventually global financial crises. Link-pdf

by RandomKiwi | 27th Jul 21, 7:23pm 1627370592

140,000 South Aucklanders invited to have the vaccine but only 10% accepted. Im gobsmacked. Stuff has chosen not to run the article. There are South Auckland leaders in the top echolen of power, siting at the cabinet table. Here is their chance to show, look what we can achieve when we have been given all the resources we require.

Instead our liberties will be greatly reduced for years to come because the majority of Aotearons don't want the vaccine, and they don't want covid.

by HouseMouse | 27th Jul 21, 8:00pm 1627372854

We are f$%%;,

by Hans Brink | 27th Jul 21, 8:05pm 1627373110

You are right, get the vaccinations going that is the way out of this. Getting mine next week. My old man in Spain had his two shots 3 months ago. We are very fortunate to have the Pfizer vaccine and I say get into it because once there is an out break suddenly everyone will want one, then you will see some complaining even though the vaccine had been available.

by CWBW | 27th Jul 21, 8:11pm 1627373464

Dont worry too much. I'll say they're probably challenging the frontiers of scientifc knowledge- let them be. It's natural selection.

We'll be opening in due time for business.

by scarfie | 27th Jul 21, 9:30pm 1627378238

Your idea of liberty is greatly confused if you think compulsion is a part of it.

by TuaWai Smith | 29th Jul 21, 1:05am 1627477546

yeh...and these same unvaccinated people are protesting in the square, worldwide, about shutdowns and mask wearing??? I will never understand that. The faster NZ vaccinates the quicker we will open to the world. If you dont want that fine. You do have a choice, it doesn't make you educated.
The USA went with this open route with the result of 600,000 plus dead because of it and half the population is too stupid to realise that vaccinations will go a long way to alleviate the covid. And just like the flu shot an ongoing thing with boosters. Nzers think it is not a priority because they kept it out of the country with border closures...which continue to this day and WILL continue until the vast majority are vaccinated.
Confusing your precious liberty with common sense and the greater good of humanity means no NZ school children would be vaccinated for polio, whooping cough, measels etc,etc..and what an outcry there would be when thousands of children start dying. F%$%ing morons.

by Rosenstein | 27th Jul 21, 9:46pm 1627379206

Maybe south Auckland was watching Dr Charles Hoffe.

https://www.youtube.com/watch?v=5sIWb9GTbbE

by Hans Brink | 27th Jul 21, 10:25pm 1627381528

Yeah watched that and noticed the agitated actions of the other doctors. Love to hear the counter argument.

by Rosenstein | 27th Jul 21, 10:38pm 1627382316

Always up for a free airing of ideas.

by Squishy | 28th Jul 21, 12:02am 1627387358

Not looking great for NSW, three weeks of lockdown hasn't reversed cases. Since mid-March only 13% of population vaccinated. This could last many months.

by Halfway To Paradise | 28th Jul 21, 12:19am 1627388356

Darwin's natural selection always comes through