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A review of things you need to know before you go home on Friday; Michael Cullen dies, credit card data weak, electricity demand slumps further, iron ore price hammered, swaps sink, NZD soft, & more

A review of things you need to know before you go home on Friday; Michael Cullen dies, credit card data weak, electricity demand slumps further, iron ore price hammered, swaps sink, NZD soft, & more

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

MORTGAGE RATE CHANGES
None announced so far today.

TERM DEPOSIT RATE CHANGES
Heartland Bank have increased their 32 day Notice Saver rate from 0.75% to 1.00%. Update: SBS Bank has raised all its rates for 9mth and longer.

MICHAEL CULLEN DIES
Former Finance Minister Michael Cullen died today after battle with lung cancer. He was 76. KiwiSaver, the New Zealand Super Fund and Working For Families are legacies of Cullen's time in government.

BANKS START TO OFFER 'RELIEF'
Customers experiencing hardship should contact their bank as soon as they realise things will likely get tough. Today, Westpac was the first to announce "financial support" to business customers affected by the latest lockdown. This support includes suspension of principal loan payments for up to three months, deferred payment on business credit cards for up to three months, and a temporary overdraft facility for business customers. It does not extend to interest rate relief.

NOT OUR CRUTCH AS IT WAS ONCE
Credit cards balances are still slipping. They were down for a 20th month in the past 22 in July. But transactions running through these cards are up on a year-on-year basis but 2020 is a low base. Compared to July 2019 they still haven't regained that level. And now only just over 55% of the balances we owe incur interest, almost a record low.

SLUMPING ON SINKING DEMAND
We noted the fall to $86.30/MWhr yesterday for the wholesale electricity price at Haywards, based on good hydro conditions and sinking demand. Today it fell to under $64/MYhr, a slump of -25% in just one day!

A KIWI VIEW FROM BEIJING
David Mahon offers an insightful view of what is going on in China as they rein in their tech industry, and try to reform their education sector. It's a story of adaption and missteps, with Beijing trying to keep companies within the state's social controls

NO RESPONSE YET TO THE MOMENTUM LOSS
In China, their central bank left the Loan Prime Rate on hold for a 16th straight month today at 3.85%. But with the Chinese economy losing momentum, we think it won’t be long before the PBOC is guiding rates lower. Even so, another round of large-scale credit-led stimulus doesn’t appear to be on the cards for now. Another reserve ratio cut looks likely to be their next action.

PANIC ROUT
For the past two mornings we noted the severe plunge in the iron ore price. Well, in early trading today in China, it is tanking further in a panic. It is now at its lowest level of 2021. This will be tough on Australia.

PRESSURE INTENSE IN BOTH NZ & AUSTRALIA
There were another 642 new community cases in NSW today with another 508 not assigned to known clusters, so they are out of control. It has spread into regional NSW extensively. Their lockdown has been extended. They are now under curfew too. Victoria is reporting another 55 new cases today, so it is starting to surge there too and their lockdown is extended for another two weeks, also with a curfew. Queensland is reporting 1 new case in a bright spot. ACT has 12 new cases. Overall in Australia, more than 28% of eligible Aussies are fully vaccinated, plus 22% have now had one shot so far. There were 2 new cases in New Zealand at the border, and eleven more in the community. Three are in Wellington now. And we are now staying at L4 until mid next week, at least, and country-wide.

GOLD HOLDS
Compared to where we were at this time yesterday, the gold price is up slightly at US$1783 in early Asian trade and a firming of +US$3 from then.

EQUITIES STRUGGLING NEAR THEIR TOPS
At the close on Wall Street, the S&P500 tried a late gain but it didn't hold and it ended up +0.1%. Asian markets have opened weaker like the Europeans with Tokyo opening down another -0.7%, Hong Kong down another -0.5% and Shanghai opening down another -0.4% too. The ASX200 had recovered all of yesterday's loss in the morning session, but it is leaking away in the afternoon, currently up just +0.2%. It is heading for a weekly -2.0% loss. The NZX50 Capital Index is giving back a small part of yesterday's big gain, currently down -0.2% in late trade. It is heading for a weekly +1.3% gain.

SWAP & BONDS RATE ROUT GOES ON & ON
We don't have today's closing swap rates yet. They are probably falling across the board with the 1yr down another -8 bps, the two year down -7 bps and the ten year also down -7 bps. The markets doubt rate hikes any time soon. We will update this when the end-of-day data comes through. The 90 day bank bill rate is down by another -6 bps to 0.37% on top of yesterday's drop. The Australian Govt ten year benchmark rate is down -4 bps at 1.08%. The China Govt ten year bond is unchanged at 2.86%. But the New Zealand Govt ten year is down -5 bps to 1.60% and still below the earlier RBNZ fix of 1.61% (+7 bps). The US Govt ten year is now at 1.24% and slightly softer again (-2 bps).

NZ DOLLAR MUCH SOFTER AGAIN, OUT OF RANGE
The Kiwi dollar is now at 68.1 USc, down -½c and its lowest since November 2020. Against the Aussie we are doing the other way, up +½c at 95.6 AUc as the AUD weakens faster than the NZD. Against the euro we are down at 58.3 euro cents, a +40 bps slip. The TWI-5 is now at 71.8 and now below the bottom of the range we have been in over the past eleven months.


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BITCOIN TURNS UP
The bitcoin price is now at US$47,160 with a strong shift higher up an +5.5% from where we were this time yesterday. Volatility in the past 24 hours has been high at +/- 3.8%.

This soil moisture chart is animated here.

Keep ahead of upcoming events by following our Economic Calendar here ».

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21 Comments

Glad to see Iron Ore prices moderate. For decades developed countries shut mills and manufacturing industry, outsourced their emissions problem to China.

Now China are going to achieve their emissions goals by trimming production back.

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Are we witnessing China punishing AUS?

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Perhaps a minor key in a much more lucrative symphony: Afghanistan has north of 3T of minerals, including lithium and iron. China has done the obvious deal with the Taliban: stay outta any contact with insurgencies, and we'll cut you in on the minerals revenue stream. And if you renege, welcome to Uighur World. A useful link: https://thediplomat.com/2020/02/afghanistans-mineral-resources-are-a-lo…

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Agree; this has been an important indicator. Luckily the US put up two giant intellects in succession, just when it needed them. Watch Iraq next. Plus the Taliban will resent China the way they have every other. Seems to me it wasn't so long ago the US were helping them oust Russia, just before IT collapsed.

Kipling nailed it.

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Three giant intellects - remember the son in law who resolved the Palestinian situation?

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A key consideration for China must be the possibility of the Belt and Road passing through Afghanistan.

Welcome to Uighur World - love it.

Afghanistan was also a source of tin during the Bronze Age. Just thought I'd mention that in case we, you know, end up back in the Bronze Age.

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In China, their central bank left the Loan Prime Rate on hold for a 16th straight month today at 3.85%. But with the Chinese economy losing momentum, we think it won’t be long before the PBOC is guiding rates lower.
USD/China yuan

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Japan’s Consumer Prices Drop for 12th Month After Data Revision

Consumer prices, excluding those for fresh food, declined 0.2% from a year earlier, the ministry of internal affairs said Friday in its first report since rejigging its consumer price basket earlier this month.

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There was a period from mid-90s where the grocery price index in Japan was flat for about 10 years. Remember that their buying power is massive and food companies / supply chain / retailers could cut their margins to survive.

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There are those that say the natural rate of inflation is zero

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Yes, but that's just semantics.

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AUD/NZD on target for tenth consecutive week of falls, longest spell in 25 years or more , a fair effort given no rate hike , and the first landing of many mutant strains .

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Did they turn comments off on the Covid thread?

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It appears so, and I suggested as much. I received a bit of backlash for suggesting as much.

It's become groundhog day on the Covid update comments, conspiracies and all. And hey, Interest doesn't owe you comments. Not everywhere is a vehicle for your opinion.

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Simple question. No need to be rude

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Not directed at you :)

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Do you think we will get another sugar rush of spending and ridiculous house price increases after this lockdown, or do you think the public may realise we might have to pull in the debt pile.?

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Yes, I think there is probably more sugar and interest rate suppression (rush and crush) to come.
Sovereigns almost always destroy the currency to delay the crash, and i think they can delay until there is a Black Swan that can't be bluffed away.
There are still some savings and future tax takes that can be burned on the pile before it chokes. She'll be right.

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Sir Michael Cullen is being applauded for Kiwisaver. So why don't they finish the job, make it universal and lift the contribution rate to a useful level.

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