90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Quake costs seen over NZ$10 bln; Q1 GDP may fall 1.5%; Calls for rate cut grow; Oil at US$103/bbl

25th Feb 11, 8:59am by bnzeconomists

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including early estimates from insurers and economists that the Christchurch earthquake could cost NZ$10 billion to NZ$20 billion.

Economists estimate lost output in the March quarter of 1-1.5% of GDP.

Calls are growing for the Reserve Bank of New Zealand to cut the Official Cash Rate by up to 50 basis points, starting as early as March 10.

Economists from ASB, ANZ and Deutsche Bank have called on the RBNZ to cut, arguing the earthquake was a national crisis and inflation pressures remained low.

However, economists from BNZ and NZIER said a rate cut would not be effective.

See more here on calls for an emergency rate cut.

Meanwhile reinsurance costs for New Zealanders looking for earthquake cover are expected to rise sharply on international markets. It may be impossible to find reinsurance at reasonable prices for Canterbury.

Meanwhile, overnight, the price of oil rose over US$103/bbl as production from Libya's oil fields has more than halved in recent days.

See more here at Bloomberg.

Saudi Arabia has pledged to increase output to make up the difference, but there are concerns about Saudi Arabia's ability to produce more for a sustainable period. See more here at Bloomberg.

US stocks fell. See more here at Bloomberg.

Nomura has forecast the price of oil could rise to US$220/bbl if production from Algeria and Libya are reduced.

The New Zealand dollar was weak around 74.5 USc overnight.

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54 Comments

by Alexander | 25th Feb 11, 9:12am 1298578379

Moving away for good seems like the only option for a lot of people.

Even the Christchurch Wizard is leaving. He says he's had enough

by bigblue | 25th Feb 11, 9:17am 1298578668

Cut the cash rate 1% now Bollard! The dollar wil re-align itself and we will earn more from our exports, imports will cost more which will encourage people to save rather than spend.

The people need relief from increasing food prices, power, insurance, rates etc and one way to do this is to cut the cash rate and lower mortgage payments will offset other increased costs.

Lower interest rates will encourage investors to be more creative rather than putting money in the bank and this is what we need in order to stimulate growth.

The temporary spike in oil while the middle east countries sort themselves out will also be painful - so c'mon Bollard get the razor out!

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10708556

by Wolly | 25th Feb 11, 9:36am 1298579813

You refuse to learn don't you BB!. Is the earth still flat for you?

by powerdownkiwi | 25th Feb 11, 12:30pm 1298590255

Well spoken Wally

You're back on my xmas card list. (don't get excited, they're recycled)

Yep, this is just a blip - the fact that the unrest can be traced to poverty, and the poverty to not enough resources (apart from oil, Libya has nothing but WW2 relics) per head, has nothing to do with it. Right.

Yeah right.

by Number 6 | 25th Feb 11, 9:39am 1298579991

Yes. But bring in a Land Tax and Stamp Duty for all of New Zealand at the same time , excepting Christchurch, and use the raised funds to rebuild our EQC and stop the 'cheap' money going into property speculation. Exempting Christchurch will also mean that it will attract what spec. money is left to the city to rebuild it ,at an effective discount.

by Wolly | 25th Feb 11, 9:18am 1298578683

He should have known what was going to happen...or is he a false wizard!

by andyh | 25th Feb 11, 10:13am 1298581986

What are the mechanics of opening an Aussie deposit account? How can one do it without being Aussie resident?

by goldenfox | 25th Feb 11, 10:23am 1298582601

10mins - I don't know how much your planning on sending, but I did it over the phone with ASB.

by andyh | 25th Feb 11, 10:42am 1298583749

Thanks GF and speckles - did that give you access to the sort of deposit rates that Commonwealth Bank are offering (ie 6% for 7 months) or did that mean they stuck it in an Australian currency account (from ASB securities yielding a miserly 2%) ?

Most of the banks here offer crappy Aussie denominated accounts which pay mediocre interest - its access to the rather more juicy term deposits advertised here:

http://www.interestratenews.com.au/td_1yr.php

that is of interest. TIA.

by speckles | 25th Feb 11, 10:46am 1298583963

I know... ASB sets you up their parent, Commonwealth Bank and I have those type of interest rates.

by Fairfax O Rouke | 25th Feb 11, 10:48am 1298584089

Ensure you are comfortable with the currency risk. Is an extra1-2% worth the risk that $A v . the $NZ could drop 10%+ very quickly effectively wiping the same amount of capital?

by andyh | 25th Feb 11, 10:57am 1298584673

Thanks Fairfax - getting exposure to the A$ vs the NZ$ is part of the rationale. Gold gives you some cover against a potentially imploded NZ$, exposure to the Aussie adds an extra layer (though I appreciate the pair often moves in tandem).

by iconoclast | 25th Feb 11, 11:22am 1298586123

Would recommend you seek Wolly's advice. He is an expert at this. The spread between the AUD and NZD has moved out from 1500 pips to 2600 pips in the last 6 months. Not sure it can go much further. However the risk will be the RBNZ and if it cuts the OCR the spread could shove out to about 2700. The AUD moves a lot faster than the NZD, and if China undertakes any further anti-expansionary moves the AUD stands to take an enormous hit. Ask Wolly if it''s not too late.

by Wolly | 25th Feb 11, 11:25am 1298586358

It's too late icon...not even I can predict shallow quakes...look for the inflow of reinsurance loot to push the Kiwi$ up and don't dismiss the commodity collapse taking place and killing the aus$...remember our commodities are food...that matters.

Ignore the Chch event and expect the Kiwi$ to reach 80au this year. That's the best advice I am getting.

by iconoclast | 25th Feb 11, 11:30am 1298586615

Yes, I agree, it's too late. I'm looking to go the other way AUD to NZD

by Fairfax O Rouke | 25th Feb 11, 1:21pm 1298593274

...you mean Wolly speculated, and was fortunate to have been on the right side, bearing in mind someone must have been on the wrong side of that specualtion.

Andyh I figured you would be using it as a hedge, the intent was more of a general statement.

I am still scarred from seeing the fallout of people chasing the interest rate in finance companies,without even considering the risk (...that richard long seems like a nice guy) when in fact they should be assessing the risk, and deciding if the reward is worth it.

by speckles | 25th Feb 11, 10:47am 1298584029

I know... ASB sets you up their parent, Commonwealth Bank and I have those type of interest rates.

by Boatman | 25th Feb 11, 11:35am 1298586903

Really very easy , go into ANZ tell them to open an AU$ dollar account , and its done immediately . The interest rate paid is not any better on small balances, but you get the benfits of the currency gains which have been really god in the past.

You will be astonished at how many NZers do this and run Aus$ bank accounts both here and in OZ.

Kiwi's are not dumb , and Bollard will be aware of this risks of capital flight by savers if he messes with the already low OCR

by GG | 25th Feb 11, 10:16am 1298582193

Re. Bigblue

Please explain why cutting the OCR will provide relief to mortage holders? The mortage rates are driven by the banks cost of funds. A lot of the funding comes from overseas and is not dependent of the OCR.

The banks are calling for a cut in the OCR so they can cut the rates they pay on domestic deposits.

Cutting the OCR will result if a drop in the Kiwi, pushing up fuel and imported food costs. It will also take money from those, particulalrly the elderly, who rely on term deposits for savings.

by goldenfox | 25th Feb 11, 10:26am 1298582813

Completely agree GG. There is no logic in a rate cut. Most will be on fixed rates and the inter-bank rate will be drive by what the Aussie rate is. The OCR is a signal, the BKBM is the real rate to watch.

Monetary policy is not going to target the people you want to help, it a Fiscal and structural problem.

by speckles | 25th Feb 11, 10:23am 1298582590

You can set one up her via ASB with their parent...thayts how I did it...any other suggestions?

Personally being parking aussie dollars for interst rates and swiss francs for balance i.e most robust as a currency.

by FCM | 25th Feb 11, 10:37am 1298583434

Agree there needs to be a targeted response for CHC residents. Cut the red tape get the EQC/ insurance payments out quicker, the banks need to come on board and offer some relief without the twenty questions and the corporates need to come in behind and guarantee jobs and future employment in the region (besides building). It will be hard for the region to survive if 30-50 thousand people walked away if they felt there is no future here anymore.

by Wolly | 25th Feb 11, 10:44am 1298583861

"... he (Bernanke)has been wrong about the housing market, the mortgage market, the economic recovery, nascent price inflation, bank stability, a housing recovery, and just about everything. Serving as Secretary of Inflation, he manages the money creation diligently and liquidity facilities with such aplomb and dexterity. Thus he is revered. Unlike the Great Depression, for which he is a revisionist history expert, massive price inflation has begun to accompany the hyper-inflation on the monetary side. Bernanke was selected as the dumb professor in residence, the bag holder, the obedient lackey, and idiot savant"

http://www.marketoracle.co.uk/Article26497.html

You will not escape this approaching storm.

by TrimChaiLatte | 25th Feb 11, 10:44am 1298583882

While the devastating quake in the south island is a terrible event, the elephant in the room is the price of crude. It triggered the last global collapse in 08, and this time could be much much worse. So on the subject of interest rate cuts following the quake....that is not the issue and won't make the slightest difference either way. Check out this link from the Telegraph. Just as the world clings on to economic recovery, oil is likely to make 2011 very uncertain. http://www.telegraph.co.uk/finance/financetopics/oilprices/8346280/Fears-for-UK-recovery-as-oil-nears-crucial-120-mark.html What world economists know is than when crude hits US$140, the world suffers. Inflation and interest rates skyrocket as the cost of food and fuel explode, while asset prices (shares, property etc) tumble. All eyes on the Gulf......things cost quickly get out of control.

by Vera Fayed | 25th Feb 11, 12:35pm 1298590522

The only collapse the oil bubble of '08 triggered was itself. $147 to $32 in a few months made every other market gyration of the time pale. It also served to smash the myth of the in-elasticity of oil demand. The downside in demand proved very compressible while thousands of previously uneconomic wells were fired up asap to capitalise in high prices before they vaporised. So much oil mysteriously appeared it reached the stage where it was physically impossible to store any more of the stuff, hence the spectacular collapse.

Christchurch and the whole country will emerge better and stronger from this event. The spirit of compassion, co-operation and generosity that is now so evident has always been there, and the quake is the catalyst to activate it so strongly it will gain momentum and keep on going. Economic growth and social progress are just by products of real growth; that of the human spirit which is rising to the occasion.

by Snarlypuss | 25th Feb 11, 12:41pm 1298590903

When the sheep poured off the Canterbury Plains and into the chilled ships, Christchurch had a raison d'etre. What is it, today, that Christchurch is that is so unique that it cannot be done elsewhere in New Zealand, and is being as we speak? Surely; whatever Christchurch rises to be, it will be a third of its previous size?

by andyh | 25th Feb 11, 1:28pm 1298593725

Vera - I am fascinated by your contention that:

'while thousands of previously uneconomic wells were fired up asap to capitalise in high prices before they vaporised. So much oil mysteriously appeared it reached the stage where it was physically impossible to store any more of the stuff'.........

Perhaps I could direct you to this dataset compiled by the EIA (the authority on such matters) showing global crude production 1960-2009. You need to just take a cursory glance at the column on the far right, world production, and go down to the bottom for the most recent years.

http://www.eia.doe.gov/aer/txt/ptb1105.html

To help you out I'll quote them for you:

2004: 72.48mbd

2005: 73.72

2006: 73.44

2007: 72.99

2008: 73.69

2009: 72.26

Dont you think its rather odd that with all those thousands of wells supposidly firing up and with that glut that you mention that it wasnt actually picked up in the official statistics?

Strange eh?

The price of oil collapsed because demand collapsed due to the GFC/oil shock. It most certainly DID NOT collapse because we suddenly started producing vast new volumes of crude - as those figures prove. What they also demonstrate is that in response to a huge price rise there was no demonstrable production rise - production of crude oil appears to be stuck on a plateau - makes you think eh?

by Vera Fayed | 25th Feb 11, 2:38pm 1298597917

Andy, thanks for the EIA link but I am already familiar with those figures. Of course the '08 price/production spike didn't result in an overall production tally increase for the year. This is because as always it quickly creates a glut and price collapse and subsequent output decline. Production can increase quickly but not for long. There is only so much storage space to put the stuff.

by David C | 25th Feb 11, 5:57pm 1298609849

Utter Rubbish Oil wells don't magic into existence they need planning and development which takes time.

by Alex Tarrant | 25th Feb 11, 12:05pm 1298588711

Hi all, this from the Reserve Bank on ATM locations in CHCH:

To assist bank customers in Christchurch, the location of operational ATMs in Christchurch can be found at these maps below. The information has been put together from other sources of publicly available information, and may be subject to change from time to time. Please check with your bank's website as power and access can affect ATM operations.

http://www.rbnz.govt.nz/nzbanks/ATMbranches.html

Cheers

Alex

by overworkedmonkey | 25th Feb 11, 12:05pm 1298588748

Have around 100K in term deposits and am looking to make more gains however am unsure where to place the deposits at the moment. Appreciate any advise.

by powerdownkiwi | 25th Feb 11, 12:44pm 1298591096

OWM- remember that an investment is an assumption that somewhere in the future, you will be able to buy 'more' via a dividend, interest or share payout.

All those rely on the future getting bigger each round, to do the bigger underwriting (everyone is just like you, in otherwords). Take a good look at that Apollo shot of planet earth.

http://www.spaceimages.com/earth.html

Clearly, that process had to tank at some point - and that point would be the biggest rate of activity thus-far seen. Peak energy had to signal that limit (sorry to those here who hear little else from me).

There will be opportunities on the way down, if the system adjusts to a permanent - if bumpy - decline. Some winners and some losers under the parachute. Anticipating the things that will be essential is one suggestion, but given what clearly happens when the disenfranchised have access to facebook and twitter, I wouldn't bother.

I'd put it into getting self-sufficient and resilient. Been there done/doing that.

by steven | 25th Feb 11, 1:34pm 1298594057

Deposits are the closest thing you can get to a risk free rate of return.....right now they seem the safest place I can think of......much risk is unknown...

regards

by Fairfax O Rouke | 25th Feb 11, 2:01pm 1298595718

Advice (FOC)

1. Dont take advice from annonymous blog sites

2. Get advice. With new regulations, the scoundrals have been thinned out in the investment advice space...financial advisor, financial planner or sharebroker. All have their vested interests to bear in mind with any advice given.

3. Use that advice to educate yourself to ensure you understand the risks involved in your investment, including the risk that if your money is stuck in the bank and inflation explodes, you are losing money.

4. see #1

by overworkedmonkey | 25th Feb 11, 7:20pm 1298614818

Thanks FairFax. Wasn't aware that Interest.co.nz is anonymous. Would think the posters are anonymous. Nevertheless, I generally don't trust anyone. Now when you say new regulations what do you mean exactly? Also what does the downgrading of the banks mean to the stability of the institutions? When you say stuck in the bank, what are you referring to exactly?

by steven | 25th Feb 11, 12:14pm 1298589272

Oil is $111US

Predicted,

http://www.youtube.com/watch?v=QhsMr49AKM8

(4mins)

regards

by Gareth Vaughan | 25th Feb 11, 1:15pm 1298592946

FYI, Fulton Hogan managing director Nick Miller has told staff working in Christchurch that damage to the roading and surface network is in the billions of dollars and many times more than the damage caused on September 4.

by Andy Rodgers | 25th Feb 11, 1:59pm 1298595596

I would suggest that Nick Miller informs Bob Parker of this fact because he obviously hasn't got a clue about this. According to Mayor Bob the priority is to rebuild the Cathedral, bugger the roads and sewers.

by Matt in Auck | 25th Feb 11, 2:27pm 1298597274

infrastructure must of course be a priority, but so should the cathedral.

The cathedral is the heart of the city, it needs to rise again from the ashes. This will lift the people's morale - emotional rebuilding is just as important (actually more important) as infrastructure rebuild

by Wolly | 25th Feb 11, 2:48pm 1298598491

That's interesting Matt...perhaps it would be best to clear the rubble and leave the thing as it stands to remind engineers and building inspectors why safety should come before the dollar.

The cathedral should not have been open to the public given the fact the "experts" said a mag six was on the cards!

Who approved it being open?

by KW John | 25th Feb 11, 4:17pm 1298603820

"As the bridge was taken apart, each piece was numbered to aid re-assembly. The bridge was reconstructed ... , and re-dedicated on 10 October 1971." ( Rennie's London Bridge - wiki)

They also strengthened it. A memorial of some sort maybe? Maybe there are other buildings that could accompany it. A new local setting?

by David C | 25th Feb 11, 6:03pm 1298610207

Why are you calling for the rebuilding of a death trap Matt do you not like the people of Chch or something???

by Elley | 25th Feb 11, 7:33pm 1298615595

I really hope they do not rebuild it. It'd create the same risk in a similar event again. Leave it as it is after making sure what's left is strengthened enough that it won't keep falling down, or remove it and have a park instead. PS: I loved the Cathedral and Cathedral Square, but I'm never gonna sit there for lunch again.

by LOL | 25th Feb 11, 8:39pm 1298619597

Christchurch may be rebuilt, but I dunno how many people will be left to live there. The concensus seems to be among my Christchurch family and friends that the north of the North Island is the place to be now.

They aren't all packing up and heading for sunny northland but a few of them are making plans.

If the Australians hadn't been so hammered by cyclones and floods recently, I suspect everyone in Canterbury would be looking in their direction now.

Chances are Christchurch will be but a pale shadow of itself for a long time to come.

by Elley | 25th Feb 11, 10:01pm 1298624468

Agreed. According to stuff 10,000 person a day have flown out of Chch since Tuesday. Probably temporarily but I'm sure some people will leave definitely.

I spent a few hours yesterday looking through my atlas but after eliminating every area on the ring of fire, any politically unstable country and any country with dangerous animals including but not limited to snakes, sharks and crocs there wasn't much choice left. Back to France doesn't appeal much (not really many risks there but the French are really grumpy lol).

Not that I think we'll really be leaving but with family super worried and the stress of the last 6 months it's probably normal to question our choice and look at other options. Friends in Wellington are doing the same in fact - seems that even though they haven't experienced it it's made them think hard about living there. I guess the one reason we'd leave is if our lifestyle is "compromised", ie too much stress/anxiety and lack of work.

by Chris Carter | 25th Feb 11, 10:20pm 1298625654

Northland really *is* a good option.

The climate is wonderful and house prices are low compared to many places in NZ, certainly within the NI.

There are opportunities too, both within cities like Whangarei and Kaitaia, and the magnificent but more rural coastal places.

And on top of that it's quite probably the most geologically stable region of NZ.

by speckles | 25th Feb 11, 10:40pm 1298626821

A possibility for those retired, limited economy and economic opportunity otherwise.

Actually I think a lot from Christchurch would find it somewhat of a culture shock, not being critical just noting it is very different.

by speckles | 25th Feb 11, 10:40pm 1298626824

A possibility for those retired, limited economy and economic opportunity otherwise.

Actually I think a lot from Christchurch would find it somewhat of a culture shock, not being critical just noting it is very different.

by speckles | 25th Feb 11, 10:49pm 1298627353

Do you actually know the number of foreign nationals flown out? It is a large number. Actually it feels like 10,000 per day have moved to north canterbury.

A lot may have left but you need to keep it in context, this was a horrfic event but the majority of the working population work on the fringes in commercial subdivisons. I know many not personally affected while also many in the CBD and out East who were heavy affected.

by Elley | 26th Feb 11, 10:42am 1298670171

"You need to keep it in context". I realise that, and believe me, after the Sept 4th earthquake everybody (well, except those in Canterbury) was telling us to do just that, get over it, stop stressing about the aftershocks and consider ourselves lucky - after all we'd had "our" quake, no one had died and surely we were now safe for another 80 years.

Rationalising and putting things in context is all very well, and that's what we've tried to do. Just yesterday I was trying to reassure my mum telling her that even if the death toll climbed to 400 (which I hope it won't) it'd still be just 0.1% of the population, in other words 99.9% of Chch people are fine. Well, fine is definitely not the right word but at least, alive.

The fact is, putting things into perspective unfortunately doesn't take away the trauma and the fact that many people won't be happy to stay in Chch, let alone work in tall buildings in the CBD. Of course, we knew before coming to NZ that it was, is and always will be earthquake-prone but you look at past events, see that the last deadly one was eighty years ago and tell yourself the risks are limited. It's easy not to think about it until it actually happens. When it does happen, it makes a big difference even if the risks haven't increased. And of course as I said there's also the issue of work. In what way we'll be personnally affected I'm not sure but a number of people will be that's for sure. If people lose their jobs, they may have to leave and go where they can find one even if they don't want to.

by overworkedmonkey | 25th Feb 11, 7:23pm 1298615001

I assume that any rebuilding of Christchurch would account for the buildings, etc being designed to withstand future earthquakes better

by Matt in Auck | 25th Feb 11, 7:55pm 1298616943

Thats absolutely pathetic David C! Rich mate, my mother is from Christchurch and I was born there, so you can f$%k up with those sort of comments about not liking the people of Christchurch. F OFF!

It could be rebuilt in a manner with modern technologies that ensured it looked pretty much the same, but was considerably stronger

Did the Americans stop building tall buildings because they were worried about another 9/11? No, because that would be weak and they stood true to their principles

I think most if not all other historic buildings that have been damaged should be demolished and NOT rebuilt, but I think the cathedral is one exception

by Kate | 25th Feb 11, 11:20pm 1298629200

Whenever I visit the Chch Cathedral I think of Ken Follet's Pillars of the Earth.

Where there is a will (and money, patience and time) there is a way - and a way (of strengthening) which I am certain could be engineered to withstand all the forces of nature recently thrown at it.

At Te Papa there is a public display of the manner in which the foundations have been built to withstand earthquakes - and it (I imagine) is built on reclaimed land subject to severe liquifaction.

I believe the key buildings of character in Christchurch central (if we have the will) could be successfully (and safely) retained in any reconstruction. It would be painstaking, labour intensive reconstruction, which could take decades, even generations. But I am certain the children of my toddler grandchildren would thank us for it.

Our parochial, colonial heritage is important. Not important enough to compromise lives, but I believe we can have both heritage and safety. We are that advanced.

by speckles | 25th Feb 11, 11:24pm 1298629443

There is an interesting article in todays New York times on our building regulations in Canterbury. Especially note the variation about reinstated property.