What happened Friday

A review of things you need to know before you go home on Friday; high pre-Christmas confidence, lower fx trading, no inflation, oil price falls further, NZD up

12th Dec 14, 4:00pm by David Chaston

For Friday, December 12, 2014. <a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

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

TODAY'S MORTGAGE RATE CHANGES
Housing NZ Corporation dropped some fixed rates.

TODAY'S DEPOSIT RATE CHANGES
There were no changes today.

CREDIT RATING CHANGES
Standard & Poors raised the credit ratings of two local finance companies today. Asset Finance went to B+/Negative from B/Stable, and Avanti Finance went to BB+/Negative from BB/Stable. At the same time F&P Finance saw its outlook revised lower. It went to BB+Negative from BB+/Stable.

CONFIDENT CONSUMERS
We are ending the year on a very positive note. The latest ANZ-Roy Morgan consumer confidence index was up to 126.5 from 121.8 the previous month. As ANZ says, households are feeling better off financially and believe the economy is heading in the right direction.

CONFIDENT FACTORIES
Manufacturing confidence is holding very high, coming in for November at just a tad under 60. It is an impressive result given the high NZD.

LIGHTER TRADING
Currency trading levels in November were low, in fact their lowest level since May 2013. It was the volume of trading in currency swaps that fell away the most since October.

NO INFLATION
ANZ independently monitors non-tradable inflation on a monthly basis, and it is currently very low, rising just +0.1% in November. Prices rose in the housing and household utilities and the recreation and culture groups, fell in the health and transport groups, and were unchanged in the remaining four groups. Rising dwelling rents and construction costs pushed up prices in the housing and household utilities group, while lifts in recreation and sporting services, zoo and aquarium admissions, and motel accommodation pushed up recreation and culture group prices. Drops in GP fees contributed to falls in the health group, whereas lower parking fees and falls for bus fares in one region offset rises in domestic airfares and rises in bus fares in another region.

A DOUBLE-TAKE
In something of a first, the Commerce Commission actually blocked a take-over on the grounds of market dominance. It is in the Wellington private hospital industry, so it is not something that will have much effect nationally. The Commission has had a distressing track record of approving just about everything put in front of it including rubber-stamping some large national dominance proposals that even the applicants didn't expect (like in the insurance industry).

BIDDING DOWN
The latest nominal Government bond tender was 'very successful'. NZ$300 mln 2027's received bids for NZ$1,293 mln and produced its lowest average weighted yield in some time (3.94% vs 4.26% previously).

SINKING FAST
The US WTI oil price has fallen below US$60/barrel today. It's now at US$59.15. Brent will have followed. That is a US$3 fall over the past 12 hours.

BLOCKED AGAIN
Forest & Bird has won a court decision that will delay the Ruataniwha dam project, forcing more 'consultation' over Regional Council regulations.

NO PORRIDGE FOR SCF DIRECTOR
Ex-South Canterbury Finance director Edward Sullivan has been sentenced to 12 months home detention and 400 hours of community work. The sentencing comes after Sullivan was found guilty on four charges of making a false statement by a promoter and one charge of obtaining by deception in an SFO prosecution. Former SCF CEO Lachie McLeod and ex-director Robert White were acquitted.

SUCCESSFUL BOND OFFER
Precinct Properties has issued $75 mln of bonds which included $25 mln of over subscriptions. These seven year bonds had an interest rate set at 5.54% per annum. This reflects a margin of 1.40% p.a. over the seven year swap rate.

WHOLESALE RATES
Swap rates were soft today, and flatter, especially at the long end. However the 90 day bank bill rate is going the other way. It is up +1 bp again today to 3.68%.

NZ DOLLAR STRONGER
Check our real-time charts here. The NZ dollar is holding its high levels following the MPS jump. It is now at 78 USc. It's also at 94.4 AUc, approaching the record levels last seen in January and May earlier this year, and the TWI is now at 78.7.

You can now see an animation of this chart. Click on it, or click here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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13 Comments

by Boatman | 12th Dec 14, 6:14pm 1418361253

No Inflation ............ I told you I dont see inflation or price increases in any of the things we purchase , and I keep meticulous records of every cent we spend ( my wife says I am anal about it )

by MortgageBelt | 12th Dec 14, 8:42pm 1418370147

Finally, after 6 years, an admission that interest rates on mortgages are not going to rise

http://www.stuff.co.nz/business/money/64042261/8-pc-mortgage-threat-pas…

Westpac: "I think inflation will be much lower than they are forecasting, and they will have to hold off on the OCR," he said.

Wait if fixing?:

wap rates have dropped half a percentage point since July, and Stephens said that with oil prices falling, financial markets would start pushing them lower still.

"If I was considering fixing I would wait a little while, to get a better rate," he said.

by Stephen L | 13th Dec 14, 10:55am 1418421317

Given it would seem to me inevitable that CPI inflation will breach the Reserve Bank's target band of 1-3% in the short term, I revisited the Policy Targets Agreement setting the parameters for the Reserve Bank to understand what they can/should/must do about it.

They have a short term out, in that changes in world commodity prices are listed as a valid reason to breach the band. Recent oil and other commodity price drops would reasonably meet that criteria.

They are though obliged to explicitly explain that, and to explain what they will do to get average inflation back toward 2% over the medium term. How long medium is, is not defined, but presumably 1-3 years out. If we have a period of say 0.5%, then to achieve the average of close to 2%, we need a sustained period over 2%, and the governor is obliged to explain how he's going to achieve that.

Given his hands off approach to the exchange rate, which seems one of the direct causes of us having the most overvalued exchange rate in the world, coupled with the commodity price drops noted, it seems to me he has painted himself into a corner.

As it happens I think the Policy Targets agreement is an early model dinosaur suitable for pre GFC times, and not fit for purpose in the currency war/ asset bubble paradigm the world has been in since 2008, but Wheeler and English have not publicly accepted that fact. So live with it they should/must- or change it. Unless they have a nudge nudge wink wink relationship of some sort where foreign bankers and foreign countries really dictate what is best for us, and PTA be damned.

by MortgageBelt | 13th Dec 14, 2:10pm 1418433057

Once the CPI falls down to zero, consumer spending declines and the NZ dollar climbs to .85 US then OCR cuts will be unavoidable.

by David Chaston | 13th Dec 14, 3:35pm 1418438100

Interested to know why you think consumer spending would fall if the CPI drops to or below zero.

Take home pay is rising healthily. Wouldn't lower costs just make your spending/consumption higher in volume terms, and/or your saving / investing greater?

It will certainly make things easier for those on fixed incomes would it not?

Low price rises or deflation may be problems in 'old' Europe or Japan and they may have issues. But those issues don't seem to relate to our situation.

Rising incomes, lower costs. Hard to see how that is to be feared.

by J.C. | 13th Dec 14, 4:51pm 1418442672

Why are ntet incomes rising? There must some easily indentifiable driver. How long they can keep rising in a low inflation economy? I would think that there would be downward pressure on incomes in a commodity-based country such as NZ. Where in the world is there such strong income infationarry pressure besides NZ, Australia, and China?

by MortgageBelt | 13th Dec 14, 4:56pm 1418442979

Households still predicted to be cautious and to keep an increased rate of saving or debt reduction. Many wage earners have had no income increases since 2008.

An even lower CPI will provide rationale for Govt and Employers to reduce wage salary increases down to .5% from the current 1.4% typical rounds.

Regional & rural areas will be facing less income and spending by farmers and other ag Hirt business.

NZ is unlikely to remain sheltered from what is happening in the rest of the world. Who would have predicted the recent oil price crash? The global environment economically faces very modest growth at best.

by David Chaston | 13th Dec 14, 8:57pm 1418457460

There is no evidence that households in NZ are being 'cautious'. In fact, data suggests they are spending their increased income, and a bit more. Consumer debt (ie other than mortgages) is rising quite quickly. But far more impressive is the rise in bank deposits. Mortgage debt is rising although more slowly. Perhaps Xmas spending at stores is not as strong yet, but I reckon when the online sales are added (Paymark doesn't count those), they will show NZers are spending freely this year.

Some wage earners may have had low income increases, but that is few. The data (PAYE data, QES, etc) shows that incomes have been rising faster than CPI. Other more recent data suggests pay increases, which were always better than inflation, may have picked up further in 2004-Q4.

There is zero evidence that employers are restraining increases more than normal negotiation. Yes, Govt employers are being tight in response to low CPI, but even that one may need to ease up as wage rise pressure grows in early 2015.

Yes, dairy areas will see less flow-though of payout dollars. But beef and lamb areas are picking up. Even forestry is up. I don't think rural areas will be doing the 'total starve' that some city people think.

With the US picking up markedly, why do you think the 'world' is Japan and Europe? It's not. Never has there been a time everything all went well everywhere. Sometines one area is slow, while others are better. True low oil prices may mean oil producers spend less, but most of them are low population countries. World trade and world GDP will grow. The IMF may think it will be slower in % terms in 2015 than 2014, but the absolute $ amount of that growth will be enormous in NZ terms.

New Zealand is small enough and diversified enough to prosper when others don't. Following world trends is only a problem for the big. We are not big in any sense. That is what makes NZ great - we sell food and other consumables. Our markets need that no matter how their own economies are doing. Our commodities are far different to iron ore, for instance. In 2015 200 mln Chinese will move from the rural areas to cities. No matter how their economy goes (+5% down from +7% ?), food demand will go up. We will only need a tiny fraction of that to prosper.

Most people will get rising incomes without price increases. What's not to like?

by Stephen L | 14th Dec 14, 11:12am 1418508755

David,

You are being as positive as practical, and fair enough up to a point. My issues are primarily around the distortions to the economy that a high exchange rate, high consumption model achieve. If all these positive things you mention do not cause any kind of increase in the current account deficit, then okay, but I suspect we have lifted incomes by selling assets or borrowing internationally. We still managed to have significant current account deficit over the last 6 years when our terms of trade were at multi decade highs. Now dairy prices have come down, how will these terms of trade play out? And what will happen to the current account?

I confess it has surprised me that NZ manufacturing has remained somewhat robust through a high exchange rate model. Is that sustainable? It seems to me that most of the big wage jobs are now in finance, real estate, or government and quasi government. Nothing all that productive in other words. With a 10% appreciation against the AUD over the last two years, our cost of government (central and local) all else being equal has gone up 10% relative to theirs. A 50% appreciation against the USD over the last 6 years has also caused a similar jump in government costs against the most traded currency.

Separately, is New Zealand Inc losing its assets, and becoming wage renters?

Was it a coincidence that the two presidential visits recently were from the two countries with the highest current account surpluses in the world- Germany and China? They will be conscious of local resistance to their buying up of foreign countries, so a little charm offensive would be well placed from their point of view.

And we seem more than anyone else to be willing sellers.

by MortgageBelt | 13th Dec 14, 5:23pm 1418444598

Another sign of the global deflationary spiral is banks now charging for deposits in Europe.

Forget earning interest, they charge you for the privilege of saving.

by David Chaston | 13th Dec 14, 8:59pm 1418457595

Will have almost zero impact on New Zealand. Our interest in Europe is cultural and historical. It's irrelevant to our economy. Heck, it hardly even affects the US. Why would it affect us?

by Andrewj | 14th Dec 14, 7:08am 1418494126

Because the EU is Chinas biggest market.

by Andrewj | 14th Dec 14, 7:25am 1418495139

http://video.cnbc.com/gallery/?video=3000338823