What happened Tuesday

A review of things you need to know before you go home on Tuesday; Beijing intervenes, trucks decelerating, retail surprises but the Warehouse faces strikes, inflation low but rising, NZD falls

11th Aug 15, 4:00pm by David Chaston

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

TODAY'S MORTGAGE RATE CHANGES
ANZ and ASB both cut rates today, with the ASB reductions being the most interesting in that they will press their main rivals to respond, one would think. And late in the day, the Cooperative Bank came out with more cuts to their 12 and 18 month fixed rates.

TODAY'S DEPOSIT RATE CHANGES
SBS Bank and the Nelson Building Society both cut some term deposit rates.

BEIJING INTERVENES
The big news you may have missed is that China today lowered is Yuan Reference Rate by a record 1.85%. That move is pushing around world cross rates. The Kiwi dollar slipped -70 bps when it was announced vs the greenback, and against the euro, but is little changed against the Aussie. Just a reminder that the Yuan is not a free floating currency with levels set by the market; rather one where rates that are uncomfortable to Beijing are manipulated based on their vast reserves to back them up. Policy risk is high in that currency.

OVER-EGGED?
ANZ Truckometer report came out today with the headline "Flat Tyre". The Heavy Traffic Index fell -0.3% in July, and is down -0.2% in on a 3 month/3 month basis (seasonally adjusted). It has now receded six months out of the last seven; a clear slowdown is apparent. They say this shows an economy facing strengthening headwinds. Fair enough. But it rather seems to signify a deceleration and hardly seems to justify the "Flat Tyre" tag. What will they say when the signaled slowdown actually arrives?

RETAIL STRENGTH SURPRISES
The value of core electronic card transactions rose a seasonally adjusted +0.5% in July to sit +6.6% higher than a year earlier. The July increase was a stronger start to the September quarter than expected, given the deterioration of consumer confidence in recent months.

RETAIL WORKER UNREST
It seems bargain prices can't support the Living Wage. Workers at two more Warehouse stores have voted to strike, following similar action at other stores in the chain. Given that ex-ceo and still major shareholder Steven Tindall is the current face of 'compassionate' and 'sustainable' investing, and the company has touted its Career Retailer Wage as 'leading edge', all this comes across as quite embarrassing.

INFLATION UPDATE
ANZ's monthly Inflation Gauge posted a +0.3% increase in July which was the highest monthly rise since February, although typical for the month of July. "Upward contributions were housing-centric, led by rises in local authority rates (seasonal), construction costs and rents, offsetting lower vehicle licensing fees. Prices from our Underlying Ex-housing Gauge were flat in July, and were down slightly in the three months to July."

WHOLESALE RATES FLATTER
Swap rates are basically unchanged today. But the 90 day bank bill rate is down again, today by another -3 bps to 2.97%. That is starting to price in part of a second additional OCR cut.

NZ DOLLAR HOLDS
The NZ dollar is currently at 65.5 USc, at 89.4 AUc, and at 59.6 euro cents. The TWI is at 70.4. Check our real-time charts here.

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Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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13 Comments

by busman | 11th Aug 15, 4:21pm 1439266865

"Just a reminder that the Yuan is not a free floating currency with levels set by the market; rather one where rates that are uncomfortable to Beijing are manipulated based on their vast reserves to back them up. " well now they de-pegged the currency the market can now set the rate and it will not be blamed on the Chinese central bank !!! maybe they should have given the Chinese a seat a bit earlier at the SDR ??
Whats next another 1.5 tons of gold appearing in the Chinese coffers , USD rate increase ??? bulldust ROALFAO Currency wars 2.0 I bet yelen is yellen at the mo !!!! USD soon to implode IMO

by MortgageBelt | 11th Aug 15, 6:36pm 1439274980

NZ is now a 'trade prisoner'. Isn't this what happened with our dependence on the UK up until the 1970s?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…

by tim12 | 11th Aug 15, 6:45pm 1439275531

will the Chinese devaluation affect Auckland property prices?

by MortgageBelt | 11th Aug 15, 6:51pm 1439275888

No. The money pouring into Auckland is not seeking a conventional investment 'return', it is seeking a safe haven parking space. As long as the channels flow the money will come regardless of currency movements, rental returns, price movements, etc.

by Triple | 11th Aug 15, 8:37pm 1439282242

I agree that some of the money is seeking a safe haven. However I also think there is plenty of foreign money seeking a capital gain. If the gains stop, then the latter group will likely disappear.

by Uninterested | 11th Aug 15, 7:22pm 1439277773

Not sure if you caught this one: Kiwibond rates have dropped a little a few days ago.. The gap for the security was getting a little tight...

by quality guy | 11th Aug 15, 7:36pm 1439278583

I doubt money pouring into auckland housing is any sort of a safe haven. watch out when china start selling their US treasury bonds to sure up their own economy. that will force a major shift in US interest rates to attract overseas buyers and those in auckland with a mega mortgage will pay dearly for their speculation. Most people dont understand but we are on the verge of something catastrophic. if you think dairy is a tradgedy wait till the fed responds. and then we have the pending drought from el nino this coming summer. A falling NZ currency is no safe haven. If you want a safe haven, it is USD in a deflationay environment coupled with structural rate rises at both ends of the curve. But watch out if they cant sell their tresuries and then is game over. all out capitulation.

by tim12 | 11th Aug 15, 8:41pm 1439282464

I'm wondering if some of what you are saying could be right. At the very least this can't help dairy prices. For quite a few years the Chinese economy has appeared invincible (or that's what they wanted us to believe), but this shows us some reality may be about to bite.

by cowboy | 11th Aug 15, 10:37pm 1439289452

It didn't appear invincible, it appeared in deep sh1t. Kept telling folks that, here and Fonterra etc.
The stories coming out didn't add up with what was happening on the ground. So there's a iron boom - but phantom cities are there, and several workers are out busting rebar out of old concrete for cash.
In a country which will relocate entire villages if the Olympic games are being held there.
Very VERY hard to get accurate on-the-ground information out of China, even for their officials. So when it's _too_ good you know there's some reports not getting seen.
the whole Asian culture has not come to decent terms with handling bad news or criticism well. So when you hear person X is struggling, or there's shortage or demand, it hints that the reports are getting through. When it's all good news...it's like when the children are silent....

by Roger Witherspoon | 12th Aug 15, 7:36am 1439321818

It should be remembered that the culmination phase in Japan and South Korea was characterized by massive capital flight, which the West saw as evidence of the Asian countries' economic power rather than as a vote of no confidence in their own economies. Recall the Japanese purchase of American real estate in the late 1980s or Korean purchases of business in the 1990s. These were not particularly successful, nor were they meant to be. They were designed to reduce the Japanese and Koreans' exposure at home. The same can be said with China's current propensity for foreign investment. It is driven, at least in part, by a lack of confidence among those within China who really understand the country's situation. Much of it is state capital flowing out. Some is state capital flowing outward and becoming private capital. Other funds are private capital. The types and patterns vary, but the flow has continued.

https://www.stratfor.com/weekly/net-assessment-east-asia?utm_source=fre…

by Triple | 11th Aug 15, 8:41pm 1439282506

Re: Truckometer and ANZ calling it a "flat tyre".
Perhaps this is an exaggeration but no more than that other economist who labelled NZ "a rock star economy".

by Chris_J | 12th Aug 15, 5:36pm 1439357762

A flat tyre might slow you down, but wait until the engine falls out...

by Andrewj | 11th Aug 15, 10:19pm 1439288343

Here's Edwards, who said his views are not shared by Societe Generale (emphasis added):

The same loss of confidence in the omnipotence of the Chinese authorities will surely ultimately swirl westward. The Fed and the ECB have created similarly grotesque stock market bubbles in an effort to shore up their anemic economic expansions. Do not be surprised when the S&P collapses in exactly the same way as the Shanghai stock exchange, and don't expect the panic monetary measures that will be enacted (more QE) to prevent the ultimate denouement of this global equity Ponzi scheme.
It is not just that the authorities are thrashing around with various extreme measures to prevent the ongoing stock market collapse, and that the state-run media are blaming short sellers and foreigners for the free-fall. The wholesale suspension of stock trading will inevitably only temporarily prevent further collapse.
Recall also what SocGen's Albert Edwards said some five months ago:

We have long believed that China's growth and deflation problems will necessitate a devaluation of the renminbi in a strong dollar environment. There is mounting evidence that this process may already be underway as the currency falls to a 28-month low against the dollar…

In the current deflationary environment the Chinese authorities simply can no longer tolerate the continued appreciation of their real exchange rate caused by the dollar link.
http://www.businessinsider.com/albert-edwards-says-china-will-end-globa…