What happened Friday

A review of things you need to know before you go home on Friday; bigger Govt deficit, affordability improves, log prices recover, tech solutions for Akl transport, swap rates fall and flatten, NZD goes nowhere

19th Feb 16, 3:59pm by David Chaston

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

TODAY'S MORTGAGE RATE CHANGES
Nothing changed here today.

TODAY'S DEPOSIT RATE CHANGES
No changes to report here either.

LOSSES AND GAINS
We got two disparate signals on dairy prices today. Firstly the USDA monitoring of 'Oceania pricing' showed some worrying weakness among the traders they monitor. WMP was down almost -9% from two weeks ago in NZ dollars. And cheese prices showed a large -11% thud as well in NZ dollars over the same period. But then, today's dairy deriavtives trading suggests prices may have turned and the next GDT auction could see gains. Still than is ten days away yet and a lot can happen in that time.

DOWN BUT NOT OUT
As we reported earlier, the Government's budget deficit through six months to December 2015 was a bit bigger than forecast on slowing 'revenues' other than taxes. But at least one analyst says there is potential for Bill English to repeat last year’s trick of pulling a narrow surplus from a widely forecast deficit, with stronger data in the first half of 2016.. Although the $176 mln surplus forecast in the BEFU was revised to a -$401 mln deficit in the HYEFU in December, Infometrics now expects a slim surplus to appear when the year end financial statements are published in October 2016.

TOUGH METRICS
Big drop in house prices good news for first home buyers in most places. That price drop along with lower interest rates has improved first home affordability in January, although Auckland remains severely unaffordable for most. The data highlights a tough reality; affordability will only improve in a realistic timeframe if house prices fall. Low interest rates and rising incomes will never combine to do the job. Boomers will resist, but losses for them is the only way.

BOUNCE BACK?
Log prices may be recovering. China's log inventories are falling and prices are rising, but they are so far only back to November levels. India a new bright spot. Demand from both Japan and Korea is stable. And domestic demand remains strong. All this is giving price signals that are rising at the NZ wharf.

LOST, BUT FIGHTING ON
Forest & Bird today lost its appeal to the High Court challenging a DOC land-swap to get the Ruatanwha irrigation project underway in the Hawkes Bay. They are considering appealing to the next higher Court. They will be bolstered in that because costs are unlikely to be awarded against them in today's decision.

TECH SOLUTIONS FOR AUCKLAND TRANSPORT
Auckland is facing growth by more than 700,000 people, and freight volumes are likely to increase by +78% by 2040 (in one generation). Work has started on solving the congestion issues with solutions other than (18th century) rail, and just more roading. Apps controlling smart or driverless cars, convoying, and 'surge pricing' are all likely to feature.

NZ AN OUTLIER
Equities in New Zealand are ending on a positive note, up +0.5% on the day. This contrasts with Australia which is down -0.6%, and is Hong Kong. Tokyo is down much sharper at -2%, while Shanghai is unchanged. Even Wall Street was down -0.5% earlier today.

WHOLESALE RATES FELL
NZ swap rates are lower and flatter today with some grunty changes. The one year swap fell -1 bp, the two year is down -3 bps, the five year fell -5 bps and the ten year fell -7 bps. The 90-day bank bill rate is unchanged at 2.60%.

NZ DOLLAR RANGES
The Kiwi dollar gain is still stuck in its current range. It is still at 66.2 USc, 93.1 AUc and the TWI-5 is now at 70.8. Check our real-time charts here.

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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25 Comments

by Stephen Hulme | 19th Feb 16, 4:13pm 1455851605

NZ swap rates are lower and flatter today with some grunty changes. The one year swap fell -1 bp, the two year is down -3 bps, the five year fell -5 bps and the ten year fell -7 bps. The 90-day bank bill rate is unchanged at 2.60%.

Does any one take these bank manipulated swap rates seriously?

How can 2027 LGFA debt be 88 bps more risky than the semi annual BEY FRA stack of unsecured interbank bill rates?

by Afewknowthetruth | 19th Feb 16, 6:37pm 1455860276

' Auckland is facing growth by more than 700,000 people, and freight volumes are likely to increase by +78% by 2040 (in one generation). Work has started on solving the congestion issues with solutions other than (18th century) rail, and just more roading. Apps controlling smart or driverless cars, convoying, and 'surge pricing' are all likely to feature.'

That will prove rather 'interesting', with the peak in conventional oil having occurred over 2005 to 2008, and numerous sources of unconventional oil already in deep trouble.

It is generally accepted by oil geologists that global extraction will be at best 2/3 the current level in 2030, and below 1/2 the current level by 2040.

https://www.google.co.nz/search?q=ASPO+peak+oil+graph&tbm=isch&imgil=Rm…

That's if everything goes according to plan, which it obviously will not.

Any delusions about running the economy on electric vehicles need to quickly abandoned. There is no way to significantly increase the grid capacity. And building electric cars and maintenance of roads both require fossil fuels anyway.

What is even more 'interesting' is that planetary meltdown is gathering pace and the chances of Auckland even being habitable in 2040 are declining by the day.

https://www.washingtonpost.com/news/energy-environment/wp/2016/02/18/sc…

However, it is obvious that promoters of business-as-usual will keep promoting it till they can't, whatever alarm bells might be ringing.

These are the most 'interesting times' in all of history.

by xelnaga | 19th Feb 16, 7:11pm 1455862271

If rail is so 18th century what does that make Auckland. 17th century?

by profile | 19th Feb 16, 9:35pm 1455870949

Gee Greenland is looking pretty boring - maybe we can all calm down.

http://www.dmi.dk/en/groenland/maalinger/greenland-ice-sheet-surface-ma…

by Afewknowthetruth | 20th Feb 16, 2:38pm 1455932289

Greenland won't be 'boring' once the Arctic sea ice has melted and both the water and the air above it get rapidly warmer; then what currently falls as snow will fall as rain and you'll be able watch the Greenland ice sheets disappear before your eyes!

You might even be able to watch sea level around NZ rise from month to month. Now that WOULD BE exciting. (Not a good time to be involved in insurance if the global economic system is still intact at that point, methinks.)

http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=115923…

by steven | 20th Feb 16, 8:01am 1455908502

You are wrong here, "There is no way to significantly increase the grid capacity. " as the grid is not the issue (and can be expanded pretty easily) as most EVS can be charged overnight, the generation is the problem. ie we only have so much water and wind and then there is the economics and NIMBY problems of installing a lot more. To power the cars most ppl cannot afford.

You are right here, "Any delusions about running the economy on electric vehicles need to quickly abandoned" but even the Greens think this can be done, maybe because none of them are engineers and scientists.

"promoters of business-as-usual" that's everyone just about. Bad news, indeed terrifying news like this makes you un-electable nutjobs.

"These are the most 'interesting times' in all of [human] history." indeed as the Chinese? curse goes.

by Afewknowthetruth | 20th Feb 16, 2:43pm 1455932590

'grid' was not the best word. It implies the whole system but does not specifically mean that.

I should have said NZ cannot significantly increase its electricity generating capacity.

by steven | 20th Feb 16, 3:33pm 1455935606

We have 65% ish of our electricity from renewables and from what I can see I am pretty confident we can get to 100% of present demand. What we will be asked to do with EVs etc though is somewhat higher.

by KH | 20th Feb 16, 3:54pm 1455936865

Plenty more capacity to come from wind if we want it. And 'distributed generation' eg rooftop solar will come on strong once Simon Bridges gets his head around that it's not an matter of individual house owners but requiring a national plan and co-ordination.
And of course New Zealand is uniquely blessed with existing hydro that makes the new future very easy. The existing Hydro will become the storage and the quick response that supports wind and solar growth.

by Afewknowthetruth | 20th Feb 16, 4:16pm 1455938182

What a lot of people don't seem to realise is:

1. wind generation requires a lot of money to build a relatively small amount of generation capacity

2. 'windmills' require a lot of maintenance and have limited lives.

3. PV solar systems have limited lives.

Although they work in the short term, they are no long term solution because all so-called alternatives are a sub-set of the fossil fuel economy. Ozzie Zehner explains it well:

https://www.youtube.com/watch?v=--OqCMP5nPI

You'll be waiting a long time for Simon Bridges to support individual householders increasing their self-sufficiency: his job is to promote the profits of corporations and prevent people becoming independent of corporations.

by steven | 20th Feb 16, 5:30pm 1455942600

1 & 2 yet wind with a EROEI of about 15 to 1 is viable and its nos cost competitive or cheaper than coal.

by KH | 20th Feb 16, 6:03pm 1455944628

The idea of 'distributed distribution' is not about small holders and self sufficiency. It does involve small holders of course but the idea is more about using a grid to have a national co-ordinated system. As the rooftop systems grow there would be a marked change in the flows back and forth on the national grid and within local transmission systems. And it's a whole commercial change around.
Poor old Simon Bridges will have to become the new Max Bradford to make changes to make this all work. eg. More use of the hydro as the storage battery. We have lots of rules now about who can and can't own what. They changed it all around with Max and they will have to change it all around again.

by steven | 20th Feb 16, 5:37pm 1455943038

The economics of rooftop solar are questionable in that instead of one big Multi-MW plant and the efficiencies from that we have hundreds of 3kw ones, I cant fathom house tops therefore being efficient.

I agree on hydro becoming our storage it is essential. That means we pay for double the plant, who pray do you think will wear that cost of this resilience? no one one the right or left that is for sure, one wants profits the other low cost of living.

by KH | 20th Feb 16, 6:06pm 1455944806

Drive the southern motorway between Auckland and Hamilton Steven. There are a number of large power stations. Sorry were. Do you think they were cheap to build for the output ? No not cheap. Per MW very expensive. And did they have a life. No not much.

by KH | 20th Feb 16, 6:07pm 1455944828

by profile | 19th Feb 16, 10:35pm 1455874514

Oil now so cheap even pirates have given up flogging it.

http://qz.com/619281/oil-is-now-so-cheap-even-pirates-arent-stealing-it…

by profile | 19th Feb 16, 10:53pm 1455875594

US natural gas booming. Cursed innovation spoiling all the peak theories.

The North American natural gas resource continues to expand as breakeven development costs fall, reports IHS.

"A new IHS study estimates that 1.4 quadrillion cu ft of natural gas in the US Lower 48 and Canada can be produced at a current, break-even Henry Hub gas price of $4/MMbtu or below.

That’s 66% more than the firm estimated in a study published in 2010.

About 800 tcf can be produced at a current break-even price of $3/MMbtu or less, the new study finds.

New discoveries, recent reductions in drilling and completion costs, and “major gains” in productivity are the main reasons for the expansion of potential gas supply."

by steven | 20th Feb 16, 7:55am 1455908107

Its a finite resource so will peak and it certainly does not spoil all the theories, just one, UK coal production, more modern? UK North Sea oil production. Where is this fabled tech to resurrect the dead and dying then?

All the "new" technology would seem to allow is faster extraction / production, it doesnt seem to significantly get out more total oil from a field over its life (maybe 5%, 10% at most). As an example if the tech was so good why not go back and re-drill all the abandoned fields? there must still be huge quantities down there at affordable prices, right?

or maybe not.

by Afewknowthetruth | 20th Feb 16, 2:54pm 1455933251

What has the short-lived US fracking boom got to do with NZ's dependence on imported oil and the future of global tradable oil?

What is interesting is that fracking companies could make up any number they liked as potential reserves. This led to the gross overstatement of California reserves and the subsequent downgrade by 96%.

http://www.theguardian.com/environment/earth-insight/2014/may/22/two-th…

You really do like clutching at straws and getting proven wrong every time, don't you?

by profile | 21st Feb 16, 3:30am 1455978611

How quaint a Guardian article from back when oil was $100. You peak oil hand wringers really should get some more up to date info. Who cares if the Monterey shale was down graded? Look what has happened to oil prices since that gem was published. No wonder the Guardian loses money hand over fist. US proven oil reserves havent been this high since 1972 and global proven is triple what is was in 1980. Latest BP projections, upgraded 4 times in 4 years, have tight oil at 8mbpt out to 2035. Some short term fracking boom that turned out to be.

by steven | 21st Feb 16, 7:36am 1455993415

The article's date is may 2014 commenting on the 96% rightdown this info has not changed its still a write off. Even if 8mbpd is possible to 2035 that is 10% of todays demand. By 2035 we'll see a similar drop in other conventional fields and in fact in spades ie more. So even of BP's outlook is correct and frankly I wonder on it it wont make up for a) all the other conventional oil countries peaking b) growing demand

by credible | 20th Feb 16, 2:08pm 1455930500

the notion that the world is running out of resources always fails because the ingenuity of entrepreneurs, spurred by necessity and incentive, always exceeds the imagination of doomsayers. http://www.wsj.com/articles/peak-oil-debunked-again-1417739810

That aside, I wonder how many commenters have actually read the report mentioned here? I'm encouraged by the content, and the fact that it asks - and has a framework to attempt to answer - questions such as:

How will autonomous vehicles and increased ride-sharing and car-sharing change the way public
transport is provided in future, and how will this impact upon its cost-effectiveness and operating costs,
and blur the distinction between public and private transportation?

by Afewknowthetruth | 20th Feb 16, 3:07pm 1455934030

It has nothing to do with supply and demand, as the phony narrative in the Wall St Journal item suggests. But would you expect anything other than BAU from a BAU publication closely link to the heart of America's Ponzi scheme?

It does have everything to do with EROEI, which has been falling for a century and will soon reach the point at which a lot of drilling becomes unfeasible.

https://www.youtube.com/watch?v=WeBtdwPpTQM

The other aspect, is, of course, that the global economy sits perched on a knife edge, and any significant rise in oil prices (necessary to rescue oil companies and stimulate drilling) will demolish the global economy.

by steven | 21st Feb 16, 7:54am 1455994464

The thing is money is an IOU for work/energy, debt/investment is an IOU for future work and energy, ie its only of value as long as the lender things he'll get his money back (and is typical with greed, at a huge %) So how long will this game continue? just as long as the speculators and gamblers keep placing their bets.

It is indeed a ponzi scheme, the ultimate in amoral theft IMHO. As a person in main street I am paying a % to these gamblers and when it goes wrong I'll pay a % of my money to them to pay it back, its just crazy, its a lose/lose.

by steven | 20th Feb 16, 3:43pm 1455936192

The planet is finite, ergo the quantity of oil in it is finite, ergo it will run out. However its not the running out that is the primary issue but the daily production and the cessation of that increasing that is the issue. If you look at just about all the oil producers they are either flat out or declining. The Q is then where is this magical " ingenuity of entrepreneurs, spurred by necessity" Then there is "and incentive" and that means profit except there is the huge problem of people and our industrial economy cannot pay a high price for this energy.

In terms of a "report" its simply an opinion and as is typical built on quick sand. "'m encouraged by the content," that is the whole idea of this piece IMHO, to keep you quiet and happily consuming so profits can be made.

"autonomous vehicles" is just more complexity which doesnt work. try "joseph tainter complexity society" in youtube for some insights into why this just wont work.