What happened Tuesday

A review of things you need to know before you go home on Tuesday; BNZ raises key mortgage rates, cuts others, many TD cuts, terms of trade fall, bigger AU deficit, China weaker, swaps slip

1st Mar 16, 4:00pm by David Chaston

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

TODAY'S MORTGAGE RATE CHANGES
BNZ raised mortgage rates on two of its three 'specials' and cut most of its standard mortgage rates. This left them with a very competitive position for a three year term, but unremarkable for all other terms.

TODAY'S DEPOSIT RATE CHANGES
NZCU Auckland cut a few rates today. They followed Aotearoa Credit Union and NZCU Baywide who made similar changes. ANZ also cut some very short term rates and basic savings rates essentially to 1%, although they only trimmed -5 bps from their Serious Saver product and that now yields a maximum of 3.0%.

LESS COMPETITIVE
The merchandise terms of trade fell -2.0% in the December 2015 quarter, following a -3.8% fall in the September 2015 quarter. The December fall was due to goods export prices falling more than import prices. Terms of trade is a measure of the purchasing power of our exports abroad. A decrease means New Zealand can buy less imports for the same amount of exports. The falls in oil prices are moderating the impact of the fall in dairy export prices.

MORE COMPETITIVE
New Zealand's roll out of ultra fast broadband (and the rural broadband initiative) is a bright spot in our infrastructure. UFB is now fully deployed in a number of regional cities and the uptake is quite high, ~25%. Nationally, 184,000 households and businesses have signed up, with and overall uptake of 20% and new connections have risen to the rate of 11,000 per month. There is still major work to be done completing the rollout in the major cities.

NOT COMPETITIVE ENOUGH
The Commerce Commission has confirmed the dairy industry is too dominated by Fonterra to relax the special regulations it must operate under. In a separate notice, Fonterra has said it would like to close its Kaikoura cheese factory. 22 jobs are likely to be lost.

BIG DEBT, BIGGER DEFICIT
The Australian current account deficit widened in the December quarter to -AU$22.1 bln (actual) which is a deterioration from a year ago of AU$9.3 bln. Australia's net foreign debt is AU$1 tln as at December, unchanged from September

FACTORY SHIFTS LOWER
In China today, both the official (big enterprise) and the unofficial (medium enterprise) factory PMI's came in lower, and lower than analysts expectations. Both are now reporting their factory sector is contracting. Given the huge layoffs signaled for their steel and coal sectors, perhaps todays results are unsurprising. Also out today was similar data for Japan. Factory expansion there has virtually stopped, but they are not yet contracting. Japan has had a pattern of 9 or ten months of modest expansion, interspersed by one or two months of holding their own. The February level-pegging is in that pattern.

SERVICES SLIDE BUT STILL EXPANDING
The official China PMI for services is in still expansion mode, but the rate of growth is not rising.

WHOLESALE RATES SLIP
NZ swap rates fell by -1 bp across the board. The 90-day bank bill rate is unchanged today at 2.56%.

NZ DOLLAR UP A LITTLE
The Kiwi dollar has risen marginally today after slipping last night. It is now at 66 USc, and at 92.8 AUc. The TWI-5 is at 71.1. 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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18 Comments

by Stephen Hulme | 1st Mar 16, 5:55pm 1456808150

"investors" agreed to pay the Japanese government 2.4bps per year for the privilege of lending it money for 10 years... Read more

When will banks pay investors to gear up residential property?

by Stephen L | 1st Mar 16, 6:25pm 1456809955

The world, especially those countries that have large current account surpluses (looking at you, China, Japan, Germany) needs to increase demand to get the global economy out of a funk. Super low interest rates increase asset prices and arguably encourage investment in too much supply, but don't really encourage demand. (The Aussies probably do get the "stupid" award for their massive over investment in iron ore and coal capacity over the last few years, funded by super low interest loans. What were they thinking?)
Even the Economist magazine is now arguing for helicopter money funded fiscal spending as a better option than more of the recently applied zirp or QE.
http://www.economist.com/news/briefing/21693205-policymakers-rich-econo…
Best current account surplus countries embark on stoking demand first, but NZ shouldn't be afraid to follow if our economy gets in a funk.

by Stephen Hulme | 1st Mar 16, 6:17pm 1456809475

The balance-sheets of the rich world’s main central banks have been pumped up to between 20% and 25% of GDP by the successive bouts of QE with which they have injected money into their economies (see chart 1). The Bank of Japan’s assets are a whopping 77% of GDP. Yet inflation has been persistently below the 2% goal that central banks aim for.

Injected what money, where? Read more and more and more

by Kate | 1st Mar 16, 11:25pm 1456827947

I really like that line: There’s no money in monetary policy to begin with :-).

by Stephen Hulme | 2nd Mar 16, 7:31am 1456857081

Yes, the irony is stark - US banks don't create much credit in reservable bank account channels and haven't for a long time. And yet the Fed can only credit them for QE bonds purchased in their respective reserve accounts. All a bit pointless really. I mentioned it to Roelof yesterday.

Some history about sweep accounts reveals most. Read more and more

by sharetrader | 1st Mar 16, 6:36pm 1456810597

agree tax cuts for the lowest paid would improve consumer spending,
that and governments increasing infrastructure spending are more likely to achieve more than increasing asset prices

by Kate | 1st Mar 16, 11:39pm 1456828780

Why does everyone always mention infrastructure (i.e., more roads seems to be the only answer this government has ever had) as a means to stimulate the economy through increaed government spending? Most of the money goes on materials, as opposed to people.

Why not spend the billions on people - masses of people doing pest control in our national parks, masses of people eradicating weeds in our urban areas, masses of people planting native plants everywhere on our problem coastlines, masses of people fencing off our waterways all over the country, etc. etc. Solve youth unemployment overnight. Pay the young people doing it three times the minimum wage - four times the minimum wage - five times the minimum wage.... THEN you'll get REAL economic stimulus AND future generations can have back the clean, green environment that this country once was.

The lowest paid - including the unemployed - don't need tax cuts - they need higher wages. If the government started paying young people four times the minimum wage to clean up the environment - McDonald's would be out of business tomorrow as they'd have no staff.

by sharetrader | 2nd Mar 16, 12:03am 1456830209

When I mention infrastructure I mean schools, hospitals, power generation, mass transit (rail, ferries and trams)
the only road they should build would be a six lane highway from the top of the country to the bottom, starting at each end and moving slowly along so that the workers would move with it
they should also build a fast rail the same to give people the opportunity to spread out

by Kate | 2nd Mar 16, 12:47am 1456832833

You miss my point. Large infrastructure (i.e., capital) projects are more often than not uneconomic. They fail proper cost/benefit analyses - e.g., Transmission Gully, the Dunedin covered stadium .. Power generation? Well, we just paid Tiwai Point $30m to keep going because if it closed we'd apparently have had too much excess in that market :-). Mass transit, ferries, trams? Sadly, we don't build that type of heavy industrial stuff locally anymore.

Sure we need new and upgraded schools and hospitals, but as I understand those programmes are backlogged as it is - skilled construction workers are in short supply.

What we do need is individuals and in particular young people and young families with more money and less debt. Why not instead spend up on social capital and improve the environment while we're at it? If there was a really well paid job for every school leaver aged 17 just waiting for them to take up in our great outdoors -, then there would be a whole lot less student debt in future - as most would save for a few years and then pay for tertiary study themselves if that's what they eventually decided to do.

by Afewknowthetruth | 1st Mar 16, 6:53pm 1456811596

'The world.......needs to increase demand to get the global economy out of a funk.'

Presumably you mean you want to see increased consumption.

Don't forget that it is consumption that got us into the current predicament, and therefore increasing consumption will just exacerbate the predicament.

There is no way out of the current 'funk', except via collapse, because there are inherent fundamental flaws in the global financial-economic system.

Expect everything to get worse, with occasional upticks.

https://in.finance.yahoo.com/q/bc?s=000001.SS

by Stephen L | 1st Mar 16, 10:07pm 1456823261

Economically the world has more than enough supply relative to demand (or consumption). That is why global inflation is so low. Am not sure why you linked to the Shanghai composite, but the Chinese have spent trillions building capacity in every industry imaginable- every province wanted its own steel plant. Consumption has not grown to match their production capacity. Part of the solution I accept is for them to close some capacity, and I understand they are starting to do that. The Germans intentionally or not gamed the Euro to dominate manufacturing in Europe, such that the rest of Europe has little money to spend, and the Germans won't spend the excess they have. Japan has been addicted to trade surpluses since WW2.
In total there remains plenty of economic productive capacity in the world; but not enough demand to utilise it. The surplus countries should step up; but failing that, the others can at least fiscally support their economies. The only way to do that without incurring foreign debt (or at least leaving forex risks with someone) is to monetarily fund any extra activity. There is zero good reason to have highish unemployment for anything other than a short adjustment period after some sort of economic shock.

by steven | 1st Mar 16, 10:21pm 1456824104

The very point you fail or refuse to grasp is the model you talk about is a flat earth model ie BAU grow for ever, this is not the case our planet is finite. Plus then an exponential growth curve thrown in.

We are going to have high unemployment for decades and I dont think it will be 7%, more like 25% as the "some sort" will be a "Greater Depression" scale.

by sharetrader | 1st Mar 16, 11:08pm 1456826901

Dick smith echoed the same thoughts you can not grow forever under capitalism as once you go past saturation point and try to keep growing you will eventually fail.
and if you think back suddenly you will start to remember a lot of big companies that fell apart under the weight of their size and resources needed to keep them going

by tim12 | 2nd Mar 16, 6:55am 1456854905

I agree with you steven what we are seeing is an elite class trying to drive growth higher and higher by using debt. Economic cycles are healthy, company failures are necessary to reallocate resources wisely. instead there is a massive culture of waste, and a protect the rich at all costs mentality. By trying to control markets through monetary policy we are setting ourselves up for the biggest economic failure in human history.

by MortgageBelt | 1st Mar 16, 6:29pm 1456810199

One non-Auckland region doing ok, above national average economic growth. Less dairy, more Hort & beef/wool.
http://www.nzherald.co.nz/hawkes-bay-today/news/article.cfm?c_id=150346…

by bigblue | 1st Mar 16, 8:17pm 1456816647

On Weds 2 March from 10.30am Barfoots will auction over 80 properties - this will be the first real test of the strength of the market in 2016. The IRD # backlog has cleared, the Chinese buyers are back on board so interest.co why dont you put a reporter in the auction room & let us know the results - could be the first 80% + success rate session of the year!

by sharetrader | 1st Mar 16, 8:30pm 1456817437

will be an interesting day, a lot to sell in one day, B & T must have been busy finding bidders,

by Zachary Smith | 2nd Mar 16, 7:21am 1456856485

The results of Super Tuesday in the US should be interesting too. I will see if I can drop into the auction near the end and get the results and report back.