What happened Monday

A review of things you need to know before you go home on Monday; ANZ raises 9mth TD rate, service sector healthy, Fonterra follows rules, Japan stalls, IMF examiners arrive; swap rates slip, NZD holds

15th Aug 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
NZ Home Loans cut their floating rate by -25 bps to 5.45%.

TODAY'S DEPOSIT RATE CHANGES
ANZ raised their carded 9 month term deposit rate by +5 bps to 3.55%.

'SLOWING' TO A HEALTHY AVERAGE
On Friday we reported healthy expansion in the manufacturing sector. Today the BNZ-BusinessNZ services index reported something similar. Seasonally adjusted it showed a slowing, but only back to its recent average level and well in the solid expansionary zone. Deeper, this index shows both the activity/sales and new orders components in very strong shape suggesting the overall dip will be temporary.

DOING IT PROPERLY
The Commerce Commission has given Fonterra's method of setting the milk price payout level for farmers its tick of approval. Fonterra has legal obligations around how it calculates this and the Commerce Commission is charged with enforcing those.

HEALTHY GAINS DUE?
Market chatter about a [much] better dairy auction on Wednesday is gathering steam. Some suggest a +10% rise is possible. That is reflected in the futures market pricing for WMP.

EXPECTING A STRONG RESULT
And, staying focused on upcoming data on Wednesday, we get the delayed June quarter HLFS jobs data that day. Economists are actually expecting a strong result, with the jobless rate down to 5.2% from 5.7%, and employment up by +2.3% (from +2.0% in March). If we do get these outcomes, you have to wonder why the RBNZ is cutting rates. Together with a good dairy auction, this could move the NZD.

A POSITIVE START
At the end of last week, Wall Street equities ended marginally lower. However, that has not carried forward to our time zone. Equities are up everywhere, albeit modestly. The exception is on the Shanghai exchange which is roaring ahead a massive +1.8% so far today just ahead of their lunch break. Why Shanghai is so strong seems curious because data out of China isn't all that flash.

JAPAN STALLS
Japan's economic growth ground to +0.2% and almost a halt in the June quarter after a strong expansion of +0.5% in the March quarter. Weak exports and and weak capital expenditure are behind the weakness.

NAB BAD DEBTS RISE
BNZ's parent National Australia Bank has reported a -3% drop in unaudited third quarter cash earnings to A$1.6 bln. NAB says its charge for bad and doubtful debts for the quarter rose +21% to A$228 mln, with an increase from loans to the mining and agriculture sectors. Scant direct mention was made of New Zealand.

EXAMINERS ARRIVE
A team from the IMF is about to begin assessing the stability of the country’s banking and insurance sectors, and our financial markets. The Financial Sector Assessment Program is a routine part of the IMF’s financial surveillance. The last FSAP for New Zealand was in 2004 and issued a positive report at that time.

SWAP RATES SOFTISH
Swap rates for all terms are lower by -1 bp today. NZ swap rates are here. The 90-day bank bill rate on the other hand rose +1 bp to 2.23%.

NZ DOLLAR RANGE BOUND
The Kiwi dollar is still in the range it has been in since mid June. It is now at 71.8 USc, 93.9 AUc, and 64.4 euro cents. The TWI-5 is still at 75. Check our real-time charts here.

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

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

9 Comments

by Stephen Hulme | 15th Aug 16, 4:27pm 1471235259

The Financial Sector Assessment Program is a routine part of the IMF’s financial surveillance. The last FSAP for New Zealand was in 2004 and issued a positive report at that time.

Let's hope helicopter type money never becomes a part of the prescriptive fix that has just been proposed for Japan.

In a sign of how worried it is about Japan’s economy, the International Monetary Fund is urging the country to resurrect a radical strategy once employed by former U.S. presidents Nixon, Ford and Carter -- only in reverse.

It’s called an incomes policy -- and it involves the kind of direct government intervention in the setting of wages that many economists now abhor.

But rather than employing it to try to contain salary and price pressures -- as U.S. leaders did in the 1970s -- the IMF wants Japan to use moral suasion, tax breaks and, as a last resort, penalties to prod companies into granting bigger pay gains and thus promote higher inflation.

“We need policies to support wage increases in Japan,” Luc Everaert, IMF mission chief for the country, told reporters on Aug. 2 after completion of the agency’s annual consultation with the world’s third-largest economy.

The IMF’s backing of such an unorthodox approach is an acknowledgment of how entrenched Japan’s “deflationary mindset” has become and how resistant it’s been to a more traditional mix of policies.

It’s also the lending agency’s answer to exhortations by some economists that Japan launch so-called helicopter money -- direct central bank financing of the government’s budget deficit -- a strategy Everaert said has “very large risks.” Read more

by dictator | 15th Aug 16, 4:34pm 1471235661

I'm all for helicopter money if it goes to consumers. When it goes to bond and shareholders or gets injected into the housing bubble it doesn't help. If the RBNZ is going to distort the economy it should at least be positive,rather than end up with RBNZ becoming the top shareholder like in Japan.

by Roger Witherspoon | 15th Aug 16, 4:56pm 1471236968

I can't see what the fuss is about with Japan. They have hoovered up 30% of their government debt and thus effectively cancelled it for all practical purposes. They don't have much unemployment and they run a current account surplus. Why all the scaremongering, it beats me?

Having said that I came across a chap who argued that zero interest rates are a Lorenz strange attractor for central banks and almost impossible to escape. It is an interesting idea.

by Chris-M | 15th Aug 16, 9:44pm 1471254255

The definition of insanity - keep on doing the same thing and expecting a different result.

by Roger Witherspoon | 15th Aug 16, 4:50pm 1471236614

The IMF. The disgraced, corrupt and morally bankrupt organisation that destroyed the Greek economy and failed to see the last financial crisis coming. I hope they send their good team, not their idiots.
http://www.telegraph.co.uk/business/2016/07/28/imf-admits-disastrous-lo…

by linklater01 | 15th Aug 16, 7:11pm 1471245110

Roger,

I am no great fan of the IMF,but to lay all the blame for the destruction at their door is ludicrous. Quite apart from the Greeks themselves, much of the blame can be laid directly at the European Union itself and the whole grandiose Euro project; a project which as as I am sure you well know, has always been political. I am sure you know the work of Robert Mundell, the Canadian economist who in the 60s, worked out the requirements for an ideal currency zone and I am sure you also know that the Eurozone,does not meet these criteria.

by BadRobot | 15th Aug 16, 5:34pm 1471239275

IMHO - the disparity between the data coming out of China and the the surge Shanghai index has more to do with the Chinese love of gambling / speculation than any rational economic analysis. I think that underpins a lot of their investing.

by sharetrader | 15th Aug 16, 6:19pm 1471241968

are we about to see another boom bust cycle for the sharemaket, I will watch with interest

by linklater01 | 15th Aug 16, 7:17pm 1471245459

Sharetrader,

You disappoint me. With the pseudonym Sharetrader, you must know that boom and bust cycles are an inherent part of the stockmarket. If there were no busts, how would I and others have the chance to pick up bargains now and then. As the Sage of Omaha said; "Be greedy when others are fearful and be fearful when others are greedy". Good advice.