What happened Tuesday

A review of things you need to know before you go home on Tuesday; no rate changes, eyes on GDT auction, more transparency for Co registration, Fitch likes Aussie banks here, Whineray wins NZSF CEO job, swaps slip, NZD stable

19th Jun 18, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
No changes today.

TERM DEPOSIT RATE CHANGES
None here either, today.

NO CHANGE LIKELY
There is another dairy auction tomorrow morning. Current pricing on the derivatives market suggests there will be no change to the WMP price. And for SMP, that is indicating little change as well. (Unless bidders are holding back pricing intentions, which sometimes happens.)

GOVT ACTS IN ATTEMPT TO 'STOP EROSION OF NZ AS A GOOD PLACE FOR HONEST BUSINESS'
Commerce & Consumer Affairs Minister Kris Faafoi has released a MBIE consultation paper on increasing the transparency of the beneficial ownership of NZ companies and limited partnerships. MBIE has included three options and favours one that would see beneficial ownership information included on company & limited partnership registers with public access. A beneficial owner is defined as; Persons who own or effectively control a corporate entity, such as a company. They may own or control the entity indirectly, such as through intermediaries, and may be different to the legal owners. For example, a person may be a beneficial owner of a company if they control at least 25% of the voting rights or if they have the power to appoint directors, MBIE says. Faafoi says the Government wants to "strengthen our corporate governance to stop erosion of NZ as a good place for honest business." Submissions close on Friday August 3.

'AUSSIE BANK STRENGTH HOLDS UP NZ ECONOMY'
Ratings agnecy Fitch says the strength four four largest banks supports their respective Viability Ratings, and that collective strength helps to offset New Zealand's "continued high macroeconomic risks".

WHINERAY APPOINTED CAPTAIN
The NZ Super Fund has found Adrian Orr's replacement after a global search - and he was already working at the Fund, in fact already working as its acting-CEO. They have appointed Matt Whineray permanently to the role.

FEARING FEAR
House prices are falling in Australia's largest cities. Sydney recorded the third consecutive quarter of falling property prices (-1.2%) and the first annual price fall (-0.5%) since the March quarter 2012, while Melbourne property prices fell -0.6%, the first quarterly price fall since September quarter 2012. Brisbane and Perth house prices also fell. ANZ says the Sydney fall is on the way to a cumulative -10% drop from the peak. The total value of Australia's 10 million residential dwellings decreased AU$22.5 bln to AU$6.9 tln. The mean (average) price of dwellings in Australia is now AU$687,700 (NZ$735,000).

TIT FOR TAT ESCALATES
In the US, President Trump is readying another US$200 bln in Chinese goods for new 10% tariffs - if Beijing retaliates against his recent tariffs imposed earlier this month. China has already said they will.

BENCHMARK INTEREST RATES SOFTER
Local swap rates are -1 bp lower across the board, although the 10yr is down -2 bps. The UST 10yr is now at 2.89%, down -2 bps and most of that slippage has come in the past 3 hours. The Aussie Govt 10yr is at 2.63, down -4 bps, the China Govt 10yr is at 3.64% (down -1 bp), and the NZ Govt 10 yr is at 2.88%, down -6 bps. The 90 day bank bill rate is unchanged at 2.02%.

BITCOIN UP
The bitcoin price is now at US$6,716 which is +4.6% higher than at this time yesterday. The spike in the price was caused by New York regulatory approval for the "Cash" mobile payments app so it could trade the cryptocurrency in that state.

NZD LITTLE CHANGED AGAIN
The NZD is little changed at 69.4 USc. We are up against the Aussie at 93.6 AUc and at 59.6 euro cents compared with this on Friday. That has the TWI-5 still at 72.7.

This chart is animated here. For previous users, the animation process has been updated and works better now.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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25 Comments

by Advisor | 19th Jun 18, 4:31pm 1529382688

Investors in Chinese stocks aren’t taking the tit-for-tat tariff news particularly well. SHCOMP has fallen nearly 3% since it opened for trade this morning.
Analysts have priced in more damage to the Chinese economy from this trade war than its American counterpart. The US is not as reliant on exports since American households make up a larger proportion of their national economy and the country is already incurring large deficits.
The tariffs may also force some American companies to repatriate manufacturing to the US.

by Withay | 19th Jun 18, 4:49pm 1529383785

"that collective strength (of AU banks) helps to offset New Zealand's "continued high macroeconomic risks". ummm, well that's interesting. Just as well house prices in AU aren't falling, oh wait. Well at least the royal commission into their banking system hasn't turned up any issues, oh wait.

by Uninterested | 19th Jun 18, 4:56pm 1529384205

Haha.
Do I have to wait more than twice?

by Advisor | 19th Jun 18, 5:12pm 1529385125

Haha. Good one. Although the lowest rating attributed to the big 4 banks in Australia and their subsidiaries in NZ is a AA-, despite recent downgrades. That's healthy if you consider how bad European banks are doing.
I guess this analysis is some sort of comparison with the largest European banks like Deutsche, RBS and Monte de Paschi that are in complete turmoil and will collapse like dominoes at the first whiff of a financial crisis.

by Withay | 19th Jun 18, 5:31pm 1529386303

Good point. Gets me worried though, here's something out of an article regarding the GFC crash

"Moody’s, Standard & Poor’s, and Fitch Ratings all maintained at least A ratings on AIG and Lehman Brothers up until mid-September of last year. Lehman Brothers declared bankruptcy Sept. 15; the federal government provided AIG with its first of four multibillion-dollar bailouts the next day."

Fitch just gave that rating to the AU banks so hopefully they've learnt from their mistakes but I don't think so personally.

by Bobster | 19th Jun 18, 6:25pm 1529389548

Haha, the Aussie banks credit doesn’t mitigate our risk, it is our BIGGEST risk

by polygonalvector | 19th Jun 18, 4:59pm 1529384355

For all his brinkmanship, Trump seems to delight in taking on his opposition in 'who's gonna blink first' games of chicken.

On this one he's clearly betting that the US can weather such a storm much better than the Chinese - indeed this may well be an attempt to topple China's 'house of cards' debt problem :-
https://www.cnbc.com/2018/04/24/trade-war-with-us-may-be-tipping-point-…

The mistake he may have made is trying to take on the rest of the world (including poor Canada) at the same time.

Whilst China can continue to build trade bridges with other countries, Trumps isolationist moves effectively leave the US under siege. Why he felt the need to affront the entire G7 is beyond me.

by waymad | 19th Jun 18, 5:10pm 1529385027

Perhaps he has a Bigger Club in mind: G3.

On the Arctic, Putin and Xi went all the way for developing the Northern Sea Route, including crucial modernization of deep-water ports such as Murmansk and Arkhangelsk, and investment in infrastructure. The added geopolitical cachet is self-evident.

Putin had said last week that annual trade between Moscow and Beijing will soon reach US$100 billion. Currently, it stands at US$86 billion. Now Russian businesses venture the possibility of reaching US$200 billion by 2020 as feasible.

All this frenzy of activity is now openly described by Putin as the interconnectivity of BRI and the Russia-led Eurasia Economic Union (EAEU). Not to mention that the SCO itself interconnects with both BRI and the EAEU.

Putin told Chinese TV channel CGTN that though the SCO began as a “low-profile organization” [back in 2001] that sought merely to “solve border issues” between China, Russia and former Soviet countries, it is now evolving into a much bigger global force.

And as to the G3:

The “dueling summits” clearly set the scene. The G7 meeting at La Malbaie represented the dysfunctional old order, dilacerated by largely self-inflicted chaos and its apoplexy at the Rise of the East – from the integration of BRI, EAEU, SCO and BRICS, to the yuan-based gold-backed oil futures market.

In contrast to the G7’s full spectrum dominance doctrine of total military superiority, Qingdao represented the new groove. Implacably derided by the old order as autocratic and filled with “democraships” bent on “aggression”, in fact it was a graphic illustration of multi-polarity at work, the intersection of four great civilizations, an Eurasian Café debating that another, non-War Party conducted future is possible.

In parallel, diplomats in Brussels confirmed to Asia Times there are insistent rumbles about Trump possibly dreaming of a G3 composed of just US, Russia and China. Trump, after all, personally admires the leadership qualities of both Putin and Xi, while deriding the Kafkaesque EU bureaucratic maze and its weaklings, currently represented by the M3 (Merkel, Macron, May).

by waymad | 19th Jun 18, 5:01pm 1529384471

TWI - 73.64, Treasury BEFU assumption 'around 75'
WTI - 65.49 Treasury BEFU assumption 'around 60'

by Jock Silver | 19th Jun 18, 5:09pm 1529384949

Are you keeping a record on your blog? I'd love to see a graph of these trends one day :)

by waymad | 19th Jun 18, 5:15pm 1529385353

No, because RBNZ and Bloomberg (both linked) already do. I occasionally note them because neither is what the Plannerz Planned in their Budget assumptions, both have a major economic impact on NZ, and both are negative in their own way against the happy-clappy Budget projections.

The TWI quoted is the full TWI-17, not the TWI-5 which appears on Interest daily. Yes, the lower TWI means more export $, but that assumes volumes hold up. I wouldn't bet the farm on That assumption....

by Andrewj | 19th Jun 18, 6:07pm 1529388441

Low interest rates have lead to too much capacity, especially in China, on top of this low rates have created bubbles in assets all over the globe.

"June 14 - Reuters (Yawen Chen and Ryan Woo): "China's home prices in May logged their fastest growth in nearly a year, suggesting buyers are targeting smaller cities even as the government steps up measures to clamp down on speculation. Average new home prices in China's 70 major cities rose 0.7% in May from the previous month - the best pace since June 2017 - compared with a 0.5% increase in April…"

With real estate-directed lending booming, the resilience in the apartment price Bubble is easily explained. Related wealth effects are behind much stronger-than-expected May Imports (up 15.6% vs. expectations of 8.6%) - and China's rapidly shrinking Trade Surplus. I would argue that China's runaway mortgage finance and apartment Bubbles at this late stage of the cycle significantly increase the risk of systemic crisis.

In important sectors of the Chinese economy, there are indications that tighter Credit conditions are having an impact. Industrial Production (up 6.8%) and Fixed Investment (up 6.1%) both slowed and missed forecasts in May. "

"Chinese devaluation fears would reemerge, spurring capital flight and the unwind of leveraged holdings of higher-yielding Chinese Credit instruments. With China's banks and corporations having over recent years borrowed aggressively in dollars, currency instability could quickly develop into Credit worries and market illiquidity. "

"The notion that you can inflate your way out of Bubbles is The Great Fallacy of contemporary central bankers. They've inflated only bigger Bubbles. "

http://creditbubblebulletin.blogspot.com/

by Alter Ego | 19th Jun 18, 6:51pm 1529391071

https://finviz.com/futures.ashx

A drop in the bucket.

by Andrewj | 19th Jun 18, 6:57pm 1529391439

I think of it like a big container ship that we keep adding containers to until it's unstable and top heavy. We all know whats comes next.

by Alter Ego | 19th Jun 18, 7:23pm 1529393005

https://www.bloomberg.com/asia

Balancing act....see....saw.

by Andrewj | 19th Jun 18, 7:26pm 1529393180

https://www.cnbc.com/amp/2018/06/18/chinas-pboc-makes-cash-injection-am…

by Andrewj | 19th Jun 18, 6:12pm 1529388726

China Enters the Trade Trap

https://www.zerohedge.com/news/2018-06-18/china-enters-trade-trap

by Andrewj | 19th Jun 18, 6:47pm 1529390860

"Real wages in the US have stagnated for four decades, while college tuition and health care costs have tripled in real value. The trend is incredibly unfair for most people. Education and health care costs are no big deal for rich people but take up huge chunks of income for most.
To add insult to injury, the squeeze between stagnant wages and rising living costs is a result of the same force. Globalisation has kept inflation low, which has allowed central banks to keep interest rates low, which inflated financial assets and benefited the rich. But, predictably, it inflated non-tradeable sectors like education and health care. If the trend is not addressed, it’s just a matter of time before a revolution happens. If you think Trump is bad news, what comes next could be a lot worse."

The current world order is simply unsustainable. It depends on the US issuing excess dollars to absorb the imbalances. It has worked for so long because emerging economies have been accumulating foreign exchange reserves to safeguard their currency stability. Also, the wealth accumulation in emerging economies creates demand for dollars due to political insecurity at home.

http://www.scmp.com/comment/insight-opinion/united-states/article/21503…

by RickStrauss | 19th Jun 18, 7:17pm 1529392630

Real wages in the US have stagnated for four decades, while college tuition and health care costs have tripled in real value. The trend is incredibly unfair for most people. Education and health care costs are no big deal for rich people but take up huge chunks of income for most.

While we haven't reached the US's excesses, this is part of why I do not begrudge young Kiwis facing lower education costs. I don't see a good rationale for indebting young Kiwis for what is a requirement just to get most jobs while we spend 60% of our social welfare budget on handouts regardless of need.

We have to get past the idea that cutting provisions to the young in order to preserve "entitlements" for the old is fair and good. Because it's a really strange assumption, really. As per the discussion yesterday about society, we have to start looking seriously at what we hand on to future generations, as much as what we expect from them (i.e. looking after the elderly).

by Advisor | 19th Jun 18, 9:05pm 1529399142

Trade is vital to global prosperity and economic well-being as long as it is meant to redistribute resources from places of surplus to places of scarcity - e.g. NZ exports dairy in exchange for oil with Kuwait.
The problem began when neo liberals abused trade to redistribute wealth from workers to capitalists of the world using wage differentials.

by powerdownkiwi | 20th Jun 18, 3:27am 1529422058

Advisor - the problem is that the whole system is based on draw-down, regardless of recipient. Even if you stood the 1% in front of a firing squad, the draw-down would continue. If we don't address that, nothing else is worth addressing.

But when one puts that problem in front of the NZ media, they shut you down. They even organise it so that your complaint to the Press Council doens't see the public light of day. That's Goebbels territory, right here in NZ.

Thus we get the left/right nonsense, which is just time-wasting. The senior journo who quashed me, thinks Hilary Clinton would have been good for women. Did he study the foreign repression during Bill Clinton's tenure? Did he research the Monroe Doctrine? Did he read Jason Hickels' 'Divide' or Noam Chomskys' Hegemony or Survival? I doubt it.

Trade is not vital to global prosperity - having something to trade is what is vital, and exponentially-growing draw-down is the only story in town. After which you have no prosperity, no matter how much you want to believe otherwise.

by Zachary Smith | 19th Jun 18, 7:35pm 1529393716

The big news for today is Trump ordering the DoD to create a Space Force.

Oh yeah, we're on an express elevator to hell, goin' down!

Whooohooo!

by Fritz | 19th Jun 18, 7:51pm 1529394715

When are things going to give? This year, or the next?
Or is it all smoke and mirrors?

by Jock Silver | 19th Jun 18, 10:32pm 1529404378

I seem to recall someone pooh poohing evidence for a global bond yield inversion.

Well here it features on Bloomberg: https://www.bloomberg.com/view/articles/2018-06-18/inverted-yield-curve…

by Nic Johnson | 19th Jun 18, 10:37pm 1529404670

Sorry Jock, It was David Chaston pooh poohing - and as one of the editors and a holder of real estate leverage, his views are unquestioned until he exits his position. Shhhh!