What happened Tuesday

A review of things you need to know before you go home on Tuesday; car sales drop, Ardern pitches CPTPP to Moon, hydrogen chosen, NZ wins on trade, big bond rate falls, NZD rises, & more

4th Dec 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.

NEW CAR SALES COOL SHARPLY
Car sales enter a sales shadow in November with SUV demand lower, down -7.3% year-on-year, especially for medium-sized SUVs which were down almost -17%. Commercial demand stays strong however.

ARDERN ENTICES MOON
The Korean President is in New Zealand. In addition to the usual the heady international issues discussed, New Zealand is promising eGate passport access, and a system where people will be able to use both New Zealand residence and contributions to the Korean pension system to help them qualify for pension payments from either country. Korea is not a member of the CPTPP and New Zealand would like to draw them in.

BETTER THAN BATTERY POWER
Ports of Auckland is to build a hydrogen production and refueling facility on the waterfront. In partnership with Auckland Council, Auckland Transport and KiwiRail, it will invest in hydrogen fuel cell vehicles including port equipment, buses and cars as part of the project. The goal is emissions-free operating equipment, including heavy equipment like tugs and mobile container lifting/loading machines, devices hard to power with batteries. Hydrogen allows storage, rapid refueling, and emits nothing but clean water. The new facility should be working by the end of 2019.

A BIFIRCATION
After yesterday's heady rises in Shanghai (+2.6%) and on Wall Street overnight (+1.1%), and mirrored on the ASX (+1.8%) and to a lesser extent on the NZX (+0.6%) yesterday, today's eyes are on those same markets given that the bond markets have given the current situation the thumbs down (see below). Well, today Shanghai has held all yesterday's gains but is unchanged (+0.1%) in early morning trade. But Aussie investors are less positive, down -0.7% in early afternoon trade, while the NZX is flat/unchanged in late afternoon trade.

WE ARE A TRADE WINNER
Statistics NZ published data on the levels of two-way trade today, exports-plus-imports, goods-plus-services. International trade rose to $160.7 bln for the year ended September 2018, up a remarkable +11.6% from the previous year. This is far higher growth than in any previous year in a long time. Our trade with Australia (16.4%), China (17.9%), the USA (11.4%), Japan (5.4%), and the Eurozone countries (9.1%) accounted for more than 60% of all our trade. And in 2018, a sudden spurt of trade with China has edged out Australia as our number one trading partner. Through all of this, our goods and services exports totaled $81.6 bln in the latest year, while our imports totaled $79.1 bln. New Zealand came out on top with a surplus of $2.4 bln, although that was the smallest in five years.

BIGGER AUSSIE C/A DEFICIT
Australia posted a Q3 current account deficit of -AU$12.6 bln. For the full year it totals -AU$48.6 bln. That is 32% worse than the -AU$36.8 bln current account deficit in the year to September 2017. Their Q3 GDP result will be published tomorrow. Our C/A and GDP data won't come until December 19 and 20.

SMALLER AUSSIE GRAIN HARVEST
Australia has lowered its wheat production forecast by -11% to the smallest in a decade amid a crippling drought across the country's east coast that may cut exports from the world's fourth biggest supplier. Their winter crop production is forecast to be -20% below their 20 year average.

SWAP RATES SINK
Wholesale swap rates are down -2 bps for a two year duration, down -3 bps for a five year duration, and down -4 bps for a ten year duration. The US Treasury yields are also moving fast today, dropping, and by the time you read this, they may have moved again. The UST 10yr, which ended yesterday at 3.04% is now down under 2.95%. The long end is falling faster than the short end and the 2-10 curve is now below +14 bps, a level not seen since mid 2007. (And remember, this 2-10 curve was over +30 bps at the beginning of November.) The Aussie Govt 10yr is at 2.54% and down -8 bps, the China Govt 10yr is down -5 bps at 3.37%, while the NZ Govt 10 yr is at 2.54%, down -7 bps. The 90 day bank bill rate is unchanged 1.97%.

BITCOIN DROPS
The bitcoin price is now at US$3,850 which is a -5.5% fall since this time yesterday. Still it is above its recent low on November 28 of US$3,642. But with the stronger NZD, we are actually not far off a 2018 low in local currency.

NZD FIRMER
However the Kiwi dollar is firmer, now at 69.3 USc. On the cross rates we firmer as well at 94.3 AUc and at stronger at just over 61 euro cents. That puts the TWI-5 up at 73.8.. (We are also up to 54.5 UKp and that is another 14 month high.)

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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46 Comments

by Andrewj | 4th Dec 18, 4:05pm 1543892700

Balyasny Fires 20% Of Its Staff As Hedge Fund Loses Billions; Einhorn Is Down 28% YTD

https://www.zerohedge.com/news/2018-12-03/balyasny-fires-20-its-staff-h…

by Andrewj | 4th Dec 18, 4:07pm 1543892854

"Pure balderdash. But nobody argues with Economists and central bankers. So, the French government thought nothing of enacting an enormous burden on the working folks of France and those who as elsewhere around the world have absorbed the costs of one lost economic decade facing downward again toward a second.
It’s booming, alright. There are very real consequences to a world without economic growth. People won’t, can’t, put up with it forever. The whole world isn’t Japan."

https://www.alhambrapartners.com/2018/12/03/its-booming-alright/

"The elites have gone too far. The costs of the 2008 financial crash have been met by ordinary people, not the greedy bankers & financial spivs who caused it. The people have had enough of austerity & falling/stagnant wages. What’s happening in #France now is only the start."

https://www.zerohedge.com/news/2018-12-03/80-year-old-woman-killed-pari…

by Henry_Tull | 4th Dec 18, 6:44pm 1543902254

as Jeffrey Snider says:

https://www.youtube.com/watch?v=ZEFG0K6JbV4

by Andrewj | 4th Dec 18, 4:24pm 1543893897

Is France out of control? This is a range of views discretion advised

https://www.rt.com/news/445499-france-police-helmets-solidarity-protest…

https://sputniknews.com/analysis/201812041070361878-Yellow-Vest-Protest…

https://www.telegraph.co.uk/news/2018/12/03/president-rich-macron-loath…

by solardb | 4th Dec 18, 4:32pm 1543894378

You don't just make Hydrogen from tap water, you need lots of electricity to do it . Would have thought it would make more sense to have the plant in the South island , and ship the hydrogen to Auckland.

by RickStrauss | 4th Dec 18, 4:47pm 1543895244

Or maybe ship the Aucklanders to the South Island instead?

by Roger Witherspoon | 4th Dec 18, 5:46pm 1543898801

We're quite happy as we are thank you. Ship to Sydney perhaps? Maybe we should make it worth their while, solving the housing crisis the easy way.

by Uninterested | 4th Dec 18, 5:31pm 1543897882

Recipe for a huge loss of shareholder value in this one.

by nymad | 4th Dec 18, 5:35pm 1543898131

Nine words that should strike fear into the heart of anyone...

"In partnership with Auckland Council, Auckland Transport and KiwiRail."

by Mrs The Point | 4th Dec 18, 10:57pm 1543917448

Indeed, the true "axis of evil."

by positivelywallstreet | 4th Dec 18, 6:02pm 1543899749

That rings a bell, Isn’t the naki going to make hydrogen by magic?
https://www.sciencedirect.com/science/article/pii/S0360319917312272

by Foyle | 4th Dec 18, 8:10pm 1543907412

What idiot signed off on this folly? Patently someone with weak grasp of technology and big wads of other peoples money to spend. Hydrogen is a terrible battery, lucky to have 30% energy in to energy out efficiency, and the equipment is shockingly expensive, and dangerous, and doesn't last (fuel cell stacks have half-lives that make them useless after a few years.

Batteries are cheaper and more efficient and improving fast. They make a lot more sense for operations around a port. Just as they do for cars and buses (where interest in hydrogen is now almost dead)

by Nzdan | 5th Dec 18, 6:09am 1543943347

What they’re trying to do is encourage a fuel source that can still be heavily taxed per unit. How do you tax the energy on someone’s electric vehicle if they’re charging it at home? Slapping a 50% tax on power costs penalises everyone. An electric vehicle levy built into the registration would turn people off electric cars.

by Wrong John | 4th Dec 18, 4:49pm 1543895367

I agree with AJ, France is a bell weather country for the West. They are not only on the front line, they often are the front line. Large parts of Europe are in major decline, especially in Italy, Greece, Spain & southern France. Small provincial ares in particular are really hurting & I've been waiting for the Frogs to kick up stink. They always do. This time, however, they've got a real beef. They (a three person family) can't live on 1,300 Euros a month. I don't think I could either. There's a huge urban / rural divide opening up across the planet, but when we can't feed our own people, things are grim indeed. We read a lot about Brexit & all the woes that's going to create, well, the EU too will miss the Brits contributions massively. This is all playing out right up Putin's street. When people are hungry they've got nothing to lose. When the people have got nothing to lose, look out.

by Zachary Smith | 4th Dec 18, 5:12pm 1543896740

I spent quite a bit of time over the weekend watching the live Ruptly coverage of the street battles. See here for the action on Saturday:

https://youtu.be/ud-yqhyiGjo

Start at the seven hour mark for a true dystopian, apocalyptic scene of devastation. At 7:16:20 the guy in the wheel chair with the Indian chief's headdress and waving a tricolour really sets the scene amongst the burning vehicles. I walked down there two years ago.

I did think to myself, it's like these guys have nothing left to lose. It was very stirring stuff.

(Long John Martin - I disapprove of that term you used. We have no need of these ancient animosities anymore - I know you meant it affectionately. How times have changed)

by Cowpat | 4th Dec 18, 5:24pm 1543897468

I thought that was a misprint . "live Ruptly coverage "

by Andrewj | 4th Dec 18, 4:55pm 1543895729

"The world of negative interest-rates now has negative economic growth too"
It was not that long ago that many of us “experts” in the interest-rate market felt that negative interest-rates could not be sustained. Back then the past Swiss example could be considered a tax – which remains a way of considering negative interest-rates – and the flicker in Japan was covered by it being Japan. Yesterday brought some fascinating news from the front line which has been in danger of being ignored in the current news flow.

Sweden’s GDP decreased by 0.2 percent in the third quarter of 2018, seasonally adjusted, compared with the second quarter of 2018. GDP increased by 1.6 percent, working-day adjusted, compared with the third quarter of 2017. ( Sweden Statistics).

Firstly let me reassure you that Sweden has no Brexit style plans. What it does have is negative interest-rates as this from the Riksbank shows.
https://notayesmanseconomics.wordpress.com/2018/11/30/the-world-of-nega…

by Lapun | 4th Dec 18, 8:52pm 1543909969

What Sweden needs is plenty of immigrants - the theory goes it is all to do with quantity; who cares about quality, just plenty of immigrants say 1.5% of the population. We should send Mr Lees-Galloway and the national party nonentity (name forgotten) who was his predecessor to Sweden so they can learn from us.

by Cowpat | 4th Dec 18, 5:21pm 1543897287

In less than two months , (since October 8) , NZD has appreciated 10.3 percent against CAD, 9.9 percent against GBP, 9 percent against JPY and CHF, , 8.7 percent against the EUR, 8.3 percent against the USD ,7.4 percent against the CNH and 4.8 percent against the AUD. Do we export milk powder or cheese or something.

by Zachary Smith | 4th Dec 18, 5:40pm 1543898402

We had a bit of a discussion about mortgage stress in the 90 seconds at 9am article this morning. DFA have been getting a lot of exposure lately around these parts. I was wondering if David Chaston or someone could do a bit of a critical review of DFA. Something doesn't seem right to me and we need someone with nous to pick things apart.

It seems to me that mortgage stress in Australia is being exaggerated and misrepresented. He seems to use his own definition. Wage rates, employment and mortgage rates are largely unchanged so why are people stressed? However I am no expert.

All I can say is that I went and read his fairly recent article,"Mortgage Stress Busts The 1 Million Households" and the only link was to the Reserve Bank of Australia's PDF, Household and Business Finances:

https://www.rba.gov.au/publications/fsr/2018/apr/pdf/02-household-busin…

Reading this document left me with totally the opposite impression to the article and the current situation. It seemed upbeat to me. According to the RBA all is well and almost everyone is well positioned and stress is minimal. What the hell is going on?

by PropertyPrices2Fall | 4th Dec 18, 6:00pm 1543899647

CBs and RBs always sound upbeat until shit hits the fan. Then they look for people to blame

by dictator | 4th Dec 18, 6:03pm 1543899829

Part of the RBA role is to keep up morale so the market doesn't cave in with a massive loss of confidence. If the RBA told the truth the consequences would be severe.

The difference with DFA is they actually carry out surveys and collect data. If you want David to review DFA then I would suggest examining his data collection techniques given the inputs are what drives the analysis and conclusions.

by PropertyPrices2Fall | 4th Dec 18, 6:13pm 1543900384

I'm surprised zachary boy doesn't know this

God bless them

by Zachary Smith | 4th Dec 18, 6:23pm 1543901024

That's just nonsense. It's obvious that a million Australian mortgage holders are not on the verge of defaulting.

by dictator | 4th Dec 18, 6:34pm 1543901672

Perhaps you could provide your statistics and data analysis to counter DFA?

by Zachary Smith | 4th Dec 18, 7:00pm 1543903228

What's the matter with you guys? it's like you have all lost your minds. DFA do not use the standard definition of mortgage stress. According to them you could spend less than 30% of your income on a mortgage and still be stressed. They openly admit this.

Basically it's like saying if a million mortgage holders lost their jobs they would mostly default on their mortgages.

Have you guys analysed the "data"? Would love an expert opinion on this.

Any Australians in the house?

by dictator | 4th Dec 18, 7:00pm 1543903247

"Our analysis uses the DFA core market model which combines information from our 52,000 household surveys, public data from the RBA, ABS and APRA; and private data from lenders and aggregators. The data is current to end September 2018. We analyse household cash flow based on real incomes, outgoings and mortgage repayments, rather than using an arbitrary 30% of income."

No they use the unusual definition of real income and expenses. The quote is from the article that you are referring to.

by Zachary Smith | 4th Dec 18, 7:20pm 1543904411

Oh, right, "the DFA core market model", a reputable global standard.

by Pragmatist | 4th Dec 18, 9:44pm 1543913080

It doesn't say what you want to hear, so appeal to authority rather than find actual problems in the methodology?

by Zachary Smith | 4th Dec 18, 11:00pm 1543917623

Come on, the above quote clearly states they use their own criteria and not the generally recognized standard to determine mortgage stress. Isn't that a bit suspect?

People's mortgage payments increase. People need to adjust their spending habits. People are asked if they find this stressful. People say yes. This is mortgage stress.

by Pragmatist | 4th Dec 18, 11:11pm 1543918277

Dunno, i'd say when your outgoings are greater than your income you are (or should be ) stressed.

by Noncents | 4th Dec 18, 9:36pm 1543912571

Basically it's like saying if a million mortgage holders lost their jobs they would mostly default on their mortgages.

Sounds pretty spot on to me.

I have done Payroll in UK, Ireland, Australia, and NZ. Most payroll data and stats I have seen roughly show:
20% of people have zero savings. i.e. literally live pay to pay.
80% of people have less than 1 pay period in savings. i.e. could probably survive for 1-2 weeks without pay.

Extrapolate this out to the working population (with mortgages), and bingo...

A major job shock and within a month their would be absolute chaos not just for house owners, but renters as well. I can't see many landlords keeping a bunch of tenants who aren't paying rent.

by PropertyPrices2Fall | 4th Dec 18, 7:06pm 1543903618

You sure you not Ben B.? He sounds exactly like you when he was the fed chair

by Yvil | 4th Dec 18, 7:01pm 1543903309

Misery loves company Zach that's why DFA's following is increasing. Try broadcasting a vlog that states how good things are… very few would follow it

by PropertyPrices2Fall | 4th Dec 18, 7:09pm 1543903797

Doesn't 99% of the media do exactly what you state.. Everything fine in the land of the long white clouds.. no mention about the high level of debt etc, and you'll salivate reading it

by dictator | 4th Dec 18, 7:13pm 1543904003

I take the view that if the DFA analysis is correct then the RBA won't increase the OCR for many years, or decades. Their OCR has been 1.5% for more than 2 years now and they don't seem to have any room to move it without squeezing the bank in the worst position.

by Andrewj | 4th Dec 18, 7:17pm 1543904261

RBA has just followed the economy down, looks likely to bump along the bottom for a bit.

by dictator | 4th Dec 18, 7:25pm 1543904728

RBNZ has done the same, until they hit the point where the OCR decoupled from the bank's rates.

by Andrewj | 4th Dec 18, 7:35pm 1543905317

perhaps the discussion needs to be more around what will cause interest rates to rise, can we predict that outcome? I don't think Reserve banks control the outcome, I don't think they will be happy with stagnation either.

by dictator | 4th Dec 18, 7:59pm 1543906773

This discussion thread has really centred around DFA and their analysis. Certainly an increase in interest rates would confirm which theory is correct. Perhaps a more on topic approach would be to consider all of the interest only mortgages that switch to P+I starting January 2019. The interest rate doesn't go up but the payments do, and that change will expose any cash flow issues, or at least increase mortgage stress.

by Withay | 5th Dec 18, 6:33am 1543944817

Hi Andrew, great question. My guess is I don’t think they can raise rates without increased borrowing to replace and grow the money in circulation to counter the money disappearing through loan repayments. Does that seem likely? I can’t see it. We haven’t really borrowed for productive ventures to offset the increase in the cost of higher rates.

by Zachary Smith | 4th Dec 18, 7:34pm 1543905273

Yvil, it's like a mental illness.

However Interest.co.nz seem upbeat, that's why I'd love to read David's thoughts on the matter.
The claims are so extraordinary that I suspect they are viewed the same way flat-earther's are.

I guess they see this as an exploitable market segment. Only 147 Patreon patrons so far. Early days.

by bw | 4th Dec 18, 8:06pm 1543907189

Why do you think we have, or can sustain, interest rates lower than those in the USA; the biggest economy on the planet?
Would you lend money to a rich man or a poor one? And if you picked the poor one, for whatever reason, would you charge a lower interest rate than the rich man could command? If so, why?
Traditionally we here in Australasia had to pay a premium to borrow money ( the above reason) of some 3% (Aussie) 4%(NZ) if we were to attract capital inflow. That we have such low rates now should tell us that 'things aren't right' and if you take the World at face value, The States seem to be doing ok. So why are our OCR and the Aussie Cash rate, so low?
Answer: We are in strife, and any 'normalising' of interest rates will spell economic hardship that will show you first hand, if DFA's views on 'stressed mortgage holders' is right or not.
(NB: The RBNZ has been progressively changing the mix of funds that the local banks are required to hold. It's why they compete for longer-dated Term Deposits etc - to replace the foreign funds that have or may dry up in due course.)

by PropertyPrices2Fall | 4th Dec 18, 7:58pm 1543906724

Very clear you guys are becoming mental with the fear of the housing market collapsing.. very sad..

At least you may get a chance to meet JLR

by Andrewj | 4th Dec 18, 7:15pm 1543904112

You know how we just gave hospital cleaners a pay rise, Ive got bad news

https://yellrobot.com/walmart-auto-c-floor-scrubbing-robot/

by bw | 4th Dec 18, 8:21pm 1543908076

"Speaking to an audience of high net worth Chinese investors at the Allfin conference in Melbourne, Mr Gillespie said it was a matter of when, not if, house prices fell further....(He) has joined the chorus of experts tipping a further decline in house prices, saying Sydney properties still have (another) 10 per cent to fall just to be in line with the firm's fair value estimates"....Mr Gillespie's comments come only a day after CoreLogic's latest home value index revealed Sydney property values had slipped 9.5 per cent since their peak last July.

https://www.afr.com/markets/ellerston-capitals-brett-gillespie-says-hou…

Just an opinion of course, but from Elleston Capital, The Packer Family (one of Australia's rich set) money managers.
The writing is on the wall, literally, and it's only a question of what we each decide to do about it.
Some will try to ride it out and get through to wherever the future is.
Others will try to do similar and fall by the wayside (those distressed mortgagors?)
That applies for not only the property market but all asset markets - probably worldwide. But time will tell, and there may not be much of it left....