Hayne Report issues 76 recommended changes; criminal charges possible; broker conflicts unresolvable; US durable goods orders fall; UST 10yr 2.73%; oil and gold down; NZ$1 = 68.8 USc; TWI-5 = 72.9

Hayne Report issues 76 recommended changes; criminal charges possible; broker conflicts unresolvable; US durable goods orders fall; UST 10yr 2.73%; oil and gold down; NZ$1 = 68.8 USc; TWI-5 = 72.9

Here's our summary of key events overnight that affect New Zealand, with news Aussie banks are bruised today, but far from broken.

The biggest international event that affects us is the release of the Hayne Report. You can read it here. There are 76 recommendations and the Australian Government has committed to implementing 75 of them. Just as important, the opposition Labor Party has said it will implement all 76.

But first, the financial markets will give their assessment in the form of re-pricing the shares of the institutions covered in the report when markets open later. Yesterday they seemed unfazed by what was to come, with big bank shares rising in price, and insurers falling sharply. It seems, after the release, that today that advance move may become more pronounced. Already, the AUD has been unaffected, nor have bond market prices flinched.

Most analysis is what is in the Report. Much is as expected and signaled in the Interim report issued a few months ago. Just as important is what is not in it. It does not unstitch the dominant position of the four big banks, it is generally complimentary of the interim internal moves to reform, especially mentioning CBA as the model, and it does not target the role of the boards. Special negative mention goes to NAB (BNZ's parent) and the lack of contrition shown by the Chairman and CEO. And some banks and senior managers may face criminal prosecution on specific technical matters.

Also, it leaves in place the 'responsible lending' criteria adopted by the industry, as well as the HEM for assessing mortgage affordability. These are important because it doesn't try to force more regulation into credit assessments, leaving this as the risk and responsibility of the bank credit function.

Despite this, it is clear, more prescriptive oversight is in the banks' future, even if the regulators haven't covered themselves in glory in this review.

However, the Report is particularly scathing of the inherent conflict of interest that brokers have in the system and the way they are paid by commission. It fingers brokers working to defraud bankers. (pp 64-65) First Sedgwick, and now Hayne have called out that indefensible structure. Oddly though, this is the one recommendation that the Australian coalition government is suggesting it may not implement. Brokers have political influence, it seems. How that aspect plays out in New Zealand will be interesting to watch too.

We have a more detailed review of the Report, as it affects New Zealand, here.

In other news, US durable goods orders fell in November for the second month in a row. A double fall like this is rare. They are however up +3.7% year-on-year.  More importantly, capital goods orders fell on a year-on-year basis.

In China, the President is finding it increasingly necessary to reassure anyone who will listen that the future of the country is bright.

The US-China trade negotiations continue, unresolved ahead of their March deadline. No-one really expects anything more than encouraging words at this stage. UNCTAD however has modeled those US tariff increases and finds they will shift trade sharply and the US will likely lose trade share. But there will be other winners with more than 80% of the benefits captured by firms in countries other than the US.

Asian equity markets were little-changed in trading yesterday, and ended up mildly positive - even in Australia. Today, Wall Street is continuing the trend even though EU markets were somewhat lower.

Back in Australia, their housing market is still being roiled. The number of new dwelling consents dived in December, fanning fears a housing slump will drag on their economy. They fell an eye-watering -26% in December compared with the same month a year ago and their lowest in five years. For all of 2018, the decline was -5.6% compared with 2017 - although the number of houses consented was flat. The biggest falls are in the apartment sector.

The UST 10yr yield is higher today at 2.73% and gaining +5 bps from the end of last week. Their 2-10 curve is also higher at just under +20 bps. The Australian Govt. 10yr yield is at 2.23% and a -2 bps slip overnight. The China Govt. 10yr yield is unchanged at 3.15% because markets there are closed of course, while the New Zealand Govt. 10yr yield is at 2.22% and a -1 bps slip.

Gold has drifted lower overnight to US$1,314/oz. a -US$3 shift down.

US oil prices have moved lower today are now just over US$54/bbl while the Brent benchmark is just over US$62/bbl. Both are slips of about -US$1/bbl.

The Kiwi dollar will open today at 68.8 USc. On the cross rates we are at 95.3 AUc, and at 60.2 euro cents. That leaves the TWI-5 at 72.9.

Bitcoin has changed very little overnight, slipping marginally to US$3,412. This rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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17 Comments

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Highlight new comments in the last hr(s).

Bitcoin, unchanged and safe-as, nearly!
"As many as 115,000 account holders are owed $250 million, which is locked up in “cold storage” only accessible to the recently deceased founder and CEO"
https://www.timescolonist.com/news/b-c/bitcoin-dealer-seeks-credit-prote...

If you hold bitcoins with a third party, you don't actually own any bitcoins, just a claim on that amount. "Not your keys, not your bitcoin." It's no different to depositing cash in a bank. You're now an unsecured creditor of the bank. Any bitcoin holder with any sense stores their bitcoin in their own wallet, or to state it more accurately, holds their own private key.

There's been overnight talk on reddit with people watching the wallets. The cryptos are being moved out of the wallets. So it looks like another take the cryptos and run scam with an interesting cover story.

10
up

It's more of a window into what will happen if the greens ever form a majority in parliament.

The Watermelons running the country? Never going to happen, not while they remain communist to the core.

It's an interesting article PDK, but i can't help but wonder if the author is too wrapped in the detail and misses the point. Chavez was popularly voted in as a result of endemic corruption stemming from the capitalist "free market" economy. While it is true he would not have been well liked in the US, his programmes only exascerbated the problems in his country as he misspent the funds available to him (as is pointed out in the article). Maduro's election was likely not a good one. But the point is that ideological driven economics just don't work - excessive capitalism, just as excessive socialism will be highly damaging. I seem to be trying to make this point a lot lately, but the true role of Government is to track the middle road, to regulate to restrain the excesses of everyone to the greater good of society. Even small ideological swings can create lasting damage as we can see with the rapid increase of homelessness in NZ.

Any person who truly understand crypto and bitcoin has their own private keys and their own wallets. That exchange is interesting though, looks like owner embezzled 190m and then fled to India where he faked his own death.

Understanding banks in the light of the Royal Commission with a discussion about the the dangers of a concentrated banking system from Professor Richard Werner.

https://vimeo.com/264805980

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Time for a Banking Royal Commission in NZ? I know, I know, it’s not needed, right? Which is what the Australian Govt said again and again about the Australian one. They are the same banks.

Interesting speech from Michael J Burry in 2012 made at UCLA. 'The guy from the Big Short' - it is worth a watch if you have a spare 20 minutes.

https://www.youtube.com/watch?v=1CLhqjOzoyE&feature=youtu.be&list=FLrhWO...

I watched this documentary about Chinese property investors in China. It is telling with respect to the way property has been marketed for the ghost cities. It looks like a lot of people were sucked in. Similar marketing has likely been used to sell foreign property.

https://www.youtube.com/watch?v=9dkof7HlMmM

netflix the china hustle

netflix the china hustle

Important doco. And not for race baiting. And nothing to do with property markets.