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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