A review of things you need to know before you go home on Wednesday; some TD rate cuts, record low birth rate, producer prices rising, house price expectations dip, swaps, NZD stays up, & more

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

MORTGAGE RATE CHANGES
No changes to report today.

TERM DEPOSIT RATE CHANGES
ANZ has cut some term deposit rates, following others. More here. And UDC is no longer allowing reinvestment or taking new deposits.

BABIES OUT OF FAVOUR
The national birth rate dropped to a all-time record low in the December quarter. The infant mortality rate was down to 3.8 deaths per 1,000 live births in 2018 and also a new low, compared with 5.0 per 1,000 in 2008. Birth to teenage women are now lower than births to women aged 40-44 (which are also declining). The Total Fertility Rate (TFR) of 1.71 is now well below replacement level. The replacement level refers to a TFR of 2.1 children per woman, which equates to the average number of children each woman is required to have for the population to replace itself in the long term, without migration.

LATE STARTER, NON-BRAND OWNER
Fonterra says it is signing up farms to supply milk for The a2 Milk Company in the 2019/2020 season. It is looking for 100 suppliers based in the Waikato around its Hautapu site. These suppliers will be paid a premium, and the downstream benefits to Fonterra "will be returned to all Co-op farmers through the dividend."

MAKING BUSINESS PAY
Producer output prices rose +3.4% in the year to December 2018 while input prices rose much faster, up +4.7% in the same period. Farm expenses also rose at a fast clip, up +6.3%. especially on dairy farms where farm expenses rose +7.8% pa. That hardly seem sustainable. For all businesses, electricity price rises are the big mover, rising +13.2% in the year, the fourth quarter out of the past six where such costs rose faster than a +5% rate. (Consumers are insulated from these hikes, with retail electricity risingg at less than a +2% rate and lines charges rising at less than a +1% rate.) Overall, there is building price-hike pressure that when released may either generate inflation - or businesses will close if costs can't be recovered.

NEW QUANGO
A new quango, the Infrastructure Commission, has been established "to give advice to the Government". Business lobby groups welcomed the agency so long as it is independent (hoping to keep politicians from messing things up).

LOWERED EXPECTATIONS
Inflation expectations are little changed, according to an RBNZ survey. House price inflation expectations however are falling. In 2019 this survey shows only 42.5% of people expecting house prices to rise in the next year, which is down from 49.4% in Q4-2018.

A DIFFERENT LEAGUE OF BIG
China's domestic corporate debt market, with debt outstanding of $6.6 tln, is the third-largest domestic corporate (financial and nonfinancial) debt market globally, trailing the nearly $9 tln US market and Europe's $7.4 tln, said S&P Global Fixed Income Research today in an article titled "Demystifying China's Domestic Debt Market." When short-term funding is added, China's domestic corporate debt outstanding  rises to $7.6 tln, and when national and local government debt is added as well, the total debt outstanding rises to $12.5 tln.

GET READY ...
Tomorrow the Tax Working Group report will be released. All eyes will be on the Capital Gains Tax elements. We will have full coverage at 11am.

PICKING UP
In Australia, Q4-2018 data out today for wage growth shows it rising a subdued +2.3% in the year, but it was still the largest annual increase in four years.

A BIG MISS
Japan's trade deficit in January rose sharply as exports fell more than -8% on lower demand from China. This is their biggest monthly deficit in more than five years.

SWAP RATES STABLE
Update: The local curve fell and flattened today, down -1 bps at the short end and down -3 bps for durations of 5 years and longer. They will be updated here when they are. The UST 10yr yield is down -2 bps at 2.65%. Their 2-10 curve is still just on +15 bps however. The Aussie Govt 10yr is down -3 bps at 2.10%, the China Govt 10yr is up +1 bp at 3.14%, while the NZ Govt 10 yr is down -1 bp so far today to 2.25%. The 90 day bank bill rate is unchanged at 1.90%.

BITCOIN HOLDS
The bitcoin price is unchanged at its new higher level of US$3,883.

NZD SETTLED
The NZD is marginally higher today at 68.7 USc. And we are slightly softer against the Aussie at 96 AUc, and unchanged at 60.6 euro cents. That has the TWI-5 at 73.1.

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Source: CoinDesk

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31 Comments

So without immigration our population would be aging?how could we pay there pension

12.46% of our tax currently goes there. It will become unsustainable pretty fast with an ageing population. Time to drop it and go for kiwisaver only.

I don't plan on receiving a pension when I hit 65..free bus and ferry tickets would be nice, however. Pensioners don't know how good they got it right now.

Yes I do.

It'd have to a a gradual phase out, But yes, Time to tell everyone thats 30/35? or under that by the time you get to 65 there will be no super, and for those that are between 30 and 60 expect it to be tapering (down in value, and upward in age of eligibility) from here onwards.

Scary thought.

If super were to go, surely unemployment and other "free money" benefits should go too. It would be quite a kick in the teeth for someone who had worked all their life and paid taxes all their life not to receive anything, yet someone who had barely worked or perhaps not worked at all to essentially be gifted "free money".

I know something has to give, but I don't think it's as easy as phasing it out completely.

I'd like to see eligibility for super tightened so you had to have been a citizen for a minimum of 20 years AND actually resided in New Zealand for a minimum of 20 years....and perhaps push up the age of eligibility a few months a year for a few years until it reaches, say, 67 or 68.

you'd have to make kiwisaver (or similar) compulsory, so that they actually have to fund their own retirement rather than trying to kick the can down the road.

All suggestions are around more money here or there, tax etc, what about less money & more morals, perhaps less money to younger people to encourage better morals...

Less money to younger people to encourage better morals? Explain what you mean by that please, trying to figure out what your thought process is.

Immigration.

A2 get a A+

I though robots and computers were going to be doing all the work..we don't need a young or replacement population for funding the pension/doing the work. Hence the low birth rate.

Are we still believing the myth that universal Super can only continue if we keep pumping immigration?
There are other ways to make a country prosperous.
It is more likely that with increasing automation we will need to expand Super downwards with an UBI as well.

But, but, but, we neeed immigration to fill low paid jobs and keep wages down. Otherwise we get higher wages and have to invest in expensive productivity enhancing equipment. This would divert capital from pushing up house prices. I jest, of course, even if it just not funny at all.

It also occurs to me that the declining birth rate may be partly due to overcrowding in an advanced economy (for now at least) with access to birth control.

It is easy to get the direction of causation wrong in a reflexive process.

""the direction of causation wrong in a reflexive process"" - impressive sentence and probably right.
If a young couple has no student debt and either own a property or have a indefinite rental thn they might stat thinking about children. It would help if the single wage could be split over both parents for tax purposes. Universal child benefit - the best solution for child poverty and producing middle class kids.

You're absolutely right MortgageBelt, super is likely to move down in age. People should expect that and even demand it. It's madness to not expect a pension. I can't believe it when I see people declaring that young people today will not get a pension or equivalent. It's really evil.

Glad you will be the one being taxed to pay for it ZS.. Ordinary working folks wont be paying for it, they'll be too busy paying the rent/mortagage, and needing WFF/accomodation supplements just to cover the bills if the spruikers round ehre are to be believed that house prices will keep going up on average more than wages do, even if interest rates drop to zero. Its just a question of how long until it breaks if you accept those statements to be true.

But doesn’t bringing in a UBI in response to increased automation just (in a roundabout way) take hard earned profits from those who have invested in automation to reduce their wage bill by way of resulting higher taxes?

Perhaps the UBI will simply be the social contract between corporations and citizens.
How can you keep peace and prosperity with only some in conventional jobs and wages?

Lets face it automation will no more cut employment than 50 years ago when we were promised computers would cut paper manufacture.

sorted.org.nz has launched an investiment comparator here: https://smartinvestor.sorted.org.nz/

https://www.barfoot.co.nz/Auction-Search?l=Highbrook%20Drive&s=19/02/201...

Looks like Highbrook was rocking yesterday.. 9 sales of 19 offered with potential for two more sales.
Shortland street not looking so good, none of 5 sold yesterday. And only 3 so far showing as sold today (of 30 auctions)

More and more commentators seem to be picking a big property price plunge in Aussie.
If Melbourne plunged 25-30%, we might see more kiwis heading that way....once the economy recovered from the fall out.
Heck, I'd consider it if Melbourne dropped that much.

Aussie property bust:

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122...

I love how they spell out the stages of the decline.

If Aussie house prices were to fall between 25 and 50% I struggle to see how this will not have an effect on NZ prices.

Nah, the markets are decoupled. And Aussie has built too much and we've built too little. And unlike any other western country in the world we are immune to a housing crash.

The psychology of the Aussie housing decline will be fascinating. Does fear and panic set in? And does that accelerate the fall? Imagine all the Kim and Caths fretting.

Reality and sentiment kick in – possibly by-words for fear and panic.

And yes, it accelerates the fall – this is how bubble bursting works.