• After defeat in the Court of Appeal, ANZ wants to take fight to prevent potential action by the FMA against the bank on behalf of collapsed ‘Company X’ investors to the Supreme Court

    By Gareth Vaughan

    The country’s biggest bank could be the target of just the second use by the Financial Markets Authority (FMA) of powers it has to step into retail investors’ shoes and take legal action on their behalf.

    A tantalising Court of Appeal judgment details this in between heavy redactions. The redactions are because ANZ New Zealand has sought leave to appeal the decision to the Supreme Court and to maintain confidentiality over the judgment.

    “The Court of Appeal judgment clarifies that it is appropriate for the FMA to disclose information to investors to further the FMA’s investigation, and to help assess whether a claim under Section 34 of the Financial Markets Authority Act may be appropriate, provided proper steps are taken to ensure confidentiality. Section 34 of the FMA Act enables the FMA to exercise the rights of action of investors. The High Court had previously determined the disclosure would not be for a permitted purpose,” the FMA says.

    According to the Court of Appeal judgment, the FMA obtained documents from ANZ as part of its investigation into “Company X” and the failure of Company X causing loss to investors. The regulator did this to obtain responses and any additional information from Company X investors, to determine the next steps that should occur to enable Company X investors to evaluate the merits of a claim against ANZ, and to enable the FMA to consider and determine whether to exercise its powers under s34 of the FMA Act.

    “The parties approached the Court to consider the proper application of certain provisions of the Financial Markets Authority Act which applied to the FMA obtaining confidential documents and how those documents could be used. The High Court provided a ruling in early 2018 which upheld confidentiality. The Court of Appeal has taken a different view.  We have sought leave to appeal to the Supreme Court,” an ANZ spokesman said.

    ANZ has argued there’s no basis for civil claims against the bank.

    To date the FMA has only used its s34 powers once. This was against Prince and Partners Trustee Company, which admitted a series of failings in its role as trustee of Viaduct Capital Ltd, which went into receivership in 2010. The civil proceedings brought by the FMA against Prince were settled for $4.5 million.

    “It is the first time the FMA has brought a case under section 34 of the Financial Markets Authority Act 2011. These powers enable the FMA to exercise the rights of action of investors, in this case, the Treasury and investors who were not covered by the Retail Deposit Crown Guarantee Scheme,” the FMA said of the Prince and Partners case in 2017.

    In 2012 then-FMA CEO Sean Hughes told interest.co.nz the FMA was considering using its s34 powers against another failed finance company, Hanover. however this didn’t eventuate. (There’s background on the s34 powers here and here).

    The Company X Court of Appeal judgment says the FMA began receiving complaints from Company X investors and immediately started an inquiry. It contacted the five major New Zealand banks in order to identify who Company X’s bankers were. ANZ responded the same day confirming it held accounts for Company X.

    “[Redacted] [T]he FMA sent a further notice to ANZ asking it to confirm whether ANZ held accounts for further entities associated with [redacted] [Company X]. ANZ responded [redacted] confirming it held bank accounts for two of the entities named in the notice,” the judgment from Justices Forrest Miller, Mark Cooper and Raynor Asher says.

    It goes on to say that, having conducted an inquiry, Company X’s liquidators got legal advice on the prospects of a claim against ANZ for participation in Company X’s “[redacted] breaches [redacted].”

    “However, they had concluded that, while there may be a potential claim [redacted], it was not the role of the liquidators to bring it. Rather, the claim was properly brought by the investors, or by the FMA under s34 of the Act. The FMA subsequently began a focussed inquiry into ANZ [redacted]. [Redacted] [I]t issued two more notices to ANZ under s25 of the Act requesting further information [redacted]. After reviewing the material provided, the FMA obtained an external legal opinion about the prospects of a claim against ANZ. In January 2016 the FMA’s inquiry into ANZ [redacted] became an investigation,” the judgment says.

    Meanwhile, the judgment talks about investors potentially teaming up to take action with the assistance of a litigation funder.

    The Court of Appeal judgment says s34 of the FMA Act recognises civil redress against financial markets participants may help to meet the public interest in promoting and facilitating the development of fair, efficient and transparent financial markets. Furthermore, the fact the FMA was given the ability to bring or take over a civil right of action indicates Parliament’s recognition that such claims are in the public interest. 

    “We consider that s 59(3) permits the FMA to disclose documents to investors to allow both the FMA and investors who have suffered loss, and may have claims against ANZ, to assess and pursue claims on a fully informed basis. The FMA can disclose the information and documents to [third parties] [redacted] providing it obtains enforceable confidentiality undertakings. In pursuit of fair and transparent markets it is appropriate for the FMA to provide information to investors so the FMA can get their feedback to aid the FMA’s investigation, and to consult with investors in the exercise of its decision-making powers under s34, provided proper steps are taken to ensure confidentiality,” the judgment says.

    *This article was first published in our email for paying subscribers. See here for more details and how to subscribe.

    source https://www.interest.co.nz/banking/98517/after-defeat-court-appeal-anz wants-take fight-prevent-potential-action-against-bank


  • Local government grappling with construction sector challenges

    New Zealand’s volatile construction industry is causing headaches for councils and government departments around the country with the recent failures of the likes of Arrow International and Ebert Construction, and Fletcher Building’s well publicised woes, making headlines.

    And Auckland Council chief economist David Norman says recent reports of similar problems in the Wellington construction industry are merely a reflection of demand side pressures in the industry.

    “It’s the same in Auckland,” Norman says. “People look at the construction sector and see that it has been booming and say ‘how could a company go bust?’. But in any form of vertical construction where you see these huge increases in demand it becomes hard for businesses to accurately price their contracts.”

    Norman says in the construction industry contracts can sometimes be agreed on years in advance, but they may not take into account inflationary pressures in the industry.

    “We’re also seeing a lot of cash flow issues as well, so it has been a big challenge.”

    Capital’s construction problems 

    Last month the Wellington City Council had to sign off extra funding for the seismic strengthening and upgrade of the Wellington Town Hall in the face of rising costs.

    A council report on the project claims New Zealand’s volatile construction industry is partly to blame. It says tight margins and rapidly rising costs have led to a number of well publicised construction industry failures in recent times. It states:

    “The receivership of Mainzeal, Eberts, Orange H and withdrawal from the vertical market by Fletcher Construction has resulted in remaining main contractors and subcontractors not being prepared to accept risk that they cannot quantify.

    “As a result of the volume of work across New Zealand, main contractors and subtrades are experiencing labour shortages. Sub-trades are selective and a lack of competitive pricing tension drives up cost.”

    Norman says the Wellington City Council report’s findings are a good summary of the problems the industry is facing, even if it has traditionally been the Auckland and Canterbury regions that have had to deal with such issues.

    More sector problems on the horizon

    After the recent voluntary administration of Arrow International, economist Cameron Bagrie stated that more building and construction firms were destined to fail. 

    “You are going to see more failures within that sector, we haven’t seen the last of it. What you have at the moment is a nasty combination where the sector is basically maxed out capacity wise, access to credit is becoming an issue because the banks are looking at everything closer, and costs keep moving up,” Bagrie said.

    Auckland Council director of infrastructure and environmental services Barry Potter says while the council still uses fixed priced contracts, there are other options. He refers to the contracting model being used to build the infrastructure for the America’s Cup in 2021.

    Potter says the Auckland Council and its development arm Panuku have contracted Downer, McConnell Dowell, Beca and Tonkin and Taylor to do the work needed, from the initial design and architecture through to the construction.

    “Under that arrangement we’re working collaboratively and the risks are shared by the whole group and all the players are working on a pain share, gain share basis. And there are incentives to meet the KPIs (Key Performance Indicators),” he says. “We went into it with this sort of arrangement because the timeframes are very tight to deliver it on time.”

    He says the Auckland Council and CRL Limited are looking at using a similar type of contracting model for the next stage of the City Rail Link (CRL) project.

    But the project hasn’t been without controversy. Rumours in the last couple of months suggest the revised estimates for the project had increased by $500 million and that there were now concerns the cost overrun could top $1 billion. Auckland Council, CRL Limited and Transport Minister Phil Twyford have all refused to confirm or deny the reports. 

    While in November it was announced that RCR Infrastructure (NZ), which was in a joint venture with WSP Opus, was still completing the $7.5 million contract to design the railway when it went into voluntary administration. The company is the New Zealand subsidiary of Australian company RCR Tomlinson which went into liquidation in 2018.

    Need for overseas input

    But Potter says major public infrastructure projects often require overseas expertise.

    He says when the council needs to carry out civil construction work there is a number of local companies that are capable of doing the work.

    “But when you get very large projects you are playing on an international market and you want international players to be part of your team. So you have to make sure your project is attractive to them.”

    He says they often bring expertise and experience needed.

    “What you might think is a big project in New Zealand terms, in an Australasian context isn’t. But it’s important that these big projects are attractive to big players.”

    But whether it’s fixed price contracting, or different types of agreements, things are changing in the construction world and if Bagrie’s comments are anything to go by Arrow International certainly won’t be the last big player in the market to go bust.

    Last month Arrow International announced it had gone into voluntary administration after a court decision over a leaky building left it insolvent.

    The company was involved in a number of major construction projects in Auckland, including a $28 million, 18-level apartment project in Airedale Street which was due to be completed next month. It was also working on a $40 million, 21-level student accommodation block on a site in Beach Road bordering Anzac Avenue. The project was due to be completed in mid-2019. In a statement released last month to announce the company was going into voluntary administration Arrow International referred to the turmoil in the industry.

    “In recent times the construction industry has become challenging and there is a disproportionate level of risk carried by contractors. We have managed through tough trading conditions which have stressed the entire sector but this unexpected result has affected solvency to the point that we could not sustain trading as we have been.”

    source https://www.interest.co.nz/property/98520/auckland-council-recognises-construction-sector-turmoil


  • The Opening Bell: Where currencies start on Friday, March 8, 2019

    By the XE Corporate team

    The NZDUSD opens a little lower at 0.6757 (mid-rate) this morning.

    The EURUSD sank to a level last since June 2017 after the European Central Bank (ECB) changed tack on its tightening plan and postponed its first post-crisis interest rate hike until 2020 and launched a new rounds of cheap loans to banks.

    The ECB move was more aggressive than the market anticipated and underlined how a global trade war, Brexit uncertainty, and continuing Italy debt concerns has weighed on economic growth across the EU.

    The ECB, RBA, US Fed, Bank of Canada, have all adopted a more dovish tone towards interest rate hikes recently. Our own RBNZ has not been quite as dovish, although the domestic interest rate markets have priced in 68% probability of a 0.25% rate cut within the next 12 months.

    Australian retail sales rose a meagre 0.1% in January, in what is another blow to retailers. Aussie consumer spending has been weighed down by record-high household debt and lethargic wage growth.

    There was no front-line data out of the US overnight. However, the closely-watched and influential US non-farm payrolls employment figures hit the wires in the very early hours of tomorrow morning.

    Brexit deal malaise continues.

    There is no data scheduled on the NZ calendar today.

    Global equity markets were mostly lower on the day – Dow -0.8%, S&P 500 -0.8%, FTSE -0.5%, DAX -0.6%, CAC -0.4%, Nikkei -0.7%, Shanghai +0.1%.

    Gold prices are flat USD$1,286 an ounce, while WTI Crude Oil prices climbed 0.9% to US$56.59 per barrel.

    Current indicative rates:

    NZDUSD 0.6757 -0.2%
    NZDEUR  0.6025 0.7%
    NZDGBP 0.5162 0.4%
    NZDJPY 75.36 -0.4%
    NZDAUD 0.9623 -0.2%
    NZDCAD 0.9090 0.0%
    GBPNZD 1.9372 -0.4%

    Upcoming Data releases (NZST):

    • No local data today
    • 2:30am Saturday – US non-farm payroll employment figures

     

     

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    Marcus Phillips is the Affiliate manager at xe money transfer in Auckland. You can contact him here »

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    source https://www.interest.co.nz/currencies/98525/opening-bell-where-currencies-start-friday-march-8-2019


  • Global equity markets, global bond rates and euro lower; other key currency movements have been modest, with the NZD and AUD close to where they were yesterday morning; NZ longer term bond and swap rates fell 3-4bps

    By Jason Wong

    The ECB’s sobering economic outlook triggered further weakness in global equity markets, lower global bond rates and a lower euro.  Other key currency movements have been modest, with the NZD and AUD close to where they were yesterday morning.

    With not much else going on, all eyes were on the ECB overnight and the central bank’s announcement triggered a market reaction. The ECB significantly cut its growth and inflation forecasts and shifted out the timing of any policy tightening measures.  Rate hike guidance was pushed out by three months, with rates now on hold “at least through the end of this year” (previously “at least through the summer”).  Furthermore, the Bank announced plans for a fresh batch of cheap long-term (2-year) loans for banks to be launched in September. A previous batch of long-term loans matures in June 2020, so from June this year they will have less than 1-year to mature.  By promising a new batch of loans, the ECB wards off what would have been a tightening in liquidity conditions later in the year.  ECB President Mario Draghi said that although the likelihood of a recession is “very low” the risks to the euro area growth outlook are still tilted to the downside.

    The market expected these policy measures although some thought that the ECB might hold off announcing them until a later meeting.  European equities fell (Stoxx 600 down 0.4%, banks down 3.3% in the wider index), EUR is down 0.7% after earlier reaching a 21-month low just above 1.12, and European bonds rallied (Germany 10-year rate down 6bps to 0.06%).  The market didn’t like the negative economic outlook portrayed by the Bank.  Draghi admitted that policy options for the ECB were limited and that some economic forces (external factors such as trade protectionism and Brexit) were outside of its control.

    The ECB’s actions spilled over into other markets, dragging down US equities, with the S&P500 on track for a fourth consecutive daily decline (currently down 0.6%).  Lower European rates helped drag down US rates, with the 10-year Treasury rate down 5bps to 2.64%.  The weaker euro has seen some spillover into other European currencies such as SEK and NOK but of the key majors we’re interested in, only GBP has been affected, down 0.3% to 1.3135 after earlier going sub-1.31.  We see limited downside risk for EUR given how much bad news is already priced into the currency.  NZD/EUR is up 0.7% to 0.6025, and faces some technical resistance near 0.61.

    Bloomberg reported that European and UK officials are pessimistic about the chances of a breakthrough in Brexit talks, with Britain accusing the bloc of intransigence and European negotiators worried that whatever they offer won’t be enough to get Parliament behind PM May’s deal.  It seems that the most likely scenario from here is that May’s deal is defeated next week (12 March) and then Parliament takes control of the process, which will likely include a vote to reject “no-deal” and then a vote to extend the exit day to allow negotiations to continue.  However, it is still a moving feast and as we go to press, Bloomberg has reported that the EU is said to make a new offer to the UK on the Irish backstop issue, bolstering the review system that aims to track progress towards getting rid of the backstop.  The EU awaits a response from the UK.

    NZD trades this morning at 0.6765, close to where it was this time yesterday.  The risk-off move post the ECB has seen the gains in the NZD made yesterday afternoon in the local trading session unwind.  The AUD has shown a similar trading pattern and again finds some support near the 0.7020 mark.  The negative reaction to softer retail sales figure didn’t last long, with either AUD selling pressure exhausted for now or the market deciding that the very strong trade surplus was a mitigating factor.  NZD/AUD struggled to push through resistance and met some selling pressure just above 0.9640.  The cross currently sits at 0.9625.

    NZ longer term bond and swap rates fell 3-4bps, dragged down by lower US rates in the previous session and we should see further falls today.

    This morning, manufacturing and building data will help firm up Q4 GDP estimates for NZ, for which data will be released 21 March. We currently sit around 0.6-0.7% q/q, which would be a good result considering the poor run of global growth for that quarter. China trade data are likely to be distorted by Chinese New Year effects, so we wouldn’t pay too much attention, while anything other than a recovery in Germany factory orders data tonight would be a huge disappointment.  The US employment report will be the key focus for the market, which is expected to show robust employment growth, a tick down in the unemployment rates and average hourly earnings ticking back up to 3.3% y/y.


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    source https://www.interest.co.nz/currencies/98524/global-equity-markets-global-bond-rates-and-euro-lower-other-key-currency-movements


  • US household net worth falls; ECB restarts stimulus; Beijing worried about local authority debt levels; claims China’s economy is overstated; air cargo volumes retreat; UST 10yr 2.65%; oil up and gold down; NZ$1 = 67.7 USc; TWI-5 = 72.6

    Here’s our summary of key events overnight that affect New Zealand, with news that the size of the Chinese economy may be less than we thought.

    But first in the US, data released by the Fed this morning shows a surprising fall in household net worth in the December quarter of 2018. A volatile stock market trimmed levels more than expected. This comes after an earlier survey showed that Americans stopped taking on more debt as they started to feel the pressure.

    Also feel pressure was the ECB who unexpectedly changed tack on its tightening plan overnight, pushing out the timing of its first post-crisis rate hike until 2020 at the earliest and offering banks a new round of cheap stimulus loans to help revive the slowing euro zone economy that they say is lasting longer and is deeper than earlier thought.

    Speaking of stimulus, Beijing continues to be surprised and concerned about the level of local authority debt levels. Some local governments have continued to illegally borrow money off-the-books through local government financing vehicles. This hidden local government debt amounted to around NZ$9 tln as of end of 2018, and the interest payments alone could reach more than NZ$130 bln in 2019.

    Worse, a new study claims that China as significantly overstated the size of its economy and its growth rate. The “forensic review” suggests the current nominal size of the Chinese economy is about -18% lower than the officially claimed level at the end of 2018.

    Wall Street is -0.5% lower so far today following similar falls in Europe (-0.6%) overnight as risk aversion takes hold on the poor data releases and ECB change of heart. Yesterday, markets fell heavily in Hong Kong (-0.9%) and Tokyo (-0.7%), although closed even in Shanghai (+0.1%).

    Air cargo volumes begin 2019 on a weak note, with volumes -1.8% lower than their level of January 2018.This is third consecutive month of negative year-on-year growth, and is the slowest pace in three years. In fact, international volumes are falling faster, down -3% year-on-year with Asia/Pacific international volumes down a worrying -4.8%.

    Going the other way is passenger air travel. This rose +6.5% in January compared with the same month a year ago. This was the fastest growth in six months. And in the Asia/Pacific region it is up +7.1%, also a rise in the expansion.

    In Australia, they recorded a massive +AU$4.5 bln surplus in goods and services in January month, a record high for any month for them. Markets were still reeling from the earlier GDP fail so aren’t actually giving them any credit for this yet. Maybe weakish retail sales in January are undermining this good news.

    The UST 10yr yield is down at 2.65%. Their 2-10 curve is now at +17 bps while their negative 1-5 curve has returned with a vengeance and is now -10 bps. The Aussie Govt 10yr is down another -2 bps to 2.05%, the China Govt 10yr is down -3 bps to 3.19%, while the NZ Govt 10 yr is also down -3 bps to 2.15%. Local swap rates also fell and flattened yesterday.

    Gold down by -US$2 to US$1,285/oz.

    US oil prices are firmer today at US$56.50/bbl while the Brent benchmark is over US$65.50/bbl.

    The Kiwi dollar is at 67.7 USc and unchanged from this time yesterday. On the cross rates we little-changed at 96.3 AUc and against the euro we are firmer at 60.4 euro cents. That puts the TWI-5 at 72.6.

    Bitcoin is marginally firmer at US$3,877. 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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    source https://www.interest.co.nz/news/98521/us-household-net-worth-falls-ecb-restarts-stimulus-beijing-worried-about-local-authority


  • Harmoney looking to raise $25 mln of new equity this year, founder Neil Roberts says, as the peer-to-peer lender eyes continuing growth

    Licensed peer-to-peer (P2P) lender Harmoney is looking to raise $25 million of fresh equity this year, says founder and joint CEO Neil Roberts.

    “We’d be looking to raise $25 million this year in equity. We might do that in two hits. Certainly a $25 million cheque we could make instant use of,” Roberts told interest.co.nz.

    “Our current view is that although we would expect support from our existing shareholders, we’re really looking for a new cornerstone investor if we can get one.”

    Asked whether Harmoney is talking to any such potential investors, Roberts said not that he can share publicly.

    “But we are openly looking for capital, absolutely,” said Roberts.

    Harmoney’s major shareholders include the Neil Roberts Trustee Company Ltd with 39.75%, Trade Me with 15.14%, Heartland Bank with 13.34%, and the London-based P2P Global Investments PLC with 7.81%.

    “Certainly we think we’ve proven our model [and] we’re growing rapidly. We believe that we would be great custodians of more capital so that we can do more of the same and do it quicker,” said Roberts.

    He said Harmoney was considering all avenues to capital including perhaps an initial public offering (IPO) at some point, but an IPO “wouldn’t appear to be the natural next step.”

    Licensed by the Financial Markets Authority under the Financial Markets Conduct Act to operate an online P2P lending platform that matches borrowers with investors, Harmoney went live in September 2014 as New Zealand’s first licensed P2P lender. Harmoney also launched in Australia in 2017 where it’s licensed by the Australian Securities & Investments Commission.

    Harmoney, which Roberts says rejects 57% of loan applications, has facilitated more than $1 billion of unsecured consumer lending, paid about $146 million in interest to investors, and has 110 staff in NZ, Australia and Fiji. For its March 2018 financial year Harmoney lost $1.9 million down from $6.5 million the previous year, and revenue rose to $26.2 million from $14 million. In its first three years of operation Harmoney says it raised $32 million of working capital.

    *This article was first published in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.

    source https://www.interest.co.nz/banking/98491/harmoney-looking-raise-25-million-new-equity-year-founder-neil-roberts-says-peer-peer


  • Robertson says it isn’t unreasonable to pay Cullen $1062 a day to spend the next four months defending the integrity of the TWG report

    Finance Minister Grant Robertson says Tax Working Group (TWG) Chair Michael Cullen is responsible for the comments he makes while he stays on the Government’s payroll to “defend the integrity” of the Group’s report.

    Interest.co.nz on Wednesday challenged Cullen over his defence of the report sounding like he was coming in to bat for the Government.

    Cullen said it was his job to “wade into policy,” which wasn’t the same as politics.

    Asked on Thursday whether Cullen’s commentary was politically neutral, Robertson said: “I think he’s responding to issues that have been raised.

    “He’s responsible himself for what the tone of those comments are. But when people misrepresent the report, I’m sure he will respond appropriately.”

    As reported in detail on Wednesday, Cullen has used some creative language to shoot down the math the National Party has used to calculate the impact the Group’s recommendations would have on KiwiSaver members.

    He’s also made statements around how he believes National wouldn’t reverse any tax changes made by this government, and said he doesn’t believe the Government would do anything to negatively impact KiwiSaver members.

    Unbeknownst to the public at the time, Cullen made these comments while still being paid by the Government.

    Robertson only let it slip on Wednesday that Cullen’s contract had been extended from February, when the Group delivered its final report, to June 30.

    He revealed this when interest.co.nz queried him about an RNZ interview Cullen did where he made the above comments.

    Asked why, having offered Cullen the extension on January 30, he didn’t make the announcement earlier, Robertson said: “I don’t think there was any particular decision made to announce it or not to announce it.”

    Pressed on whether it was necessary to keep Cullen employed, Robertson said there was a lot of public interest in the report and Cullen needed to be in a position where he could articulate what was in it.

    “I don’t think it’s unreasonable, when he’s required to comment on things, that he continues to be remunerated in the same way that he was.”

    Cullen’s charge rate remains the same as when he was working on the report.

    He can be paid for doing work (which includes media interviews) for up to six hours a day. This could see him earn up to $1062 a day.

    “These are the rates that people are paid when they do government working group work. This is a very important task,” Robertson said.

    He said none of the other 10 TWG members had been kept on the job, including the three who disagreed with the proposal to extend the taxation of capital beyond investment property, because as the Chair, Cullen was responsible.

    source https://www.interest.co.nz/news/98518/robertson-says-it-isnt-unreasonable-pay-cullen-over-1000-day-spend-next-four-months


  • A review of things you need to know before you go home on Thursday; no rate changes, wholesale trade soft, councils take much higher revenues, linker yields lower, swaps flatten, NZ firm, & more

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

    MORTGAGE RATE CHANGES
    No changes here today.

    TERM DEPOSIT RATE CHANGES
    Again, none here either.

    TAILING OFF
    Wholesale trade was quiet in the December 2018 quarter after two strong quarterly rises. It rose just +4.8% compared to the same quarter a year ago, the slowest gain in eight quarters. Inventories were up almost +10% from a year ago. This data won’t help Q4 GDP. For all of 2018, wholesale trade rose +6.6% compared to the +6.5% rise in 2017.

    NOT TAILING OFF
    The money local authorities are taking in in rates and other regulatory ‘income’ is growing fast, up almost +9% in the 2018 year. This was the fastest pace in increase since the 2002 to 2009 splurge that averaged +8.2% over those seven years. Since then and before 2018, the average calmed down to just +4.3%. Now its rising fast again.

    RISING AUCTION SUCCESS
    The auction success rate is rising and was 40% in last week’s residential auctions. In Christchurch more than half the properties offered at auction were sold, in Auckland it was 40% and 28% in the Bay of Plenty.

    HEAVY BIDDING DRIVES YIELD DOWN
    The latest Government bond auction was for linkers – bonds where the bid is for a yield-plus-inflation. $100 mln was offered, drawing $197 mln in bids. The average winning tender was for 1.45% pa (plus inflation) and this is the lowest level ever for the 18 tenders of these September 2040 bonds. The highest yield this series ever achieved was 2.34% plus inflation back in mid 2017. CPI inflation is currently running at 1.9%, so if that still applies at the next yield payment, investors will be getting just 3.35%. Still, that is higher than the April 2033 nominal bond which at the last tender achieved an average winning yield of 3.13% pa. (A five year term deposit at a major bank pays 3.60%, so bond investors are accepting a discount for access to liquidity, and risk-free status.)

    BOUNCE-BACK?
    The Aussies recorded a massive +AU$4.5 bln surplus in goods and services in January month, a record high for any month for them. Markets are still reeling from yesterday’s GDP fail so aren’t actually giving them any credit for this yet. Maybe weakish retail sales in January are undermining the good news.

    LOCALS BUCK DOWN TREND
    Local equities are in positive territory in both New Zealand and Australia and that is in contrast to Wall Street overnight, Europe, and today in the rest of Asia.

    SWAP RATES DOWN
    Local swap rates are taking some tough signals locally from the Aussie GDP fail yesterday. The two year is little-changed at 1.84% but the five year is down sharply by -2 bps while the 10 year is down 5 bps. The UST 10yr yield is -3 bps lower at 2.68%. Their 2-10 curve is unchanged at +17 bps while their 1-5 curve remains more inverted at -4 bp. The Aussie Govt 10yr is down a massive -10 bps to 2.07%, the China Govt 10yr is down -1 bp to 3.23%, while the NZ Govt 10 yr is down -6 bps so far today to 2.14%. The 90 day bank bill rate is down -1 bp at 1.90%.

    BITCOIN FIRM
    The bitcoin price is up to US$3,858, a rise of +0.8% today.

    NZD FIRM
    The NZD has drifted up to 67.9 USc. And we are higher against the Aussie at 96.4 AUc, but little-changed at 60 euro cents. That puts the TWI-5 marginally higher at 72.6.

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    source https://www.interest.co.nz/news/98514/review-things-you-need-know-you-go-home-thursday-no-rate-changes-wholesale-trade-soft


  • New OECD report says New Zealand government needs to work on a national plan for rising sea levels, but highlights local government work in Hawke’s Bay

    James Shaw by Jacky Carpenter.

    A new report by the OECD has recognised the work done in the Hawke’s Bay to address rising sea levels but says our central government needs to do more to address the problem.

    Titled Responding to Rising Seas: OECD Country Approaches to Tackling Coastal Risks, the report looks at international responses to the challenge of rising sea levels caused by climate change.

    The OECD uses the Hawke’s Bay Clifton to Tangoio Coastal Hazards Strategy 2120 as a case study in its report. It is the most developed and populated part of the Hawke’s Bay coastline and the strategy was designed to address the risks the region’s vulnerable coastal communities would face over the next hundred years.

    The plan has been created by the Hawke’s Bay Regional Council, Hastings District Council and Napier City Council, as well as local iwi and coastal community representatives.

    While the OECD report says the strategy is a good example of local government and communities working together address the impact of rising sea levels, New Zealand’s central government needs to do more. And it says central to addressing the problem is deciding how the costs will be shared and by who.

    “The answers have not been developed in the Hawke’s Bay, and ultimately remain unresolved at a national scale. While central government continues to develop national-scale responses, New Zealand is taking action at a local level.”

    But the report does recognise the government’s plans for a National Climate Change Risk Assessment and a National Adaption Plan as part of the government’s Zero Carbon Bill. It also refers to the government’s proposal to create a Climate Change Commission which would provide advice on a climate change adaption and help implement a National Adaption Plan.

    Minister for Climate Change James Shaw says addressing the effects of climate change is an important issue and rising sea levels and coastal erosion are happening as we speak.

    “It is happening. And the OECD’s new report, aimed at helping provide guidance on how countries can manage the risks of rising seas, praises Hawke’s Bay’s first-of-its-kind collaborative strategy as a good example to follow. Hawke’s Bay is the first region to use a grassroots community engagement process for consultation on this urgent issue,” Shaw says.

    “Hawke’s Bay is the first region to use a grassroots community engagement process for consultation on this urgent issue.”

    But despite Shaw’s praise of the Hawke’s Bay programme Local Government New Zealand (LGNZ) president Dave Cull says he agrees with the OECD that more work needs to be done at a national level.

    “It’s pleasing that this in-depth, international report uses the Clifton to Tangoio Coastal Hazard Strategy in the Hawke’s Bay as a case study of good local government leadership on adapting to climate change,” Cull says.

    “However, it highlights that for all that good work at a local level, there is a huge deficit of national support for our coastal communities.  Around the world, it’s recognised that national plans are needed.  What we’ve been given in New Zealand is a guidance document that provides local government with limited direction, and as a result there’s great uncertainty for our coastal communities.”

    In January LGNZ released a report titled Vulnerable: The quantum of local government infrastructure exposed to sea level rise.

    It looks at the cost to councils from rising sea levels and says up to $14 billion of local government infrastructure is at risk. The report calls on central government to urgently develop policies to help minimise the impact of climate change on New Zealand communities.

    The LGNZ report calls the establishment of a National Climate Change Adaptation Fund to deal with the costs of rising sea levels and a Local Government Risk Agency to help councils understand and factor in the risk of climate change into their planning and decision-making.

    Coastal risk: A graphic from the newly released OECD report.

    source https://www.interest.co.nz/news/98513/new-oecd-report-says-new-zealand-government-needs-work-national-plan-rising-sea-levels


  • Miao Yanliang welcomes the Chinese central bank’s more open communication and increasingly flexible exchange-rate regime

    PBoC Governor Yi Gang
    Miao Yanliang

    Fifteen years ago, Alan Blinder, a former vice chair of the US Federal Reserve System and a longtime professor of economics at Princeton, wrote a book entitled The Quiet Revolution about changes in central banking. Chief among these was a move by some central banks toward open communication and transparency, and away from their long-held tradition of secrecy and surprise. A central bank “goes modern,” to borrow from the subtitle of Blinder’s book, when it starts talking.

    The Fed was slowly heading in this direction by the turn of the century. It finally began announcing its interest-rate decisions in 1994, and started issuing regular press releases in 2000 (though it did not hold regular press conferences until 2011). These changes reflected a new appreciation among central bankers of how changes in short-term policy rates work their way through the economy via expectations and market pricing.

    Today, the People’s Bank of China (PBOC) is undergoing its own quiet revolution. Like the Fed before it, China’s central bank is becoming more communicative. But the real revolution in Beijing concerns exchange-rate policy, with the PBOC increasingly allowing market forces to determine the renminbi’s value. Both developments are welcome.

    The PBOC’s communication offensive has much to do with its new governor, Yi Gang, who was appointed in March 2018. Last month, the bank hosted its first-ever briefing to explain the latest economic and monetary data. And Yi himself has taken the initiative to explain policy decisions, notably his “three arrows” to support funding for small and medium-size enterprises. The governor also occasionally weighs in about stock-market volatility, even though such interventions may raise eyebrows among central-banking traditionalists.

    Another significant move came in January, when the PBOC unveiled a new version of its English-language website. Previously, only about 2% of the Chinese site’s content was available in English, prompting foreign investors to complain about an uneven playing field. But the bank’s new English site covers almost every major aspect of policy, from open-market operations and decisions to the governor’s speeches and activities. For example, it features Yi’s speech last December at Tsinghua University on China’s monetary policy framework, together with an English version of his original PowerPoint slides, which are not available in Chinese on the PBOC’s site.

    Although this open communication is certainly important, the PBOC’s increasingly flexible exchange-rate policy is far more transformative. In 2015-2016, the PBOC spent about $1 trillion of China’s foreign-exchange reserves to prop up the depreciating renminbi. These days, the PBOC no longer intervenes regularly in the currency market, and does not have an exchange-rate target.

    This flexibility has been increasingly evident since the start of 2018. After peaking at CN¥6.26 against the US dollar in February last year, the renminbi slid all the way to CN¥6.97 by the end of October, a 10% drop. (It has since risen again and currently stands at about CN¥6.70.)

    The renminbi’s peak-to-trough swing against the dollar in 2018 was comparable to that of the other Special Drawing Right (SDR) currencies: the euro (10%), yen (9%), and British pound (13%). In a similar vein, the renminbi’s daily volatility last year reached 4.3% – about 70% of the volatility level of the four other SDR currencies (including the US dollar). And for the first time, the Chinese currency was more volatile than the Singapore dollar.

    Despite – or because of – swings in bilateral exchange rates, the renminbi remained broadly stable against a mix of currencies. The index of the China Foreign Exchange Trade System (CFETS), a 24-currency basket, started and ended the year at around 95. This happened with little central-bank intervention. Even the US Treasury Department said in an October 2018 report that direct intervention by the PBOC last year had been “limited” and that foreign-exchange sales by state banks had been “modest.”

    A flexible exchange rate acts as an automatic stabilizer in two ways. First, it serves as a safety valve that responds to, and relieves pressures from, capital flows and global demand. Indirectly, and more fundamentally, a market-driven exchange rate gives the PBOC more room to use interest rates and other monetary-policy tools, such as the reserve requirement ratio (RRR), to help stabilize the economy. This in turn stabilizes the renminbi.

    For evidence of this, look again at 2018. Whereas the Fed raised interest rates four times during the year, the PBOC settled for a mere five-basis-point hike in March, and actually cut the RRR four times as part of a policy of targeted countercyclical easing. Despite these cuts, the renminbi has not gone into free fall, as some might have expected: its current value against the US dollar is similar to that in mid-December 2017, when the PBOC last followed the Fed with a five-basis-point rate increase.

    As the renminbi increasingly becomes a two-way floating currency, market expectations are adapting accordingly, and one-way directional bets against it seem far riskier than before. By contrast, a return to routine PBOC intervention in the foreign-exchange market would breed instability. When policymakers do not allow exchange rates to adjust, they risk triggering a destabilizing downward spiral of lower reserves, less confidence, and more panic.

    The quiet revolution Blinder described in 2004 is underway in Beijing. True, the PBOC has plenty of room for further improvement in its communication and exchange-rate policies. But its progress so far is good news for China and international policymakers alike.


    Miao Yanliang is a member of the China Finance 40, a Beijing think tank. He is also the chief economist at the State Administration of Foreign Exchange (SAFE). Copyright: Project Syndicate, 2019, and published here with permission.

    source https://www.interest.co.nz/banking/98511/miao-yanliang-welcomes-chinese-central-banks-more-open-communication-and-increasingly