A review of things you need to know before you go home on Monday; more mortgage rate cuts, some TD cuts too, milk flows strong, underground economy booms, listing rise, swaps soft, NZD stable

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

This report is Updated with early details of a NAFTA deal between the US and Canada. See below.

MORTGAGE RATE CHANGES
Kiwibank cut more fixed mortgage rates for the longer terms. ANZ launched a 4.15% one year fixed rate, their lowest ever for this fixed term.

TERM DEPOSIT RATE CHANGES
Kiwibank cut some term deposit rates. ASB cut its bonus saver rates by -5 bps.

ONLY A FEW OF US WORKING
With much of Australia, and all of China on holiday today, and it still the weekend in the US, markets have been quiet – not to mention that it is New Zealand school holidays for the next two weeks (notice how easily the traffic flows, eh?).

A STRONG BASE
Fonterra reported that milk flows are strong early in the new season, up +4% nationally built on surging milk production in the South Island (up +13%). But they also say their collections are starting off very much weaker in Australia this year (-8%). They report export growth is up, and China remains a bright spot. “Strong demand out of China continued with imports across all key categories up for the period. Infant formula, WMP and SMP imports added a combined 220,000 MT of additional volumes.”

ILLEGAL TENDER
RBNZ data released on Friday poses an interesting question. The value of currency (notes and coin) held by the public is growing fast, up more than +8% pa. This doesn’t seem to square with retail sales that are apparently only growing at +3.8%, or electronic card transactions that are growing at +5.8%. If more retail transactions are going through card payment networks, you would surely think cash transactions would be going down. But it is not the case. We have a growing ‘grey’ or ‘black’ economy. Other RBNZ data shows all the growth is in the demand for $50 bills. If AML/CFT laws were in place when banknotes were first proposed, they would never have been approved. Cash just enables the underground economy, the perfect way to avoid the law. What is the RBNZ doing facilitating that? Just asking.

IN AUCKLAND EVERYONE’S LISTING, FEW ARE BUYING
A strong lift in new listings on Realestate.co.nz points to a reasonably buoyant spring/summer for the housing market. The weeks of unsold inventory nationally slipped back to 17 weeks where it had been since earlier in the year. But in Auckland, the number of weeks of unsold inventory is ballooning out and now at 23 and far above the 18 weeks it was at in September 2017. In fact it is now at its highest since February 2012.

DRYING OUT
After being above the long-term average for much of 2018, suddenly water flows into the hydro lakes are falling away and we are now seeing unusually low flows recently. Hopefully that is because the snowpack is greater this year and the thaw hasn’t started yet. If that is not the case, we may be getting an early signal that our ‘renewables’ electricity supply could let us down this year. As at the end of September, wholesale electricity prices are +150% higher this year than in 2017. The professional traders aren’t showing optimism.

GOING DOWN
In Australia, Melbourne has firmly overtaken Sydney as the nation’s weakest housing market, with both of Australia’s biggest cities posting substantial monthly property price falls in September. September was the 12th straight month in which the nation’s housing prices fell, with Melbourne’s -0.9% decline leading the way downwards. Sydney, Perth, Darwin and Adelaide also recorded price falls in the first month of spring, while Brisbane, Canberra and Hobart reported modest prices gains. The Australian median house price is AU$550,610 (NZ$600,000), but the range is AU$847,950 (NZ$924,700) in Sydney, to AU$436,936 (NZ$476,500) in Darwin.

WHO ARE THE GOOD GUYS?
You may not realise it, but prices farmers get for both Arabica and Robusta coffee beans are now at a 12 year low. But none of those price signals are likely to flow through to in-store prices. Makes you realise how responsive petrol pump prices are to crude oil and tax changes (well, perhaps not taxes, those never go down, but crude oil does, and pump prices decrease when that happens). Compared to Government, and to coffee roasters, at least the MNC oil retailers play fair with consumers. Actually, ditto bank interest rates which are generally responsive to costs. Just saying, especially as many coffee roasters play up their ‘fair trade’ credentials.

A NAFTA DEAL – EARLY SIGNALS
Canada and the US seem to have agreed a NAFTA deal that retains its three-country arrangement with Mexico. Details are sketchy at present, but it appears that Canada has retained the Chapter 19 protections, and it has given up some protections for its dairy industry – but only to the level it would have done so if the US was in the TPP. President Trump is saying this is a win for him, but it looks like the other way around to me.

SWAP RATES SOFT
Swap rates are down slightly in the 2, 3 and 4 year terms, otherwise unchanged. The UST 10yr is at 3.07%, with the UST 2-10 curve at +24 bps. The Aussie Govt 10yr is at 2.66% (down -2 bps), the China Govt 10yr is at 3.66% (unchanged given it is a holiday week there), while the NZ Govt 10 yr is at 2.64%, and down -3 bps. The 90 day bank bill rate is unchanged at 1.91%.

BITCOIN UNCHANGED
The bitcoin price is unchanged since this morning at US$6,638.

NZD LITTLE CHANGED
The NZD is also unchanged at 66.2 USc. On the cross rates we are little changed at 91.7 AUc, and 57.1 euro cents. That leaves the TWI-5 at 70.2.

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Source: CoinDesk

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