The greater focus on employment a shift for the RBNZ

Incoming Reserve Bank of New Zealand governor Adrian Orr steered clear of suggestions he would be soft on inflation even as he signed a new policy deal with the government to include the goal of "maximising sustainable employment".

The new mandate, which takes away the governor's sole power on interest rate moves and gives it to a monetary policy committee with increased transparency on decision-making, retains the 1-3 percent inflation goal, with a focus on keeping price growth near the 2 percent mid-point.

The greater focus on employment, marks, however, a shift for the RBNZ, which in 1989 was the first central bank to adopt an official inflation target, and fulfils the new Labour-led government's campaign promise to promote job creation.

But analysts say the new mandate is unlikely to change the bias of near-term monetary policy, with the RBNZ widely expected to keep interest rates at a record low of 1.75 percent at least until the end of the year.

Orr gave the same message, saying the RBNZ has long considered employment in its decision-making, and that the new deal would only make it more explicit and transparent.

"These are fairly orthodox words for an incoming Reserve Bank Governor," Dominick Stephens, chief economist at Westpac, said in a note. "There was no suggestion that Mr. Orr would be softer on inflation than his predecessors."

The New Zealand dollar was little changed at $0.7244, following the announcement.

NZ dollar heads for 1.2% weekly fall as greenback finds favour on rate hike view

New Zealand Stock Markets

The New Zealand dollar is heading for a 1.2 percent weekly fall as the greenback comes back in favour after minutes from the US Federal Reserve cemented the view it will lift interest rates at least three times this year while New Zealand's central bank remains firmly on hold. 

The Kiwi fell to 73 US cents as at 5pm in Wellington from 73.88 cents last Friday in New York, and was little changed from 73.08 cents yesterday.

The trade-weighted index fell to 75.01 from 75.21 yesterday.

The Fed started tightening its ultra-loose policy at the end of 2015 after keeping rates on hold for almost a decade.

It raised interest rates three times in 2017 and investors expect it to tighten again in March, followed by two more hikes this year.


Retail sales volumes rose 1.7 percent in the final three months of 2017, on an adjusted basis for seasonal and price effects, from a revised 0.3 percent gain in the third quarter, Statistics New Zealand said.

Markets are still pricing the first New Zealand rate hike in May 2019.

The kiwi has strong resistance at 74.50 US cents and a weekly close below 73.30 US cents would suggest more short-term downside, he said.

Looking ahead, Hill said investors will be watching for Fed chair Jerome Powell's testimony next Wednesday in the US.

The kiwi fell to 59.33 euro cents from 59.52 cents yesterday. The local currency dipped to 52.33 British pence from 52.54 pence yesterday.

The New Zealand dollar slipped to 93.23 Australian cents from 93.72 cents yesterday and to 4.6268 Chinese yuan from 4.6388 yuan. It traded at 78.04 yen from 78.44 yen yesterday.

New Zealand's two-year swap rate was unchanged at 2.17 percent, while 10-year swaps fell 2 basis points to 3.24 percent.

Australia's ANZ reveals $1.2 billion buy-back, hints more to come

NewZealand Stock Markets

Australia and New Zealand Banking Group (ANZ.AX) said on Monday it would start buying back up to A$1.5 billion ($1.15 billion) of its shares on-market, as it begins returning surplus capital to shareholders after a series of divestments.

Australia’s third-largest bank by market capitalization sold off its life insurance business for A$2.85 billion last week, following several other non-core divestments across Asia, raising expectations of capital return initiatives.

ANZ said on Monday that as it received the proceeds of the divestments, it would consider further capital management initiatives while ensuring sufficient capital is available to support growth.

The move comes as Australia’s four biggest lenders focus on pure banking, and sell off non-core assets under pressure from regulatory capital requirements to slim down.

TS Lim, a banking analyst at Bell Potter Securities, said ANZ should be in a position to release another A$2 billion to A$2.5 billion in surplus capital in the next 18 months.

ANZ said the purchase of shares may begin next month.

It also said it had completed the sale of its 20 percent stake in Shanghai Rural Commercial Bank [SHRCB.UL].

Last week ANZ struck a deal with Zurich Insurance (ZURN.S) to sell its insurance arm for A$2.85 billion.


ANZ shares were 1.49 percent higher in early trading on Monday while the broader market was 0.44 percent up.

NZ$ Climbs Above 69 US Cents

New Zealand Stock Markets

The New Zealand dollar rose above 69 US cents for the first time in about a week on perceptions it has fallen too far on local political concerns after touching a 17-month low this month.NZ$ Climbs Above 69 US Cents, Seen ‘Oversold’ on Local Political Concern.

The New Zealand dollar rose above 69 US cents for the first time in about a week on perceptions it has fallen too far on local political concerns after touching a 17-month low this month.

The kiwi traded at 69.04 US cents as at 8am in Wellington and earlier reached 69.25 cents from 68.62 cents late yesterday. The trade-weighted index rose to 72.77 from 72.35.

The New Zealand dollar fell as low as 67.75 US cents on Nov. 17 on weaker commodity prices, waning risk appetite and concerns government plans to curb migration and cool the housing market would sap economic growth. The market is likely to get the Reserve Bank’s assessment of the property market in the financial stability report due Wednesday while Finance Minister Grant
Robertson is to give a key speech on Friday that may detail the government’s policy timetable and funding plans.

A short position is a bet that the currency will fall. BNZ’s fair value estimate for the kiwi has been drifting lower over recent weeks on the back of lower risk appetite, lower NZ commodity prices and a narrower NZ-US spread, but is still higher than spot at 71.80 US cents. In the past decade, the kiwi has been more inclined to rise through December and BNZ’s year-end target is 70 US cents.

The kiwi retreated from its overnight highs after figures showed US new homes sales jumped to 685,000 last month, beating estimates of 627,000.

Offshore, investors are looking ahead to congressional hearings on Federal Reserve Chair nominee

Jerome Powell on Tuesday, followed by Fed Chair Janet Yellen’s testimony to Congress on the US economic outlook on Wednesday. The Fed also releases its Beige Book on Wednesday

The kiwi rose to 58.02 euro cents from 57.54 cents and gained to 51.83 British pence from 51.53 pence. It rose to 4.5550 yuan from 4.5291 yuan, advanced to 90.75 Australian cents from 90.23 cents and gained to 76.66 yen from 76.44 yen.

RBNZ increases Westpac NZ's capital requirements to meet regulatory capital requirements

New Zealand Stock Markets

The Reserve Bank has given Westpac NZ, the government's bank, 18 months to get its capital in order after an independent report found the bank to be using a series of unapproved capital models. 

A series of errors in Westpac's capital modelling dating back as far as eight years meant the bank breached its conditions of bank registration.

Westpac, along with New Zealand's other Australian owned banks, is allowed to develop its own models to quantify required capital for credit risk and then get these approved by the Reserve Bank.

All other NZ banks have the Reserve Bank prescribe their credit risk measurements. However, the Reserve Bank says Westpac used a number of models that had not been approved by the Reserve Bank, and "materially failed" to meet requirements around model governance, processes and documentation.

Operating as an internal models bank is a privilege that requires high standards and comes with considerable responsibilities. Westpac has not met our expectations in this regard, Reserve Bank Deputy Governor and Head of Financial Stability Geoff Bascand says.

The Reserve Bank required Westpac to commission an independent report into its compliance with internal models regulatory requirements. The report found Westpac currently operates 17 out of 35 unapproved capital models, has used 21 out of 32 additional unapproved capital models since it was accredited as an internal models bank in 2008, and failed to put in place the systems and controls an internal models bank is required to have under its conditions of registration.

The regulator has decided Westpac NZ’s conditions of registration will be amended to increase its minimum capital levels until its shortcomings and non-compliance are remedied.

Westpac’s minimum capital ratio requirements will be 6.5% for Common Equity Tier 1 [CET1] capital, 8% for Tier 1 capital and 10% for Total capital, with the additional 2.5% capital conservation buffer applying. Currently, for all other locally incorporated banks capital ratios are set at, respectively, 4.5%, 6% and 8%, plus the 2.5% buffer, the Reserve Bank says.

In addition, the Reserve Bank has accepted an undertaking by Westpac to maintain its total capital ratio above 15.1% until all existing issues have been resolved. The Reserve Bank has given Westpac 18 months to satisfy the Reserve Bank that it has sufficiently addressed those issues or it risks losing accreditation to operate as an internal models bank.

NZ shares gain as Z and Precinct rise; Tower hits record low

New Zealand Stock Markets

New Zealand shares rose, led higher by Z Energy on lingering optimism over the transport fuels company's outlook and Precinct Properties New Zealand which is tapping the listed debt market. Tower hit a record low.

The S&P/NZX50 Index gained 31.57 points, or 0.4 per cent, to 8,008. Within the index, 23 stocks rose, 20 fell and seven were unchanged. Turnover was $284 million.

Z Energy led the index, up 3.5 per cent to $7.48. Last Thursday, the company reported it had lifted first-half profit 10 per cent as the acquisition of Chevron New Zealand's retail network swelled sales, and expects to pay bigger dividends under a new policy.

Precinct Properties gained 2.3 per cent to $1.315. The listed commercial property investor is currently raising up to $100 million from a seven-year bond offer to repay bank debt.

 

Kiwi Property Group rose 0.4 per cent to $1.325. The company, which manages a $3 billion portfolio of shopping centres and office buildings, is selling its Majestic Centre office tower in Wellington to 

Investec Australia Property Fund for $123.2 million.

Contact Energy was the worst performer, down 3 per cent to $5.58, while Metro Performance Glass dropped 2.2 per cent to 90 cents, matching an all-time low, and Scales Corp fell 1.8 per cent to $3.85.

Outside the benchmark index Tower shares fell 7.9 per cent to 70 cents as investors weigh up whether the $70.8 million of new capital they're being asked to provide will provide enough of a buffer against lingering Canterbury earthquake claims that have repeatedly surprised the insurer.

The stock fell as low as 64 cents, the lowest since Tower listed in 1999, after the insurer announced plans to sell shares at 42 cents apiece in a fully underwritten one-for-one pro-rata renounceable entitlement offer. The funds raised will let Tower repay a $30 million loan from Bank of New Zealand and boost its surplus margin above the regulatory solvency capital.

Suncorp Group subsidiary Vero Insurance, which would have paid $1.40 a share to buy Tower had it not been blocked by the regulator, has committed to the capital raise.

Plexure Group gained 18 per cent to 13 cents. The mobile voucher firm, formerly called VMob, reported a narrower net loss in the first half to $195,000 as it lifted revenue to $5.4 million from $3.6 million and continued to streamline the business. The result was ahead of guidance.

Mercer Group was unchanged at 36 cents. The stainless steel fabricator said Fonterra Cooperative Group's final loss from the collapse of a silo it designed and supplied was $20 million.