Falling imports give NZ an annual trade surplus, plus the Kiwi dollar facing its worst week since March
Covid’s silver lining for the economy
Call it a silver lining of sorts, but Covid is responsible for New Zealand recording its largest annual trade surplus in six years in August as imports continue to decline.
The trade surplus was $1.3 billion in the 12 months ended August, compared with a deficit of $5.6 billion in the prior year.
Goods exports totalled $60.7 billion, up $1.6 billion from the previous year, while annual goods imports were $59.4 billion, down $5.3 billion from the previous year.
“The recent falls in imports and growth in exports resulted in an annual trade surplus not seen since the strong 2013/14 dairy export season, when product prices were high,” Stats NZ senior insights analyst Nicholas Cox said.
The August trade balance, not adjusted for seasonality, was a deficit of $353 million, compared to a deficit of $1.6 billion a year earlier. The deficit narrowed as exports lifted 8.6 percent, while imports fell 16 percent.
It’s expected the annual trade surplus will continue to increase and support a further narrowing in the broader current account deficit.
Kiwi dollar under pressure
The NZ dollar is on track to experience its biggest weekly fall in almost six months. The kiwi has fallen for the past four days, the first time that’s happened since the peak of the market sell off in March. For the week, the kiwi is already down 2.3 US cents, or 3.4 percent. With less than six days remaining in September, it’s also shaping up to be the first month since March that the kiwi has lost ground. So far it’s down 3 percent for the month.
Market technicians will be closely watching support levels at 65 US cents and then at 64 US cents to hold. The kiwi has already breached its weekly 10-day moving average for the first time since April.
Mortgage commitments continue to grow
The Reserve Bank has reported total monthly new mortgage commitments were $6.8b in August – the highest August since the survey began in 2013. This is an increase of $0.2b (3 percent) from July 2020 and up 26 percent from August last year.
New mortgage commitments to first home buyers were $1.3b in August and remained consistent with July, while other owner occupiers increased from $3.7b in July to $3.9b in August.
First home buyers accounted for almost 20 percent of new mortgage commitments, slightly lower than in July, while other owner occupiers’ share of new commitments rose from 56.7 percent in July to 57.9 percent in August.
The nationwide year-on-year growth in value of new mortgage commitments to first home buyers was 45.6 percent, while new commitments to investors was up 41.9%. Not surprisingly, the year-on-year increase of 26 percent in new mortgage commitments was largely driven by the Auckland region.
Mercury trims forecast as dry weather reduces generating capacity
Mercury NZ has lowered its full-year earnings guidance by $10 million as a result of continued dry weather in the central North Island.
The company, which normally gets three-quarters of its generation from nine power stations on the Waikato River, said it now expects to report pre-tax and depreciation earnings of $505 million for the year to June 30. That assumes its dams produce 3,700 gigawatt-hours of electricity, down from the 3,900 GWh it had forecast five weeks ago.
Recent rain in the South Island has lifted national hydro storage to about 25 percent below average, according to NZX Energy data. But North Island storage remains low, with inflows during the past four weeks the fourth lowest on record. Long range forecasts predicting a hot summer may further reduce generating capacity.
Last month, Mercury noted inflows in the 10 months ended June were the second-lowest recorded in almost one hundred years. The resulting lost production cost it about $52 million in lost earnings.
Mercury shares closed down 0.6 percent at $4.75.
Laybuy continues to expand its retail and customer footprint
New Zealand based buy now, pay later company Laybuy, which recently listed on the ASX, added 69,000 new customers in the eight weeks to the end of August bringing the total number of active users to 542,000. In addition, 580 new merchants signed up to the platform with 6,180 merchants now using the facility.
Founded by the Rohloff family, the company said it had also recently introduced ‘Laybuy Boost’ which allowed users to pay a larger first amount upfront and increase how much they could spend overall, potentially increasing its returns.
It was also planning to roll out a digital card by the end of 2020 in partnership with Mastercard.
Revenues for the year ended March were $13.7 million, up 92 percent on $7.2 million in the prior year. The majority of its revenue came from New Zealand and Australia, at $11.3 million.
The company is targeting the UK for its future growth. It has recently signed a number of large retailers including JD Sport and several Premier League football clubs.
Laybuy shares closed down 4.3 percent at $1.55.
Westpac cops a higher than expected A$1.3 billion penalty for anti-money laundering breaches
Westpac Banking Group has finalised a deal with the Australian Transaction Reports and Analysis Centre, or AUSTRAC, to settle 23 million alleged breaches of anti-money laundering laws resulting in a significant A$1.3 billion penalty.
The deal is subject to Federal Court approval.
In an embarrassing twist, the bank also admitted to “additional contraventions” in a statement filed with the NZX.
Australian regulators pursued legal action against Westpac nearly a year ago when they said the bank failed to report millions of instructions for financial transfers in and out of Australia.
The regulatory watchdog said at the time that Westpac neglected to do its due diligence on transactions to the Philippines and other parts of Southeast Asia “…that have known financial indicators relating to potential child exploitation.”
The fine is also more than the bank had provisioned for in its account. In its first-half 2020 result Westpac provided for an estimated penalty of A$900 million, and associated costs, noting the proceedings were complex and ongoing.
Westpac shares on the NZX closed down 0.5 percent at $17.47.
UK set to get new package of relief to contain unemployment
UK Finance Minister Rishi Sunak has announced a new emergency package of measures to contain unemployment, replacing the country’s furlough scheme which is due to expire next month.
The Jobs Support Scheme will directly top up the wages of employees working fewer hours due to suppressed business demand, enabling workers to keep their jobs on shorter hours rather than being made redundant. It will run for six months from November.
Employees must work at least one-third of their normal hours and be paid for that work as normal, but the government will increase wages covering the remaining two-thirds of the pay. The scheme will target all small and medium-sized businesses across the UK, though larger companies may be eligible if they have experienced a fall in turnover during the crisis.
With many of the affected workers having been employed by the hospitality industry and the government now being forced to reintroduce some restrictions due to a spike in Covid-19 infections, economists have warned that the country could face a significant surge in unemployment in the fourth quarter.
Just last week, the Bank of England gave its first indication that negative interest rates could be under consideration as it looks to play its part in shoring up the economy against the fallout from the pandemic, with GDP having plunged by a record 20.4 percent in the second quarter.
