As the Government seeks help from the Reserve Bank on the housing market, the prospect of interest rates going negative recedes further and the value of the kiwi dollar continues climbing

Good news for Tower
Government books in better shape than expected
Former Federal Reserve Chair Janet Yellen set to become the next Treasury Secretary
Germany imposes mandatory quota for women on listed company boards
Tesla & Space-X founder Elon Musk just got a lot richer

The kiwi dollar continued its march higher, trading above 70 US cents overnight for the first time since June 2018. The latest move followed news finance minister Grant Robertson had proposed adding house prices to the RBNZ’s mandate, dashing any remaining expectations of interest rate cuts.

In a letter to Reserve Bank governor Adrian Orr, Robertson formally requested the central bank consider the effect monetary policy was having on house price inflation.

Orr responded by saying the RBNZ’s monetary policy committee would consider the suggestion, but also defended the central bank’s current settings, saying it already takes house price inflation into consideration in its decision-making process.

Traders took the news to mean future interest rate cuts were off the table, pushing the kiwi higher.

The exchange of letters also pushed the swap rates on government bonds higher with the 2-year rate now at 0.2950 and the 10-year at 0.9275.

Investors had largely discounted the prospect of negative rates being implemented after the most recent monetary policy statement, but today’s news all but confirmed the move.

Low interest rates have been a major factor in driving up the prices of all asset classes, including equities with the S&P/NZX 50 benchmark index trading near record highs.

So far, the kiwi has not begun to weigh on export stocks, but if it continues to advance above 70 cents, expect exporters to begin feeling the heat.

For the month, the kiwi is up 5.8 percent, its biggest monthly advance since October 2015.

Good news for Tower

The Earthquake Commission is set to pay out more than $40 million to insurer Tower to settle a long-running fight over outstanding Canterbury earthquake claims.

The insurer announced to the NZX yesterday it had settled with EQC to resolve the disagreement over how much the company was still owed from the disaster. EQC had agreed with insurers for them to pay out smaller claims and later get reimbursed by the government agency.

Tower said it would get $42.1 million after paying out reinsurers and costs. Its net profit would be positively impacted by about $9.5 million.

Tower chairman Michael Stiassny described the settlement as “a good outcome” that removes uncertainty and means the company can now turn its full focus to the future. He said the settlement amounted to 76 percent of the gross carrying value listed in Tower’s accounts,

Tower will release its results on Wednesday.

Tower shares edged up 4 percent on the news to close at 61.5 cents.

Government books in better shape than expected

New Zealand recorded an operating deficit before gains and losses of $23 billion in the year ended June 30, reflecting the impact of the government’s wage subsidy and business support packages.

The result is a dramatic turnaround from the $7.4 billion surplus reported in the same period a year earlier but was still $5.2 billion better than the Treasury had forecast in the Budget.

Finance Minister Grant Robertson said this was due to a “stronger-than expected economy and careful management of government spending.”

Secretary to the Treasury Caralee McLiesh said when presenting the final audited accounts that the economy had proven to be “more resilient than was originally anticipated.” 

Net core Crown debt as a percentage of GDP was 27 percent versus 19 percent a year earlier, but also below the 30.2 percent forecast in the May Budget.

“The government’s decision to act swiftly when Covid-19 was taking hold overseas has meant the economy has bounced back better than the Treasury and many economists predicted,” Robertson said.

The full half-year economic and fiscal update will be released on December 16.

Former Federal Reserve Chair Janet Yellen set to become the next Treasury Secretary.

Former Federal Reserve chair Janet Yellen, 74, is set to be nominated by President-elect Joe Biden as Treasury Secretary, handing her a second act at the pinnacle of American economic policymaking.

Well -known both nationally and internationally following her four years at the helm of the US central bank between 2014 and 2018, Yellen is considered a good fit with Biden’s drive to fill his cabinet with competent institutionalists after the disruption created by Donald Trump.

Her appointment is expected to be welcomed by economists, foreign officials and markets, all of whom regard her as a highly experienced policymaker.

The recovery from the initial impact of coronavirus is already showing significant signs of slowing, amid fading fiscal support from Congress as new infections surge in many states. Even though three vaccines have been successfully developed to date, many economists fear lasting damage to businesses and the labour market that could weigh on the performance of the economy for years.

And while financial markets appear to be taking things in their stride, President Trump’s current Treasury secretary Steve Mnuchin has just moved to close some of the Fed’s emergency lending facilities, triggering a rift with the central bank that Ms Yellen will be well positioned to mend.

Yellen’s early government career took her to the Fed — where she met her husband George Akerlof, a fellow economist and Nobel laureate — and eventually into the White House as chair of the council of economic advisers under Bill Clinton.

Germany imposes mandatory quota for women on listed company boards

Germany’s coalition government has agreed to a mandatory quota for women on the boards of listed companies in what’s being hailed as a landmark moment for Europe’s biggest economy.

Listed companies with management boards of more than three executives must appoint at least one woman to the C-suite, according to a statement by Germany’s ministry for family affairs, senior citizens, women and youth. A final decision on the new measure is expected next week.

Franziska Giffey, the minister for women and families, who described the decision as a “historic breakthrough,” said the move would finally bring an end to women-free boardrooms at large companies.

But business lobby groups pushed back on the decision. The Federation of German Industries (BDI), which represents 40 trade groups, said it supports efforts to encourage the appointment of women to leadership positions, but added that a fixed board quota is “a major intervention in entrepreneurial freedom.”

Tesla & Space-X founder Elon Musk just got a lot richer

Elon Musk’s climb up the ranking of the world’s richest men continues unabated.

The Tesla CEO’s net worth soared yesterday as shares of his electric automaker hit a record high, boosting his net worth to US$128 billion, according to the Bloomberg Billionaires index, which tracks the world’s 500 wealthiest people.

For a couple of hours that put him slightly above Bill Gates, the co-founder of Microsoft and world’s second-richest person, who was estimated to be worth $127.7 billion. The latest readout from the Bloomberg index has the two men tied on $128 billion each.

Musk’s fortunes are directly linked to those of Tesla. His biggest asset is the company’s stock, of which he owns around 20 percent.

This year has been very good for the electric vehicle and space entrepreneur. So far in 2020, Tesla’s stock has increased 525 percent, helping Musk add more than an estimated $100 billion to his wealth, the single biggest advance for anyone on the list, according to Bloomberg.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

Leave a comment