Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).
MORTGAGE RATE CHANGES
BNZ raised its one year fixed home loan rate sharply to 6.99%. That level is well above its main rivals, except Westpac who also has a 6.99% rate.
TERM DEPOSIT/SAVINGS RATE CHANGES
BNZ's Rapid Save rate rose today by +25 bps to 4.55%. ASB only raised their Fast Saver rate by +15 bps, and only to 2.25%. Their Savings at Call rose by +25 bps but only to 2.90%.
THE TAX TAKE SOFTENS SHARPLY
Falling tax revenue caused the Government accounts to dip further into the red for the first 10 months of the financial year. to April 2023. For April alone, PAYE taxes rose only +2.1% from the same month a year ago. Company taxes fell a sharp -45% on the same basis as unprofitability spread. GST rose only +2.1% and far less than inflation. There was a 'real' shrinkage in retail activity. Interestingly, in 2020/21 it took the full 12 months for "Total Sovereign Revenues" to fit $100 bln. In 2021/22 it took 11 months. In 2022/23 it hit that mark in 10 months. But that was all boosted by flows earlier in the year. The tax inflows in April 2023 were notably soft.
SELF-REPORTING GENERATES ANOTHER FMA-CLAIMED 'WIN'
The FMA has filed court proceedings against AA Insurance for allegedly overcharging more than 100,000 customers. This is yet another case of the FMA taking 'action' after the company self-reported these issues after their own audit, not one the FMA itself discovered. The overcharging seems to have involved about $11 mln.
NZ TREASURY PAYS EVER HIGHER YIELDS
More than $1 bln was bid today in 107 bids for the $400 mln of NZ Government bonds in three maturities. The May 2030 $200 mln was now and went for a yield of 4.52%. The April 2033 $150 mln went for 4.54% yield, up from 4.39% two weeks ago. The April 2037 $50 mln went for a 4.69% yield, up from 4.38% three months ago.
FITCH SHIFTS TO 'DETERIORATING' OUTLOOK ON NZ, AUST BANKING SECTORS
Credit rating agency Fitch has lowered its outlooks on the Australian and New Zealand banking sectors to "deteriorating" from "neutral," citing greater headwinds against bank earnings and asset quality in the second-half of 2023 and 2024. It sees weakening economic activity having an impact on bank credit metrics in the second half of the year. It notes the RBNZ seems more willing to tolerate the risk of recession as it seeks to rein in inflation than the RBA, with Fitch expecting the increase in unemployment in NZ to be larger than in Australia this year, meaning risks to asset quality will be greater in NZ. Nonetheless it expects individual bank ratings to be resilient to the weaker sector outlook.
A THREE MONTH HIATUS
For those who haven't followed our Grocery Price Monitor, we should note that after a long two year period of sharp rise in prices from the beginning of 2021 to the end of 2022 when prices rose overall by a massive +42%, since March 2023 there has effectively been zero more change. A roll-back may be a bit much to expect, but hopefully the leveling out will continue.
TOUGH BUSINESS CONDITIONS
Stats NZ released its Business Financial Data for Q1-2023 and the results are not positive. These are nearly the final data components of the Q1-2023 GDP result that we will get next week. This latest data shows manufacturing volumes down -2.1% from the prior quarter while stocks are up +5.9%, and wholesale trade down -0.3% while stocks are up +22%. GDP is much more than these two sectors of course, but both will drag the overall GDP result. This depressed business data certainly squares with the fast-weakening tax data (above).
MORE PEOPLE IN MORE JOBS
But lower activity and low profits doesn't seem to be stopping businesses hiring more people. Stats NZ said across all industries filled jobs numbers were up +2.8% (+61,683 jobs) in the March 2023 quarter, when compared with the March 2022 quarter. Filled job numbers in accommodation and food services lifted strongly during the latter part of 2022, and this has continued into this year. That is consistent with earlier Q1 labour market data. More people in more jobs, and that won't hurt the Q1-2023 GDP result when it is released. But the risk is that hiring more people into low-profitable companies is kind of a zombie existence and is unlikely to be sustained.
GETTING BRUSSELS ATTENTION ON AG ACCESS
When New Zealand trade negotiators deal with the EU, we end up having to take what they will give, which hasn't been much. That is because we don't have anything they really need. It is not the case with Australia however. The Aussies are warning Europe that it risks losing access to critical minerals unless it sweetens a free trade deal for Australian farmers. Hopefully our MFN clauses will allow us to benefit if the Australians win that one.
JAPAN ON A ROLL
Japan reported a strongish +0.7% GDP advance in Q1-2023 over Q4-2022. But that only leaves them +1.3% ahead of year-ago levels. However the more recent burst higher is a good sign for them. And their current account surplus in Q1-2023 has been impressively high as well.
THIS IS GOING TO HURT
Rising bond yields are now eating into asset valuations. The losses on bond portfolios will not be immaterial. The asset valuations of property, especially commercial property are going to hurt. Private equity firms will no longer be offering prices like we have seen for the past decade, and will withdraw to the sidelines until sellers and buyers accept lower levels. Startups are going to suffer. Present maintainable profitability will return as the base way to measure value. Future expected profitability is now ditched. If you don't have a 10%+ current return, businesses will really struggle to attract capital. The old investment rules are returning with a vengeance. Buffet's outgoing tide rule is in play. Hard decisions await; don't trade while insolvent. Know your solvency situation.
SWAP RATES FIRM SHARPLY
Wholesale swap rates are likely firmer today and maybe by quite a bit as global rates race higher. However, the real action in swap rates comes near the close. Our chart will record the final positions. The 90 day bank bill rate is unchanged again at 5.69% and only +19 bps above the 5.50% OCR. The Australian 10 year bond yield is now at 4.00% and up +17 bps from yesterday. That is a lot. The China 10 year bond rate is however unchanged at 2.72%. They don't have inflation. And the NZ Government 10 year bond rate is at 4.60% and up +13 bps, and that is still higher than the earlier RBNZ fix which is up +12 bps to 4.55%. The UST 10 year yield is now at 3.80% and up +14 bps from this time yesterday, spooked by both the Bank of Canada, and RBA rate hikes, themselves evidence inflation isn't anywhere near beaten.
EQUITIES ALL LOWER
Wall Street closed with the S&P500 down -0.4% in its Wednesday session. Tokyo has opened down -0.1% in morning trade today. Hong Kong has opened down -0.3%. Shanghai is down -0.2% at its open. The ASX200 is little-changed in afternoon trade today, held back by the RBA hike impact. The NZX50 is down another -0.6% in late trade today.
GOLD SLIDES
In early Asian trade, gold is at US$1946/oz and down -US$18 from yesterday. Earlier in New York it closed at just US$1940/oz and London closed at US$1967/oz.
NZD SOFTER AGAIN
The Kiwi dollar is down -¼c from this time yesterday at 60.5 USc. Against the Aussie we have sunk to 90.8 AUc and also down -¼c. Against the euro we down similarly to 56.5 euro cents. That means the TWI-5 is now at 68.9.
BITCOIN SLIPS SLIGHTLY
The bitcoin price has slipped slightly today and is now at US$26,392 and down -2.1% from where it was this time yesterday. Volatility has been modest at +/- 1.6%.
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62 Comments
"Rising bond yields are now eating into asset valuations. The losses on bond portfolios will not be immaterial. The asset valuations of property, especially commercial property are going to hurt"
Like we never saw this one coming. Those who predicted in 2020/21 house price rises would continue largely un-interupted on the back of shortages cannot seem to comprehend the resulting fall out from COVID era money printing by Central Banks. Having sky-high bond valuations (including junk), what could possibly go wrong - now appears to be.
The tide is well and truly going out.
I guess the problem is, if we look at the world's hottest companies, your Amazon's, Ubers, that sort of thing, none of them make any money either. Net positive income via profit, is a dirty word.
Positively geared, new industries aren't really much of a thing. You're really wanting the country to take wild future bets, at short to medium term losses, in the hopes of one day being a sustainable, highly profitable enterprise.
Although if you know of unrealised certainties in this realm no one else has worked out, feel free to pass them along.
Wait, so despite high net influx of working-age migrants (~65k year ended March 2023), low unemployment and high inflation/bracket creep, we're still seeing a very small uptick in income taxes and GST.
Something does not appear to add up here. Doesn't bode well for the government so close to an election, which explains Robertson trying to put lipstick on this pig.
So 80K would have died if we had a 2nd world health system (we are now entering this realm), and an ethnically SE Asian population.
2/3 of NZ population is descended from northern European genetic stock. This confers innate protection against viral illnesses. As in Northern Europe there was extensive animal husbandry amongst peasantry, with cold winters. So in winter, animal stock bought inside to shelter, usually a large partially walled off area for animals (usually no separate barn). So as an infant/ toddler, if you wanted to live into adulthood to reproduce, it paid to have an immune system that performed well against zoonoses, in particular animal borne viruses.
This is the reason in the West ethnic minorities were hit hard, as seen in the mortality stats.
Where did you get those statistics from? According to https://www.worldometers.info/coronavirus/ Philippines was far from 8th highest rate, more like 130th highest rate, actually did better than NZ which is 108th highest.
the risk is that hiring more people into low-profitable companies is kind of a zombie existence
The growth for the March quarter once again was in hospitality and administrative roles.
According to Infometrics, 4.5% of all jobs created in NZ since 2008 were in the hospitality sector. Most of the central government jobs growth came in the last 5 years of that period (no surprises there!).
Professional, scientific and technical services – up 13 percent ($1.9 billion)
I have noticed more private businesses outsourcing to consultants/contractors lately because things look busy in the short-term, while the medium-term pipeline is drying up.
...lower activity and low profits doesn't seem to be stopping businesses hiring more people. Stats NZ said across all industries filled jobs numbers were up +2.8% (+61,683 jobs) in the March 2023 quarter...
Proportionally our working age population is shrinking. If you've got the opportunity to hire a good'un you do so and don't let them leave.
Highly recommend watching this;
The same old people who voted en masse to mould the world to their advantage, and then as the old adage goes “be careful what you wish for” - in their twighlight years realising their folly as kids and grandkids have moved away, crime and poverty entrenched due to their obsessions with owning houses, not enough nurses and doctors and care workers to wipe their bums, a country going bust with services collapsing due to their obsession with lowering tax and rates.
a bit like the tragedy of Michael corleone
In a deflarionary recession the asset price destruction appears to happen after the 2/10 yield returns to a positive spread.
US is still deeply inverted so if we are expecting a deflationary recession, there could be still 6 months or so to go before we see significant asset price falls (from debt default/deflation/recession inputs).
Not sure about what is going to happen in nominal terms, if this is a stagflationary recession we are heading into. Might be more flat'ish asset prices that get chewed up by inflation.
In a deflarionary recession the asset price destruction appears to happen after the 2/10 yield returns to a positive spread.
Not sure I buy that hypothesis. An inverted curve occurs when a central bank has the hand brake on full trying to slow the economy down. Data lags and they usually overtighten. The curve normalising is them letting the brakes off, like some kinky sex game gone too far when someone yells out the "safe" word.
I looked at the chart and know exactly what it is and it's implications, there is nothing complex about interpreting it. Asset prices fall as the part of the curve where most borrowers fund is elevated, while the 10 years is lower in anticipation that the economy slows in due course. When asset prices and inflation are start falling the central bank is able to lower the cash rate. It's entirely causal that asset prices are falling when the curve normalises
Just been exposed that the SEC chair Gary Gensler leading the charge against Coinbase and Binance had asked Binance for an "advisory" job back in 2019. The stench hanging over this is dreadful. Natural reaction is that Binance is just bullsh*tting, but the law firm Gibson & Dunn making this claim represented Bush vs. Al Gore. Also, they represent Zuckerberg & META.
https://www.cnbc.com/2023/06/07/binance-lawyers-say-sec-chair-gensler-o…
"For April alone, PAYE taxes rose only +2.1% from the same month a year ago. Company taxes fell a sharp -45% on the same basis as unprofitability spread. GST rose only +2.1% and far less than inflation. There was a 'real' shrinkage in retail activity"
Are we in recession already? If inflation is running 5% + then these figures are quite bad.
Speaking to my clients, other businesses and contacts it really feels like the proverbial is hitting the fan more aggressively within the last few weeks.
- Client A - Manufactures and sells a category of product that is used in residential and commercial construction (as well as sometimes added to a property after construction). Opened the inbox on Tuesday to an "all hands on deck" message from the GM owing to a suddenly very challenging sales environment.
- Client B - Another construction-adjacent manufacturer, reporting "disastrous sales".
- Client C - Imports, modifies and provides consulting/support for some high end machinery that goes into production facilities (think F&B manufacturing and packaging). Pipeline is not bad but a palpable increase in the number of hot leads backing off and wallets snapping shut due to uncertainty.
- Business Contact D - Somewhat a competitor of mine, although runs a larger firm with 30-40 headcount. Nice enough guy but a real 'flash harry'. Openly posting on LinkedIn about having to chop in the leased Audi RS6 for more modest wheels, and how tough the sales environment is (thankfully I ride a bike, or walk).
There have been inklings of this for a while now but it feels the pace is accelerating. It's like I'm in an episode of Mayday: Air Crash Investigations where the pilots have had a few warning signs and now suddenly the cabin is buzzing and the control stick is shaking and you're moments from the plane stalling and falling from the sky.
I'm actually fairly upbeat about my own business prospects as the company has zero debt, a strong cash war chest, and I've got a couple of service offerings that are converting well in more cost-sensitive times. I am almost certain my business won't do as well as it has done over the past few years, but I've put enough away for a rainy day that as long as there is sufficient coming in the door I'll be fine, and I wouldn't mind a bit of extra spare time as I've got a few other irons in the fire and personal projects to work on.
I struggle to sympathise with many.
Many got into the alternate reality that NZ was in.
A dream life.
Obvious for 12 months that this was going to happen.
Tough times for me about to end.
All tied up equity about to be release with a trim profit.
Bank free for the next venture. Self fund. Mixed term deposits here I come.
Those selling their wares. Here I come.
US looks like it is heading into recession:
https://pbs.twimg.com/media/FyBq7QdWAAgCqze?format=jpg&name=medium
https://pbs.twimg.com/media/FyBgyvVWYAAtA9t?format=png&name=medium
Japan reported a strongish +0.7% GDP advance in Q1-2023 over Q4-2022. But that only leaves them +1.3% ahead of year-ago levels.
China's economic woes caused in good part by global recession dragging industry means spreading contraction all around Asia. Imports from SKorea & Japan down 26% YTD (each). At least imports from Russia are up 20%. https://buff.ly/42rN21m Link
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