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
Kiwibank raised its 6 month and 1 year fixed rates and cut its 4 and 5 year rates. That took their five year rate down to 5.99%, matching BNZ, Westpac and the Bank of China
TERM DEPOSIT/SAVINGS RATE CHANGES
Kiwibank have raised their one year term deposit rate to 5.85%, a high for a main bank.
STILL VERY GLOOMY, JUST LESS SO
Households remain deeply pessimistic about the economy. While the Westpac McDermott Miller Consumer Confidence Index rose and unexpected +5.4 points in June, it currently sits at a level that signals the number of households who are pessimistic about the economic landscape outweigh those who are optimistic by a wide margin. Financial pressures remain the major area of concern for households, with large increases in living costs and mortgage rates continuing to squeeze their finances.
WOEFULLY UNATTRACTIVE
The latest rental yield figures suggest the days of mum & dad buying a rental unit to provide a decent retirement income may be coming to an end. Falling house prices and rising rents have pushed up yields for investors - but they're still woefully unattractive. And don't talk about after-tax 'returns'.
COMCOM GETS THE BANKING INQUIRY GIG
The Government has launched a Commerce Commission probe into bank competition & profitability not long after quashing a similar Select Committee enquiry. The Commerce Commission will provide a preliminary report on competition in the banking sector by August as its market study gets underway.
+25 OR NOTHING
The RBA minutes released today show their +25 bps rate hike earlier this month was a choice between that and a pause. But the need to battle their inflation impulse won out, even though they had no appetite for a +50 bps hike.
CHINA CUTS KEY RATES
As widely anticipated, China's central bank cut key lending rates a few minutes ago in a move to spur investment and consumption after the country's post-pandemic recovery stuttered in recent months. They cut the one-year loan prime rate by -10 bps to 3.55% from 3.65%, while trimming the five-year rate also by -10 bps to 4.2% from 4.3%. This is their first cut in 10 months. The moves will lower borrowing costs for both companies and households. They had earlier cut some wholesale rates -10 bps to benefit property developers. Markets are unlikely to be impressed with the cut being a modest -10 bps given the challenges they face.
SWAPS STEEPEN
Wholesale swap rates are likely ending today firmer, but most of the change is at the long end. 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 down a minor -1 bp at 5.67% and +17 bps above the 5.50% OCR. The Australian 10 year bond yield is down -1 bps from yesterday at 3.99%. The China 10 year bond rate is also down -1 bp at 2.72%. And the NZ Government 10 year bond rate is at 4.49% and down -4 bps, but that is still higher than the earlier RBNZ fix which was down -2 bps to 4.47%. The UST 10 year yield is now at 3.80% and up +3 bps from yesterday.
EQUITIES MIXED AGAIN
Wall Street was closed for a public holiday and didn't trade. Tokyo has opened its Tuesday session down -0.4%. Hong Kong is down -1.2% at its open, and Shanghai is down -0.3%. The ASX200 is up +0.5% and building on yesterday's rise. The NZX50 is little-changed in late trade.
GOLD LOWER
In early Asian trade, gold is at US$1948/oz and down -US$7 from this time yesterday. It ended in New York (yes, this market was open although it closed early) at US$1950/oz, and earlier in London at US$1951/oz.
NZD LOWER
The Kiwi dollar has slipped again today, down another -30 bps and now at 61.9 USc. Against the Aussie we are little-changed at 90.8 AUc. Against the euro we are softish at 56.6 euro cents. That means the TWI-5 is lower at 69.7.
BITCOIN FIRMS
The bitcoin price has risen today and is now at US$26,904 and up +1.8% from this time yesterday. And volatility has been modest at +/- 1.6%.
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61 Comments
RBA deputy governor on the news today saying more Australians need to be unemployed to tame inflation. So, up the rates must go. Make mortgagors poorer, protect the wealth of the wealthy, load extra costs onto businesses, make poor people poorer and unemployed... This is how we fight inflation in 2023.
I think it is pretty clear now that the inflation of 2021 was the direct result of an oil price shock and supply chain bottlenecks (COVID) quickly followed by a grain and natural gas price shock (Putin), which fed through to food price shocks (fertiliser costs etc). Most countries had a bit of profiteering along the way too - ours was in late 2020 to 2021 when wholesale and retail profits added about 1 percentage point to CPI.
I am pretty convinced that our CPI would have followed pretty much the same track if RBNZ had simply left rates alone through the last 3 years.
I disagree. I think you are right that those factors were very significant, but they might be 50% of it. The other 50% - cheap debt and lolly scrambles (wage subsidies etc).
I do think the war has been a big factor and was a key reason why many people (including myself) were way out on inflation predictions.
I am not totally discounting the influence of people having enough money to pay higher prices, I just think it was far less important than the cost-push inflation. Note that Switzerland copes with people having too much money by basically controling about two-thirds of their CPI prices to stop prices going up!!!
We could have been stepping into a depression type situation in 2020 if central banks didn't do what they did - but this comes with consequence.
Although I don't think you appear to believe in theories around aggregate demand and aggregate supply (and the link to monetary policy) so this position you may not agree with.
Oh, I definitely agree that a slump in aggregate demand can crash an economy (and the reverse). I just doubt that the flow through to prices should be taken for granted. We are a price taker for most goods.
If you look at aggregate demand (total fiscal and monetary stimulus) for the last ten years or so, it has run at around 8% of GDP per year. Most of this stimulus has been net increases in borrowing (mortgages); in fact fiscal stimulus (govt spending minus taxes) has been negative at times. In 2020, total fiscal (Govt) stimulus was 7% of GDP and monetary stimulus was about the same! I would argue that the fiscal stimulus was enough to keep the economy going, and the monetary stimulus (other than targeted liquidity interventions in March and April 2020) was completely unnecessary.
Its seems that when rates were dropped everyone said same thing and now when rates are raised its the same argument all over again. According to that logic increasing or decreasing rates doesn't make wealthy more wealthy and poor more poorer.
Then what could be the thing that makes wealthy more wealthy? Its as simple as money begets money.
The more the supply of money, more the divide between different groups. Instead of interest rates CB should be concerned with money supply.
Good comment UV. There's also the small matter of the wealthy being better at managing their money than the poor. A bit like fit people are better at exercising and eating than "non-fit" people. But hey, we live in country where personal responsibility is discouraged, everyone's problems should be solved by the government.
Yip and when a financial crisis hits, they go about turning millionaires into billionaires while pushing even more of the population into very hard times.
We are now back in 1920's style/levels of inequality - which was followed by depression and war. Dropping interest rates and pumping asset prices is a mugs game. Works in the short term for vested interests, but ends in social and financial disaster for everyone.
https://th.bing.com/th/id/R.3d00b04e296ea90cee026f4d0a6eba91?rik=jiJgwi…
Just own assets HM (by being born at the right time) and allow the central bank make you rich by dropping interest rates and inflating asset prices - no value added!
Then again, all the bankrupt people I know used to be wealthy. Took too much risk by getting greedy, got it wrong, and paid the consequences.
And none of the poor people I know have gone bankrupt. They get by week by week. Nothing extravagant.
So are wealthy people really better at managing money or do they just take more risks and/or benefit from a system that is making them richer and the poor poorer?
Strange.
Actually I will add to my original comment - it’s not only unfair, it’s offensive.
I have known plenty of ‘poorer’ people in life who have worked bloody hard to make a go of life.
Where would we be without the hard working, ‘poorer’ people working in factories, supermarkets…. Motels…. Etc
"Instead of interest rates CB should be concerned with money supply"
https://pbs.twimg.com/media/FyugswNWIAI9gRt?format=png&name=4096x4096
https://pbs.twimg.com/media/Fy8uIQ6aMAEjKV4?format=jpg&name=900x900
We are already in deflation if we focus on monetary supply. But then again, we've just spent the last 10 years experiencing 5-10% inflation, meaning interest rates should have been much much higher to reduce the quantity of debt/money being created.
How would you fight it ? ( Im interested in others views/ideas )
There are many different views on inflation .... and the possible underlying causes of it.... which then leads one to the idea of how to fight it.
So... maybe a better question is ..."What causes inflation"
The last two serious bouts of 'inflation' have been caused by a sustained spike in the price of oil / gas, which is a key input cost to other goods and services. If you look at inflation across the world in 2021 to 2022, it has been higher in countries that are more reliant on imported fossil fuels. In NZ, we get one-third of our energy from renewable electricity and two-thirds from fossil fuels (fuel for transport mainly). We are also heavily reliant on fertilisers and plastics (which both track gas and oil prices respectively)
When key input costs stay high for months, other prices start to go up, and this creates contagion through the economy, with prices pushing on each other. Eventually, workers start to push hard for higher wages because they can't afford stuff and this gives the inflationary episode legs. Monetary policy is hopeless at tackling cost-push inflation - hiking interest rates (eventually) reduces demand in the economy by making people poorer, but it also prolongs inflation because credit is an input cost for many firms.
A much smarter response to external price shocks is for the Govt to use its balance sheet (or strategic reserves of key commodities) to shield the economy from the shock (France, Spain, Germany have all done this to some degree). Basically you stop the shock before it cascades through your economy driving other prices up. Alternatively, you reduce your reliance on commodities that are prone to major fluctuations.
"The last two serious bouts of 'inflation' have been caused by a sustained spike in the price of oil / gas, which is a key input cost to other goods and services:
Yes and this triggered wage/price spiral - which can be a psychological condition and not a monetary or fiscal condition. I.e. it takes a lot of effort to stop people thinking 'things' will be more expensive in the future (and this can only be achieved by demand destruction).
Hence the dangers of the 'transitory' position of central banks - they should have acted far faster (like the did by dropping rates in 2020) to avoid this situation.
They didn't and now everyone is getting hurt.
The problem for central banks is they're guided by charts, they're not logistics, manufacturing and supply chain experts. Covid was always going to screw up just in time delivery and labour requirements, which is expensive.
This was mostly unavoidable, it was just the timing and degree that governments can interfere with.
The take-home lesson for everyone should be how fragile everything can be, and to make yourself less dependent on these complex supply chains.
NYT does 'crash of the NZ housing bubble'. Kind of lame IMO. Wonder if Granny Herald will launch into a rebuttal.
This was quite amusing though.
Despite relatively low wages and ample land — New Zealand has a population of five million spread over an area the size of Colorado — a dearth of building, coupled with low borrowing costs, meant that buyers had long been willing to pay for older homes that were poorly built and insulated.
https://archive.ph/2023.06.19-152350/https://www.nytimes.com/2023/06/19…
Kiwibank economists 19 June:
"Kerr and Vergara say there are three drivers of the housing market.
"Firstly, the peak in interest rates should mark the bottom in the housing market correction."
Kiwibank on 20 June:
"Kiwibank raised its 6 month and 1 year fixed rates"
The bitcoin price has risen today and is now at US$26,904 and up +1.8% from this time yesterday. And volatility has been modest at +/- 1.6%.
The ol' rat poison dominance hit 50% today for first time in 2 years. For normies, that means BTC's share of the total crypto market cap. Basically, everything else is suffering comparatively. It's a good thing.
And to give this some context, 68% of BTC hasn't moved in a year despite the bear market and 12 months from the next halving. Diminishing supply left to buy.
Ruapehu (RAL) vote fails and returned to liquidators. Not sure if this is just a bump on the road to the same place or if it's going to get really ugly.
https://www.newshub.co.nz/home/new-zealand/2023/06/mt-ruapehu-ski-field…
Maybe plan for snow planet, once it liquidates all concessiosn with iwi are null and void, there is no time for a new operator to redo these this season, its a next season proposition, IMHO its the end of Ruapehu as NZers realise how good the south island skiing is, thus it will never ever breakeven again. Gd for Wanaka and Qtown Mt hutt tho, Methan wins turangi and ohakune not so much
Sure - it will be sorted next week - Mbie seems to have a vested interest in a particular outcome which makes me believe that a few iwi bigwigs have been pressuring the Govt
Why else would the Crown be agreeing to become a 25% shareholder.
Even though the court will likely direct a liquidator appointment tomorrow this is likely to only result in a few days delay - so the Crown will get what it wants despite the very large objection vote from the majority of attendees
Rate cuts don't help the economy, but they do help us identify those times when economic (and monetary) difficulties are reaching serious proportions. When rates start going down in China, that means trouble not just for China. https://buff.ly/3qLvIad Link
FWIW Kiwibank predicting kiwi peso to weaken significantly by end of year. Not good for inflation.
https://www.nzherald.co.nz/business/travel-pain-falling-kiwi-dollar-wil…
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