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/LOAN RATE CHANGES
No changes to report so far today.
TERM DEPOSIT/SAVINGS RATE CHANGES
None here either.
STANDING PAT WITH A HAWKISH UNDERTONE
The Reserve Bank left its policy rate at 5.5% today, as universally expected, and for a third straight meeting, the longest pause since 2021. (It is only ten days until the election, after all.) However while they did signal they are on the right path in their battle against inflation, and that while there are some near-term risks on the upside, they may need longer to overcome those and get inflation back to its target. That is where the hawkishness comes from. (Almost all professional economists say the Statement is 'dovish', so take your pick. ANZ and BNZ are exceptions.) The currency markets trimmed the NZD by -30 bps but the bond markets didn't shift much after the announcement from the levels before. More here. The November 29 Monetary Policy Statement is going to be really 'interesting'.
TURNING UP
Dairy prices rose +4.4% in today's dairy auction, the third straight rise. But no analyst has changed their view that this third rise is enough to raise their milk price forecast. These prices are still -20% lower than a year ago.
REDUCED VERIFICATION REQUIREMENTS
Westpac said it has eased up on some loan verification requirements. They announced that for eligible customers who are refinancing their like-for-like home loan without any increase in lending or payment obligations, they have removed verification for income verification, transaction records/statements of all accounts, debt servicing and repayment amounts, fixed commitments, and other necessary recurring expenses. All other credit criteria and policies do still apply.
CRE RULES FINALISED
The FMA has published its final guidance for Climate Reporting Entities (CREs) on meeting their record keeping obligations. CREs are all registered banks, credit unions, and building societies with total assets of more than $1 billion, all managers of registered investment schemes (other than restricted schemes) with greater than $1 billion in total assets under management, all licensed insurers with greater than $1 billion in total assets or annual premium income greater than $250 million, listed issuers of quoted equity securities with a combined market price exceeding $60 million, listed issuers of quoted debt securities with a combined face value of quoted debt exceeding $60 million, and authorised Bodies, who are managers of registered schemes and operate under the licence of another manager, where the total assets under that licensee (including assets of all authorised bodies) exceeds $1 billion.
POLICY RELEASE
There was only one political party policy release today, this one from Labour, their Defence policy. You can find all party policies, easily compared by policy topic, here.
UNEXPECTED IMPROVEMENTS
In Japan, the Markit services PMI was revised higher to 53.8 in September from 53.3 in the flash estimates, a 13th consecutive month of good expansion in their service sector. In South Korea, their latest factory PMI improved nicely as well, almost taking them out of contraction. It was an improvement that wasn't expected. Despite deep-seated cultural rivalry, it helps Korea that Japan is doing much better these days.
JERKING SIGNAL
We follow the Fear & Greed Index weekly, but we should perhaps note that it has jerked suddenly in the 'extreme fear' mode today.
SWAPS FIRMER YET AGAIN
Wholesale swap rates are probably moving up again today, and still sharply and especially at the long end. But the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is unchanged at 5.72% and now +22 bps above the OCR but this rate was set before the OCR. The Australian 10 year bond yield is up +5 bps from this time yesterday to 4.63%. The China 10 year bond rate is unchanged at 2.71%. The NZ Government 10 year bond rate is up +16 bps to 5.60%, and now far above the earlier RBNZ fixing of 5.49% which was up +5 bps today, also before the OCR announcement. The UST 10 year yield continues its rise, up +15 bps today to 4.84%. The UST 2yr has risen only +3 bps, now at 5.15%. So the curve inversion is unwinding very fast now.
EQUITIES SHARPLY LOWER
The NZX50 is down -0.7% near the end of trade today and with little reaction from the RBNZ announcement. Year to date, the NZX50 is down -3.7% now. It's all global forces for equities. The ASX200 is also down -0.7% in early afternoon trade, and taking their 2023 losses to -0.8%. Tokyo is down a sharp -1.9% in Wednesday morning trade. Hong Kong is down -0.7% in early trade. Shanghai is closed this week. Wall Street ended its Tuesday trade with the S&P500 down -1.4% on the bond rout.
GOLD'S FALLS EMBED
In early Asian trade, gold is now at US$1824/oz and up a mere +US$1 from this time yesterday. Earlier it closed in New York at US$1823/oz, and earlier still it closed in London at US$1822/oz.
NZD RETREATS
The Kiwi dollar fell -40 bps on the RBNZ announcement (a relatively minor reaction as OCR reactions go), now is at 58.9 USc and down -40 bps from this time yesterday. A rising USD is part of this. Against the Aussie we are little-changed at 93.3 AUc and against the euro we are almost -½c lower at 56.2 euro cents. That means the TWI-5 is now down -30 bps at 69.3.
BITCOIN SLIPS BACK AGAIN
The bitcoin price is a bit softer today, now at US$27,325 and down a further but minor -05% from where we were this time yesterday. Volatility over the past 24 hours has been low at just over +/- 0.8%.
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35 Comments
I reckon you can ignore the RBNZ comments and predictions, they are only there to make the market believe what they want them to. Even if the RBNZ knew they were going to radically ease rates next year they wouldn’t say so now.
The only real news is that the OCR is on hold and probably will be for a few reviews to come.
Despite deep-seated cultural rivalry, it helps Korea that Japan is doing much better these days.
Korea's proximity to China is something of an economic nightmare at the moment. Koreans can buy almost anything through Chinese e-commerce platforms at a cheaper price.
Koreans collectively spent 1.40 trillion won in the first half of this year from China through online platforms and other channels, data from Statistics Korea showed. The amount rose by 106 percent from the 680.8 billion won spent in the same period last year, while nearly matching the amount for the entire previous year, which was at 1.49 trillion won. Projections suggest that the import value of direct purchases from China for the current year alone could surpass the 2 trillion won mark.
https://koreajoongangdaily.joins.com/news/2023-09-25/business/industry/…
Understandable, and likely a growing trend in developed countries. I regularly use Aliexpress as I can get most things for less than half the price of what they are offered for in NZ, as well as a huge range of items not able to be found here easily. It just take a bit of planning as shipping can take 2-6 weeks to arrive depending.
Biggish news in the crypto space. The SEC has lost its right to appeal against Ripple in the case it lost claiming Ripple's token XRP is a security. This is a bloody nose for the U.S. govt agency and a win for the crypto space in general.
A federal judge on Tuesday refused to let the U.S. Securities and Exchange Commission appeal her recent decision involving Ripple Labs, a ruling that has been seen as a major defeat for the regulator in its effort to police cryptocurrency markets.
In her July 13 decision, U.S. District Judge Analisa Torres in Manhattan had ruled that the sale of Ripple's XRP digital token on public exchanges complied with federal securities laws because purchasers had no reasonable expectation of profit based on Ripple's efforts.
https://finance.yahoo.com/news/us-sec-cannot-appeal-ripple-015632877.ht…
...near-term risks on the upside, they may need longer to overcome those and get inflation back to its target.
For the great unwashed like us how does "near-term risk" over the long term differ from "long-term risk" experienced over the near term?
I mean from what we can see US drillers aren't sinking more wells, Russia doesn't have the capacity to produce more and Saudi Arabia appear to want oil in the $100 range or above to balance their national budget. RBNZ must be privy to some analysis we are not because I wouldn't be betting on a price decline any time soon.
The invisible hand will intervene. Believe.
https://www.gem.wiki/Ghawar_Oil_and_Gas_Field_(Saudi_Arabia)
The Production graph - they all do pretty much the same thing. Net exporters become net importers, fields peak, nations peak. The only growth this last decade has been US fracking - which seems to have shot its bolt too.
I initially though (2005) that oil would go to $200 a barrel. Then I realised (2008) it couldn't, because energy underwrites money. But I do again, because they will print unlimitedly in an attempt to kick-start the un-startable. So money will have no real value, and the numbers against reality will indeed climb.
You are correct in that NZ yields are the highest among these nations.
However, NZ government up until recently has been more disciplined with its budget. Other countries have bigger debt burden and more issuance.
There is a lot not to like this election cycle, but I do like the fact that both parties acknowledge that subsequent budgets will necessarily be tighter. Such talk is almost absent in many other countries.
Some food for thought. The velocity of interest rate rise is the biggest threat to the financial system. The U.S. bond market is approx $50 trillion. A majority of those bonds are now down 25-50%. Banks are becoming zombie banks holding massive losses. If they had to mark to market, it would be devastating in more ways than one.
And Japan. It seems like their yield curve control is about to end. They can’t control it with rates rising like this globally around the world.
If Japan unwinds, it's going to be brutal.
Yeah. "They" can't actually measure the size of the derivatives markets. They can only estimate. Our best guess is USD1 quadrillion (BIS).
My water cooler mate had to Google how many zeros in a quadrillion. But it's not that difficult. Just a level up from a trillion. Then we move to quintillion, sextillion,....
You get the picture.
Pensions are ultimately paid by the labour and capital which produce the goods and services you hope to enjoy in retirement.
The problem for the retiring generations in the west is that they have produced fewer future labourers that preceding generations did, and failed to invest in productive capital to anything like the extent needed to compensate for that.
This means that either the real value of the pension has to decline sharply, or the share of goods and services enjoyed by those who produce them has to shrink dramatically. At the moment our indexing of pensions to CPI / average wages is causing the latter "solution" to predominate, which is the root cause of the despair and envy felt by our younger generations.
All that accumulated wealth from fossil fuels, ecological destruction and using up natural resources, essentially energy borrowed from the future generations, only to retire to a crumbling public health system, a risk of losing the pension or having it means tested, relying on rest homes which statistically reduce life expectancy, and relying on the younger generations to pay their pensions who they pulled future energy and wealth from. What a ride
No, they're not. Under whichever pen-name, you haven't learned much hereabouts...
Labour was outranked by fossil energy, many decades ago and by many orders of magnitude.
And it wasn't 'paid for'.
What happened was that we extracted resources using fossil energy, processed them traceably to fossil energy, transported them witl fossil energy, and disposed of them with? Can you fill in the blank? We set up a proxy system, and jostled for 'rights' to same; rights assumed by individual, cohort, nation, cluster.
The problem is that every generation used some of the finite planet, and the whole caboodle escalated exponentially. The best thing that can happen is a population reduction (as painless as our present overshoot allows) which will leave more planet remaining per remaining head.
Jeez, economics has a lot to answer for...
Nestle is reducing the milk content in the Milkybar to 26.4% from 37.5%. Don't expect cheaper shelf prices.
https://www.thesun.co.uk/money/24212157/nestle-change-milkybar-recipe-c…
Dairy industry competition through foreign ownership seen as a big tick for NZ dairy by bank economist as they have more ability to extract value. The battle for milk supply in Waikato | RNZ.
So much for NZ inc. With far sighted rural bank economist friends like these, who needs enemies.
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