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
Both SBS Bank has raised fixed rates today. None are to market leading levels however.
TERM DEPOSIT/SAVINGS RATE CHANGES
SBS Bank and the Co-operative Bank have raised TD rates too.
SURPLUS OR DEFICIT, YOU CHOOSE
A late surge in the value of the Government's investment holdings has allowed it to report an annual operating surplus of +$5.3 bln or +1.3% of GDP in the June 30 Crown accounts released today. This is the result using proper accounting standards, and the same standards private companies must report to. But ignoring those valuation changes, the operating balance excluding those gains and losses (OBEGAL) meant that the year's result was a deficit of -$9.4 bln, the more normal 'conversational' result. That is -2.4% of GDP. Either way though, the 20234 results was better than the 2022 result.
A START OF WHATS TO COME
Those same Crown accounts revealed that the cost of interest to the government rose to $7.4 bln in the year to June, up from $3.3 bln in the prior year. This cost will jump even more in the upcoming 2023/24 year.
COMMODITY PRICE GAINS
The ANZ World Commodity Price Index rose +1.3% in September after trending lower for the previous three months. The lift, although modest, was broad based with all major sectors, except horticulture, lifting. In local currency terms, the index rose +2.0% in September from August as the NZD depreciated -0.1% against the Trade Weighted Index. Year-on-year however these commodity prices are down about -11% or more.
NO CASE TO ANSWER
The FMA has carried out inquiries into how now convicted fraudster Barry Kloogh was able to exploit the trust and goodwill of his clients and found that BNZ and other financial entities did not break the law in this Ponzi scheme operation. The Dunedin businessman was sentenced to eight years jail for the $16 mln scam/fraud.
SMALL SPECIALIST FOCUS PAYS OFF - AGAIN
Tatua Dairy Company reported its financial results to July 2023 and it was another very good one - "a very complete year". They paid a milk payout to their 101 farmer-shareholders of $12.30/kgMS after retaining a record $2.90. But as is usually the case with big profit announcements the directors warn that the upcoming year faces challenges. They ended the year with unusually low inventories because of high demand, and the cash flow that resulted has enabled them to sharply reduce debt. You can compare this result to its rivals here.
SUCCESS, AT A PRICE
Investor demand for NZ Government bond tenders are holding up although there might be an early whiff of flagging enthusiasm. The offer of $500 mln in three maturities today brought 112 bids worth $1.07 bln. But investors are getting their pound of flesh. The May 2028 $225 mln went for a yield of 5.46%, up +25 bps from the last equivalent tender just two weeks ago. The April 2033 $225 mln went for 5.54%, up from 4.52% ten weeks ago. The may 2041 $75 mln achieved 5.75% yield, and only three bidders won anything here (out of 23 bids) with a yield of 5.75%, up from 5.17% three weeks ago. An these winners were the low bidders.
THINKING MORE ABOUT LONGER MORTGAGES
August data from the RBNZ shows there has been a sudden recent interest in 5 year fixed lending, although to be fair it is still a small proportion of all new lending. More here.
NOT EASING
South Korea is starting to see inflation rise again. It got down to just 2.3% in June but since it has risen steadily, now at 3.7% in August from a year ago. But the anualised rate between July and August was much faster than that.
BIGGER TRADE SURPLUS
In Australia, exports rose while imports fell, allowing their to record a larger trade surplus in August than expected. They reported a +US$9.6 bln surplus in the month when an +AU8.7 bln surplus was expected. (This is a goods and services result.)
RENTAL STRESS EXTREME
It is getting tough and ugly being a renter in Australia. Data from housing portal Domain reveals the national residential rental vacancy rate was only 0.8% in Q3-2023. In Perth it was only 0.3%, in Sydney 0.9% and hardly better (for renters) in Melbourne, Adelaide or Darwin. But it was easier in both Canberra and Hobart.
SWAPS RETREAT
Wholesale swap rates are lower today, but still holding most of the recent run-up. But the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is down -2 bps at 5.70% and now +20 bps above the OCR but this rate was set before the OCR. The Australian 10 year bond yield is down -5 bps from this time yesterday to 4.58%. The China 10 year bond rate is unchanged at 2.71%. The NZ Government 10 year bond rate is up +1 bp to 5.61%, and now far above the earlier RBNZ fixing of 5.47% which was down -2 bps today. The UST 10 year yield retreated -12 bps today to 4.72%. The UST 2yr has fallen -11 bps, now at 5.04%. So the curve inversion unwinding is holding for now.
EQUITIES RECOVER
The NZX50 is up +0.2% near the end of trade today. The ASX200 is also up +0.2% in early afternoon trade. Tokyo is up +0.7% in Thursday morning trade. Hong Kong is up +0.5% in early trade. Shanghai is closed this week. Wall Street ended its Wednesday trade with the S&P500 recovering +0.8% after the prior day's bond rout.
GOLD'S STAYS DOWN
In early Asian trade, gold is now at US$1826/oz and up +US$2 from this time yesterday. Earlier it closed in New York at US$1821/oz, and earlier still it closed in London at US$1819/oz.
NZD GAINS
The Kiwi dollar rose +40 bps today to be now at 59.3 USc and making back all of yesterday's dip. Against the Aussie we are little-changed at 93.4 AUc and against the euro we are firmish at 56.4 euro cents. That means the TWI-5 is now up +30 bps at 69.6.
BITCOIN FIRMS TODAY
The bitcoin price is a bit firmer today, now at US$27,775 and up +1.6% from where we were this time yesterday. Volatility over the past 24 hours has been modest at just over +/- 1.1%.
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60 Comments
NZ OCR under downside pressure?
Standing Repurchase Facility - $1000 million was lent to the RBNZ today O/N.
The Standing Repo Facility will allow for eligible counterparties to lend NZD overnight and from tomorrow to the next day, on a secured basis. Link
A billion dollars this week and last week says you are wrong - banks are seeking to place surplus money at the RBNZ for more useful collateral.
The collateral provided by the Reserve Bank as security for the NZD will be nominal NZ Government Bonds (NZGBs) as general collateral.
RBNZ resumes publication of overnight interbank cash rate
Construction is getting smashed in Canada too with the worst yet to come.
Sounds similar to the potato party plan.
https://www.aljazeera.com/news/2023/3/22/immigration-fuels-record-high-….
Yeah, the impact is huge..
A friend of mine pulled the pin on their renovation this week. The bill was close to $1.5m and it wasn’t going to add anywhere near that to the capital value, probably $500k, max.
With building in most forms being uneconomic something has to give.
Hey, these show ponies' lifestyles help keep rates higher for anyone who wants to do some mahi.
Reno's are fairly undesirable work. Takes longer tieing old into new, you never know what you'll inherit, and often the work gets done with the resident living onsite.
Anyone experienced is going to have to pad out their labour budget to cover eventualities. Or they'll go in cheap and sting you for extras.
My advice is to track down good experienced workers and pay labour and materials.
No one in their right mind is going to invest in a business when the Labour Govt has changed the rules during the game & moved the goalposts so that debt isn't deductible and defaulting & abusive customers cant be easily evicted.
So, the answer to your question is obvious.
Yes, at current prices. If house prices came down to say 400k and you could rent them out at say $600 a week, I’d invest and many others would too.
Current yields are based on favourable tax treatment and conditions, take those away and the business (house) is worth less, but still well and truly viable as a business.
Other businesses have to evolve to tax and regulatory changes, “mum and pop” can’t be immune forever.
Stop making stuff up with conflated straw men, domestic residential properties are not international companies. You know if the business is "obviously making a proft" under IRDs tax rules it will be taxed accordingly.
Your problem is really with your personal definition of income being different from IRDs & the Govt eg CG - which remember if in play would be a significant loss in the last 2 years.
However removing std business deductibles as a backdoor avoidance of a nonexistent CGT the Govt refused to introduce apart from their other backdoor Brightline is wrong in principle.
The problem is the sometimes/sometimes not a business, best of both worlds, and the dishonesty vis-a-vis what the business is.
Being able to pretend one did not purchase for the intent of capital gains so as to evade tax due has been a big problem, while productive working Kiwis have been forced to carry the can. As has been the social support for returns, which we need to ramp down.
Goes deeper than that too. A business that buys and sells products, hires full time employees with Kiwisaver/Holiday/Sick pay, pays commercial council rates, pays commercial rates on lending, often pays commercial rents, collects & passes on GST, meets fairly stringent health and safety compliance etc is a lot different to someone that borrowed 100% of the purchase price on an existing house to rent out.
It's also the latter that is helping drive up the wage bill of the former.
Bit of both, but more due to government budget and capacity. National won’t be ramping up public housing construction, although they have said they want to support the community housing sector more. Assuming they do, that won’t start to flow in to meaningful construction work for at least 2 to 2.5 years.
I really don’t know what Kainga Ora are doing a lot of the time. I know of two big projects that got consent at least 8-9 months ago, yet site prep hasn’t even commenced.
Byron Bay and Nimbin discussed here the other day. And low and behold, AFR comes out with this. Top end of town taking a hit on their boltholes.
House prices in Byron Bay have slumped 11 per cent, slicing $250,000 from the median since the start of the year. Further falls are expected over the next few months as the squeeze of higher interest rates prompts more homeowners to sell even in the face of weaker demand, data from CoreLogic shows.
Some lifestyle regions that were highly sought after during the pandemic, such as those in regional Victoria, are also seeing a marked reversal in home values as people return to the capital cities.
Byron Bay house prices are already down 25% according to RealEstate. The 60 night cap on AirBnBs will force many owners to sell. This will turn out to be another Left own goal, as tourism is the lifeblood of Byron Bay, and a huge reduction of tourists due to lack of accommodation will result in a lot of business failures and unemployment. The Govt has forgotten that the unemployment rate used to be 11% there.
The KBW Nasdaq Bank Index is a proxy for a 'smaller bank' index in the U.S. Now only 8% higher than the April lows. When the 2s30s curve or 2s30s spread rises, bank stocks fall.
https://www.tradingview.com/symbols/NASDAQ-BKX/
Hang on to your hats.
https://www.interest.co.nz/economy/124602/financial-services-services-c…
New Zealander's need to be savers, not borrowers.
Investor demand for NZ Government bond tenders are holding up although there might be an early whiff of flagging enthusiasm. The April 2033 $225 mln went for 5.54%, up from 4.52% ten weeks ago.
And yet again, the interpolated mid IR swap rate, for today's 3.5% 14/04/33 government tender yielding 5.5353%, was - minus 20.2533 bps at 5.3328%.
Quite simply, it takes some financial institution’s balance sheet capacity to take on an interest rate swap (the farther the maturity, the more capacity it requires). If balance sheet capacity (the real money in the system, therefore liquidity) is systemically impaired, as in a crisis, or a crisis that doesn’t really end, then to get dealers to give up their precious balance sheet capacity and engage on the other side of a swap someone would have to pay a hefty premium to make it worth it (risk-adjusted) for the dealer to do so. J Snider
But I certainly don't expect dealers to fail to underwrite a government tender in the near or far horizon without an unexpected default by the Crown.
Re: frauster Barry Kloogh
There are plenty of New Zealanders out their who are very naive when it comes to investing there savings.
If New Zealand ever has a name change it should be called: "Soft Touch".
I would think that there has to be some sort of compulsory independent auditing of financial advisers......there's too many duds.
And immigration needs a better filter. Those Sikhs in Manurewa attempting to murder one of their own....they should be repatriated to wherever they came from.
Probably the last straw for me in any thoughts of voting Greens. TOP it is!
https://i.stuff.co.nz/national/politics/300983505/tova-podcast-white-pe…
Just watching the TV1 debate and James Shaw is busy saying it's not the immigrants fault for wanting to come here and contribute, it is our fault for not having the houses and infrastructure ready. Yet still won't say we need to pause it. In my experience from living among them with my revolving door flat on Dominion Road, none came here with the goal of contributing to NZ. All came for themselves, some education but the most common reason given is to get residence and wages in a western country. Tell him he's dreaming if he thinks they're coming here with the aim of contributing to NZ!
Yes, I've lived with many cultures under the same roof in 20 years of flatting on Dominion Road and would like to think I got on fine with them. Probably a stupid white person but it didn't stop my Islamist flat mate complete with prayer mat and arranged marriage wife on his second stay sending around friends to see if I had a spare room years later. Actually, living with people from different cultures is quite interesting and plenty of their parents have thanked me for the way I treated their children when newly arrived in NZ. To be fair it's probably a low bar when you read about how some of them treat their countrymen!
But I'm a racist according many, just not according to those from foreign countries that lived with me.
Someone should really track how much money immigrants are sending back home. That's money that is being sucked out of our economy and spent somewhere else. So its actually damaging to NZ. If those wages were paid to NZ employees (particularly the 300,000 odd getting a benefit) then that money would stay in NZ, and be supporting local businesses. We'd be much better off.
HM- I reckon you should ask yourself this before voting-
1. what areas of governance would you like to see improvement?
2. which candidate of any party would you like to see in charge of the areas you want improved?
For me I looked at health, education, crime and the economy and realised pretty quickly who I wanted driving positive change.
I don’t find any positive answers to any of those questions in Team Red or Team Blue. I think they are both awful, in different ways. If I was out in front of a firing squad and had to choose one to keep my life, I guess it would be Team Red, marginally.
I am voting on policy.
More great satire from TA:
https://www.oneroof.co.nz/news/tony-alexander-higher-interest-rates-are…
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