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). It's a skinny edition today.
MORTGAGE/LOAN RATE CHANGES
Unity Money has launched a 2 year fixed rate 'special' for first home buyers of 6.45%. This is the lowest 2 year rate in the market, lower than any bank 'special'.
TERM DEPOSIT/SAVINGS RATE CHANGES
The Police Credit Union has raised its bonus rater rate to 4%.
THE 'REAL' LIVING COST CHANGE
Household living costs increased +7.0% in the past year. Stats NZ said its household living-cost price indexes show that all household groups in the country faced higher cost increases in the 2023 year than the +4.7% indicated by the CPI, the official measure of inflation.
NOW $1.5 BLN IN NON PERFORMING MORTGAGES
Latest RBNZ figures show non-performing housing loans rose by almost 80% in the past year - but the stress levels are still much lower than they were after the global financial crisis.
HALF RATIONS
The Government will increase the minimum wage by +2%, or half the rate of inflation, to $23.15/hr which the Council of Trade Unions says is a cut in real terms.
NZX50 UPDATES
We have added the full profiles for the three new entrants to the NZX50. They are Channel Infrastructure (CHI, #44), the business that was known as NZ Refining. Hallenstein Glasson (HLG, #49), and Vulcan Steel (VSL, #37).
MILK COLLECTION UPDATES
Fonterra said its New Zealand milk collections in December were 176.6 million kgMS, +1.5% ahead of December last season. But their Australia milk collections in December were 10.8 million kgMS, -1.3% behind December last season.
COST OF DOING BUSINESS WITH GAMBLERS
SkyCity (SKC) has revised its provision for penalties relating to its Adelaide casino operation's AML/CFT breaches up sharply, from $49 mln to $79 mln. The Australian court will hand down its decision on the actual level on June 7, 2024.
BUILDING CONSENTS RETREAT
In Australia, residential building consent levels are falling and quite hard in some places. Overall they were down -9.5% in December. They fell in Victoria (-18.4%), South Australia (-11.8%), and Tasmania (-2.7%). Meanwhile, they rose in Queensland (+8.2%), Western Australia (+7.9%), and New South Wales (+2.0%). It was approvals for apartments that were hardest hit.
SWAP RATES HOLD
Wholesale swap rates will probably be little-changed again today. However, the key reaction will come at the close. Our chart below records the final positions. The 90 day bank bill rate is up +1 bp at 5.67%. The Australian 10 year bond yield is down another -7 bps at 4.02%. The China 10 year bond rate is down a further -5 bps at 2.44% and a new 20 year low with a sharp daily fall. And the NZ Government 10 year bond rate is down -14 bps at 4.61%, while the earlier RBNZ fixing was at 4.66% and unchanged from yesterday. The UST 10 year yield is now at 3.95% and down -7 bps from this time yesterday. The UST 2yr is at 4.29% and so that key inversion is out to -34 bps now.
EQUITY WINNERS & LOSERS
The NZX50 is down -0.2% in late trade today. The ASX200 is down -1.1% in early afternoon trade, undermined by China, the Fed, and their own lower CPI. Tokyo has opened down -0.8% in early trade. Hong Kong has opened unchanged at its open but Shanghai is down -0.9% in their opening trade today. That means their index is now -5.1% lower for the 3+ days of this week so far. Singapore is down -0.5% at its open. The S&P500 closed on Wall Street in Wednesday trade down -1.6% after the Fed signals late in their trading session.
OIL EASES
Oil prices are down -US$1.50 from yesterday at just over US$76/bbl in the US while the international Brent price is now just on US$81/bbl.
GOLD FIRMS FURTHER
In early Asian trade, gold is now at US$2040 and up another +US$4 from this time yesterday. Chinese bought 30% more gold in 2023 than 2022. Not only did their central bank buy more but investors did too as great-power rivalry intensified - and the Chinese economy hit some road bumps.
NZD FIRMER AGAIN
The Kiwi dollar is now just on 61.2 USc and little-changed from yesterday at this time. Against the Aussie we are more than +½c firmer again at 93.3 AUc. Against the euro we are up +20 bps at 56.7 euro cents. That means the TWI-5 is now at just over 70.6 today and up a bit less than +20 bps.
BITCOIN RETREATS
The bitcoin price fell -2.2% today, down to US$42,009. There's been moderate volatility over the past 24 hours of just over +/- 2.2%.
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57 Comments
Fire sale at new properties in Hong Kong. The other day I was highlighted about Country Garden's 30-40%-off sale on a new development at Kowloon City. For those who're unaware, Country Garden is a property development company on the scale of Evergrande (but not as large). Appears 2/3 sold with the discount. But we're just getting started.
Maybe some salient lessons here for NZ/Aust.
https://www.thestandard.com.hk/section-news/section/2/259907/New-home-b…
Construction is getting the quadruple whammy at the moment: lower sales prices, higher lending costs, higher material costs, higher labour costs. The flip side being that there are plenty of costs that can be cut - maybe a plumber isn’t worth more than a neurosurgeon for example.
"... higher material costs, higher labour costs." Nope. Much lower than peak and supply of both is becoming ample. Back to 'normal'? HM says no, Me says close-to. Probably depends on where you are in NZ. If you have cash, then looking at a completion in 12 months and prices will be better as there's still a premium on 'new'. (Builders finishing jobs now are finding it tough. In 12 months ....)
Just as well. Negative equity mortgages in HK are at a 20-year high. The quarterly nominal value of underwater mortgages just exploded 100%.
The value of negative-equity loans jumped to HK$131.3 billion ($17 billion) at the end of December, up from HK$59.3 billion in September and the highest level since 2003, according to Hong Kong Monetary Authority statistics released Wednesday.
https://www.bloomberg.com/news/articles/2024-01-31/hong-kong-underwater…
NZRFU burning through the Silver Lake investment at a rate of knots with the $200m forecast to be gone by 2031.
Unsurprisingly to me (a vocal critic of NZ management), the forecast revenue uplift of $76m from new business initiatives has not eventuated.
It would be interesting to see the performance clauses in the contract, this may end very badly.
Eden Park records best financial year five years after concerns about its future https://www.nzherald.co.nz/nz/eden-park-records-best-financial-year-fiv…
I really fear the day the big one strikes in this country. I think we are so fundamentally underprepared. When it hits in Wellington it’s going to be horrific:
https://www.nzherald.co.nz/nz/politics/could-happen-tomorrow-government…
If you live in akl I cannot state the need for backup power generation enough, cook on gas bottles (have 8 in the stack so about 6 months), solar and wind for fridge freezers and a genset for night dark windless 6-10kw.... I keep enough petrol for 7 days and if things hit will be topping that up every day. trying to move to diesel genset with a month of fuel... its going to happen.
Yes but all sorts of things. Health infrastructure is another massive one. Can hardly cope in normal times let alone after a massive earthquake. And then broadly I don’t fancy the capability of our emergency services either.
Very little resilience across multiple systems.
There is a reason they say you will be on your own for 7 days +, maybe 14.... think about that.... you need 14 days water food gas cooking and power for freezers etc, you need to be able to survive for 14 days without external help. Cell phone will be out, tv will be out, radio is possible but will likely be from a tower outside the quake area... ie AM not FM.
About day 12 you will get sick of helicopters flying over but not stopping.....
As always CB and HAM radio will work. this is a bit like offshore sailing but being at home.
Thousands will die under collapsed buildings and more from injuries that are not treated in time, WGTN will be a cluster. Thats before any Tsunami. The modelling is chilling.
The big one! You mean what we were taught at school, a tidal wave? Back then a Japanese word like tsunami was a no no. Whatever you call it NZ’s coastal communities won’t stand a dog’s chance. Nothing can prepare for that. Our generations living on the land now are just pinprickson the tapestry of time in comparison to history, what mother nature can wreak when and how she might choose.
Taupo worries me more than Wellington - & I live in Wgtn
"The Oruanui eruption (also known as the Kawakawa event)[14]: 118 of the Taupō Volcano was the world's largest known eruption in the past 70,000 years, "
"The Hatepe eruption (also known as the Taupō or Horomatangi Reef Unit Y eruption) represents the most recent major eruption of the Taupō Volcano, and occurred about 1,800 years ago. It was the most powerful eruption in the world in the last 5,000 years."
https://en.m.wikipedia.org/wiki/Hatepe_eruption
Alpine fault one of the most regular in the world, goes about ever 300 years.... the lake 5000-20000 so for every lake you will see 16-66 MASSIVE ALPINE fault quakes and waves..... sure the lake will be bad but the alpine fault goes off every 300 years almost clockwork.... and its now due
Wellington - my hometown - needs to seriously wake up. They should start with removing heritage protection on all but the most valuable buildings (just a handful). It’s cost prohibitive, a fundamental risk to human Life and contributing to a pretty crappy CBD economy.
Japanese bank Aozora smashed today through exposure to the US property Ponzi.
Aozora Bank Ltd. shares plunged by the allowable limit after it forecast a loss for the year because of investments in the US commercial property sector.
The bank announced that it expects to post a net loss of 28 billion yen ($191 million) for the fiscal year, compared with its previous forecast of a 24 billion yen profit. The bank said the loss is due the additional draw down of loans for US real estate and losses on sales of foreign bonds. It made an additional reserve of 32.4 billion yen against bad loans related to US office real estate the third quarter.
Shares fell more than 21% to 2,557 yen in Tokyo.
Aozora said its US office loan outstandings were $1.9 billion, accounting for 6.6% of total loans.
https://www.bloomberg.com/news/articles/2024-02-01/aozora-plunges-20-af…
I see. So you're saying that the US regional banks exposure to commercial real estate and the fact that they blew up / bailed out 'doesn't count' because housing is not in the narrative. Not sure how you get to that conclusion. Because it's wrong as explained here.
New York Community Bancorp announced a "surprise" loss driven by loan loss reserves rising 10x vs. estimates. Is it 'intellectually lazy' to suggest the banks ain't fixed and that the 10-yr and 2-yr yields plunged signaling the market expects some sort of renewed bankster bailout?
Is it also 'intellectually lazy' to suggest BTFP and the discount window won't help as commercial real estate and multi-family residential loans are not eligible collateral (yet)?
https://www.reuters.com/business/finance/new-york-community-bancorp-sto…
BTFP is scheduled to end in March. If the Fed doesn’t cut or taper quantitative tightening in March, bond market sells off big. Which means losses on bank balance sheet grows. Depositors leave for higher rates. Now the bank has a problem - to pay back depositors.
If they have BTFP, no problem because they can repo a bond and still get par. But with the discount window, the market value is all they can get. If that keeps falling as bond prices fall, at some point they go out of business as depositors flee and they don't have the moolah to cover unrealised losses.
US regional banks have large exposure to CRE and resi mortgages. It's not the reason why they blew up, but these are key assets for the banks - crucial for their commercial viability.
Go back and read the link I posted.
NYCB posted an adjusted loss of $185 million due to a chunky $552 million provision for credit losses. The lion's share of those provisions was allocated to its commercial real estate portfolio which, as with many lenders, has been under pressure amid lingering pandemic office vacancies.
NYCB bought Signature Bank, not SVB.
Regulators play a game of 'whack a mole' with lenders. The clean up one area after a disaster and and the lenders move to another area. And in time, due to lender lobbying, government relaxes regulations, and the cycle continues.
Remember NZ's finance companies? Same. I fully expect the NACTF to take a good look at the regulations put in place after that fiasco and consider changes to relax the rules. Whether they do or not this term is another thing. But it's guaranteed to happen. (Economic history is well worth the study.)
Tsunamis approach from the horizon..... ie forget domestic NZ the global recession will roll over us from the US CHINA and Europe. Crappy NZ buildings are not immune, NZ is always valued with a risk premium to these major offshore markets, we are not a safe haven. You are incredibly ignorant of past economic history in NZ. 1970s and the 1987 share crash
I have to agree, commercial real estate is not “Ponzi”, it’s a genuine profit based business being hit hard by a change in its consumers. unlike residential property, crypto, etc which is all about capital gains.
Fair enough. That will explain why the Xerox Building in Washington DC just sold at a price 85% lower than it did in 2013.
I guess we can assume rents and / or occupancy have fallen to justify this drawdown.
Or it could be that bank credit creation has been misallocated to property and / or valuations have been wrong (the latter is what we know).
That’s a bit hyperbolic.
I think it’s sensible to be well prepared for the bad stuff. You can be aware of it and well prepared for it rather than ‘revelling’ in it.
Far too many people take the ‘she’ll be right’ or ‘could never happen here because it’s never happened here before’ attitude.
Japan has the right approach. Extremely aware of the risks, extremely well prepared, but not obsessed with the risk nor ‘revelling’ in it. Probably because they have experienced disasters (natural and man-made) so often.
Japan has the right approach. Extremely aware of the risks, extremely well prepared, but not obsessed with the risk nor ‘revelling’ in it. Probably because they have experienced disasters (natural and man-made) so often.
Some of the drawdowns we're seeing in CRE are as bad as what happened in Japan. F'more the property fire sale in HK never happened in Japan. It took much longer to play out and was more on existing residential properties as opposed to new property.
Top drivers of the 7% increase in household living costs during 2023 with a quick assessment of sensitivity to demand / interest rates....
- Interest rates on debts: 1.7 p.points. Goes up with rates!!
- Private transport (mostly petrol): 0.6 p.points. Went up when excise duty discount stopped. Prices unaffected by demand or interest rates.
- Rent: 0.6 p.points. Higher rates put pressure on rent prices and don't really affect disposable income of renters (... cos they don't have mortgages!)
- Insurance: 0.55 p.points. Unaffected by demand. Prices can go up with interest rates because funders expect higher returns.
- Grocery food: 0.5 p.points. Food prices are determined by import and export prices and biggest price pressure on domestically grown stuff is currently... Interest rates.
- Property Rates: 0.47 p.points. Higher rates increases local govt costs but this effect is obviously tiny compared to chronic underfunding of infrastructure for years.
- Cigarettes and tobacco: 0.3 p.points. All about tax. Not demand sensitive.
That is all the big contributors. Now remember, to fight inflation, you need to become inflation.
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