A review of things you need to know before you go home Thursday; number of working-aged beneficiaries drops, inflation up, rents rise, NZGBs popular, housing values stratospheric, swap rates rise

Here are the key things you need to know before you leave work today.

Housing NZ Corp. has raised its rates for floating mortgages, and for 1, 2 and 5 year fixed rates.

We have updated the rates listed for Aotearoa Credit Union today.

MSD today reported that the total number of working-aged people on a benefit as at the end of March was 278,236. This is the lowest absolute March number since 2008 and reflects declines in all categories, except a +1.9% rise in those on a Jobseeker Support benefit from March a year ago. There is now 7.4% of the working-aged population (that is, 15-64 year olds) on a benefit of some sort. This is the lowest proportion since this data series was started in 1998.

Is inflation returning? Today's data reveals that consumer prices are +2.2% higher in March 2017 that the same month a year ago. That was more than analysts were expecting (+2.0%) and far higher than the +1.3% in December.

One household cost element rising is rent. Median rents are up +$50 a week over last 12 months in parts of Auckland. Rents continuing to increase sharply when supply is also increasing suggests supply is still falling well short of demand. The situation is quite different in Christchurch however where ample supply is seeing rents fall slightly.

Even though the coverage ratio for today's $150 mln NZGB nominal 2025 bond tender was lower (but still healthy at 4.5x), those bidders did so aggressively driving down the yield to 2.89% from 3.13% last time.

The RBNZ has revalued the national housing stock as at December 2016 at $1.013 tln. This is +16.1% higher than it was a year ago. This is why we say New Zealand's economy is really only a housing market, with a few other bits tacked on. While GDP grew by +$13.7 bln (nominal) in 2016, the growth in housing values was ten times that at $141 bln. That comparison is at the heart of the housing distortion. We all worked hard for the GDP growth; the housing values just fell from the sky.

Stage 2 of the Canterbury 'Central Plains Water' irrigation scheme has begun construction, which claims economic benefits of up to $374 mln. and will double the 20,000 hectares of Stage 1. An additional 1,130 jobs are expected to be created. It brings alpine water to an area that has previously used ground water. The $6.5 mln Crown loan for stage one has been repaid. Stage two gets a $65 mln Crown loan. The full scheme is expected to cost $375 mln. A parallel project to recharge local aquifers is also underway. A recent report by NZIER found that irrigation contributes $2.2 bln to the national economy and this will rise with CPW-II.

Japanese trade data out today reinforces recent reports that international trade is growing strongly again. Japanese exports in the March were up +12% from the same month a year ago, and imports were up +15.8% on the same basis. These are heady rises for the world's third largest economy. There merchandise trade surplus was lower on the data. Japan is far from the Western-perception of being a zombie economy.

Local swaps rates have risen today across the board. They are up +3 bps for two years, up +4 bps for five years and up +4 bps for ten years. The 90 day bank bill is down -1 bp to 1.96%

The NZD rose strongly after the CPI data release, but actually only making back what it lost last night. We are back to 70.3 USc. Against the AUD, we have risen a bit more to 93.7 AUc. Against the EUR we are trading at the 65.6 euro cents level. The TWI-5 is now at 75.3.

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According to the past two years of trade data in the link Japan should be staging an export led recovery. Even their unemployment rate is only 2.8%. Yet companies refuse to pay their workers more, BoJ still has an official rate of -0.1%. How many of their companies are borrowing just to pay the interest on their debts? How many are getting paid to borrow money?

Yes, the unemployment rate is low in Japan, but the labor market has fundamentally changed since the glory days. I know from experience after working for a Japanese brand manufacturer in Japan. At one end of the spectrum, you have the 50+ brigade on lifetime employment contracts and an antiquated non-performance based bonus structure, while at the other end you have electrical engineers on annual contracts with low incomes; no bonuses; and no obligation to provide bonuses.

Then you have those past retirement age that need to work to survive or are turning to crime to fund their lifestyle. Whenever someone says Japan is doing well I wonder what they are talking about. Their economy isn't recovering and their society is a shambles.

"Recovering" from what? The late 80s bubble? During their bubble, household debt to GDP never rose beyond 60%. Here it is close to 170%.

Why is their society a "shambles"? What does that mean? I think there's much to learn from Japan's society: respectful, honest, diligent, and generally courteous to others around them.

Oh wow so if the RBNZ has revalued housing to a much higher value the banks will want to readjust the valuation on their books too. Suddenly the asset value is much higher to the lending % so no need to hold higher levels of capital they can make it look nice and hunky dory now. They also have more wriggle room to lend. Dangerous game, as they say the higher you rise the faster you fall. Time to be very very afraid!!!!.

Even though the coverage ratio for today's $150 mln NZGB nominal 2025 bond tender was lower (but still healthy at 4.5x), those bidders did so aggressively driving down the yield to 2.89% from 3.13% last time.

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A recent report by NZIER found that irrigation contributes $2.2 bln to the national economy and this will rise with CPW-II.

That surely is a paltry amount, given recent estimates of waterways damage recovery costs in time and lost income for other foreign income endeavours that demand clear running water to promote the pristine "pure" image?

"paltry" is a two edged sword Stephen. If it truly is paltry then surely no one would miss it if it were placed into my personal bank account?

Exactly, privatising the profits today, to socialise the costs over time. The latter is always larger than that which lines your theoretical pockets, especially after discounting it back to present values using low interest rate factors.

We need a national discussion on returns on investment for the projects that are given the water resource.
Like Auckland for example...

FUNNY MONEY; the housing values just fell from the sky.

The housing crisis; born from incompetence in planning, nourished by greed.

Well they didn't really fall from the sky; they made a safe landing at Auckland International airport.

By excluding housing, CPI is massively understated


Key Points:
•House price cycles are not captured in the CPI because the cost of land is excluded from the consumer basket.
•The CPI is a poor barometer of changes in the cost of living for people who don’t own a dwelling and aspire to purchase one.
•Consumer price inflation would look very different in Australia if the complete cost of a dwelling was included in the CPI.