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A review of things you need to know before you go home Wednesday; no rate changes, record trade surplus, Fonterra upbeat, new mortgage lending tanks, China downgraded, swap rates up & steeper, NZD rising

A review of things you need to know before you go home Wednesday; no rate changes, record trade surplus, Fonterra upbeat, new mortgage lending tanks, China downgraded, swap rates up & steeper, NZD rising

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

MORTGAGE RATE CHANGES
No changes to report today.

DEPOSIT RATE CHANGES
No changes today here either.

CHINESE-STYLE GROWTH
We are selling our export goods at an impressive rate. In fact, April was an all-time record month and April's goods trade surplus was the largest monthly surplus since March 2015 and the largest April surplus since April 2011. Easter fell in April this year, but the holiday appeared to have little impact on exports. Both exports and imports reached new highs for an April month. Goods exports in April 2017 were worth $4.8 bn, up +9.8% from April 2016. The top-five export commodities all rose compared with April 2016. Milk powder, butter, and cheese continued the increases seen in recent months, up +35% on the back of higher prices. Logs, wood, and wood articles rose +18%, with quantities up at a similar rate. Wine values rose +20% with quantities up +40%. Goods imports were worth $4.2 bln, up +4.9% from April last year.

BULLISH
As if to confirm this data, Fonterra released a higher 2016/17 payout forecast at $6.15%/kgMS, and an even higher forecast for the new season at $6.50/kgMS. The payout history for all dairy companies is here.

BEARISH I
Lending for new mortgages in April was just NZ$4.6 bln, down an staggering -30% from $6.5 bln in April 2016. Maybe Easter had something to do with it, but that doesn't answer such a steep drop. New lending to investors fell -48%. There is now virtually no new lending to investors at 70%+ LVRs. The drops for lending to owner-occupiers and First Home Buyers were much less, but still steep at -20%.

BEARISH II
Across the ditch the data out today was not as positive. The value of construction completed is falling and falling rather quickly. They really need the spending from their latest Federal Budget to kick in soon. In the March quarter engineering construction fell -13% year-on-year. But there were also falls for residential construction (-3.1%), and for other types of buildings (-2.1%).

TOO MUCH DEBT HAS CONSEQUENCES
Moody's has downgraded China's long-term local and foreign currency issuer ratings one notch to A1 from Aa3. (In contrast, Moody's still has New Zealand of Aaa, its top rating and now four notches above China.) "The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," Moody's said in a statement. "While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government," it said.

VERY BEARISH
Not to be outdone, S&P delivered more bad news to Brazil, warning that it may cut the country’s sovereign debt rating because of its troubled political situation. S&P currently has them rated BB with a negative outlook, already in junk territory. Bad governance costs are real.

SENTENCED
Napier loan company Cash to You Loans Limited has been banned indefinitely from operating as a lender, after charging borrowers unreasonable fees and excess interest and failing to correctly disclose fees charged. The company was sentenced in the Napier District Court on eight charges under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), relating to loans it provided between 1 April 2012 and 31 March 2015.

WHOLESALE RATES UP
Market expectations of a US Fed rate hike, plus good data in both the US and New Zealand has underpinned a rise across the board today with a steeper tone. The two year is up +1 bp, the five year is up +3 bps, and the ten year is up +4 bps. The 90 day bank bill rate is unchanged at 1.97%.

NZ DOLLAR FIRMS
The NZD is still at 70.1 USc. But we are stronger on the crosses at 94 AUc (the China downgrade didn't help the Aussie dollar), and at 62.7 euro cents. The TWI-5 is at 74.5. Meanwhile bitcoin has hit another new record at US$2,355, and that is up +9.4% on the day. (Fidelity Investments Chief Executive Abigail Johnson championed the growth of bitcoin and other alternative currencies in a speech Tuesday, a rare vote of confidence by a major player in the financial world.) Meanwhile, the price of gold has slipped.

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15 Comments

The mortgage slowdown is substantial. However $4.6b in lending is still a lot of money/debt creation. Some may make excuses for the slowdown but holidays never made any substantial difference in the past (not on this scale).

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Waiheke Island is a little microcosm of Auckland, the price surge of late 2015/2016 saw sales lift, as listings could not keep up with demand. Generally long term rental properties numbered 15-20, but recent months have seen available rentals surge to 54, of which 41 are vacant . Most recently a property just sold 1.2M, and relisted as rental asking rent $650. Rational behaviour.

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Makes me want to go back to being a renter. After owning for twenty years, I spent a decade renting homes similar to this listing. My fav was the house we rented with a 180 deg water view overlooking a bay from a 20m bluff. The house was about $1.2M, and we rented it for 2400/mo. This was ten years ago... you do the maths.

add: just looked up the current valuations for the home I noted above. The house next door sold last year for $870k, and was of similar value. So, since 2006, the valuation has gone from above $1M to less than $1M. Disclaimer: this example is in California... this would never happen in NZ... :)

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But those quantities of wine look great, at least to the growers
And I see mozarella has a great future, goes well on the pizza with a glass of wine.

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David, what do you mean that there is virtually no lending to investors at 70 % plus.
No Bank that I know has been doing that since the 60% LVR was brought in!
Problem is that the Banks adopted the 60 LVR on all previous lending as well so,it basically stuffs most people and therefore of course there is not going to be much investor lending.
New housing in Auckland will stop once the Banks stop lending to developers as they won't be able to presell enough units etc.

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"Problem is that the Banks adopted the 60 LVR on all previous lending as well so,it basically stuffs most people and therefore of course there is not going to be much investor lending" - source please?

Are you implying they are making you put in more capital? (i.e to take a previous loan at 80% down below 60%) ... never heard that before? Which bank?

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What I took him to mean was that they have to get above 40% equity before they'll let them use that equity for another investment property - oh the humanity.

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I've never been so happy about something being "stuffed" in my life. It's such a tragedy that people have to save the money for an investment rather than borrow it. God forbid that the market be built on people actually having money rather than using small slivers recycled equity, itself predicated on debt fuelled growth, to fund purchases.

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Looks highly likely that China's capital flight restrictions are going to remain in place for quite a few years whilst they stabilize their global economy. And that means that Auckland's house price will continue to reduce without top end buyer flashing lots of free credit. Oh well.

https://www.moodys.com/research/Moodys-downgrades-Chinas-rating-to-A1-f…

Bloomberg: China's Stocks, Yuan Erase Losses Triggered by Moody's Downgrade
https://www.bloomberg.com/news/articles/2017-05-24/china-stocks-slump-y…

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Oh and then there's this: Trump's $4.1tr budget takes hatchet to safety net
The White House has unveiled a $4.1tr (£3.1tr) budget that would take the axe to the social safety net for the poor.

http://www.bbc.com/news/world-us-canada-40015958

The plan would sharply slash food stamps, healthcare for low-income patients and disability benefits, and eliminate student loan subsidies.

A budget titled: "A New Foundation for American Greatness".

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Reportedly containing an accounting screw-up of a few trillion.

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Ex-Fed Bernanke: BOJ may need to coordinate new fiscal plan to lift inflation Read more

What next? It's past time for a global central bank regime change, after an in depth public consultation.

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"In his day, he was a man of few words, but when he spoke, folks tended to listen. For he often provided insight and clarity when they were needed. And now that he has lost his mind, strangely, it seems to me that his words still carry that same quality."
(From, On the Ravings of a Madman, By Will Baker)

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MisterB.
All the Tradings Banks are doing that.
What it does is not allow mums and Dads to lend or give money to their kids to buy a home.
Some might say that is great but from people I have spoken to, it is not liked.
The LVR requirement has not really affected us because of our equity being fine and it enables more buying opportunities as other investors are taken out of the market.
Interesting times throughout NZ.
Many ex kiwis will be coming home after the tragedy in Manchester yesterday and OZ talking about the capital gains on Kiwis living in Oz.

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Bang!!! Bang! Boom!

China’s Debt Bomb
https://www.bloomberg.com/quicktake/chinas-debt-bomb

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