Here's my summary of the key events overnight that affect New Zealand, with news the way mortgage brokers are paid is under scrutiny in Australia. (Updated with link to Choice submission.)
But first in the US, the pace of hiring rose in May, but the number of job openings actually fell, even though it is still at near-record levels. This data doesn't change the view that the US labour market is still in a healthy state.
Across the border, Canada's new house-building industry is recovering fast. New housing starts were up more than +9% in June from May. But that recovery still left it -3% lower than for June 2016.
Meanwhile, the Bank of Canada is widely expected on raise its benchmark policy rate for the first time in seven years, signaling the Canadian economy is on the path to recovery after years of tepid growth following the global slump in commodities that hit them hard. There is trepidation over the impact the move may have, even though the rise will likely be only +25 bps to 0.75%.
In China, their central bank is battling an increasingly sceptical business community over the exchange rate peg it applies to daily transactions. The yuan is closing consistently at the bottom of the permitted band set by officials. Many companies are parking their foreign currency in bank accounts rather than converting them. In May, those foreign currency deposits hit NZ$1 bln, the highest level in fifteen years. It is very unusual indeed for Chinese businesses to challenge their regulator in this way.
Singapore's sovereign wealth fund is growing more cautious, signalling that risks are rising in the US and around Brexit, and it has rebalanced its portfolio and reduced its risk. It is settling in for a few years of underperformance as it protects the value of its NZ$0.5 tln fund, the world's eighth largest such sovereign fund.
In Australia, there are calls to scrap all commissions and fees paid to mortgage brokers on the basis that they incentivise brokers work to get their clients deeper into debt rather than advise them of their best options. However, mortgage brokers are the dominant intermediary between customers and the banks in Australia and will be hard to wean them of the commission drug. The call is to replace commissions, both upfront and trail, with a fixed fee for service model.
In New York, the UST 10yr yield has slipped slightly for a second day, now to 2.36%.
The price of oil has risen slightly to just over US$45 a barrel, while the Brent benchmark is now just on US$47.50. There are reports that Saudi Arabia is pumping more oil than it committed to OPEC when the cartel mandated output cuts.
The price of gold is holding today, up by a marginal +US$3 to US$1,214/oz.
But the Kiwi dollar is almost -½ cent lower at 72.3 USc. On the cross rates we are almost -1 cent lower at 94.7 AU¢, and at 63.1 euro cents. The TWI-5 index is down to 76.3.
If you want to catch up with all the changes yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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50 Comments
Some interesting research showing Australians would be better off with the 15 million they had in the 70's, I wonder if the same study would show similar results here?
"the country has a bipartisan default population policy, which is one of rapid growth. This is in response to the demands of what is effectively a coalition of major corporate players and lobby groups.
Solid neoliberals all, they see all growth as good, especially for their bottom line. They include the banks and financial sector, real estate developers, the housing industry, major retailers, the media and other major players for whom an endless increase in customers is possible and profitable.
But Australians stubbornly continue to have small families. The endless growth coalition responds by demanding the government imports hundreds of thousands of new consumers annually, otherwise known as the migration intake.
The growth coalition has no real interest in the cumulative social or environmental downside effects of this growth, nor the actual welfare of the immigrants. It fully expects to capture the profit of this growth program, while the disadvantages – such as traffic congestion, rising house prices and government revenue diverted for infrastructure catch-up – are all socialised. That is, the taxpayer pays.
The leaders of this well-heeled group are insulated personally from the downsides of growth that the rest of us deal with daily."
https://www.theguardian.com/business/2017/jul/11/why-a-population-of-sa…
And on that rapid growth thing, if everything else is anything to go by, having to run faster and faster just to stay in the same spot, then in order for population growth to keep doing what we think it is doing, it will also need to be ramped up. It is sheer madness.
It is not just Aussie that would be better with its population as it was a few decades ago, the same applies to the entire planet. We have well and truly overshot and blithely look ahead to still billions more, without a thought to how that is going to end. One thing is for sure it will end with one hell of a lot less species on this planet.
It's beyond tragic what is happening to our fellow species and their world; in a lot of places a fully functional natural environment no longer exists.
https://www.theguardian.com/environment/2017/jul/10/earths-sixth-mass-e…
In small towns in Japan, it is not uncommon to see derelict houses falling down in a state of disrepair. Neighbouring property values would be directly impacted. Small numbers of young people around. The whole ambience of the place is affected. An ageing/falling population has negative effects as well.
Certainly they will have to adjust - but they also had to adjust when the population grew from 83 million in 1950 to 127 million in 2001.
Surely if the population falls by a third the level will be more sustainable and the people will have a better quality of life.
Waste of time - NZ does not learn from others
10 years ago the Productivity Commission of Australia established that immigrants captured all the economic gains from any growth themselves. The existing locals did not benefit
The Productivity Commission of Australia is the Government's principal review and advisory body on microeconomic policy, regulation and a range of other social and environmental issues
Annual budget: AUD $33 million Employees: 165
Productivity Commission of NZ
The Commission has around 15 staff, with scope to grow to 20 depending on ...
We conduct inquiries and productivity research to expand knowledge about productivity
Who do you believe?
WHAT THE MAINSTREAM MEDIA IS NOT TELLING YOU !!!
Toronto House Prices Are Crashing 192k in just 3 months alone.
https://www.youtube.com/watch?v=hGL0ysImPCo
Auckland Albany House Prices Dive 13.5%
https://www.stuff.co.nz/business/property/94154549/house-prices-dive-in…
The Crash is Coming.
In the UK everyone is shopping on Amazon Prime day, the laptop my nephew was after sold out fast. Anyone thought this through?
http://www.supplychain247.com/article/amazon_prime_air_cargo_planes_rea…
Even in India Amazon is a disrupter
http://economictimes.indiatimes.com/small-biz/startups/prime-sale-buy-o…
http://www.zerohedge.com/news/2017-07-10/amazon-prime-households-track-…
https://www.theverge.com/2017/7/10/15949660/amazon-prime-day-deals-2017…
That's a great blanket statement.
How exactly are all commissions bad for consumers?
I would argue that salaried consultants are bad for consumers. On the one hand, you subsidise other consumer's consumption decisions. On the other you completely remove the incentive for the salesperson to advocate on your behalf.
At the end of the day you need to take some responsibility and stop blaming other people for your poor purchasing decisions.
Salaried individuals are incredibly less productive, resulting in substantially more welfare loss within the system.
... ha ha ... it's typical of the Ozzies to punish the little guys , the users , but to let the big guys , the pushers off the hook ...
And the biggest pusher drugging the Oz economy on a humungous debt bender is the Reserve Bank ... their super low OCR policy has gotten the entire property industry binging on debt ...
... don't blame the hard working mortgage brokers ... those guys & gals aren't the problem ...
How timely , Henry _Tull's comments regarding mortgage brokers and commissions last week.. With declining prices , falling volumes, and the tightening of moving mortgages between lenders , banks will look to cut all unnecessary costs, mortgage brokers will be on top of the pile.
Apparently the "media" are to blame for the decline in Auckland property prices according to BNZ economists. The same outfits that were cheering the rises on the way up and helping create the bubble in the first place? Is that a whiff of panic in the air?
"The recent decline in Auckland house prices is now getting significant media coverage. This can be self-fulfilling to the extent that folk fearful that a market might correct are more likely to withdraw from it - buyers that is - and sellers will either delist their properties, simply not sell or, if under pressure, accept lower prices than might otherwise be the case," Ebert wrote.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=118…
Toronto House Prices Crash 192k is just 3 months.
https://www.youtube.com/watch?v=hGL0ysImPCo
Auckland Albany House Prices Dive 13.5%
https://www.stuff.co.nz/business/property/94154549/house-prices-dive-in…
The Crash Is Coming
Here is a question for JB Squirel. In responding to Henry Tull's statement of 7 July in regard to trail commission. The reply was 'our brokers' do not get paid trail as they are on salary . Could Squirel clarify whether it is receiving trail commission, on any of the mortgages obtained for its clients.
But first in the US, the pace of hiring rose in May, but the number of job openings actually fell, even though it is still at near-record levels. This data doesn't change the view that the US labour market is still in a healthy state.
Hmmmmm...
A recovery is supposed to be taken literally, whereas that might be the case from the perspective of Job Openings it isn’t even close as estimated by adjusted Hires. The most that might be said of the labor market is that it is advancing, but by how much remains perhaps too open to interpretation.
What is required is corroboration, with the burden of proof shifted to the mainstream view. The unemployment rate, and by association Job Openings, have failed to match economic conditions and therefore have already proved a poor indicator of economic strength/weakness. Read more
The US Treasury released its first report (under Trump) on re-examining financial regulations and their impact on economic growth. The publication was little noticed because most people don’t much care about Supplemental Leverage Ratios (SLR), though they should.
For decades, regulators allowed banks to operate under Basel rules as if capital ratios were sufficient criteria for identifying risks, only to suffer the worst global monetary panic since the Great Depression. Some people did notice that banks like Bear Stearns and Lehman Brothers were by all regulatory standards “well capitalized” and yet their balance sheets were hugely extended, often with leverage ratios of 33 even 35 to 1.
If a bank has a choice of lending in a mortgage at a 100% risk-weighting, or buying an MBS with similar characteristics at a 50% or even less risk-weighting, the choice is obvious. Flipping the capital ratio around, for the same amount of capital a bank can hold double its leverage (hold twice as much assets) at a 50% ratio as 100%. Therefore, the ability to do that is paramount, even if capital ratios look pristine in each case.
To convert a 100% RWA to something less required largely derivatives.
That was, in essence, the role of credit default swaps before 2007. As AIG’s 2007 Annual Report explicitly spells out (in the notes, of course, as almost all of this stuff goes on off-balance sheet and unrecordable under traditional accounting definitions and conventions):
"Approximately $379 billion of the $527 billion in notional exposure on AIGFP’s super senior credit default swap portfolio as of December 31, 2007 were written to facilitate regulatory capital relief for financial institutions primarily in Europe".
Again, derivatives used for expanding leverage while maintaining capital ratios, and spread out all over the world (though at the time primarily Europe and the US; Asia still might have to be reckoned with). This is what I call dark leverage, or math-as-money. It is a money multiplier effect that has nothing to do with the amount of bank reserves, let alone vault cash or anything in the M’s. Read more
I have personally found that there is absolutely no need to use Mortgage Brokers , and if the Banks did their processes properly like the days when they were Savings Banks , they would not need them either .
Hidden in the Bank agreement small print is the fee which can be as much as 1.75% of what is borrowed and its capitalised into the 30 year loan so that $7,000 or $8,000 will actually cost triple that amount over time , and its never disclosed boldy as it should be .
I only once used a Mortgage Broker , and the deal he tried to get me to accept was worse than me going directly to my bank
The Banks have simply allowed the Mortgage Brokers a free hand , and the costs are inevitably borne by the borrower .
In spite of best efforts I still cannot describe the eurodollar dillema except as a shortage of dollars.
I can live with that but I do wonder if bilateral trrading arrangements get round the problem by setting trade using different currencies, NZ dolar for example.
But it wont ruin my day if I dont know.
Toronto House Prices Crash 192k in just 3 months.
https://www.youtube.com/watch?v=hGL0ysImPCo
Will the oil age soon become like the stone age ?
France said it will end sales of petrol and diesel vehicles by 2040 and Volvo Cars plans to start phasing out production of conventional petrol-only cars from 2019, with all new models to be electric or hybrid from that date (AFP 11 -7 -2017 )
Is this a groundswell shift or is it my imganination ?
And will we in typical New Zealand fashion be left behind in planning for this ?
What is there to plan for Boatman? A hybrid drives like a petrol-only car, drinks petrol at a fractionally slower rate than a petrol-only car, needs a driver like a petrol-only car, needs highways and parking buildings like a petrol-only car, gets stuck in congestion just like a petrol-only car.
Even if there was some amazing scientific discovery that lead to battery prices plummeting, and thus battery-electric cars became suddenly affordable and replaced petrol and diesel cars, we have sufficient planned-consented-but-not-yet-built power plants to cover this unlikely demand. All the other above statements apply to battery-electric cars.
Our personal plan is to continue buying diesels as it will be the last fuel to become scarce, trucks will need it for a long time.
Next years diesel is an Adblue consumer, Euro 6, we will make the car last until the electric transition has settled down.
Thats the plan.
"the Bank of Canada is widely expected on raise its benchmark policy rate for the first time in seven years, signaling the Canadian economy is on the path to recovery.."
http://owecanada.blogspot.co.nz/2017/06/canadian-total-household-busine…
"The approximate beginning of the global financial crisis was June, 2007. At the end of June, 2007 the total debt outstanding in Canada was $3.99 trillion. In the last 9-3/4 years it has increased by $3.36 trillion. This is an increase of 84.2%."
... debt is the Western world's disease ... in lieu of growing our economies through actual business and innovation , we are gorging on cheap debt to inflate our property markets ... getting rich on speculation ...
Any responsible Reserve Bank will raise interest rates to deliberately orchestrate a recession , and to squeeze the liquidity out of the market before the speculative binge gets any more out of hand ... better sooner , rather than later ..
... there is gonna be one helluva hang-over from this party , once the punch-bowl is taken away ...
This is a nice summary of where its headed
https://surplusenergyeconomics.wordpress.com/2017/07/09/100-defining-ti…
"a functioning market in futurity has been undermined – indeed, virtually destroyed – by monetary policies geared solely to the management of existing debt. ...Artificially low rates, therefore, destroy the equilibrium between the present and the future. (They also block the essential process of “creative destruction”, miss-price risk, and manufacture bubbles).
Moreover, artificially low rates mean that our provision for the future deteriorates at exactly the same time as our future obligations to repay debts increase. If you add to this a third ingredient – an inability to organise the provision of care for an ageing population – the result is a potentially lethal cocktail.
We can call this toxic mix “triple D” – debt, deficits and demographics."
Lifetime cost of use would be much cheaper. Much cheaper. But you have to front up with an initial bigger cost ummm - investment.
think of those magnificent German farmhouses. 400 years old and still producing great value.
Problem in NZ is we don't produce any capital. So we build crappy houses that have high maintenance cost, short lived, uncomfortable, with very high lifetime costs.
Ignoring the fact that most places prefabricating tilt slabs are overloaded with work it's not going to speed things up. As pointed out above most framing is fabricated offsite and the same goes for roof trusses. To build faster something is going to need to be sacrificed.
Perhaps a move away from bespoke and oversized houses would do more for speed.
We looked at tilt slab but went for conventional timber frame with cedar weatherboard on cavity batons for our new house. The T/S was about the same (remember its only the outside walls) price wise but is a pain with running services. To achieve the reqired R values (insulation) for residential they can do it in two slabs with foam between or baton them inside and fit insulation and services then gib board. Foundations were a lot bigger as well. The timber frame house works well and can have a really long life if done correctly - the Kemp house here in Kerikeri is coming up for two hundred years and still going strong.
https://en.wikipedia.org/wiki/Mission_House
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