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A review of things you need to know before you go home Thursday; no rate changes, why houses cost so much, fewer on benefits, NZGB bond yields rise, retail wages 'rise', swaps and NZD stable

A review of things you need to know before you go home Thursday; no rate changes, why houses cost so much, fewer on benefits, NZGB bond yields rise, retail wages 'rise', swaps and NZD stable

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

MORTGAGE RATE CHANGES
There are no changes to report today.

DEPOSIT RATE CHANGES
No changes here either.

WHY NEW HOUSES COST SO MUCH
A Government-commissioned report has found that land use regulations add about +56% to the cost of houses in Auckland. 'Prices far outweigh costs in most major NZ cities' it says. More here.

FEWER ON BENEFITS
7.3% of our working age population is on a (means-tested) benefit, according to data released today by MSD. That is the lowest level since this series began in 1998. It reached a high point of 13.9% in December 1999, fell to 7.6% in March 2008, rose during the GFC and has fallen steadily since. The current level has 118,800 on Jobseeker Support, and 157,600 on the three other main benefits, mainly Sole Parent Support, and Supported Living Payments. (But don't mention the approx. 730,000 on the National Super benefit that is not means tested. Having said that, most of those will not be of a working age of 15 to 64 years.)

NOT AS POPULAR
Today's $200 mln Government tender for 2025 bonds resulted in a weighted average yield of 2.82% a somewhat surprising +20 bps rise from the similar event last month. This time the coverage ratio was only 2.0x compared with 4.3x in June.

RISING FASTER
Industry lobby group Retail NZ has released the results of its annual survey on wages across the sector and, on average, they say wages have increased by +5.1% over the last year, from $20.73 to $21.80 per hour. The minimum wage increased +3.3% on 1 April 2017 going from $15.25 to $15.75. That means the retail sector average has risen from +35.9% above the minimum wage to +38.4% above in 2017. Their survey also asked respondents to indicate other ways employers "rewarded" their employees and found that 90% of them offered some form of additional benefits, such as discounts, commissions or "training opportunities".

MORE FULL-TIME, LESS PART-TIME
Even though their unemployment rate was unchanged at 5.6% in June, Australia has achieved its ninth straight month of job gains, with +14,000 new jobs added to their economy. Full-time employment grew by +62,000 jobs, while part-time employment decreased by -48,000. (The New Zealand data for June unemployment won't be released until Wednesday, August 2. As at March, our jobless rate was 4.9%.)

YIELDS MAKE NO SENSE WITHOUT CAPITAL GAINS
In Sydney house prices and rents are still rising, even if slightly slower than in the past. Data out today for June shows median house prices at AU$1,178,400 (NZ$1,274,000) and for units/apartments the median is AU$758,000 (NZ$819,500). But interestingly, rents are the same for both types of dwellings - AU$550 per week (NZ$595). Gross yields (that is, annual rent as a proportion of the median prices) are 2.4% for houses and 3.8% for units.

NO PROGRESS
The United States and China failed earlier today to agree on major new steps to reduce the American's goods trade deficit with China, worsening the US's economic and security relations with Beijing. The talks, which were supposed to be the first of a series, ended with canceled news conferences, no joint statement and no new announcements on US market access to China. Without progress, and taking the US President at his previous word (?), the Americans look like they are on a path to a trade war with China. Or, if he backs down, another Presidential failure.

WHOLESALE RATES STOP FALLING
Wholesale swap rates have risen by +1 bp across the whole curve today. The 2-10 curve is now at +1.09%, and slightly flatter than it has been over the past two weeks. The 90 day bank bill rate is unchanged at 1.94%.

NZ DOLLAR STABLE
The Kiwi dollar is little changed from this time yesterday at 73.4 USc. On the cross rates have remained similarly stable, trading now at 92.5 AUc and at 63.8 euro cents. That puts the TWI-5 unchanged at 76.6. Bitcoin has risen slightly today to US$2,327, up +1.8% from this time yesterday.

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11 Comments

Japan kicking the can out of the stadium.

The Bank of Japan kept its monetary stimulus program unchanged even as it pushed back the projected timing for reaching 2 percent inflation for a sixth time.

The central bank pledged to maintain its yield-curve control program and asset purchases, a result predicted by all 43 economists surveyed by Bloomberg. The BOJ now expects to hit its 2 inflation target around the fiscal year starting in April 2019, a year later than a previous projection. It also cut its price estimates for the current and next fiscal years. Read more

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... how is it that a similar set of reserve bank settings which led to the utter destruction and hyperinflation of the Zimbabwe economy ... are keeping the Japanese economy afloat and stable ?

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There's one last critical element for inflation or hyperinflation to really kick off. People need to believe that if they don't spend their Yen right now it will buy less later. Most of the money printing has gone to Japanese companies. However those companies seem to believe that the money will increase in buying power over time, or that there is a shortage of Yen. As such they are refusing to pay their employees more. They don't believe that there's inflation.

If Japan really wanted inflation they would give money directly to the people and tell them to spend it. Then give them more until they learn that the Yen will be inflated severely. The reverse of what happened in the 1980s.

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Japan hasn't invaded the Congo to grab its diamond mines and printed money to pay its soldiers nor dispossessed all their farmers and given the land to the ruling elite who have little interest in farming.

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China's overseas acquisition streak seems to be coming to an unhappy end. Outward direct investment fell by 46 percent in the first half of the year, due partly to tightened capital controls and partly to new restrictions on "irrational investments." But the authorities should be asking a more fundamental question: Why do China's companies struggle so much overseas? Read more

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Well, maybe they have enough. Just hunkering down for a bear market?. Possession is 9/10th's of the law; or 9/10ths of the problem, as John Lennon once said.

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Auction results looks pretty bad this week, seems to be a few firesales and the rest not sold...

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It’s worth noting on a day when the 4-week T-bill prices still less in equivalent yield than the RRP even though the 3-month bill has nearly inverted with the 6m due to Treasury’s dwindling accounting tricks to defer the debt ceiling. Read more and more

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Issues surrounding Chinese companies, their offshore deal making, corporate bonds , debt issues ,accounting irregularities sometimes turn up on this website. After the local takeaway our most well known Chinese company is possibly Shanghai Pengxin ,( for some it may be Great Wall ) the buyer of the Crafer farms , or as often translated El Crappo ranch, on Chinese financial websites. El Crappo and the other acquired farms were hived off into the Schenzhen listed Hunan Dakang, alongside a failing pig business ,a sheep breeding venture, loss making ,certainly not the venture as described in its OIO filings, or in its MOU with Landcorp and Massey University. Recently Dakang has ventured into Brazil and grains. It has funded itself , by debt, a lot of debt, a significant amount is due 1 year., Its annual report along with the accounting irregularities has been rewritten and its shares have been suspended , since March , undergoing the quaint term of restructuring, (or we need finance.)and having to account for multiple queries from the securities commission. On August 23 , a corporate bond of 330 million plus the final interest payment at 7.3 percent is due. The company has cash flow problems. A large percentage of its shares are pledged, including those owned by Shanghai Pengxin If /when the company is removed from its trading halt , any fall in its share price will see margin calls with the potential that Shanghai Pengxin would no longer be the majority share holder .Given the gross overvaluation of Dakang , this is entirely feasible. Shanghai Pengxin is also the major shareholder of Pengxin International Mining,this is also suspended , since February from the Shanghai stock exchange, also undergoing 'major restructuring.'Again a large number of shares are pledged, copper has been pledged and Shanghai Pengxin is attempting to offload a waterlogged South African gold mine, (with a very unsavoury past, ) that it acquired in 2012 from the private company into the publically listed company , at 19x the original cost of its acquisition, and grossly inflated production costs.The securities commission is asking some very probing questions. Given the recent changes to mining concessions in South Africa, and the delay in the promised commencement of work on the mine , its equally likely that Pengxin could lose the licence due for renewal in February .An inter related company, Zhejiang Longsheng Auto Parts , now known as Kuangchi Technologies is also suspended having been very generous with a non public share offering, of which Shanghai Pengxin was a major benefactor along with Kuangchi Science( listed on the Hong Kong stock exchange )which makes inflatables and has recently overseen the demise of Martin Jetpack. If Shanghai Pengxin can maintain political favour, if its publically listed companies can have their share prices propped and it repays it bond on August 23, the company will roll on , if not a large number of dominoes will fall.

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Low unemployment.ten percent more job ads compared to last year.I blame the government! !!

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