Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
Kiwibank has now come out and matched the ANZ increase. More here.
TERM DEPOSIT RATE CHANGES
Kiwibank has also raised term deposit rates. Heretaunga Building Society has raised some TD rates.
BUSINESS LENDING RATES
ANZ has raised its key business lending rates by +25 bps. Their Business Bank Indicator Rate is now 9.10%, their Business Overdraft base rate is now 11.10%, and their Agri Current Account is now 7.30%. Comparatives here.
'PAIN IS ACCUMULATING'
The BNZ-Business NZ services PSI was still contracting in February, even if a little less so than in January. As BNZ notes: "February’s Performance of Services Index (PSI) was conceivably better than some might have thought, given Omicron’s escalating spread through the country during the month. But, at 48.6, which was a touch higher than January’s 46.0, the PSI remains weak. February marks the PSI’s seventh consecutive month below the breakeven 50 mark. Pain is accumulating."
'GO FOR IT'
The Commerce Commission has approved the merger of 2 Degrees and Orcon, finding that there it is unlikely to affect competition in the telecoms market.
CHINA NOT AS WEAK AS ASSUMED
China released some February data today, and it was all much more positive than some (me included) were expecting - even if it is benchmarked against a weakish base. Retail sales were up +6.7% year-on-year when +3% was expected. Industrial production was up +7.5% on the same basis when +3.9% was expected. Electricity production was up +4.0%, so the activity they are reporting is probably 'real'. But they did report a rise in their jobless rate to 5.5%, a sharpish rise from 5.1% in January. Of course, the widening lockdowns in March might take the gloss off these February results.
COMMODITY PRICES TURN FAST
Commodity prices seem to have turned lower, mainly on fears the wind is going out of the post-pandemic recovery. Higher interest rates aren't helping. Recession is a word being used more now. Oil prices are down to under US$97/bbl in the US, under US$100/bbl for the international price, a sharp change even since this morning. Most other commodity prices are weak today. The Aussies are fretting.
EYES ON NEXT DAIRY AUCTION
We have a dairy auction early tomorrow morning. The expectation is for another modest increase. But the fast-changing commodity sentiment might unstitch that expectation.
GOLD FALLS FURTHER
In early Asian trading, gold is lower today from this time yesterday, now at US$1949 and down another -US$26.
EQUITY UPDATES
The S&P500 ended its Monday session down -0.7%, with most of the fall early in their trading. But the Dow industrials were up +1.1%; the tech-heavy Nasdaq was down -2.0%. Tokyo has opened up +0.3%. Hong Kong is taking it on the chin again, opening down another -3.6% for a two day loss of -9.1%. Ugly. Shanghai has opened down -2.1% adding to a big loss yesterday too. The ASX200 is down -0.9% following yesterday's surprise rise. The NZX50 is up +0.2% in late trade today.
SWAPS PUSH UP FASTER
We don't have today's closing swap rates yet. They are likely to have risen faster today, an accumulation that can't be ignored. The 90 day bank bill rate is unchanged at 1.49%. The Australian Govt ten year benchmark bond rate is up +10 bps at 2.52%. The China Govt 10yr is up +3 bps at 2.81%. The New Zealand Govt 10 year bond rate is now at 3.11% (up another +7 bps) and still higher than the earlier RBNZ fix for that 10yr rate at 3.09% (up +11 bps). The US Govt ten year is now at 2.16% and up another +12 bps from this time yesterday.
NZ DOLLAR DOWN
The Kiwi dollar is now at 67.4 USc down more than -¾c from this time yesterday and the US dollar surges at the expense of commodity currencies. Against the Aussie we are up almost +½c at 93.9 AUc. The Aussie dollar is being hit rather hard. Against the euro we -½c lower at 61.6 euro cents. That means the TWI-5 is now just under 73.1 and net lower.
BITCOIN FIRMER
Bitcoin has firmed today, now at US$38,985 and and up +2.1% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.6%.
This soil moisture chart is animated here.
Keep ahead of upcoming events by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
31 Comments
Just looking at the RBNZ OCR meeting dates, there was only one meeting in the nearly 5 months between the nov and april meetings, showing how weak the 0.25% increase in feb was to the 6% inflation. ANZ is right, they will need 0.5% increases to get back out of the emergency lows, 0.25 per meeting will simply be too slow, the problem was well known last nov.
100% of the population feels a cost of living increase.
Less than 1/3rd of the population has a mortgage, and many have small mortgages.
So only a smallish percentage of the population will notice mortgage rate changes. And people with term deposits will welcome rising rates.
The indirect impacts of increasing mortgages are much greater than the direct.
It slows down a range of sectors, reducing business incomes and increasing unemployment.
A classic example is residential development and property. Around 20% of the population is either employed directly or indirectly in this sector.
It may not always lead to job losses, but it will reduce income and mean wage rises, bonuses etc are less fruitful.
And for those who DO have mortgages, it will 'in aggregate' reduce discretionary spend in the economy, especially when other costs are soaring.
Of course rising interest rate environments also usually take the heat out of growth in the value of shares.
$330b of outstanding mortgages. NZ GDP = $345b.
- If the average mortgage rate increases from 3% to 5%, that'll increase the interest costs from $9.9b to $16.5b.
- When you factor in $6b profits for the banks, we'll see $22b or 6% of GDP disappear from the economy.
- Mortgage lending growth is roughly $20b per year, what happens if mortgage lending growth falls below the "carrying costs"?
- We'll go from $15.9b (bank profits + interest payments) on $20b lending growth to $22b (profits+interest) on what? $17b lending "growth"? I make this assumption from the 20% reduction in loans issued since the CCCFA with $1b in reduced lending.
They spent the summer months praying to the economic gods that something would come along and naturally bring inflation down....because they know the only lever they have is a good chance of bringing the whole system down when used.
"We're in control, but our only control will put us out of control"
The services PMI is a real eye-opener. Get the feeling we would be in a depression right now if it wasn't for the extraordinary fiscal and monetary policy keeping the economy afloat the last few years. Its like we're in a 2008-2009 slump...but the sharemarket and housing markets haven't crashed because they're being artificially propped up with funny money.
Time to plant up some more farmland in pine trees chaps.
"China plans a massive increase in coal mining, a move that will dramatically reduce its reliance on imports and deal a blow to its near-term climate actions. The National Development and Reform Commission, the nation’s top economic planner, told officials from major mining regions at a meeting late last week that it wants to boost domestic production capacity by about 300 million tons, according to people familiar with the matter. It also plans to build a 620 million-ton stockpile of the fuel split between government, miners and users. "
https://www.bloomberg.com/news/articles/2022-03-14/china-seeks-to-cut-c…
China currently has 249.6 gigawatts (GW) of coal-fired capacity under development (97.8 GW under construction and 151.8 GW in planning), a 21% increase over end-2019 (205.9 GW). The amount of capacity under development (249.6 GW) is larger than the coal fleets of the United States (246.2 GW) or India (229.0 GW).
For any of the share investors out there - what are your thoughts of the FOOD and FUEL ETF's from the ASX as inflation hedges? If no, any other better options worth looking at?
https://www.betashares.com.au/fund/global-agriculture-etf/
https://www.betashares.com.au/fund/global-energy-companies-etf/
The UK's everyone look after yourself position is pragmatic. If you can't, then don't travel.
The economic winds are dying. Becalmed shortly. Perhaps followed by a beasterly Easterly? That's the trouble in the tropics.
Biden & co are losing their own Democratic battles. F.... they're useless, aren't they?
Meantime USA & UK continue to support EU's porous borders with hardware that have made Mr Putin a little quiet for the time being?!?! With two layers of security people, bullet-proof buildings & planes & cars, he must be odds-on to be the most hated person on planet Earth right now. I wonder what the price on his head is? Must check the FBI website.
They were put in selective default by S&P in January for missing a bond payment. The missed payment amount was $725m.
https://www.fxempire.com/news/article/chinas-rf-properties-hong-kong-ar…
The sale of London property at a 42% discount gives them $125m. Right, now to find the remaining $600m which needs to be paid by 13 July.
https://www.scmp.com/business/article/3170521/guangzhou-rf-sells-london…
Oil prices are down to under US$97/bbl in the US, under US$100/bbl for the international price.
Luckily there is always someone who'll hold their noses and buy Russian oil. We do need to start discussing how repetitions will be assessed and levied to rebuild Ukrainian cities once the war stops.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.