Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
BNZ raised all its fixed rates. They were followed by Westpac with a lesser rise. More here. WBS also raised rates
TERM DEPOSIT RATE CHANGES
TSB raised most rates by +10 bps. Xceda Finance also increased all its rates which now range from 3.85% to 5.50% depending on term.
ANOTHER DECLINE
Dairy auction prices slid for the third consecutive auction overnight. The Omicron outbreak in China is now broadly weighing on global dairy demand and prices. Westpac says "at this stage, we expect this price weakness to prove temporary as Covid lockdown restrictions in China should eventually ease".
AUTUMN SLOWDOWN
Auction activity settles into the new normal as autumn takes hold. Around a third of properties are selling under the hammer overall at auctions over the past week.
PAYING FOR CLIMATE PERFORMANCE
In Denmark and Sweden, dairy giant Arla Foods said it is willing to pay farmers a premium for milk based on how many carbon-reducing activities they can tick off a company list. Almost 9,000 producers in Arla’s European network already receive one extra euro cent per liter of milk in exchange for allowing annual checks of their climate-related practices. Those reviews ask 200-plus questions about herds, feed, crop production, fertiliser use, manure handling, electricity and fuel. The answers are put into a social network-like database, launched in 2020, so farmers can compare their performance. Arla is #8 in the world. Fonterra is #6. #1 is Lactalis of France.
INFLATION ANTICIPATION
All eyes are on tomorrow's CPI data for the March 2022 quarter. The benchmark is a 7.1% rate as the 'consensus' average from the Reuters poll of economists. Any material variation from that is likely to bring an out-sized market reaction. (Earlier forecasts from the RBNZ are no longer influential in this update; even they now expect a higher rate than their last MPS estimate of 6.6%. In the February MPS the RBNZ had expected that March would be the high-water mark. They probably no longer think that either.)
SHARPLY HIGHER INTEREST COST
Housing NZ tendered $100 mln in bonds today, $50 mln 2025s and $50 mln 2028s. They got $340 mln in bids, the most since a similar auction in May 2021. The 2025 bond was won at an average yield of 3.94%, up from 3.57% a month ago. The 2028 bond was won at an average yield of 4.16%, up from 3.67% a month ago. In a year, the interest cost for these bonds has risen by +2½ times.
BUILDING BACK
Worldline/Paymark is reporting that as pandemic restrictions eased across the country, consumer spending over Easter was similar to recent years, while the hospitality sector continued to build on the momentum seen in March.
NOT YET
China hasn't followed is reserve ratio cut with lower prime loan benchmarks. It kept its benchmark interest rates unchanged for corporate and household loans at its April fixing. The one-year loan prime rate (LPR) was left unchanged at 3.7% following cuts of 5 and 10 bps in December and January, respectively; while the five-year rate was kept at 4.6% after a 5-basis-point cut in January.
GOLD DOWN
In early Asian trading, gold is down -US$32 from this time yesterday at just on US$1946/oz. Proportionately silver is down much more.
EQUITIES MOSTLY HIGHER
Wall Street ended their Tuesday trading for the S&P500 up a strongish +1.6% which built during the session. Tokyo has opened up +0.6% in later morning trade. Hong Kong is down -0.1% in early Wednesday trade. Shanghai is down -0.4 in their early trade. The ASX200 is up +0.3% in afternoon trade, and the NZX50 is up +0.6% in late trade.
SWAPS UP AGAIN
We don't have today's closing swap rates yet. They are likely to be firmer again but with a steepening tone. The 90 day bank bill rate is up a further +1 bps at 1.92%. The Australian Govt ten year benchmark bond rate is up +5 bps from this morning, now at 3.11%. The China Govt 10yr is firm at 2.87%. And the New Zealand Govt 10 year bond rate is up +3 bps at 3.52% and now above the earlier RBNZ fix for that 10yr rate at 3.51% (unchanged). After getting as high as 2.98%, the US Govt ten year is now at 2.95% and up another large +11 bps slip since where we were at this time yesterday.
NZ DOLLAR FIRMISH
The Kiwi dollar is now at 67.6 USc and a little firmer from this time yesterday. Against the Aussie we are little-changed at 91.3 AUc. Against the euro we are also little-changed at 62.6 euro cents. That means the TWI-5 is now at 73.8, and a little higher than this time yesterday.
BITCOIN FIRM
Bitcoin is firmer, now at US$41,357 and up +1.5% since this time yesterday. Volatility in the past 24 hours has been modest at just over +/-1.4%.
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53 Comments
I kind of agree. Fruits / veges are noticeably higher, but there are ways to mitigate that (ie. go to markets).
if you look to buy most meats on special, it’s not too bad. And as I have said before, reduce meat portions by 25% will also mitigate (and is more healthy).
booze is little different, as you say :)
I have noticed some things like shampoo are quite a lot higher, but does $12 rather than $6 make such a big difference when you only need to buy a bottle once every 2 months?
Actually thinking about it I probably wouldn’t notice 8%. If a pack of biscuits went from $2 to $2.16 I doubt I’d know, especially hidden amongst all the sale prices etc. of course it all adds up in the total bill, but again it’s all over the place week to week so hard to tell without proper analysis.
The Solomon Islands have signed a "security pact" with the CCP.
https://www.abc.net.au/news/2022-04-19/china-and-solomon-islands-sign-s…
It sounds like many are unhappy with the prospect of the enemy building military bases on our doorstep.
Oz can talk, leasing Darwin to the said same party!
Nice if it was a benevolent party. Unfortunately the CCP is anything but benevolent. Wait for their militarization of the Solmons.
But NZ is very naive as well. It has hosted that Chinese spy ship on a number of occasions. My test is: would the Chinese allow one of our naval ships to dock in any of their ports? Not on your life! So why have we allowed one of theirs here?
Stories are building (no pun intended) of builders / developers going bust:
https://www.nzherald.co.nz/business/85m-beachcroft-residences-auckland-…
OK. Huge loss for Netflix by suspension of services in Russia, but the number of subscribers lost is the same as subscribers lost in the U.S. and Canada in a single quarter.
Technology is deflationary.
https://www.cnbc.com/2022/04/19/netflix-nflx-earnings-q1-2022.html
Im an ex subscriber as of recently. The straw that broke the camels back was Arrested Development - a Netflix produced show not being available on NZ Netflix.
Back to flying the black flag. Can't imagine going legit again unless I can get it from a single service.
China hasn't followed is reserve ratio cut with lower prime loan benchmarks.
What everyone is saying, because it’s convenient, is that China’s zero-COVID policies are going to harm the economy. No. Economic harm of the past is the reason for the zero-COVID policies. As I showed yesterday, the cracking down didn’t just show up around 2020, begun right out in the open years beforehand, born from the scattering ashes of globally synchronized growth.
Xi Jinping saw how a very different post-2008 global economy without any recovery was going to keep China from living all the way up to Deng Xiaoping’s grand promise of total Chinese prosperity (borrowing heavily from its capitalism undercurrent). Rather than sit around waiting to be Gorbachev-ed, he gave himself the crown of dictator and has ruled with an increasingly harsh iron fist ever since. Link
In Denmark and Sweden, dairy giant Arla Foods said it is willing to pay farmers a premium for milk based on how many carbon-reducing activities they can tick off a company list.
A social credit system?
As the West grapples with the energy implications of a hostile Sino-Russian alliance, the steering group of the Net-Zero Asset Owner Alliance, whose members manage over $10.4 trillion of assets, issued a statement urging Western governments not to sacrifice climate goals for energy security. “The world is still heading for an excess of fossil fuel-based energy use that will vastly exceed the carbon budget needed to meet the 1.5° Celsius Paris agreement goal. This trend must be halted,” the United Nations-backed alliance said in its April 8 statement, arguing that “the national security argument for accelerating the net-zero transition has strengthened considerably.”
What, one might ask, is the standing of asset managers to opine on national security matters? They have no expertise in this domain. It turns out that their understanding of the economics of energy policy is defective, too.
The Net-Zero Asset Owner Alliance claims that development of new oil and gas reserves will lock in fossil fuel subsidies, exacerbating market distortions. In fact, the International Energy Agency (IEA) in its 2021 net-zero report states that under its net-zero pathway, tax revenues from oil and gas retail sales fall by about 40% over the next twenty years. “Managing this decline will require long-term fiscal planning and budget reforms,” the IEA warns. Similarly, Britain’s Office of Budget Responsibility estimates that net zero policies will result in the loss of tax receipts representing 1.6% of GDP. So much for the fossil fuel subsidy myth. If fossil fuels were heavily subsidized, eliminating them would mean fossil fuel subsidies disappear. Instead, it’s tax revenues that would melt away to zero. Link
In defence of the Reserve Bank, while this inflation print will be appalling and far beyond they target range, base effects mean the next will likely look a little better as long as they can drive non-tradable inflation back towards 0%. That's why I advocate slowing rate increases after this next one (assuming they do another 50bps) and unwinding QE faster to mop up the excessive liquidity sloshing around the financial system.
Otherwise we'll start to risk raising too fast and crashing the economy.
For those who want some comedy, Tony Alexander on why prices might not fall that much in Auckland...
https://www.oneroof.co.nz/news/41281
Where I of course agree with him is the fall away in housing development that's coming. But what I think he's ignoring is how much new supply will hit the market over the next few months, before we see the numbers fall away.
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