Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
No changes here so far today.
TERM DEPOSIT RATE CHANGES
Rabobank has raised its term deposit offers. First Credit Union has as well.
A QUICKER RISE
Economists at Westpac say that RBNZ inflation targeting is facing the biggest challenge in its 30+ year history, and they now see the OCR peaking in this cycle at 3.5% by the end of 2022. The OCR is currently at 1.5% and is due to be reviewed next on Wednesday, May 25, 2022 when another +50 bps hike is widely expected.
NOTABLE FOR ALL THE WRONG REASONS
Last week, the NZX50 ended with its overall capitalisation down more than -10% from a year ago as the local listed market's struggles get worse. The NZX50 fell -3.7% from the prior week, so a third of that annual retreat came in the past ten days. There were substantial weekly falls recorded for newly included Eroad (ERD, #50, -16.5%), Pacific Edge (PEB, #36, -10.2%), Air NZ (AIR, #37, -12.0%), Kathmandu (KMD, #32, -10.6%) and Mainfreight (MFT, #5, -10.0%). Of those 50 icon stocks only Ryman (RYM, #10) rose, but they have subsequently taken a thrashing so far this week now.
MORE WEAKNESS COMING?
There is another dairy auction tomorrow morning. Recall the prior event brought an -8.5% fall in average prices. This time the derivatives market is signaling WMP prices could fall -1% and SMP prices could fall a bit less from the last auction. We will know soon enough. But note that the NZD has fallen -2% in that same period, so prices in local currency might hold, or even rise.
TRIGGER DUE?
The minutes of the RBA's May board meeting were released today showing that they considered and rejected a +40 bps rate hike at that time, but a similar hike seems to be on the cards in June to take their official cash rate to 0.75% 0.50%. A trigger to get them over the line might be tomorrow's April wage data release, especially if it rises more than the expected +2.5%.
MORE RECORDS
Global wheat prices are still moving up, and are at all-time record highs.
ROLLING FAILURES
ANZ analysts are noting that Chinese property developers face more than US$14 bln of offshore bond debt falling due in the June-July period, compared with less than US$6 bln of monthly operating income of their top developers. Stress is unusually high again and market conditions have worsened recently. Another 'Evergrande' failure could be on the cards, this time possibly Sunac.
SWAP RATES TURN UP
We don't have today's closing swap rates yet but they are probably higher and reversing some of the recent slippage. The 90 day bank bill rate is up +3 bps at 2.16%. The Australian 10 year bond yield is now at 3.40% and up +4 bps from this time yesterday. The China 10 year bond rate is now at 2.84% and down -1 bp. The NZ Government 10 year bond rate is now at 3.62%, up +5 bps from this time yesterday and now above the earlier RBNZ fix for this bond which was down -3 bps at 3.58%. The UST 10 year is now still at 2.90%, little-changed from this time yesterday.
EQUITIES MIXED
Wall Street had a go at climbing into positive territory, but ended the day -0.4% lower as the move fizzled. Tokyo is holding a small +0.2% gain however, Hong Kong is roaring and up 2.2% in early trade, which Shanghai is only managing a small +0.2% gain so far and is still struggling for direction. The ASX200 is also up +0.2% in early afternoon trade, but the NZX50 is down -0.4% near the end if its Tuesday trading.
GOLD UP
In early Asian trade, gold has risen to US$1826/oz and up +US$15 from where we were at this time yesterday.
NZD BACK DOWN (AND UP)
The Kiwi dollar has slipped to 63.2 62.2 USc from this time yesterday. We are now down slightly at 90.3 AUc. But we are now firmer at 60.5 euro cents. That all means out TWI-5 is now just on 70.7 and actually up from this time yesterday.
BITCOIN SOFT
Bitcoin is now at US$29,976 and down -1.4% from where we were this time yesterday. Volatility over the past 24 hours has been moderate at +/-2.4%.
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38 Comments
31.12.2022 OCR predicted at 3.5%. That’s an over 50% increase in 7.5 months. That’s a steep grade by any measure and accompanying momentum unlikely to stop at that point I would wager. Extremes on the way down and extremes on the way up. Not good for business, households and anything else for that matter.
Global wheat prices are still moving up, and are at all-time record highs.
The solution to high prices is high prices.
The Governor should do a bit of reading. As for inflation that is in his hands - perhaps farmers focus on food while he focuses on inflation? .
"With almost all crops harvested, FAO’s world cereal production forecast for 2021 has remained unchanged this month at 2 799 million tonnes,
...The forecast for world wheat production in 2022 has been scaled back moderately since the previous month, but standing at 782 million tonnes, FAO still predicts global wheat production to grow this year.
https://www.fao.org/fileadmin/templates/worldfood/images/home-graph_4_m…
Yeah, trade is just off the record set last year. Apocalypse. I wonder if we will hit a clickbait record this yea?
"World trade in cereals in 2021/22 is forecast to amount to 473 million tonnes, up 3.7 million tonnes from last month’s forecast but 1.2 percent below the 2020/21 record level."
A pair of Goldman Sachs-backed ventures gobbled up an entire rental home community in Florida last month for a cool $45 million...Fundrise Interval Fund and Growth eREIT VII picked up 87 single-family properties in Brevard County.
https://nypost.com/2022/05/11/goldman-sachs-backed-firms-buy-entire-flo…
Re: Chinese developers - when I was known as Fritz, the basis for my 2019 prediction of a property crash in 2022-2023 was a big international event, a financial one (not a pandemic). Although I wasn’t specific, I always had in mind China as the likely catalyst.
it seems to me that China is teetering on the edge, and things could get decidedly worse - with flow on effects to the rest of the world including little ole NZ.
China's economy is crumbling because the West, its export customer base, never recovered after 2008. They have been adjusting their economy downward since 2017. Witness the huge record current account deficits NZ and the US record just as simple reference points. Leveraging the house is not an economy, its basically a casino.
Rubbish.
It's crumbling because it has been effectively a two trick pony, and those tricks are being undone:
1. Manufacturing cheap crap for the world, for which there's still been plenty of demand from 'The West' since 2008, but which has been profoundly disrupted by covid
2. A Property ponzi that's 'up there' in global terms, and has been quietly collapsing over the past couple of years
I'll add another factor, and it's self inflicted - an intentional move away from liberalizing their economy and society, under the authoritarian Xi. Over the last 7-8 years, he's done a great job at antagonizing the west, to whom the wellbeing of his nation is still so reliant on.
I'm tired of this:
Neoliberalism impoverishes. Neoliberalism is a class war against labour by finance, primarily, and a class war against industry. A class war against governments. It’s the financial class really against the whole rest of society seeking to use debt leverage to control companies, countries, families and individuals by debt. And the question is, are they really going to be able to convince people that the way to get rich is to go into debt? Or are other countries going to say, this is a blind alley. And it’s been a blind alley really since Rome that bequeathed all the pro creditor debt laws to western civilization that were utterly different from those of the near east, where civilization took off. Link
Rents are continuing to rise in the US. According to realtor.com, February 2022 was the seventh month in a row with a double digit increase in rent prices from the year prior. Rents in February were 17.1% higher than in February 2021. The median rent in the 50 largest metro areas has risen to $1792 a month.
This is why the United States cannot industrialize as long as the house prices absorb this high a rate of income, and as long as the banking sector is supporting this, and as long as the political parties say we will not tax real estate so that all of the rising land value will be able to be pledged to banks to pay interest instead of to pay taxes. Essentially, it’s the (lack of) taxing of real estate in the United States that has subsidized the increase in housing prices, because housing prices are worth whatever a bank will lend to buy a house. If you have to go to a bank, and if they lend more and more and this money isn’t taxed away, the price is going to go up. So you have the government policy, the bank policy, all trying to promote this high diversion of income into paying land rent. Again, this is the exact opposite of what Adam Smith and John Stuart Mill and classical economics and the whole 19th century had advocated. This has priced American labor and industry out of world markets.
If you have to pay 43 percent of your income for rent, then even if the government were to give you all of your goods and services for nothing, all of your food, all of your clothing, all of your transportation for nothing, you’d still have to pay so much money for rent and for health care that you couldn’t compete with labor in Asia or the Third World or even Europe. And so this is what has essentially excluded the United States from having a successful empire. It’s the greed of the financial sector, basically, and the takeover of the government by the financial sector here as happened under Margaret Thatcher in England and then Tony Blair. You’ve had both countries essentially enter permanent austerity programs, and the only way to cure this is for housing prices to go down. But if the housing prices go down, then the banks will go broke. That’s why Obama said he had to support the banks: because if he’d actually lowered the housing prices to realistic levels, that would enable America to survive, but the banks would go under. Until you’re willing to restructure the banking system, you’re not going to be able to industrialise the American economy. - Link
You may be right about housing - I don't know. But China has followed Japan which when I was a kid was famous for its cheap crap but now is rightly famous for its precision engineering. China has overtaken the west in some aspects of software - they seem to pay by waving their phone at things whereas we might have it but do not use it.
Six months and 1 year NZ Treasury Bill rates were adjusted down from the previous tender today, six months 2.3125% vs 2.354%, 1 year 2.796% vs 3.02%.
Three months basically unchanged at 1.83% vs 1.82%. The OCR upward trajectory has been toned down in the minds of those bidding.
Looking at the 12 year run from 2,600 in March 2009 to 13,200 In September 2021, it can go a long way before it’s even a modest retracement on a long term basis. I think a new generation will get to feel what 1987 and 2000 were like to previous generations. It’s cleansing for the soul.
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