What happened Thursday

Business / news

A review of things you need to know before you go home on Thursday; another home loan rate cut, focus on the 2022 Budget, PPI rises fast & getting faster, swaps slip, NZD weakens, & more

[updated]

19th May 22, 3:59pm by David Chaston

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

MORTGAGE RATE CHANGES
TSB cut its two year fixed rate today. More here.

TERM DEPOSIT RATE CHANGES
SBS Bank has raised most key term deposit rates today. Update: Westpac has also raised most of its TD rates, mostly just to match its rivals. But they become the first main bank to offer 4% for a five year term in this rising rate cycle.

BUDGET 2022/23
It is all about Budget 2022 today. You can read our coverage here and here. The "big announcement" was a +$27/week cost of living grant for workers earning less than $70,000pa ($1346/week) and who did not get the Winter Energy Payment. It is expected to apply to 2.1 mln people and cost $814 mln.

THE BUDGET & HOUSING
Budget makes it easier for first home buyers to access First Home Grant or First Home Loan schemes. It allows for an extra 7000 First Home Grants and 2000 extra First Home Loans every year.

THE BUDGET IS BORROWING MORE
The forecast 2022/23 New Zealand Government Bond (NZGB) program has been set at $25 bln, +$7 billion higher than that published at the Half Year Economic and Fiscal Update 2021. The forecast NZGB programs for 2023/24 and 2024/25 have been increased by $7 bln each year, to $25 bn, while the 2025/26 NZGB program has been increase by $5 bln to $15 bln. They are forecasting strong GDP growth over this period (+4.2% in 2023) so that the total gross debt to GDP is forecast to fall to 34%. Over the next five years, they expect to issue more than $30 bln in additional debt.

BUSINESS COST INFLATION RISES MUCH FASTER THAN FOR HOUSEHOLDS
Overall producer input costs rose +9.8% in the year to March. The increases were higher for agribusiness, for construction, and nearly double that for manufacturers. And the rises have been at an even sharper rate in the March quarter from December. Producers managed to pass these higher costs on at an +8.8% annual rate and also faster more recently. The really big cost increases (apart from petrol (+29%), diesel (+65%) and other fuels (+48%)) were timber (+28%), wallboard (+19%), fertiliser (+56%), gas (+20%), plumbing (+18%), and residential construction (+15%). A check of these two charts (capital goods, and farm expenses) shows how embedded these higher costs have become already.

HIGHER CPI EXPECTED, LOWER HOUSE PRICE INFLATION
According to the Q2-2022 household inflation expectations survey (M13) done for the RBNZ by Research NZ, households on average now expect 1-year ahead CPI inflation to be 7.1%. This compares with latest annual CPI inflation of 6.9% for the March 2022 quarter. Households expect inflation to ease in the medium and long term. On average, households expect the 2-year ahead annual inflation rate to be 4.6% and the 5-year ahead annual inflation rate to be 3.6%. House price expectations have dropped this quarter, with house price inflation expectations for 1-year ahead at 2.7%, down from 5.7% in Q1 2021. It is expected that on average in the next 5 years house prices will increase by a cumulative 7.0%.

NEW CEO FOR HEARTLAND BANK AS FLOOD MOVES TO GROUP ROLE
Leanne Lazarus will succeed Chris Flood as CEO of Heartland Bank on August 1. Flood is shifting to a new role as Deputy CEO of the bank's parent, Heartland Group Holdings from November 1. Lazarus joins from Westpac Life where she's CEO and executive director. Westpac recently sold Westpac Life to Fidelity Life. Lazarus' Heartland appointment requires a Reserve Bank non-objection.

UDC POSTS $80 MLN ANNUAL PROFIT
UDC Finance, the asset financier bought by Japan's Shinsei Bank from ANZ in 2020, has posted net profit after tax of $80.396 million for the 2021 calendar year. Shinsei changed UDC's balance date to December 31 from September 30. In its final year of ANZ ownership, UDC posted a profit of $62.420 million for the September 2020 year. The 2021 result was boosted by $3.85 million worth of credit impairment reversals. Operating income was $154.894 million, and operating expenses $46.957 million. Net loans were just shy of $3.5 billion. No dividend was declared.

MIXED NEWS FOR AUSSIE JOBS
Although the Australian jobless rate held steady at 3.9% in April from March (NZ = 3.2%), their participation rate slipped to 66.3% (NZ = 70.1%). The total number of jobs rose by only +4000 when a +20,000 rise was expected. But more than +92,000 of that rise was full-time jobs, whereas part-time roles fell -88,000.

SWAP RATES LOWER
We don't have today's closing swap rates yet but they are probably lower following global trends. The 90 day bank bill rate is up +1 bp at 2.22%. The Australian 10 year bond yield is now at 3.37% and down -8 bps from this time yesterday. The China 10 year bond rate is now at 2.82% and down another -1 bp. The NZ Government 10 year bond rate is now at 3.59%, down -8 bps from this time yesterday and now well above the earlier RBNZ fix for this bond which was down a very sharp -12 bps, now at 3.55%. The UST 10 year is now at 2.90%, and back down -7 bps from this time yesterday.

EQUITIES DOWN SHARPLY
Wall Street fell rather sharply today, ending its Wednesday session down a full -4.0% on the S&P500. Tokyo has started lower in sympathy, down -2.6% in late morning trade. Hong Kong has opened down -3.0% in early morning trade. Shanghai is down another -0.8% in early trade. The ASX200 is down -1.5% in early afternoon trade. The NZX50 is down -1.0% in late trade today which is actually an improvement from earlier levels. Today, DGL Group is now another -5.8% lower and taking its capitalisation below $1 bln (although to be fair it has only just taken the top of its recent spike and the very strong run up since it listed a year ago is still in place). Ryman (RYM, #10, -3.2%) and Air NZ (AIR, #37, -2.9%) are the majors leading the index lower.

GOLD UNCHANGED
In early Asian trade, gold has held at US$1816/oz, unchanged from where we were this time yesterday.

NZD SOFTISH
The Kiwi dollar has dropped -20 bps to 63.3 USc from this time yesterday. We are down slightly at 90.3 AUc. And we are little-changed at 60.3 euro cents. That all means out TWI-5 is now just on 70.7 and down -20 bps from this time yesterday.

BITCOIN FALLS
Bitcoin is now at US$28,727 and down -4.7% from where we were this time yesterday. Volatility over the past 24 hours has been moderate at +/-2.7%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

This soil moisture chart is animated here.

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42 Comments

by kpnuts | 19th May 22, 4:11pm 1652933502

can someone please explain how the volatility index is calculated - my bear of little brain always struggles to see a rise or in this case a drop of 4.7% on the day yet the volitility index is far less!

i guessed its either a combination of up and down then 50% of the sum -- or a different timeframe say an hour -- but just guesses

i have no bitcoin -- i just want to know as it irritates me :)

by ShoreThing | 19th May 22, 4:17pm 1652933823

It can be done either backward looking by measuring the price movements over a period of time, or forward looking if there are options markets for the security being measured. With some options pricing formulas there is a volatility component so if you know the price of the put/call options you can derive the implied volatility the market is pricing in.

by Nzdano | 19th May 22, 4:26pm 1652934390

If I remember rightly in this case it's 50% of the daily range.

by Audaxes | 19th May 22, 5:07pm 1652936827

The formula for daily volatility is computed by finding out the square root of the variance of a daily stock price.

by kpnuts | 19th May 22, 5:38pm 1652938681

thanks -- i see both the 50% and the root making sense from my observations -- and can now redirect my irritation to the Band Aid budget :)

by Jonny.Foe | 19th May 22, 4:17pm 1652933864

Brilliant - Govt pumping $800m into the economy to help families deal with the cost of living, whilst RBNZ hikes rates to reduce the disposable income of many of the same families in an attempt to reduce consumer spending. What a stupid world we live in.

If you want to change how wealth is distributed so that more people at the lower end can afford to pay the bills, just bloody own it and change the tax system!

by Te Kooti | 19th May 22, 4:57pm 1652936252

It's peak insanity. Prices are rising so we need to raise interest rates to make your suffering worse.

This monetary/fiscal thinking is straight out of the 70's, the world deserves better. maybe there is something to the conspiracy theories because how else do you explain the sheer incompetence of the likes of Morrison, Biden, Johnson, Ardern together with BOE/RBNZ/Fed governors etc.

by Independent_Observer | 19th May 22, 5:00pm 1652936429

Although for the last 14 years (2008 - now) we have believed that the solution to our debt issues is more debt......and the only way that was possible was to drop OCR to zero....so the suffering you are referring to (regarding a rising OCR) has been created by avoiding a past problem.

So you can't have it both ways....avoid the debt problem....and now avoid the inflation problem.

We need some real leaders....not the kick the can down the road types who leave the problems for 'future generations' to sort out.

by nz-it-worker | 19th May 22, 5:41pm 1652938912

Otto: Ah, how are we going to get out of here?

Homer: We’ll dig our way out!

Police chief Wiggum: No, no, dig up stupid!

https://m.facebook.com/rockbottomsimpsons/videos/no-no-dig-up-stupid/1138264349565047/

by KiwiinSpain | 19th May 22, 5:55pm 1652939728

Well TK, peak insanity descibes the situation quite adequately!

The rise of big government, departmental think tanks, back slapping and self congratulations within echo chambers appears to me to be 1000's of Alice's being led down the rabbit hole.

At 5.05pm when these change makers leave party HQ to the outside world to pass the homeless people, the empty shops and the filthy parliment lawns do they think "oh, it's kinda grubby on these streets"?? Let's just move a little faster....

I can forgive anyone conspiratorial in this present time.

by Te Kooti | 19th May 22, 6:33pm 1652942010

Becoming an MP used to be a calling, those who were passionate about improving the situation and many entered after career's and life experience. Now politics is a career with a view to corporate directorships/consulting or onto the WHO/UN gravy train. Huge pension's, little accountability, little life experience required.

Try getting onto the board of a State enterprise here and you'll know all about how cosy it all is.

Look at Boris, fired from 2 jobs for lying, same with Scott Morrison. Ardern never had a day in the real world in her life. Biden, god save us.

by Foxglove. | 19th May 22, 6:45pm 1652942733

Ghosts of the past. Today’s example in parliament are just a pallid spectre of the calibre & integrity that rose to the surface amongst members of parliament once upon a time. For example Ralph Hanan, a Minister of Justice, ailing and not long to live, was still able to persuade the like of Muldoon and McIntyre to cross the floor and vote for the abolition of the death penalty. Sorry to say, in comparison, our current lot are by large, a very sorry lot indeed.

by agnostium | 19th May 22, 10:01pm 1652954480

What a load of bollocks. There have always been good politicians and pretty piss poor ones. You remember the great ones and compare everyone else to those ones. For along time being a politician involved little more than turning up now and again to vote along party lines and the rest of the times was spent chilling at the gentleman's club. Politicians these days have much less power and respect than they used to have, are expected to be accountable to a know it all public and also have to deal with an intrusive 24hr media. What's more they have to be accountable to a general public that expects an instant response. Most of the politicians of the past would have crumbled under the pressures politicians are put under nowadays. Really bored of all this criticism of politicians, civil servants and scientists. We need the best people in these positions. Who would want to ever devote themselves to public service when you get this sort of abuse and attacks on your integrity. Grow up.

by KiwiinSpain | 20th May 22, 6:58am 1652986701

No one is criticising Scientists in this thread.

In fact those phD’s that I know are deeply saddened at the obvious manipulation and lack of open debate so central to the principles of science being orchestrated by this Government.

If democratically elected leaders voted to govern by and for their constituents are going to close business, close borders, mandate novel vaccination, cause unmeasurable (by design) societal and economic carnage while undermining informed consent then they deserve to be criticised. Relentlessly.

A grown up society doesn’t have politicians turn sprinklers on lost souls in public places nor treat those with alternative views as second class citizens.......oh, that’s right, this lot have!

What madness has taken behold of New Zealand that this is allowed to occur. Easy answer....abuse of power!

by agnostium | 20th May 22, 8:16pm 1653034566

Sorry I take it back I didn't realise you were one of those. I have a rule that I don't debate with you lot. Have a great day.

by KiwiinSpain | 19th May 22, 7:58pm 1652947081

Yes TK, I couldn't agree more!

It's of-course a travesty but explains why so many decisions are made at a policy level that actually disadvantage citizenry.

I'm sure Arden will head to the UN in due course, having been instrumental in "transforming" our economy.

Brave new world of narcissistic self interest by politicians.

by Independent_Observer | 19th May 22, 4:57pm 1652936264

We keep electing wimps for politicians who are afraid of being voted out for doing the wrong thing (e.g. tax, despite saying how brave they will be when in government prior to election), not realising they get voted out for doing exactly that (nothing....).

by Te Kooti | 19th May 22, 5:00pm 1652936425

I follow Uk (and US) politics quite closely and the UK is an absolute basket case.

by Independent_Observer | 19th May 22, 5:01pm 1652936467

Yes it appears to be contagious across the western world/anglosphere.

by KiwiinSpain | 19th May 22, 5:58pm 1652939903

Yes, EU polies appear to be drinking the same kool aid.

by Fairlyfrank | 19th May 22, 5:00pm 1652936433

A tax free threshold similar to Australia at $18000.00 which would incentivize people to work , even if they allowed a more gradual cut back on benefits as they earned. We need to encourage people to look after themselves not constantly increase benefits that discourage self reliance. Both main parties hate the idea but I don't understand why as everyone would get the tax relief even the well off and the main beneficiaries would be lower income earners.

by JohnTrz | 19th May 22, 5:14pm 1652937244

Fairer and more equitable than tax cuts would be to pay a weekly nontaxable allowance to everyone, whether working or not, of say $250 a week, and tax all other income at 33% to pay for it. Hey, a UBI!

by iliketobike | 19th May 22, 5:27pm 1652938036

Yes. They should also reintroduce a youth minimum wage at the same time, this could encourage employers to hire young people again without penalising existing young workers' pay packets.

by EdwardD | 19th May 22, 5:31pm 1652938309

I totally agree with you on this. I believe that the Government needs to do all it's power to support people who want to work. This includes a tax break for day care costs and lowering the tax rate for second or third jobs. For a lot of the working poor, there is no incentive to remain working rather than go on a benefit.

by KiwiinSpain | 19th May 22, 6:14pm 1652940896

Absolutely correct.

From a simple view point encouragement for youth to work has fabulous long term benefits for society.

We would employ NZ University graduates, amoung other nationalities, and generally found the better were those whose families encouraged employment in youth (I'm hoping the word "families" doesn't offend anyone in NZ's woke ecosystem lol)

The biggest issue our industy faced in recent years is poorly trained graduates with phenomenal expectations. Even my colleagues in Australia would note the sense of entitlement of NZ grads across the ditch.

This budget appears at first glance to be a patsy with just enough short term fixes to prevent all out riot. I await the true bribery in Election year.

by singautim | 19th May 22, 10:14pm 1652955278

Switzerland is successful small country with plenty of mountains and cows and average GDP per capita and wages far higher than NZ. They send fewer to university - about one in 4 school leavers but they emphasise apprenticeships. Specifically they blur the boundary between school and work so 15 year olds will spend a day or two per week working. The entire range of employment from labouring to finance. Happier and better for the non- or anti- academic children; for academic kids it results in graduates with rational expectations. Best of all children can change their chosen career before committing to years of tertiary study and its accompanying student debt.

by KiwiinSpain | 20th May 22, 6:38am 1652985525

Singautim, that education strategy makes a lot of sense.

by Foxglove. | 19th May 22, 5:22pm 1652937762

Labour simply cannot cut taxes, any taxes at any level. It would be to them, like voluntarily drinking strychnine . Apart from Cullen’s token chewing gum pittance they never ever have except for of course, the creativity of the Lange/Douglas reforms. The current lot here, must regard that lot as the epitome of the Anti Christ.

by singautim | 19th May 22, 10:15pm 1652955347

A temporary reduction in tax on fuel.

by HouseMouse | 19th May 22, 9:30pm 1652952633

100%!!!

by Squishy | 19th May 22, 4:23pm 1652934236

Households expect inflation to ease in the medium and long term. On average, households expect the 2-year ahead annual inflation rate to be 4.6% and the 5-year ahead annual inflation rate to be 3.6%.

Households don't seem to be giving RBNZ the benefit of the doubt on getting CPI within their banding, have expectations become unanchored?

That said as those PPI numbers show there is a lot of inflation still to be passed through. RBNZ will have to keep lifting until they have an impact to restore their credibility.

by MidNZ | 19th May 22, 5:00pm 1652936426

Is it also because households do not have the ability to ignore housing costs in their version of CPI?

by J.C. | 19th May 22, 5:01pm 1652936485

China tech sector in retreat.

The Hang Seng Tech Index was down as much as 5.1 per cent on Thursday, with Tencent Holdings and Alibaba Group Holding weighing the most.

Tencent tumbled more than 8 per cent after the tech behemoth reported its slowest revenue gain since going public in 2004.

https://www.straitstimes.com/business/companies-markets/tencent-dives-a…

by Yvil | 19th May 22, 5:26pm 1652938019

They (the government) are forecasting strong GDP growth over this period (+4.2% in 2023)

What ??? GDP growth of 4.2% in 2023 ??? Are they on drugs ???

by HouseMouse | 19th May 22, 6:40pm 1652942430

Totally ridiculous.

Deceitful morons.

by KiwiinSpain | 20th May 22, 6:41am 1652985710

Haha, seems a tad optimistic but then I’ve no Treasury Team at my disposal.

A case of wishful thinking.....

by Beanie | 19th May 22, 9:48pm 1652953713

7% of that is inflation

by Zack Brando | 19th May 22, 5:35pm 1652938520

Robertson has delivered a continuation budget.. it largely placates, other than in regards to tax rates.

~~ The Placation:

Maori Health Authority: $168m

Health NZ: extra $1.8 billion

Pharmac: extra $191 million (2 years)

Targeted Dental Grants: extra $700

Education: extra $2 billion

Shcools [builderings?]: $855 million

Other: Warmer Kiwi Homes, Child Support Rejig, Fuel Excise [extended], Half-Price Public Transport [extended]

On paper the above sounds reasonable. Though staffing and skill shortages is surely kneecapping. Concerning education; pumping more money into a largely failed system seems foolish.

~~ The Concerns:

Toy Helicopter Money: $350 per catcher

TVNZ & RNZ Merger: EXTRA $327 million (4 years)

'Relaxation' of FHB Grant Caps: $Unknown

~~The Good:

Business Growth Fund: 100 million

~~Conclusion:

Minister Robertson seems wedded to the belief of rising year-on-year house prices and diminishing inflation. There is LITTLE-TO-NO innovation in this budget.. a concern given the record tax and spend here. Throwing more money at a failing Health and Education System is the sad tip of the iceberg.

Remember, a budget is just capital allocation.. ideally a government's job is to give good governance.

This budget speaks to a growing socialist, centralization, authoritarian and propagandist flavor from Labour.

by Foxglove. | 19th May 22, 6:10pm 1652940647

great summary. the pandemic has exposed glaringly, inadequacies in NZ’s public health services that go back well beyond this government. something has to be done about that undeniably. Heaps of $$$$$$$$$$$ being allocated is all well and good provided it is spent efficiently and productively for ALL NEW ZEALANDERS. From the perspective of this government’s speak and performance, that is a highly questionable proposition.

by J.C. | 19th May 22, 5:39pm 1652938785

More on the Metricon issue in Aussie. The company denies these salespeople claims.

Sales staff within the company were being instructed to increase cash flow by securing more deposits, the Herald Sun reported on Wednesday.

One salesperson told the Herald Sun they were owed hundreds of thousands of dollars in commission and were being pushed to secure more cashflow to help keep the business afloat.

“We have been pressured now to push for as many deposits as possible,” they said

https://www.news.com.au/finance/business/other-industries/metricon-ceo-…

by Wrong John | 19th May 22, 6:39pm 1652942373

GR the FM on 19 May 2022. Burp!

by Hummy | 19th May 22, 7:01pm 1652943680

This budget makes it clear that we want more inflation. And inflation in 1 year at 7.1% is going to look like a wish. Second quarter is the what they wished for 10% plus.