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A review of things you need to know before you go home on Thursday; more retail rate rises, Barfoots reports downturn, building costs leap, car imports up, retail tough, swaps up, NZD down, & more

Business / news
A review of things you need to know before you go home on Thursday; more retail rate rises, Barfoots reports downturn, building costs leap, car imports up, retail tough, swaps up, NZD down, & more
[updated]

Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).

MORTGAGE RATE CHANGES
ASB is the last major to announce its floating rate rise. Theirs is the full +50 bps to 5.85% but that leaves them about -10 bps lower than ANZ, BNZ and Westpac. Kiwibank has settled on 5.50% so lower again. Basecorp raised their standard floating rate to 6.95%.

TERM DEPOSIT & SAVINGS RATE CHANGES
ASB raised its Headstart savings account rate by +20 bps to 1.25%. Xceda raised all their TD rates. Treasury hiked their benchmark Kiwi Bond rates too. See here.

BUSINESS RATE INCREASES
ASB has also increased all its business base rates. Their Floating Base Rate has increased from 3.10% to 3.43%, their Rural Base Rate has increased from 6.86% to 7.36%, their Business Base Rate has increased from 9.62% to 10.12% and their Corporate Indicator Rate has increased from 4.03% to 4.53%, all effective immediately.

A HARDER BITE I
Dominant Auckland realtor Barfoot & Thompson says its median selling price is now -9.3% lower than at the November 2021 peak. Its stock levels are now at an 11-year high for this time of year, and they say selling prices are falling.

A HARDER BITE II
Our nationwide auction monitoring covered 261 auction events last week, but only 27% sold under the hammer.

INFLATION IN ACTION
The cost of building an average three bedroom home increased by more than +20% over the 12 months to April, according to QV's CostBuilder construction cost database. The biggest cost increase was for reinforcing steel which increased in price by +29% over the 12 months, followed by other metalwork +18%. Other major increases were for stairs and balustrades which were up +17% due to the rising cost of precast concrete and structural steel, while substructure costs were up +10%, site preparation +9.7% and exterior doors and windows were up +8%. The average construction cost of non-residential buildings was up almost +14% since April last year.

CAR IMPORTS STRONG FOR NEW, WEAK FOR USED
There were 10,575 new cars registered in May, boosted by strong demand from rental car operators. Demand for small EVs held up too. That is a high level for a May, and represents an unusually large cost on the country's balance of payments exceeding $0.6 bln just for one month. Keeping that level from booming further were unusually weak used car imports. Apart from the 2020 lockdown, they may be the lowest since 2012.

MOST OK, BUT SOME FIND IT TOUGHER
Federated Farmers reports that their banking satisfaction survey isn't showing material changes. Farmer satisfaction with their banks is relatively stable but more are feeling under pressure and costs of finance are on the rise. They report that banks’ conditions for lending became tougher rather than easier for all farm types. And now more than a fifth of all sharemilkers report "undue pressure from banks".

UNRESTRICTED AGAIN
The RBNZ has removed the handbrake it imposed on bank dividend payments (mostly to their Aussie parents) during the pandemic stress period. It will lift all restrictions on retail banks in NZ paying shareholders dividends from July.

SOLID DEMAND, RISING YIELDS
At today's Government bond tenders, demand was solid for the two issues on offer with $568 mln bid for the $200 mln available. The April 2027 $100 mln got 29 bids and 10 were successful at an average yield of 3.41% which was up from 3.32% two weeks ago. The May 2051 $100 mln got 33 bids and 18 were successful at an average yield of 4.09%, up from 3.92% two weeks ago.

SERVICES SHELTER
Monthly we get a look at the merchandise trade results, exports of goods less imports of goods. But trade also includes services and this data only arrives quarterly. In some respects this is a surprising story. In the March quarter of 2022 we ran a -$1.9 bln deficit in services. But it isn't quite where you might have thought. Our largest services deficit was with Australia at -$635 mln in that period, followed by Switzerland at -$424 mln and the EU at -$405 mln. Then Bermuda is next at -$110 mln. Even the Cook Islands is in this list where we ran a -$92 mln deficit. But with China, we ran a +$165 mln surplus. With the US our services surplus was +$240 mln. We were in balance with the UK, just a +$1 mln net surplus. The presence of Switzerland, Bermuda and the Cooks strongly suggests international companies are using these domiciles to shelter tax due.

STRONG TERMS OF TRADE
Our export prices rose faster than our import prices, so our terms of trade improved in Q1-2022. We are not quite back to the records set in September 2021, but close. Export volumes fell sharply, dropping -7.0% q/q, while the decrease in import volumes was more modest, at -2.6% on the same q/q basis.

TOUGH FOR RETAILERS
Payments network Worldline (ex Paymark) is pointing out that the tough retail environment is not improving as spending in May barely topped year-ago levels, despite raging inflation.

FAT SURPLUSES, RECORD HIGH
Australia has booked yet another AU$10+ bln monthly trade surplus in April, continuing a long run of these fat surpluses. That takes the annual surplus to +$129 bln, a record high for any 12 month period.

SWAP RATES RISE AGAIN
We don't have today's closing swap rates yet but they have probably firmed. (Update: They ended little-changed.) The 90 day bank bill rate is back up +1 bp today at 2.47%. The Australian 10 year bond yield is now at 3.50% and up another very strong +7 bps ahead of Tuesday's RBA review. The China 10 year bond rate is now at 2.81% and unchanged. The NZ Government 10 year bond rate is now at 3.61%, and down -3 bps from this time yesterday and now well below the earlier RBNZ fix for this bond which was up +4 bps at 3.68%. The UST 10 year is now at 2.93% and up +6 bps in a continuing rise.

EQUITIES MOSTLY LOWER
On Wall Street, the S&P500 ended its Wednesday session down almost -0.8%. Tokyo has opened down -0.2%. But Hong Kong has opened down a very sharp -1.7% (on new lockdown threats?). Shanghai has opened flat, and not really getting any new boost as their lockdown eases. The ASX200 is down a sharpish -1.1% in afternoon trade. The NZX50 is down -0.3% in late trade. That is despite Mainfreight putting on an impressive +2.6% today. Fisher & Paykel Healthcare shed another -1.5% and A2 Milk can't hold its recent run up, down -0.5% today

GOLD UP
In early Asian trade, gold has risen +US$9 from this time yesterday to US$1844/oz.

NZD SLIPS FURTHER
The Kiwi dollar is moving down again, now at 64.8 USc and almost -½c lower than this time yesterday. Against the AUD we are softer at 90.4 AUc and a similar retreat. Against the euro we are holding at 60.8 euro cents. That all means our TWI-5 is down to 71.8.

BITCOIN FALLS
Bitcoin is now at US$29,812 and down a rather sharp -6.5% from this time yesterday. Volatility over the past 24 hours has been very high at +/- 4.3%.

Daily exchange rates

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Source: CoinDesk

Daily swap rates

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This soil moisture chart is animated here.

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49 Comments

That new Kiwibond 4 yr doesnt seem to be buying the rates falling back down in 18 months scenario. Very close to the bank 4 yr TD rate, shows how low the banks TD rates are.

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Yeah and the banks are now only stress testing with a bit over two percent as a safety margin….bonkers

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Thanks for sharing the stock tip yesterday. Where did you find the Morningstar valuation? Do you subscribe? Ta

 

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ASB Securites. "A Strong 2022 for Ryman, and Set to Keep Growing in 2023; NZD 15.20 FVE Maintained, Securities Are Cheap A strong result from narrow-moat Ryman Healthcare reaffirmed our thesis the stock is considerably undervalued. Fiscal 2022 underlying net profit exceeded our estimate of NZD 209 million, growing 14% to NZD 255 million (NZD 0.51 per security)." Rated a Buy, Valuation $15.20. 

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They had to do something because people like me would have been withdrawing their money which was in there for 3 or 4 years on really really low rates and just plonk it in a bank. Now you can withdraw it and plonk it back into Kiwibonds at a much better rate. A pragmatic approach

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Barfoot & Thompson median down -9.3% with plenty of inventory not being sold at those prices. Yet we keep being told by the experts that we may see a flat / 3% / 5% / 10% fall. Looks like 20% plus to me, and has done for a while. 

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-30%. Guaranteed.

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What about 7% interest rates?

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With a 5 year fixed rate plus low equity margin, we are already there. 

The prophecy has been fulfilled.  ✅

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Looking forward to 8% interest rates :)

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I thought you were leaving?

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Early 2023 I think.

Ah Queensland, where the construction industry runs smoothly, and the builders can still do work in 2022 for 2019 pricing. 

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Is there such a thing as "leaving" on the internet?

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He's just a troll.

We all want him to leave, but he never will. 

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Guess if you are mortgage free and your only house is your home it’s actual value becomes largely irrelevant. You simply rise and fall on the market,  relatively speaking, similar to anchored boats on the tide. Wonder though,  what percentage of NZ households would fall into that category?

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Not if you lose your job through recession. But yes you obviously in a better position than a lot of people. 

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Even if you have a mortgage that is manageable the market value of your house is largely irrelevant. My life wouldn't change if my house doubled in price or if it halved - I can still afford the mortgage and would still own the house. 

It is different for those who go into negative equity and need to move of course, and it is the recent buyers and heavily leveraged investors who suffer most. I'd suggest price falls are still a Utilitarian good though, potential big benefits to those who have been locked out and for those who don't want to see the younger generations flee the country. 

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Yes interesting dynamics nowadays. The once sought after scenario of selling the larger family home, downsizing from say four to two bedrooms, and thus freeing up some capital for spending does not seem to be as readily achievable as it once was. Although of course, the rest home villa thingys might be mopping up a fair bit of that too.

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It depends where you start. Our home topped out at $3,250,000. Our downsizing target was $1,800,000. Say $1,375,000 cash out. If our property drops to $2,000,000 then a similar percentage drop will make the downsizing property $1,100,000,  so we are down to $900,000 cash out. I think we will put off the downsizing for some time if that’s the outcome. Previous experience of property drops is that volume slumps. I’m all in favour of a big reset. It makes my cash worth a lot more in property terms. 

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> we will put off the downsizing for some time if that’s the outcome.

so you're gonna wait till the figures are 1,000,000 - 600,000, = $400,000 cash out?

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Downsizing is a pain. I wouldn’t bother unless there was sizeable cash extraction in it. Selling fees at current values are $75,000. That’s a lot of rates and insurance. I’d just wait it out until the retirement home time had come or even live in it until the grim reaper visits. 

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This may be more achievable again in the future - currently the property ladder has become so stretched it's very difficult to move up a rung, meaning there's nowhere to step down to when the time comes. But you're right, those looking to downsize have benefitted massively from the crazy property market of recent years. This good luck came largely at the expense of the young. 

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Only 32% of primary residences in NZ have mortgages. 

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About a third 

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Could it then be argued that say 66% of NZ households are reasonably buoyant in so much a significant reduction in property values will have little or no impact on their household budgets? If so that must signify quite some resilience in the NZ economy, relative to this sector at least? That is assuming said households are not greatly  leveraged elsewhere which should be unlikely,  given mortgage rates would be expected to be the lowest on offer.

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Could it then be argued that say 66% of NZ households are reasonably buoyant in so much a significant reduction in property values will have little or no impact on their household budgets?

Depends. If the wealth effect is real, then less spending into the consumer economy can negatively impact them. If you feel like your net worth has plummeted by $500k+, it might impact your feelings about the winter holiday to Fiji. 

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Sure hope so. Yep it will cause a recession, but a much needed one. Although it probably also will bring back National and a bucket load of perks for property investors to start a new problem. 

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The Kiwibond 4 yr rate says more about the lack of foresight than the probable reality. It will go crunch. It already has in places & it is as necessary as it will be as painful. My hope is that the duration of pain is, hopefully, not that long, but that is anyone's guess. I remember Volker. It went crunch. But it worked.

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There were only 4 billion people present when Volker played his cards.

And a much fuller, less in trouble planet.

I don't think he ever knew what he was reacting to, though.

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There were only 4 billion people present when Volker played his cards.

Love your work Power 

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I called it when the government removed interest deductibility for all investment properties except new builds before tightening up lending...

Massive surge in build sales

Massive surge in costs and timelines

Massive pullback from banks

Massive decline in projects kicking off and consent applications 

(happening now) Massive increase in failed projects and companies

(coming soon) Massive downturn in employment in the building sector

(to be followed by) Massive exodus by tradespeople 

 

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The Gov has put significant money into free apprentices.

I know where they will be heading

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Where will they be heading?

It mightn't be Aus, given their construction sector is slumping...

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To Kainga Ora builds, hopefully.

Kiwibuild might even have a chance to get some houses built, haha.

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Re the last point. 

There will be an oversupply of Labour. More competition for less work. Build costs will reduce.

This will match the reduction of land value now underway.

2/3 years for this to wash through to lower overall cost of housing. 

 

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whatever the shit storm we thought we were heading into, its just got three times worse with Jacinda's joint statement with Biden -  REALLY pissing the chinese off! 

I suspect she still believes all the adulation and fawning that goes around her - and thinks she is bulletproof - but its clear from the response that China feel teh need to send a slightly bigger message than normal -- and we all know that will come in the format of a Trade drop off / Tarrifs / raising concerns over a product / or simply instructing the populace not to but our goods! 

WE may have to make a choice one day about siding with one or the other -- but the USA is offering nothing in terms of greater access to their markets and free trade -- Biden is more opposed to the TPPA than Trump was -

I would have thought -- that as we enter into one of the worst financial crisis ever seen, raging inflation, supply line disruption -- that pissing off our by far biggest single source of EARNED income - not a housing ponzi -  its a choice we could delay a year or four until global conditions are slightly more in our favour! 

 

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It got deleted

The twitter account that they had embedded into the article got upset as they used her information in her tweet in the article

Her friends on twitter hassled nzherld and they took it down

Newshub had a similar article last night with a screenshot. Not sure if it is still up or not

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She renamed her account temporarily to poke fun at the Herald while they had her tweet embedded. Bit of a laugh.

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Far from a fan of this PM but believe she is reading it accurately if she thinks the sentiment of New Zealanders is on the whole, more aligned with and trusting of the USA than China and its comrades. As well it looks fairly clear that the old club, the tradition allies of two world wars and more, have asked a hard question or two, as to whether or not our government considers New Zealand to still being fully committed to that camp, or elsewhere. Just illustrates that a modestly sized nation at the south east end of nowhere, has neither much clout nor choice about its direction on the world stage. As said  before, navigating along like a picket boat in the wake of the grand fleet.

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With our military firepower its more like a snorkler with a butter knife surfacing in the middle of a nuclear armed Chinese battle fleet.

By the way I think the Pacific campaign that they are now on is partly to do it Antarctica. Getting a stop off point to refuel for their mineral extraction and militarization of Antarctica. AKA the real belt and road.

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The Pacific Islanders are not to be blamed here, the Chinese have played a good hand.

Our armed forces do what they can with the barely maintenance level budgets they have.  We could not go to war with anyone by ourselves and most certainly could not repel anyone, I think it would be touch and go if Fiji invaded (they have a similar sized standing army thanks to UN security missions).

If the Chinese start mining Antarctica we would be best to keep our head down, they are not interested in our opinion in regards to fisheries, they will certainly not entertain any interference in access to other hard resources. 

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Spot on, kpnuts.  Ardern is high on her own supply, and the Foreign Minister is asleep at the switch if not actually AWOL.

It drew comment from Rabobank, who note that the effects on trade relationships, exchange rates etc are likely to be significant.

Not the smartest move, but then we aren’t governed by the sharpest knives in the cutlery drawer.  Captain's Calls are all very well, but it's the Crew who earn the export income.....

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Regardless of whatever floss and shine that is being applied, it is quite obvious that New Zealand has now been positioned to the West substantially more than to the East. Like it or lump it.

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Let them eat cake.

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How blatant that US with worldwide military bases feels ‘concerns’ about other’s Pacific presence

The US, whose flag flies over 750 military bases in more than 80 countries and regions, seems to be sitting on pins and needles after witnessing China sign ONE security cooperation framework agreement with the Solomon Islands. On Tuesday local time, US President Joe Biden met with New Zealand Prime Minister Jacinda Ardern in the White House. Their "shared concern" about China's security agreement and "China's Pacific ambitions" were soon placed under the spotlight of Western media outlets. 

A sentence in their joint statement, issued by the White House, has been hyped the most in US reports - "The establishment of a persistent military presence in the Pacific by a state that does not share our values or security interests would fundamentally alter the strategic balance of the region and pose national security concerns to both our countries." 

This is gangster logic. It suggests sovereign countries in the South Pacific Ocean have no right to sign agreements with other countries. Otherwise, the "strategic balance" of the US' version will be broken. 

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Hmmmm....

Monthly we get a look at the merchandise trade results, exports of goods less imports of goods. But trade also includes services and this data only arrives quarterly. In some respects this is a surprising story. In the March quarter of 2022 we ran a -$1.9 bln deficit in services. But it isn't quite where you might have thought. Our largest services deficit was with Australia at -$635 mln in that period, followed by Switzerland at -$424 mln and the EU at -$405 mln. Then Bermuda is next at -$110 mln. Even the Cook Islands is in this list where we ran a -$92 mln deficit. But with China, we ran a +$165 mln surplus. With the US our services surplus was +$240 mln. We were in balance with the UK, just a +$1 mln net surplus. The presence of Switzerland, Bermuda and the Cooks strongly suggests international companies are using these domiciles to shelter tax due. [my bold] Link

NZ will now be on the unfriendly list of both Russia and China.

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Interesting, the Lodge model is very owner-operated, I wonder if they solicited the Franchises opinion?

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