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
First Credit Union raised their 1 and 2 year fixed rates by +25 bps.
TERM DEPOSIT RATE CHANGES
SBS Bank has raised TD rates for terms under one year.
SAVINGS RATE CHANGES
ANZ has raised its Serious Saver interest rate to 1.50% potential, a +40 bps rise. The last time they did this was April 29, when that same potential rate for their Serious Saver account went from 0.70% to 1.10%. ANZ hasn't yet changed its term deposit rates however, just this one, plus a +20 bps rise for their Online Account to 0.50%.
SIGNIFICANT FALLS
According to the REINZ stratified House Price Index, the rate at which house prices are falling has doubled over the last two months, making the move downsignificant in all the main centers.
AN OMICRON DEPRESSIVE
National economic activity shrank by -0.2% in the March quarter from the December quarter, and is now only +1.4% higher than a year ago. This is contrary to the expectations of the Reserve Bank, which had forecast +0.7% expansion between those quarters. Recall the January to March period was very troubled with Omicron's spread and the consequent retail pullback. (The 3 week anti-vax protests in Wellington were in February to March 2.) But somewhat surprising was the weakness in export activity then. The June quarter is very likely to return to an expansion again. How strong is the next real question, but we won't know that until September 15, 2022.
FAST-RISING YIELDS
There were two more NZGB bond tenders today, for $200 mln all up. The April 2027 $100 mln was reasonably well supported with 10 of 25 bidders winning an allocation. The average yield was 3.97%, up from 3.41% just two weeks ago. The May 2057 $100 mln was very well supported with 18 or 38 bidders winning something. The average yield for this one was 4.60%, up from 4.11% just two weeks ago. The yield cost is rising fast now and at some point will become an unexpected burden on the Budget.
THE CHALLENGES OF INVESTING "RESPONSIBLY"
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FULLER THAN AVERAGE
We should perhaps note that Auckland's water storage system is fuller than average for this time of year.
UNEXPECTED GAINS
In Australia, their labour market expanded by more than +60,000 jobs, all of them full-time. Their participation rate blipped up with a small but impressive rise to 66.7%, and their jobless rate held at 3.9%. Analysts were impressed. (The NZ, out participation rate is 70.9% and our jobless rate is 3.2%, just saying.)
BUT INFLATION EATING THESE GAINS
Aussie inflation expectations jumped markedly in June, now running at 6.7% and up from 5.0% in May. This is a very sharp shift. But this same survey recorded that consumers thought their pay would rise a measly +1.2% in the next 12 months. Despite this, Australians are still planning to spend like it is 2021. They might have to change their tune at some point; some of these survey results will have to change.
CHINESE HOUSE PRICES FALLING
In China, house prices fell the most in almost seven years. Average new home prices in China's 70 major cities fell -0.1% year-on-year in May 2022, reversing from a 0.7 percent gain a month earlier. The latest figure represented the first drop in new home prices since September 2015, as tighter COVID-19 restrictions dented buyer confidence in their property market. Only 25 of those 70 cities recorded any gain from the prior month, only two over +½%. Existing home sales prices fell much faster than new construction.
SWAP RATES STOP RISING
We don't have today's closing swap rates yet but they have probably flattened off or even fell slightly, but they will hold almost all of the recent rises. The 90 day bank bill rate is up at 2.76%, up +1 bp. That means it is now a better than equal chance of a +75 bps rise at the next RBNZ OCR review. The Australian 10 year bond yield is now at 4.17% and up another +7 bps from this time yesterday. The China 10 year bond rate is now at 2.84% and unchanged. And the NZ Government 10 year bond rate is now at 4.32%, and up another +2 bps from this time yesterday and much higher than the earlier RBNZ fix for this bond which was down -13 bps at 4.16% recorded right in a temporary drop. The UST 10 year is now at 3.36% and down -6 bps since this this time yesterday.
EQUITIES RECOVER
On Wall Street the S&P500 ended its Wednesday session recovering +1.5% in a relief rally after the Fed announcement. Tokyo has opened up +1.4%. Hong Kong has opened up a very minor +0.1%, with Shanghai up +0.2%. The ASX200 has opened its Thursday session up +0.5% in early afternoon trade. The NZX50 is up +0.9% in late trade today.
GOLD UP, SORT OF
In early Asian trade, gold is up +US$16 from this time yesterday, now at US$1832/oz. But that is below the US$1834/oz it closed at in New York.
NZD RISES BACK
The Kiwi dollar is higher today from this time yesterday, up +½c to at 62.9 USc. Against the AUD we are softer by -½c at 89.7 87.7 AUc. Against the euro we are +½c firmer at 60.3 euro cents. That all means our TWI-5 is higher at 70.8 and up +30 bps in a day.
BITCOIN HOLDS BUT WITH EXTREME VOLATILITY
Bitcoin is holding at its new lower level, now at US$22,333 and up 2.1% from where we were this time yesterday. Although it hasn't actually dipped below US$20,000 it got perilously close (at US$20,088). Volatility over the past 24 hours has been extreme at +/- 7.1%.
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59 Comments
There are two relevant numbers.
$20k is the ath from 2017 (although it was closer to $20,300 to so - it varied exchange by exchange)
More significantly is the 200 moving day average. I believe that is at around the exact price we are at. That has served as a decent bottom in the past, although in the covid crash we dropped to the 300 moving day average.
I should note that ethereum is below its 2017 ATH of $1,400 - but for it, $1000 is a psychological threshold I guess.
I bought all the way down, as low as $21k. Kicking myself a little for not making my next buy at $20.3k. But it was late at night and risky. (In case anyone is worried about me my total crypto holdings including stable coins is around 1/40th of my previous holdings so I'm still sleeping at night!)
I bought all the way down, as low as $21k. Kicking myself a little for not making my next buy at $20.3k. But it was late at night and risky. (In case anyone is worried about me my total crypto holdings including stable coins is around 1/40th of my previous holdings so I'm still sleeping at night!)
Added some more BTC to my sack today Wolfie.
Averaging down in an earlier bear market was one of the best decisions I ever made. And hardened me against these sorts of moves. I'm honestly not even remotely concerned. I've long passed being phased by paper gains or losses. I only care about the long term trajectory, the rest is just noise. If you've been around for more than one four year cycle, it's still incredibly bullish to be sitting over 20k right now.
I agree on the general anchor that shares have.
But those earnings will be denominated in some fiat currency or other. NZ actually isn't so bad, but when you look at what Japan is doing now they're just printing with abandon. USD M2 also expanding a alot every year. Defenders will say those currencies are supported by the companies. Whose earnings are denominated in those currencies. It's a bit circular.
Everyone is looking for some hard objective value but it's hard to find.
The yield cost is rising fast now and at some point will become an unexpected burden on the Budget.
Tresaury have $33 billion sat in the Crown Settlement Account. There is literally zero need for Treasury to be selling bonds at interest rates that put a burden on the budget. What Treasury are doing of course is satisfying the demand from banks and investors for safe Govt-backed financial assets. Bonds started out as financial instruments that the English gentry used to get a free income from their riches. Not sure things have changed that much to be honest.
Yep - pristine collateral chain material. US government bonds certainly funded an early retirement for me. Lesser rated securities just not up to the task.
Daily demand at the RBNZ Bond Lending Facility is constant.
All the swaps 1-10y are heading back to levels that we had back in 2009-2011 timeframe.
The median NZ home with bank funding at those levels (determining mortgage rates and housing affordability), was around $350,000. Medians are now 2-3x times this (closer to $1,000,000).
Sure we've had wage increases since then, but if you are bullish on property, you won't want swap rates staying at these levels for long, or heading much higher.
If my memory serves me correctly many bank commercial property loans were based on the swap rates
many of the property syndicates will be hurting quite badly with these rates
A number of these syndicates offered returns of 6& 7%
With the fast rate of interest rate increases the returns will be considerably reduced
We talk mostly about the pain of housing borrowers but the much higher interest rates charged to commercial customers is going to cause a lot of distress
And this is the problem across the whole economy. If businesses decide that in order to survive and not default on their own obligations/liabilities, they then have to pass increased costs onto consumers.....consumers then demand higher wages in order to survive.....in order to pay higher wages, businesses have even higher input costs.....so they then have to increase the costs of their goods and services in order to survive.....which the consumer can't afford so they have to ask for even higher wages....... (and so on and so forth)....
How the Fed and RBNZ stop this cycle in an orderly fashion is beyond me at present. But we will all get to see how they go about it the coming months and years...
you talk as if you have spent zero effort checking out NZ's economic history. We have been through the current situation many times. It always works out. Most of the rich get richer, the poor get poorer, and the middle people either go up a bit, or down a bit. Oh yeah. There is always some clown saying this time it's different. It is always temporary, and most of us just struggle on eating our KFC and watching Netflix, until it all blows over. Every other time we didn't even notice we were recovering economically until sometime after the beginning of the recovery. Which of course tells us how competent and in control our government is of all the economic situations we find ourselves in.
Swap rates will get higher, and will stay high, until inflation is back under control. And it is going to take years before that happens, let's be realistic about this. At the current levels of inflation, current rates are still very stimulatory, so there is very significant room for upward shifts. Now the Fed has finally come onboard with a healthy 75bps increase, and the ECB will soon have to join the Fed. As a result, international rates will go significantly higher, and this will have significant influence to NZ swap rates, and therefore to NZ mortgage rates and longer term savings rates.
In the current situation, I would not touch residential property (as an investment vehicle) with a barge pole. The only way for the relentless rise of interest rates to be cut short would be a catastrophic retreat of house prices, GFC-style. The hope is that the big downward re-adjustment of house price that is going to happen will be orderly and manageable, but this could be a tall order in countries such as NZ where the housing market has assumed the characteristics of a veritable Ponzi, completely divorced form economic fundamentals and reality.
I completely agree.
IMHO, all the tea leaf throwing that is going on here misses the point. Perhaps it comes down to a L or V shaped recovery, is there anyone talking 1920's or more severe, perhaps an usually longer faceplant than ever.
https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2596~c7a5792539.en.pdf
As a dinosaur, that still believes in value as future cashflows, or hedge cost. I know nothing of Meteors or Sarmats in the face.
Give me a safe NPV anyday
Lol, I forgot to add this from the non technical summary "We argue that an L-shaped recovery is not consistent with a fundamental modelling assumption commonly used to represent the technology behind GDP production in the literature aiming to model recessions through dynamic stochastic general equilibrium models (DSGEs)."
Does anybody feel even a little sorry for Adrian?
Here's an interesting chart.
The Taylor rule, which has been reasonably accurate in determining where the cash rate should be, suggests that the Fed should have the effective funds rate at 10%....
In the last 50 years, we currently have the biggest gap between where the Taylor rule thinks the funds rate should be, and where we actually are. Things really could get wild in the near future.
https://pbs.twimg.com/media/FVQEeOQWUAAHugl?format=jpg&name=medium
You can also see post GFC, the Fed has set the funds rate below where the Taylor rule suggested it should be - in my view, this has allow too much debt to be created (rates lower than they should have been), exacerbating the problem we currently have where they can't raise rates because there is too much debt....but its their own doing by having rates too low for too long in order to protect a debt bubble and asset markets.
Our central bankers are their own worst enemy...
Can somebody send some psychologists to sort out the mentally deranged people we have working in these critical state departments please?
the housing market correction has finally arrived in Christchurch, boy that took a while,
last week 75% sold at auction in Christchurch , this week hardly anything.
The couple that sold today were about 10% below the homes estimates.
When the numbers come out, it will be red everywhere
I know of someone selling a house in Christchurch, for a good price. Someone commented about the "unfortunate timing of the sale due to the market".
Not really. Buyer perception is the market is dropping but it actually is only dropping very slightly and it's not likely to "crash" it's only been on the market 6 wks but unfortunately financial pressure and unexpected life shit right now means I'm willing to sell it for below what I could possibly get for it. I don't expect it will be on the market long at this price.
I spoke to a Harcourts agent today, and she said that there were no bidders in the room for over 50% of the properties on sale
check out this one sold for 620k today https://homes.co.nz/address/christchurch/bishopdale/66-gardiners-road/M… find that sort of deal anywhere else in nz?
And 2000 x $500 TV for the price of a 2 bed Auckland do up. Go back about 40 years and I’d say it would be more like 40 TVs per Auckland do up.
In fact you could probably build the house cheaper out of TVs these days, you wouldn’t need to paint it either, it could change colour depending on your mood.
So long as you're ok with indentured labour bringing you the lettuce. In NZ we have to do things like a minimum wage of 21 bucks an hour with holiday and sick pay. Europe gets to import slave labour, pay them nothing and have them sleep outside to grow its produce.
You can't complain about low pay and high prices at the same time. Well, you can I guess.
New Zealand actually has a gentle enough climate to grow lettuce all year round in a poly tunnel or greenhouses. As a society I think we are developing a learned helplessness around growing food ourselves. With some basic tools and access to land there is no reason anyone should go hungry in the land of milk and honey.
Here is a guide based on New Zealand climate zones:
That's strange because the lettuce says "Produce of United Kingdom". Where the minimum wage is £8.21 per hour, worker protection laws are stronger than New Zealand, with more generous annual leave and sick pay and nobody is sleeping outside to grow produce.
Low pay and high prices are symptomatic of low productivity and/or price gouging. It's time to stop making excuses for New Zealand being such a dysfunctional rip-off.
You're kidding yourself if you don't think agriculture in Europe is heavily subsidized by ultra cheap migrant labour.
Most of your perspectives exist from a perspective of being totally ignorant of what things actually cost. Everything is a rip off, except your valuable time.
Theyre 12 bucks in Aussie at the moment, why you wanna move to an even bigger dysfunctional rip off?
Europe gets to import slave labour, pay them nothing and have them sleep outside
Those were your exact words. Now that you've realised how utterly full of shit you are you've toned it back to "agriculture in Europe is heavily subsidized by ultra cheap migrant labour".
That would be something akin to all the pacific island remittance workers that New Zealand brings in?
I see you've now edited your comment to have your usual whinge about Aussie. We are talking about the UK at the moment.
9000 quid for 6 months fruit picking, before loosing a third of that to recruiters visas and flights, ouch.
Assuming a 40 hour working week, that's £1.73/hour or 1.03 after deducting the costs of getting the job.
https://www.theguardian.com/global-development/2022/may/27/migrant-frui…)%20and%20travel%20costs.
Next meeting will be 13th of July. It's a bit of a strange one because quarterly inflation isn't publicly reported until the 18th. My guess is probably another 50bps if the Kiwi holds otherwise 75bps.
How is Spain, think they'll be able to avoid needing another bailout? They've really ticked up a lot of debt since the last crisis.
Thks Squishy.
At the local level, hospo/ accommodation / construction and retail appears to be healthy. Friends in small businesses comment trading is sluggish but picking up post Vivid. Summer arriving and you can't stop the tourists!
Stayed in Majorca last week and the hotel was fully booked. Capacity 500.
At a macro level, radical leftist Govt fond of QE and institutional ideological change. Chummy with Ardern. Your average commentary at street level isn't flattery.
Of course debt is a major concern as is energy - sure PDK will have a better explanation - leading to reduced manufacturing output. Some of our friends work in the automotive industry at factory levels and they are scared of impending closures. Energy costs up and demand down. Double whammy.
Inflation is on steroids. Costs of living still 30-40% cheaper than NZ.
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