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
No changes announced today so far.
TERM DEPOSIT RATE CHANGES
None so far here either.
IN MODERATE HEALTH
Factories expanded a tad faster in May than April, built on some lagging and concurrent sections of the factory PMI released today. But new order levels spilled, even if only back to long-run average levels. New order levels are the thing to watch from here because without them holding up, the rest will drag. (We see that "publishing" is a sector sinking quickly, so our reader's support is doubly valuable - and necessary - now.)
CARTELS CAN BE COSTLY
The High Court has imposed penalties totaling almost $10 mln on two international freight forwarding companies, Mondiale Freight Services and Oceanbridge Shipping, and on four individuals associated with these companies, for engaging in longstanding cartel agreements with their competitors.
CLOSED-BORDER EMPTY ECHO CONTINUES
The number of people in NZ on work and student visas is still declining. The number of foreign student numbers is down -61% on pre-pandemic levels, foreign worker numbers are down -36%. But that may be about to change.
STICKER SHOCK FOR A THIRD OF HOME LOAN BORROWERS
Almost 38% of all home loans are at risk of repricing before the end of 2022. That is $127 bln of the total bank mortgage books of $336.7 bln. The balance ($210 bln) has some interest rate risk protection until 2023.
STILL ULTRA-LOOSE
The Bank of Japan left its key short-term interest rate unchanged at -0.1% and that for 10-year bond yields around 0% during its June meeting, by an 8-1 vote, as widely expected. They also said it would offer to buy unlimited amounts of the bonds to defend an implicit 0.25% cap every market day, repeating the guidance on market operations it made in April. Today's decision comes despite rising inflation and a sliding yen. Against the NZD, the yen has lost -7.6% so far this year. And we should note that a cheap yen seem to make little difference to their exports. They rise or fall on quality, not price.
'HARDS' TURN SOFT
We should also note that the copper price looks like it is about to fall out of the high range it has occupied for the past 18 months. And aluminium may not be far behind it. Tin and nickel are showing the same brittleness. And the carbon price, which raced higher in New Zealand and Europe until February has languished in both markets since.
'SOFTS' UNCERTAIN
And speaking of commodities, we should note that there will be another dairy auction next Wednesday (NZT). The derivatives market suggests the WMP price should hold, but the SMP price might come under a bit of pressure.
SWAP RATES STABLE
We don't have today's closing swap rates yet but they may actually have built back yesterday's small slip. The 90 day bank bill rate is up at 2.80% now, rising +4 bps today. The Australian 10 year bond yield is now at 4.10% and down -7 bps from this time yesterday. The China 10 year bond rate is now at 2.83% and little-changed. And the NZ Government 10 year bond rate is now at 4.30%, and down -2 bps from this time yesterday and still much higher than the earlier RBNZ fix for this bond which was up +7 bps at 4.23%. The UST 10 year is now at 3.23% and down another -13 bps since this this time yesterday as recession fears outweigh inflation fears.
EQUITY BEARS ON THE LOOSE
On Wall Street the S&P500 ended its Thursday session down -3.3% with the prior day's relief rally turning to a rout. In the fours day's trading so far this week it is down -6.0%, taking the drop from the end of 2021 peak to more than -23% (so well into bear market territory now). Tokyo has opened down -2.2% today in sympathy, heading for a weekly drop of 5.6%. Hong Kong has gone the other way, up +1.0% so far today and limiting its weekly retreat to -0.6%. But it is down -9.5% for 2022 so far. Shanghai has opened up +0.2% and taking its weekly rise to +1.1%. For the year the Shanghai index is down -9.4%. The ASX200 has opened its Friday session down -2.0% in early afternoon trade and heading for an 8.0% weekly fall. That in turn takes their 2022 retreat to -15%. The NZX50 is down -1.7% in late trade today and heading for a -6% weekly fall. And that means the NZX50 is down -20% since the start of 2022, another market in a clear bear phase.
GOLD UP, SORT OF
In early Asian trade, gold is up +US$13 from this time yesterday, now at US$1845/oz. But that is well below the US$1858/oz it closed at in New York in between.
NZD FIRMNESS EXTENDS
The Kiwi dollar is higher today from this time yesterday, up another +½c to at 63.5 USc. Against the AUD we are firmer by +¾c at 90.4 AUc. Against the euro we are holding at 60.3 euro cents. That all means our TWI-5 is higher at 71.1 and up another +30 bps today.
BITCOIN LOWER
Bitcoin has slipped again, now at US$20,726 and down -7.2% from where we were this time yesterday. Volatility over the past 24 hours has still been extreme at +/- 5.6%.
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65 Comments
Against the NZD, the yen has lost -7.6% so far this year. And we should note that a cheap yen seem to make little difference to their exports. They rise or fall on quality, not price.
The weak yen is putting immense pressure on Japanese companies like Daiso, the famous 'dollar shop' chain. It's businesses like Daiso that have made life more comfortable for Japanese shoppers over the years. Given that most of the products are made in China, weakness in yuan will help Japan. But essentially it will be materials costs that hurt the manufacturing end of the business.
https://www.straitstimes.com/business/economy/weak-yen-may-be-existenti…
As an anecdotal but amusing example, one ice cream manufacturer raised their prices 9c after 20 odd years at the same price and put out an advertisment where the ceo personally apologized.
https://www.independent.co.uk/news/business/news/japanese-company-apolo…
Hard to imagine the same thing at a western company unless the grovelling was directed at the shareholders.
Everything gone to custard really.
How many people have large mortgages on fixed at say 2.5%? Those will unlock and when they do it might be 7%.
Not many people are going to have money to invest, or even perhaps for travel, restaurants etc. Things starting to look mighty ugly.
I have tiny share and crypto holdings but it still hurts seeing the prices fall.
I guess its survival mode for most of us - hope everyone is ok.
Lonewolfnz,you are correct,many will be either hurting or worried for their circumstances.
Nice to see some humanity rather than the usual,'any idiot saw this coming' or banging on about how clever they are whilst the masses are idiots.We all have wins and losses,never nice to rub their noses in it.So ups to you for showing you care.
R from A - that's an oxymoron. It was 'financial' this last 50 years, which got humanity into the pickle it now faces.
What we need - at all levels - is Systems-based physical advice.
https://www.researchgate.net/publication/332843184_Energy_Surplus_and_E…
Agreed, but those that did make ridiculous statements do open themselves up to be ridiculed when the facts prove them wrong, and even then it won't be their fault but someone else's.
Without creating a moral hazard, I would like to see the Govt provide a safety net for those that the banks are just going to treat as expendable just to make their books look good.
I'm not suggesting that they are allowed any debt forgiveness but to stop them from going to the wall because the banks pull support. Maybe these debts get moved into a special Govt. entity so the banks keep within their rules and the bad debt can be played back over a longer time.
The idea is to prevent a small group of people from crashing through the economic foundations and bringing the whole house down. It would only work if at the same time rules recharged so speculative housing markets could not happen again.
The RBNZ released the figures - and the answer is that, no, people by in large did not do this. It was something like 9% of mortgages were for terms 3 or more years. People were baited in by Adrian Orr claiming interest rates would remain low (or even go lower, with a negative OCR).
Been listening to an interesting podcast (Business Movers by Wondery) while running the dog every morning - this week a series about Warren Buffet.
The most interesting aspect to me so far has been how he eschewed purely quantitative analysis, in favour of also applying qualitative analysis when considering investments - the podcast tells the story of his polling American Express customers in a steakhouse to get a feel for whether they cared (or even knew) about the financial scandal that engulfed the company in the early 1960s.
With that in mind, I thought it would be a bit of fun to do some "Interest.co.nz qualitative analysis" - what is happening in your line of work? What is word on the street in your part of town?
If I look at my client base, the following stands out:
- Business with a heavy exposure to residential property construction & maintenance has seen a collapse in demand for their height access/safety product (reasonable demand to rent the item in question, but not to buy it)
- Business selling into prominent homeware and furniture stores reports their resellers are seeing a substantial decrease in the "mid range" - entry level products and luxury/high end are still doing well, but middle of the road stuff has dried up ... one store reporting their average $10k per day sales in this department have dropped to less than $2k.
- Business selling automotive detailing/grooming products has seen an average 30% decrease in revenue in the past couple of months.
However, many other clients are doing well, primarily those selling to other business/industry, or in the tech space.
Airlines can sell every seat they have,a lot of discretionary spending must be heading that way.Business travel returning.
A lot of credits out there,but with the price of tickets,those credit dollars not going as far.
Long haul like Singapore for example,hard to see any empty seat on the aircraft,all classes.
Tech doing ok. Depends on the paired tech sector. I imagine fintech may slow in some areas, and pick up in others (banking may cut their hair, whereas insurance and investor tech may pick up?). Digital is solid but expensive so small time companies may be hit hard, and agencies.
Healthcare is already in crisis so I can’t imagine there being less government money pumped in. Private healthcare may take a dive though.
Spitballing that transport may take a hit, in particular couriers etc. boom and bust there is my pick.
Nothing to see here, move along.
Freeport, one of the largest US plants exporting liquefied natural gas, exploded on Wednesday. Freeport represents a critical piece of infrastructure in Europe's divestment from Russian oil. Yet this story is almost no where in the mainsteam news.
Freeport is represents over 20% of US natural gas exports. A ten billion plus+ capex project, the plant processes two billion cubic feet a day of pipeline-quality natural gas. the plant spits off $7.4b in revenue yearly. 80% of its shipments are direct to Europe.
https://www.eenews.net/articles/lng-plant-had-history-of-safety-issues-…
Is New Zealand exposed to deficits in respect of this product?
Do you know what DEF fluid is? It's Diesel Exhaust Fluid. Every Diesel truck that has been made since 2010 is required to use it. It's made of 67% Urea fertilizer and 33% distilled water. Every diesel truck you see driving down the road today has to have this product to drive Link
Perhaps not...https://autofile.co.nz/nz-to-dodge-adblue-shortage-
Tauranga goes to the polls tomorrow. Listening to Nationals candidate on RNZ confirms he is no better than a robot who is incapable of deviating from the prepared script. He couldn't muster an intelligent answer to any question. If I was in the Tauranga electorate I would be sending National a message that dropping in a subpar candidate isn't acceptable.
Have to agree. This is a throwback to the blue suit brigade that emerged and flourished during Key’s halcyon period which produced a government, conceited, complacent, and careless. The electorate perceived that and turned against it. NZ needs hands on MPs, those vested in actual qualifications in engineering, medicine, education, farming, construction for a few examples. Not financial back room wheelers and dealers. Financiers can only deal with the status of what enterprise and labour has created.
Almost 38% of all home loans are at risk of repricing before the end of 2022.
There shouldn't be any risk of default until interest rates surpass test rates. Even then people can sell their houses if they cant afford the mortgage but that's conditional upon not being in negative equity if course. There's no escape if people are upside down and under water, banks would do well to manage high risk clients.
ANZ shareholders have sent an early warning signal.
I'm not sure I agree with this idea that's being pushed by Robbo, Orr et. al. that there's no risk of default. As financial conditions worsen, the risk of default increases regardless of any due diligence which may have been performed at the time the loan was taken out. The risk associated with lending is ultimately reflected in interest rates, which are rising.
I think there is a considerable risk that we are going to see lots of negative equity, distressed sales, and default in the coming years, and not just in the housing market.
Was chatting with my old man, who has a number of rentals. He talked about how moving from 2.x% interest to 5% was going to cost him an extra $20/fortnight - but AFAIK he hasn't re-fixed yet.
He has plenty of equity, all tied up in the houses mind, which I guess that will have started shrinking.
But the thought came to my mind - he's planning on extending the mortgages, probably well into his 80s.
I'm wondering if we're going to see quite a bit of that before we see mortgagee sales - anyone know the bank's stance?
Obviously don't know you're old man's circumstances but I would have said such a situation, having all equity tied up in illiquid assets, makes people particularly vulnerable.
The shock of Doubling or even tripling interest bills along with it losing deductibility and consequent increased tax bill to name a few will put unbearable pressure on some individuals cash flows. At that point the equity in a forced sale runs out real fast.
Quick, before the power goes off. https://www.youtube.com/watch?v=ELaBzj7cn14
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