What happened Wednesday

Business / news

A review of things you need to know before you sign off on Wednesday; waiting for the retail reaction to the OCR hike, food price up, house sales cool, rent rises mixed, swaps lower, NZD unchanged, & more

[updated]

13th Jul 22, 3:59pm by David Chaston

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
Nothing here so far today. We don't really expect any fixed rate changes, but we do expect matching +50 bps floating rate changes to come through soon following the OCR rise today. Update: The first change today is from Cooperative Bank who have lowered their fixed rates for 3, 4 an 5 years fixed, taking their 5 year down below 6%.

TERM DEPOSIT RATE CHANGES
Nothing here so far, either.

RESOLUTE AGAINST INFLATION
The RBNZ has kept up the pace of interest rate hikes, still leaning hard against the inflation threat. There was another +50 bps OCR rise today taking it to 2.5%, a level we last had in March 2016, and had from March 2011 to March 2014.

LITTLE RELIEF
Food prices rose ‘across the board’ in June, up +6.6% year-on-year and up +1.2% in June from May, the largest one-month rise in almost a year. This data from Statistics NZ shows little price relief in sight for supermarket shoppers. And it becomes a key ingredient into next week's CPI data.

HOUSE SALES TRANSACTIONS DRY UP
The one area not pushing up inflation at this time is house prices. June housing sales volumes were battered about, down a third from a year ago while median price movements were mixed, and averaging a rise of just 4.2% year-on-year. June's median house prices were lower compared to May in eight regions, higher in five. In Auckland they were up a mere +0.5% in a year.

RENT RISES MIXED
Auckland rental prices were up just +1.9% in a year in more Statistics NZ data released today. Their average rise over the past 12 months has been +3.2%. Auckland rent increases are training the rest of the country now, with Wellington up +4.9%, Christchurch up +9.5%, the rest of the North Island up 9.0% and the rest of the South Island up +7.3%. All this data is for new properties that came on to the market in June. Statistics NZ also reveals the overall increases for all rents, and they rose +4.0% in the year to June - and that was their fastest overall rise (excepting the pandemic period) since 2008.

THREE-LETTER COMPANY LOOKS TO BUY FOUR-LETTER ONE
ANZ in Australia has confirmed it is in talks to buy SME accounting software company MYOB from private equity giant KKR, but says an agreement is yet to be reached.

KOREA HIKES TOO
The RBNZ wasn't the only central bank to raise rates today in the face of the threat inflation poses. The Bank of Korea raised its base rate, also by +50 bps to 2.25%, the largest increase since the bank adopted interest rates as its primary policy tool in 1999, as it stepped up its battle against inflation now running at a 23-year high. The move followed five previous +25 bps hikes, and was the rate markets expected.

SWAP RATES SOFT
Wholesale swap rates may be quite soft today as financial markets are taking the view today's MPR is 'dovish' despite the language. The 90 day bank bill rate was up +3 bps to 3.0% ahead of the OCR review. The Australian 10 year bond yield is now at 3.43% and unchanged from this time yesterday. The China 10 year bond rate is now at 2.83% and down -1 bp. And the NZ Government 10 year bond rate is now at 3.64%, down -7 bps from this time yesterday and now well below the earlier RBNZ fix for this bond which was unchanged at 3.70%. The UST 10 year is now at 2.98% and up +2 bps from this time yesterday.

EQUITY PRICES MOSTLY LOWER AGAIN
The S&P500 ended its Tuesday session down -0.9% as it fell away in the last hour of trading. Tokyo has opened up +0.3%. Hong Kong has opened up +0.8% in their early Wednesday trade. Shanghai is up +0.4%. The ASX200 is flat in early afternoon trade. The NZX50 is up +0.4% in late trade.

GOLD DOWN
In early Asian trade, gold is down -US$9 from this time yesterday, now at US$1726/oz.

NZD LITTLE-CHANGED AGAIN
The Kiwi dollar has ignored the OCR rise and is virtually unchanged from this time yesterday at 61.3 USc. Against the AUD we are -½ softer at 90.5 AUc. Against the euro we unchanged at 61 euro cents. That means our TWI-5 is unchanged at 70.4.

BITCOIN SLIPS YET AGAIN
Bitcoin is now at US$19,502 and down -2.2% from this time yesterday. Volatility over the past 24 hours has been moderate at +/-2.1%.

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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55 Comments

by Justa comment | 13th Jul 22, 4:01pm 1657684872

I was picking 0.25 for August but now Im thinking another 0.50 after todays comments. And the June inflation figure out next week, probably starting with a 7. My milk powder went up this week from $9.49 to $11.49, 20% increase. Inflation is still trucking along.....They are still spending like drunken sailors in the US I see today, looks like another 0.75 rise coming up there. 5% 1 yr TDs by Xmas?

by lonewolfnz | 13th Jul 22, 4:09pm 1657685352

5% Term Deposits would be a very nice Christmas Present for me if that turns out to be true

by Carlos67 | 13th Jul 22, 4:22pm 1657686177

Basically been picking 4.8% now for like months. Think I may have to raise that a little now into the 5's. Serious pay rise coming in February it's going to more than double.

by Nifty1 | 13th Jul 22, 4:27pm 1657686453

So after inflation it would be a -2% return instead of a -3% return, sounds like a great Christmas present...

by ShoreThing | 13th Jul 22, 4:34pm 1657686865

So 7% inflation out to Christmas next year is your pick? Interesting.

by fortunr | 13th Jul 22, 4:52pm 1657687947

I am quite pessimistic about inflation myself, and I am convinced that it is not transitory.

However not even I think that we are going to see inflation persisting at 7% by end of next year. My take is that inflation will be hovering at around 4-4.5% by end of next year, as by then all interest rates rises will start biting, and supply chain issues will start abating. The NZ housing Ponzi will have also started popping by then, destroying the associated delusional "wealth effect". I will take any day a couple of percentage points loss on real value caused by TD's at 5%, than the very likely 30% destruction of value in the NZ housing stock that will happen by end of next year.

We should also consider that, in one way or another, the war in Ukraine will probably have come to some sort of ending by then, as both the Ukraine and the Russian armies, economies and populace will find it very difficult to sustain it for much longer than another 1 and a half years.

by ShoreThing | 13th Jul 22, 4:50pm 1657687850

Transitory was what they called it in March 2021, I think we can all agree 16 months later it is not transitory :)

by fortunr | 13th Jul 22, 4:54pm 1657688051

True :-) I personally think that we will have to live with unacceptable inflation levels for yet another 2-3 years at least, hopefully not at 7% level, but definitely over or around the 4% mark, if I had to take a punt.

by Miguel | 13th Jul 22, 5:33pm 1657690390

"Transitory" was used to say "Its not monetary policy that is causing this inflation, we can just wait for supply chains to clear, while we continue to print money and stimulating the economy with 0.25 interest rates".

It was proven to be categorically false.

There is an argument to be made that the higher rates, and the resulting demand destruction, will quickly tame inflation (I don't agree with this). But that isn't the same as "Transitory" as it required huge, unprecedented rate hikes and creating a recession to kill off inflation.

by lonewolfnz | 13th Jul 22, 4:47pm 1657687671

Its only a problem if we have 7% inflation for the entirety of 2023. I doubt that will happen, if so, interest rates go up more.

Right now its hard to generate a profit on pretty much anything - rentals, gold, crypto, equities. Its all a mess for now. Cash is king for a while.

by Justa comment | 13th Jul 22, 5:17pm 1657689456

Better than 5% loss on housing or stocks............

by lonewolfnz | 13th Jul 22, 5:58pm 1657691898

Believe it or not I invested in over 1000 cryptocurrencies (obviously all sold now although I am gradually re-entering). Doing my taxes now so checking them - almost all are down 99% or more, quite a few down 99.9%. The best "winner" is BNB which is only down 65%.

So there is almost more pain out there!

by Carlos67 | 13th Jul 22, 8:51pm 1657702271

I don't think we can be bothered to explain it to you Nifty but hopefully one day when your debt free in your own home and have a shit load of cash the penny will drop.

by Nifty1 | 13th Jul 22, 10:07pm 1657706871

Holding a sh*t load of cash that is eroding a way to nothing is not an enjoyable place to be... especially those that can't pull the trigger on any investment outside of cash as everything seems too risky...

by HouseMouse | 13th Jul 22, 10:24pm 1657707879

But, assuming inflation slows to 4-5% over the coming year, a term deposit at circa 5% isn’t eroding cash away. Right?

And buying property or shares is much more likely to lose you money, at this point (unless you can land a super bargain on property, then of course that’s a different story)

I agree with others that cash is king, or at least not a bad place to be.

That doesn’t mean it will remain that way. For example I have said before that my plan at this stage is to buy back in to shares in the first quarter of 2023. Although I will keep an open mind on that and be prepared to change strategy.

by Nifty1 | 13th Jul 22, 10:52pm 1657709537

How anyone holds confidence in the dollar and holding cash after the actions of the RBNZ and world banks is beyond me...

The key is to diversify and hold some cash ready to invest when an opportunity presents itself. The problem is, many 'cashed up' people sit on their hands doing nothing being too scared to invest in anything apart from term deposits.

by Norm | 13th Jul 22, 8:52pm 1657702371

Better than most returns at the moment

by Arbroath | 13th Jul 22, 4:15pm 1657685716

50 seems more likely than 25 in August but a lot of pain is coming from mortgage rate resets in coming months. Still see them stopping by 3.5% as we will be in recession by then.

by Kiwisaint | 13th Jul 22, 4:18pm 1657685918

I still think the medium term rates will follow the hawkish FED to an extent. Could see 4%.

by ShoreThing | 13th Jul 22, 4:54pm 1657688044

I see lots of commenters picking that rate hikes will cease because we are heading to a recession. That is a non-sequitor, the RBNZ mandate is inflation within target band and to support maximum sustainable employment - not GDP growth. RBNZ is saying that unemployment is currently well beyond maximum sustainable rate i.e. overheating, and inflation is not forecast to come within target band for a long while yet.

We know that we are above maximum sustainable employment, so the RBNZ will tolerate an certain amount of increase in unemployment without changing policy track. Basically if you are saying that RBNZ will cease lifting interest rates you are predicting that unemployment will get drastically out of hand very quickly, which is doubtful - everyone is crying out for workers right now, not laying them off.

by DDS | 13th Jul 22, 5:16pm 1657689419

I don't think anyone is saying that there's a risk of an imminent recession. The fear would be more that killing companies now with higher interest rates will eventually filter down into higher unemployment in 12 months time. Not sure I agree with that or not but I think those talking about a recession aren't worried about now but mid next year, when the effects of belt-tightening will have had time to pop their heads up.

by keithwoodford | 13th Jul 22, 5:59pm 1657691968

My own expectation is that we are likely to see a recession embedded later this year as consumer spending is already in decline. One of the associated issues is that imports have further to rise as the recent exchange rate declines have yet to work much of their way through into consumer prices.

KeithW

by Justa comment | 13th Jul 22, 7:16pm 1657696566

yes so slowdown or possible recession, but with continued inflation, and higher interest rates. Inflation and wage rise spirals are non negotiable items for RBNZ.

by JimboJones | 13th Jul 22, 8:50pm 1657702218

A recession will get rid of local inflation. So then it’s just imported inflation, which I suspect will have subdued by then. Yes we will also get inflation from a low NZD, but hard to see it going that much lower.

by Jonny.Foe | 13th Jul 22, 4:45pm 1657687502

With rent running at 4% increase per annum, food at 7%, and 2021 Q2 figures providing a low baseline, I am getting pretty confident that next weeks inflation figures will be comfortably over 7%. Even if rent and food are the only prices that increase, we will still be over 6%. Adrian Orr must be hoping those oil prices keep coming down so that he claim credit for wise wiggling of his utterly useless OCR lever.

by Hummy | 13th Jul 22, 9:06pm 1657703200

Don't forget wage rises are near double figure too.

by HouseMouse | 13th Jul 22, 10:01pm 1657706509

haha that's a good one!!!!

by Jonny.Foe | 13th Jul 22, 10:56pm 1657709780

Nonsense. Weekly earnings have been flat since January 2022.

by HouseMouse | 13th Jul 22, 11:00pm 1657710005

Exactly. Nonsense.

sure there have been cases of 5-10% pay rises, but that’s the exception rather than the rule.

I think year on year wage increases are circa 3-4%?

by Whatwillhappen | 14th Jul 22, 7:36am 1657741009

A pay freeze is a pay cut in inflationary times

by J.C. | 13th Jul 22, 4:46pm 1657687609

Luxon taking a bit of flak for his comments about the BS about NZ exceptionalism related to the #1 ranking for ease of doing business.

Despite there being all kinds of shonky stuff going on at the World Bank related to the index, it was pretty basic.

https://businessdesk.co.nz/article/economy/about-that-ease-of-doing-bus…

by vman | 13th Jul 22, 5:07pm 1657688871

I think he got the flak for saying NZ businesses had gone soft,nothing about exceptionalism.

"now businesses are getting soft and looking to the government for all their answers.”

by J.C. | 13th Jul 22, 5:58pm 1657691889

Yes. Did you read the article?

by vman | 13th Jul 22, 6:07pm 1657692439

Yes I did, maybe I didn't understand your point sorry.

by Audaxes | 13th Jul 22, 5:01pm 1657688497

Wholesale swap rates may be quite soft today as financial markets are taking the view today's MPR is 'dovish' despite the language.

So, Recession? And if so: when, and how bad?

Time To Buy Bonds? Let's Talk About It.

by J.C. | 13th Jul 22, 5:04pm 1657688697

Commodity bubble imploding like in early 2008. Commodities futures in China today.

Fuel: -8.5%

Crude oil: -5%.

Coking coal: -3.7%

Copper: -3.5%,

Tin: -2.77%,

Aluminum: -2.4%

Nickel: -1.2%

by Audaxes | 13th Jul 22, 5:38pm 1657690683

Can this be true?

In H1 2022, China's foreign trade reached 19.8tn yuan, increasing 9.4% yoy, with exports up 13.2% and imports up 4.8%. West keeps talking about supply chain issues in China. Link

by J.C. | 13th Jul 22, 6:00pm 1657692005

China data probably needs to be taken with a grain of salt Audaxes. Let's just say 'margin of error.'

by Audaxes | 13th Jul 22, 6:26pm 1657693567

Let's hope they can afford this luxury - Boeing is disappointed? It’s not China’s fault: Global Times editorial

by Zachary Smith | 14th Jul 22, 6:43am 1657737830

I think I would go with Airbus rather than Boeing.

by papa_mahi_nui | 13th Jul 22, 8:25pm 1657700728

How they pulled that off with an economy on lockdown is a miracle.

I see they locked down a steel hub city of 300,000 people based on one single covid case a few days ago.

Unsustainable.

by HouseMouse | 13th Jul 22, 10:28pm 1657708080

Covid is definitely a convenient excuse to exert authoritarian control over their population.Talk about ulterior motives…

by Yvil | 13th Jul 22, 5:45pm 1657691107

What happened to the posts about C on the morning section? Did they get removed? Did they get too heated? (sorry I just woke up)

by vman | 13th Jul 22, 6:09pm 1657692557

They are still there Yvil,all the crazies came out today.

by Yvil | 13th Jul 22, 6:47pm 1657694847

Really? Can't see them?

by vman | 13th Jul 22, 6:56pm 1657695380

Better take a RAT test, sounds like you have brain fog.

by Nzdan | 13th Jul 22, 7:07pm 1657696076

A Rapid Antigen Test Test?

by vman | 13th Jul 22, 8:13pm 1657699983

Yes,yes lol.

by Nzdan | 14th Jul 22, 7:04am 1657739041

Sorry couldn't help being that guy.

by Squishy | 13th Jul 22, 6:44pm 1657694661

ANZ in Australia has confirmed it is in talks to buy SME accounting software company MYOB from private equity giant KKR, but says an agreement is yet to be reached.

That's a weird deal. There doesn't appear to be any obvious customer leverage or direct benefit to ANZ to my way of thinking. If anything ANZ has spent the last decade divesting itself of historic misadventures.

by J.C. | 13th Jul 22, 6:53pm 1657695234

Strengthen relationship with SME customers? At this point in time, it does seem to be odd. Virtue signalling perhaps? That they're not only about mortgage lending.

by Independent_Observer | 13th Jul 22, 7:09pm 1657696160

Or get direct insights into the balance sheets and cash flows of those who want to borrow money from them.

by Justa comment | 13th Jul 22, 7:18pm 1657696712

MYOB was yesterday, Xero is tomorrow.

by JimboJones | 13th Jul 22, 8:47pm 1657702074

Mind your own business

by profile | 13th Jul 22, 9:44pm 1657705454

Electricity prices doing their bit for inflation at the moment. Or is our economy tanking that bad?

spot generation price 0.5 cents

Other Charges 9.4 cents