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A review of things you need to know before you sign off on Monday; business borrowing weak, huge Auckland Council profit - again, strong jobs growth, another big FLP drawdown, swaps leap, NZD stays low, & more

Business / news
A review of things you need to know before you sign off on Monday; business borrowing weak, huge Auckland Council profit - again, strong jobs growth, another big FLP drawdown, swaps leap, NZD stays low, & more

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 to report today.

TERM DEPOSIT RATE CHANGES
None here either.

BUSINESS LOAN DEMAND WEAKENS
A report out today from credit bureau Equifax notes that demand for business loans was down -12% in the June quarter compared to the same period a year ago. Loan enquiries by businesses fell nearly -19% on that same basis whereas trade credit enquiry levels fell -9.0%. Asset finance enquiries were down the last, down -6.6% they said. This was their fourth consecutive quarter of steady declines and this latest one was the most. There follow three quarters of variable increases.

EASING UP
There are early signs the residential rental market may be easing. Median rents have dropped back from their summer peak and the number of new tenancies is at a record low.

TELL ME ABOUT THAT RATES HIKE JUSTIFICATION AGAIN ...
Auckland Council is obligated to prepare proper accounting reports to back up the debt listed on the NZX. And it released them today for the year ended June 2022. That shows a tax-paid profit ("Surplus after tax") of +$1.7 bln, which was down from almost +$1.9 bln in the prior equivalent year. Auckland Council is the country's largest local authority, but it does seem a lot. It represents 30% of their gross revenues and more than 80% of the $2.1 bln of rates they collected. The prior year, the surplus was 93% of all rates collected and 35% of all revenues. On top of that, Auckland Council's total assets rose almost +$9.7 bln to $709.4 bln and their Total equity rose +$9.6 bln to $54.3%. Employee expenses rose +9.1%. Average general rates increased by +5% and there was a +1.8% increase in the number of ratepayers. You can read these financial in the link above. (Neither banks, insurers, nor supermarkets make these kind of margins.)

GOOD IN A NOT-GOOD WAY FOR INFLATION-FIGHTING
Stats NZ released its "indicator" jobs data based on the July IRD data. That showed there were more than +10,000 new jobs in the month, taking the total to 2.3 mln paying jobs and +2.3% more than a year ago. Even at these levels, most firms (including this one) can't find staff (we need just two!). This is stronger-than-expected jobs momentum. ANZ analysts say: "Any signs of stronger-than-expected momentum in the labour market are unwelcome from an inflation-targeting point of view. The labour market is highly inflationary, and the RBNZ needs to see things cool off significantly to be confident that domestic inflation pressures will drop." Actual gross earnings on an accrual basis for the July 2022 month were $13.8 bln, up +$1 bln from the same month a year ago, a +7.8% jump.

MORE TIER 2 DEBT COMING
Westpac NZ is about to make an offer for $100 mln in "subordinated 10 year debt" with the ability to accept unlimited over subscriptions. It will also retain the ability to repay it after 5 years. This type of debt is Tier 2, and is a first call for capital requirements should the bank get into difficulty. In previous similar issues by other banks of Tier 2 capital, investors have generously ignored such risks and usually vastly oversubscribed. (Perhaps that is because it is fund managers and financial advisers putting other people's money into these types of financial products. Brokerage gets paid.)

FLP FUNDING ACCESS SPEEDS UP
After one bank accessing $500 mln in Funding for Lending Program (FLP) funding on Thursday, another took $500 mln on Friday, taking the total now to $13.9 bln drawn so far. Any reader know who these two banks are? The RBNZ won't say.

TALL POPPY
In central Auckland, a new 55 story building has been approved under the new fast-track consenting process, for 357 apartments on Federal Street near the casino. It will have "137 carparks and 304 cycle parks".

SOLID BOUNCEBACK
In Australia, retail sales bounced back, triggered by the return of international tourists (most of which came from New Zealand). Their July retail trade was up +15.8% from year-ago levels, far more than can be accounted for by inflation. It was also much more than expected.

SWAP RATES LEAP
Wholesale swap rates are probably sharply today as global markets process Powell's signal. The two year could be up more than +10 bps today when trading closes, longer terms a bit less. Our chart will record the final positions. The 90 day bank bill rate is up +2 bps at 3.46%. That is its highest since July 2016. The Australian 10 year bond yield is now at 3.70% and up +10 bps since this morning. The China 10 year bond rate is at 2.68% and little-changed. The NZ Government 10 year bond rate is now at 3.97% and up +10 bps from this morning too, and now well above the earlier RBNZ fix for this bond which was up +3 bps at 3.89%. The UST 10 year is now at 3.10% and up +7 bps from this morning.

EQUITIES BLEED LOSSES
The NZX50 is down a sharpish -0.7% in late trade today as earnings multiple (yields) get slashed. Banks are leading the index lower. The ASX200 is down much more, down -2.1% in afternoon trade. Tokyo is down -2.7% in later morning trade. Hong Kong is down -0.7% and Shanghai is down -0.3%. The S&P500 futrures suggests Wall Street will open tomorrow down -0.9%.

GOLD FALLS
In early Asian trade, gold is down -US$11 from this morning's open, down to US$1,728/oz.

NZD STAYS LOW
The Kiwi dollar is now back to 61.2 USc and while not a lot different to where we opened this morning it is a full -1c lower than this time Friday. Against the AUD we are at 89.2 AUc and still near a new 5-year low. Against the euro we are at 61.6 euro cents unchanged from this morning. That all means our TWI-5 is now at 70.5 and little-changed during today's trading.

BITCOIN LOWER
Bitcoin is down -1.2% from where we opened this morning, now at US$19,765. It's a bear market for bitcoin because it is down -20.7% from its August peak on August 15. Volatility over the past 24 hours has been modest at +/- 1.6%.

Daily exchange rates

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Source: CoinDesk

Daily swap rates

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Source: NZFMA
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This soil moisture chart is animated here.

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18 Comments

After a short breather, swap rates are inching towards new multi-year records again. Mortgage rates and deposit rates will follow suit. 

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yes will the banks have to tweek those mortgage rates back up again, 10 yr swap closing in on 4% again. 

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After one bank accessing $500 mln in Funding for Lending Program (FLP) funding on Thursday, another took $500 mln on Friday, taking the total now to $13.9 bln drawn so far. Any reader know who these two banks are? The RBNZ won't say.

I think you should check your claims here: https://www.rbnz.govt.nz/-/media/98ba094bda944db0a4d2f1c2cda20132.ashx - TAB: "Funding for Lending Programme". 

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Perhaps the commerce commission needs to look at how to open AC up to competition?

Break that supercity back up perhaps 

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Auckland Council "That shows a tax-paid profit ("Surplus after tax") of +$1.7 bln" !

Outstanding, who is next ?

  • The big four Australian banks
  • The supermarket duopoly
  • Fletcher Building gib board
  • The Auckland Council
  • ?

 

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7

It makes no sense to me! Why would any Mayor increase rates if they don't need to? Why make any profit? Why did they cut costs due to Covid?

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Maybe because they have debt to service (and repay)?

"During the year the group increased its net borrowings by $757 million to $11.1 billion. This resulted in a debt to revenue ratio of 257%...".

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they revalued up PPE 8.3b (excluded in the surplus after tax). but most of their income (1.1b) is off the back of mark-to-market revalue on their interest rate swaps which they took a massive dive on 2-3 years ago. they're still carrying a net liability on their financial derivatives on the balance sheet

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And the rail tunnel debt (Capital and Operational) looms!!!!!!!!!!!!

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The profit is good, (as long as it is reflected in a positive cashflow ?)

Getting rid of the debt is good.   Why should a council of that size have debt.  Even their big projects don't need smoothing much.  They are more like daily expenditure in an outfit like that.   This month there is a biggie, next month another.

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How do I buy shares in Auckland Council?!

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Every rate payer is a shareholder?  What would the council say about that then?

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 The labour market is highly inflationary, and the RBNZ needs to see things cool off significantly to be confident that domestic inflation pressures will drop." Actual gross earnings on an accrual basis for the July 2022 month were $13.8 bln, up +$1 bln from the same month a year ago, a +7.8% jump.

Any heat in the labour market was at the back end of 2021. Earnings per filled job have barely changed in the last 7 months, and job numbers have been broadly flat (they peaked in Nov / Dec in nominal terms). Wages are obviously falling in real terms - so how anyone thinks they are pushing up prices is beyond me.

Also worth noting that nearly half of the job growth over the last year (20,000 of the 50,000 extra jobs) is young people between the age of 15-19 who have seen a 17% increase in jobs (to 136,000). Jobs in the 20 - 59 age group have increased by just 1.1%. I can only guess what is happening here - that households need young people to do part-time work to pay the bills, and hospo / catering / retail are having to employ kids on flexible hours to hold their wages at minimum wage. This would help explain why lower quartile wages have been so stubbornly low since Christmas.  

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Also worth noting that nearly half of the job growth over the last year (20,000 of the 50,000 extra jobs) is young people between the age of 15-19 who have seen a 17% increase in jobs (to 136,000).

At least it's not the 8-14 year old age group. Common in the developing world for the kids to work. 

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Interestingly, Taiwan is right up there in quality tertiary education achievement, and are world leaders in semi-conductors, yet has terribly low real incomes.

Not that I'm anti-education, but it does seem like the sales pitch of schooling until your mid-20s isn't any sort of guarantee of better outcomes.

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"........The labour market is highly inflationary, ......"    mmmh.  So inflated bank profits are not ?    Why pick on workers?

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A report out today from credit bureau Equifax notes that demand for business loans was down -12% in the June quarter compared to the same period a year ago. Loan enquiries by businesses fell nearly -19% on that same basis whereas trade credit enquiry levels fell -9.0%. Asset finance enquiries were down the last, down -6.6% they said. This was their fourth consecutive quarter of steady declines and this latest one was the most. There follow three quarters of variable increases.

I thought Kaumatua Orr was in control of all this. Funding for Lending only for speculating on house prices? 

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Yesterdays Interest opinion article on NZ Democracy from Chris was one of his better ones. However in todays TDB he appears to be having a bob each way: Adapt Or Die: Why New Zealand Capitalism Will Let Co-Governance Win. | The Daily Blog

 

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