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
Heartland Bank raised its floating rate by +39 bps to 4.99%. They raised their reverse equity rate by another +25 bps to 7.75%. Wairarapa Building Society raised their floating rate by +46 bps to 6.95%. Pepper money raised their floating rate by +70 bps to 5.99%. The Police Credit Union raised theirs by +49 bps to 6.34%, and they raised their fixed rates as well, for terms 1, 2, and 3 years.
TERM DEPOSIT RATE CHANGES
The big news today is the raising on the one year Kiwi Bond rate by +25 bps to 3.50%. Their six month rate is unchanged at 3.00%. These effectively set the risk-free rate boundary for term deposits. Why would you take less from a lower-rated bank than the high-rated NZ Govt?. But many institutions are still offering below these levels. Today ANZ raised its six month rate to 3.10%. The Cooperative Bank raised their six month rate to 3.00%. Meanwhile, the Police Credit Union raised some short-term rates.
SAVINGS ACCOUNT RATE CHANGES
ASB raised all their savings account rates, by between +15 bps and +50 bps, including their bonus saver. The Police Credit Union raised its bonus saver rates too, but by +55 bps. TSB raised their Websaver account rate by +50 bps to 2.10%.
A DIP BELOW $1 MLN
CoreLogic says our housing market slump is now almost as bad as in the Global Financial Crisis. They say the average value of NZ homes drops below $1 million for first time in 9 months.
OMINOUS
There are twice as many homes on the market for sales compared to this time last year says realestate.co.nz. It is an ominous sign for the spring housing market as the stock of homes for sale grows as prices fall.
THINKING BIG
NZX heavyweight Fisher & Paykel Healthcare (FPH, #1) today said is its paying $275 mln for a 105 ha site in Karaka, Auckland, to construct a second manufacturing campus to complement its existing 45 ha location at Highbrook in East Tāmaki, Auckland.
STRESS SIGNALS
Credit cracks are starting to emerge for Kiwi consumers, Centrix says. A simultaneous increase in demand for credit, and in arrears, points to people being under pressure to meet repayment obligations, they report.
ANOTHER $100 MLN
Another bank took $100 mln from the Funding for Lending program (FLP), taking the total accessed to $14 bln so far. We don't know who took this funding but it unlikely to have been one of the big four Aussie banks. (They don't get out of bed for less than $500 mln usually, from this source.) So a back of the envelope calculation suggests $100 mln will fund about 200 transactions? The whole FLP program is now only scheduled to run for another 90 days, so we might see a flurry of final activity in this space.
RECORD HIGH CORE FUNDING IN BANKING SYSTEM
The banking system core funding ratio rose from 89.9% in June to 90.1% in July. (L2) This is the highest aggregate core funding ratio on record since this data collection began in April 2010. Compared to July 2021, CFR was up 3.0 percentage points from 87.1%. There is $459 bln of core funding value in our banking system, also its highest ever.
STRONG BIDDING BUT ONLY FOR MUCH HIGHER YIELDS
There were three NZ Government bond issues out for tender today, and the yields investors demanded jumped significantly from two weeks ago. All up $860 mln was bid for the $400 mln on offer, attracting 102 bids of which 42 were successful. The April 2027 $200 mln went for a yield of 3.97%, up from 3.36% two weeks ago. The May 2032 $150 mln went for a yield of 4.07%, up sharply from the 3.43% two weeks ago. The $50 mln May 2041 offer went for 4.38%, up from 2.98% seven months ago.
STRANGE BUT TRUE
The RBNZ has revealed that it minted 10 mln 20c coins in 2022 and 8 mln $2 coins. This is after not minting any in 2021. I haven't seen a coin in a transaction since the 2020 pandemic (although I am sure a few sock drawers will hold a lot). Just who uses coins these days?
APRA REMOVES WESTPAC ADD-ON LIQUIDITY REQUIREMENT
The Australian Prudential Regulation Authority (APRA) has removed a 10% add-on to the amount of cash Westpac must keep in hand imposed on the bank in 2020. However, an A$1 billion capital add-on to reflect Westpac’s heightened operational risk profile remains in place. APRA took action against Westpac in 2020 in response to material breaches it said demonstrated weaknesses in the bank’s risk management and oversight, risk control framework and risk culture in its liquidity risk management and reporting. These issues in part related to Westpac NZ. APRA says Westpac has completed a program to remediate findings from an independent review into liquidity risk management to APRA’s satisfaction.
THE DEATH COST OF COVID DENIAL
In the US, they reported that their badly mishandled pandemic response killed an outsized number of them, so much so that the average life expectancy of Americans fell precipitously in 2020 and 2021. It was the sharpest two-year decline in nearly 100 years for them and a stark reminder of the toll exacted on the nation by awful public policy decisions and denial.
AUSSIE HOUSING DOWNTURN
The CoreLogic report for August is sober reading. Every capital city apart from Darwin is now in a housing downturn, with a similar scenario playing out across the rest-of-state regions, where only regional South Australia recorded an increase in housing values for the month. Sydney continued to the lead the downswing, with values falling -2.3% over the month, however weaker conditions in Brisbane accelerated sharply through August, with values falling -1.8%. Observers see this as just the start of a housing price retreat. Their banks clearly were worried a month earlier. See next item.
A WHIFF OF FEAR?
Aussie lending for housing retreated in July at a fast rate. In fact lending to investors fell at its fastest pace since mid-2015, and lending to owner-occupiers fell at its fastest pace since 2008. Bank lending to their construction industry dived a startling -35% in July from June. There's more than a whiff of fear in these figures.
SWAP RATES STREAK UP
Wholesale swap rates are probably pushing sharply higher today in a steepening curve. Our chart will record the final positions. The 90 day bank bill rate is unchanged at 3.47%. That is its highest since July 2016. The Australian 10 year bond yield is now at 3.74% and suddenly up +12 bps from this time yesterday. The China 10 year bond rate is at 2.66% and down another -2 bps. The NZ Government 10 year bond rate is now at 4.10% and up +12 bps from this time yesterday and back threatening the late June levels, and now above the earlier RBNZ fix for this bond which was up +8 bps also at 4.06%. The UST 10 year has now streaked up to 3.21% and up +10 bps from this time yesterday.
EQUITIES WEAKER
The S&P500 fell another -0.8% in Wednesday trade, with a sharpish final dip. Tokyo is down -1.7% in early Thursday trade. Hong Kong is down another -0.7%, but Shanghai is up +0.3% in early trade. The ASX200 is down a sharp -2.0% in afternoon trade taking the weekly loss so far to -3.7%. But the NZX50 is only down -0.2% with its week-to-date fall only -0.5%, so bucking the worldwide trend.
GOLD FALLS FURTHER
In early Asian trade, gold is down -US$19 from its level this time yesterday, down to US$1,703/oz. That is its lowest since mid July.
NZD DEPRECIATION GROWS
The Kiwi dollar is now back down at 60.9 USc and another dip of nearly -½c from this time yesterday. Against the AUD we are at 89.5 AUc. Against the euro we are at 60.8 euro cents and softer. That all means our TWI-5 is now at 70.3 and down -20 bps since this time yesterday. Against the USD we have depreciated -3.1% in August alone, and -10.8% so far in all of 2022.
BITCOIN SLIPS
Bitcoin has been moving around today, now at US$20,152 and down -1.1% from this time yesterday. In between it got as low as US$19,895. Volatility over the past 24 hours has been modest at +/- 1.5%.
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48 Comments
1-year swap looks like its going to head above 4.2%. A level last witnessed in 2008 during the dramatic falls in rates.
Update: its above 4.2% now (4.22%) so we're back to around Dec 2008 levels.
Swap rates are up sharply today, now forecasting the OCR to hit 5% next year. All jokes aside, our economy does not live with that OCR - we'll be lucky if it's just a recession.
I'm struck by the similarity between Orr and Foster, both belligerant and seemingly accountable to no one. I need to crunch the LSAP loss again, but it has to be $10b after today.
Sounds similar to what Zoltan Pozsar is/was forecasting - he thinks the Fed will have to hold their funds rate at 4-5% and may induce a depression to reduce aggregate demand from the economy (the only option to maintain the legitimacy of the USD).
It appears we are at the rock vs hard place now after being able kick the can the road from 2008 to present. 14 years of funny money printing, pretending the economy is strong (when in reality all you're doing is pumping asset bubbles) isn't bad...
Central banks have continually pumped and pumped the life back into the dead patient economies.......re-animating them time and again, then it flatlines again and again. It no longer re-animates. The jig is up!
The FED told the people the TRUTH FINALLY - THERE WILL BE PAIN.
10 yr swap back over 4% at 4.10%. A real divergence opening up here by some saying mortgage rates may have peaked v the swap rate markets and US rate forecasts. Re the FLP, good to see the OCR move up to 3.5 soon so these bludgers of tax payer money can pay their way. Bring on 4%.
All jokes aside, our economy does not live with that OCR
Why not, we've had an OCR of 5% before and the economy survived. Why is now different?
Much more debt, also that bigger debt was borrowed at much lower servicing costs.
Cos bigger debt?
Sounds like we are on the precipice of a very serious downturn with little left anyone can do to prevent it. The banks are retreating from housing and the markets are pricing in steep interest rates rises and some for of recession
Funny how we always think we can fight the nature/economic cycles. All we have done is delay the onset of the down cycle and made its depth far, far worse.
The only 'winner' from this is likely to be russia when Europe is soon forced to negotiate a truce when their voters rebel - it wont ont be long til old people die because they cant afford heating and food.
Individuals and institutions will continue to tap-out, short and cut their losses in the NZD.
If Orr isn't willing to take inflation or exchange rates seriously, people will find currencies, commodities and jurisdictions that will.
#Snowballing
UPADTE: NZD/USD 0.6078
I've said this before Zach, you cannot use the US$ for insight as to how the NZ$ is performing. You need to use the A$ or TWI. We are very close, if not already at the point where higher interest rates is going to lead to a weaker currency.
We are tightening into a collapsing economy. It's like edibles, you feel nothing so keep eating more and more until eventually you're in the fetal position in A & E.
I genuflect to your points, especially with regards to inflation. Though most offshore financial products and asset classes Kiwis buy into (stocks, ETFs, commodities, precious metals, cryptos) are priced in USD. Not to mention the Petrol Dollar.. Reserve Currency.. lines
The NZD/USD pair is very important, granted I neglect the TWI and cross-rates far too often in my comments.
Yes, the US$ matters but not as a relative benchmark of NZ$ performance. All currencies are making new lows against the $ (except the Ruble, but that's inconvenient so you won't read about it).
Energy currencies are the new king, and I'm not referring to wind and sun.
I agree.
I always use the AUD and the TWI alongside the USD.
I look at all of them each day to understand where the NZD is going.
Looking at the USD by itself is misleading.
KeithW
I've been arguing that money should be indexed to energy, for years.
Not surprising that as the tide goes out, it is happening.
But the USD is a red herring; they're as broke as anyone; real Emperors' Clothes territory.
Who blinks first?
I reckon the BRICS/Ruble combo will win, but only for short while. Just as likely is a global collapse.
Jeremy Grantham can see similarities between 1929 and 2000 with current stock market. Thinks the 'super bubble' is yet to burst. That is there is more pain ahead, than what is behind us.
Yes but Jeremy Grantham is a perma bear, he has been predicting a financial apocalypse for the last… well for as long as he's been vocalising his opinion. It looks like finally, after so many years of being wrong, he will be right. Not a great track record though.
"CoreLogic’s national Home Value Index (HVI) recorded a fourth consecutive month of decline in August, with the downturn accelerating and becoming more geographically broad-based. Down -1.6% over the month, the national index recorded the largest month-on-month decline since 1983"
We're starting to witness events that an entire generation of property investors haven't seen before. And told everyone that they were 'impossible'. Why? Because the spokes people at the property investor association said so (and confirmation/recency bias were dominant psychological factors present in the way they process information).
''The big news today is the raising on the one year Kiwi Bond rate by +25 bps to 3.50%. Their six month rate is unchanged at 3.00%. These effectively set the risk-free rate boundary for term deposits. Why would you take less from a lower-rated bank than the high-rated NZ Govt?''
Indeed - I remain convinced that this epic distortion is caused by the on-going stupidity of the RBNZ's Funding for Lending program, which the big banks are troughing out on (and which allows the smaller non eligible banks to piggy back off by offering slightly better rates to suck up the available TD cash). TD investors would be wise to stay very short (3-6months) and await the almost inevitable re-pricing of TD rates when the FFL program finally ends in December (the banks will then have to compete on a 'level' playing field for investors cash).
Good comment this...
Exactly, the 1 yr TD would be 5%
They should have scrapped the FLP a long time ago. I wonder why National and the mainstream media aren't onto this, as taxpayer are essentially helping out the banks with cheap money
The Kiwi dollar is now back down at 60.9 USc and another dip of nearly -½c from this time yesterday.
Why *is* the $ rising again? Hardly anyone ever gets it right. Some will say rates, others US "strength" including the absurdly outdated thinking in this FT article. Before claiming imminent post-dollar world, they never explain why $ doesn't ever crash. Link
It's great for those of us with contracts priced in USD
In the US, they reported that their badly mishandled pandemic response killed an outsized number of them, so much so that the average life expectancy of Americans fell precipitously in 2020 and 2021. It was the sharpest two-year decline in nearly 100 years for them and a stark reminder of the toll exacted on the nation by awful public policy decisions and denial
Hey no fair, I thought ours was the worst government in living memory.
Funny they didn't tell us the actual deaths and their causes in 2020 2021. Now why was that? My guess is that they didn't suit the narrative. The life expectancy predictions change all the time as they massage the figures they get to suit whoever is paying them.
It will start with a 5 before this is over.
From the UK today:
Goldman Sachs warns of 22pc inflation amid surge in borrowing costs
https://www.thetimes.co.uk/article/get-ready-for-22-inflation-goldman-s…
Central banks are kidding themselves if they think they can fight 22% inflation....but if they don't fight inflation, they lose the narrative that they have control over the economy. And if they lose that - what do they have left?
The Bank of England aren’t even trying are they?
How does one tell the difference between 'trying' and 'posturing to try'?
A rate of 1.75% with inflation that high is definitely in the not trying at all territory.
Russia allows Japanese investment by trading companies in Sakhalin natural gas energy. The West not even paying attention.
https://amp.rfi.fr/en/business-and-tech/20220901-moscow-approves-japan-…
i wonder if there's an equivalent fertiliser company. Ravensdown could buy into that.
I'd use coins more if I had better access to an ATM in the first place, and an ATM that took deposits of cash in the second place.
Yeah those cash ATMs are few and far between all right...
NZD at lowest level against USD for over 2years
JPY at 24 year low relative to USD
Yen Falls to Fresh 24-Year Low as US-Japan Policy Gap Weighs https://www.bloomberg.com/news/articles/2022-08-31/yen-falls-to-fresh-2…
An unusual recruitment opportunity for Australian citizens
https://www.abc.net.au/news/2022-09-01/act-spy-agency-releases-coin-wit…
Because you can't trust academics to know right from wrong
https://i.stuff.co.nz/national/education/129753071/intimate-staffstuden…
they are still allowed ( mandated ? ) to #@$? their student's brains.
It would be great to have some more up to date stats on the NZ economy. I wonder what wage inflation is like right now, my gut feeling is that people are feeling a bit more gloomy about the economy and are less likely to be asking for big pay rises or switching jobs. Maybe the government should get stats to report monthly on some key indicators, even if just temporarily.
No one can find staff for minimum wage, put it that way.
True that. Makes you wonder how the likes of McDonald’s are still open, it looks pretty stressful for their employees - being short staffed and customers wanting their burger ASAP. I wonder if it will get to the point where low wage employers have to close up? I guess they will turn on the immigration tap before then.
They just raise their prices where possible. Fortunately most minimum wage level jobs are in businesses where the staff costs make up a smaller than average fraction of overall costs. If you need to pay everyone a couple bucks an hour more that might only require a price rise of only a few percent to cover.
For all the complaining we are very fortunate to have retained such a bouyant jobs market through these times.
My friend's brother has 3 McDonald's. Short 70 staff at present. They keep the drive through going and open the dining in as and when they can.
If anyone considers the last 10 years to be 'normal' or representative of the longer term, economic wise, this is a good chart to consider:
https://i.pinimg.com/originals/0d/88/f8/0d88f833aa311179c256c363eaa16d4…
Having interest rates (in the US and other countries) set around 0% is completely abnormal. Its the sign of a broken economy....and yet under the regime, we've experienced runaway asset prices while the underlying economy is/was on life support.
And central banks have just decided to remove the life support.....and they're removing the life support when the economy is weak! They should have done this years ago before the debt burden blew out to unmanageable proportions.
In starting to think Ray Dalio's "last warning" is a bit like the Rolling Stones' 12th Final Tour.
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