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
Westpac was the first out of the blocks with spring home loan rate changes, flattening its offering to be competitive for terms of 3 years and longer. Kiwibank then followed with reprising its 1% cash-back offer.
TERM DEPOSIT RATE CHANGES
China Construction Bank raised all its term deposit rates. Its new 1 year rate is now 4.20%, the highest of any bank and matching the Bank of China.
BUSINESS LENDING RATES RISE
ANZ raised its key business lending rates today by +50 bps in response to the last OCR rate hike. Homeowners will be surprised how high these base rates have become (and making their housing deals look pretty attractive). ANZ raised its Business Bank Indicator Rate to 11.1%, its Business Overdraft Rate to 13.1% and its Agri Current Account rate to 9.3%. It is hard being profitable in business, even harder if you have to borrow money.
SUDDENLY MAINSTREAM
New car sales surged in August, let by surprisingly large gains in sales of EVs and hybrids
HOUSE BUILDING RISES
Building activity continued to increase in the June quarter even as rising costs started to bite. In the 12 months to June, residential building costs rose +17% while non-residential building costs were up +11%. Westpac noted "while the June quarter result was a little stronger than expected, estimates of building activity over the past year have been revised downward. On balance, that has left us with a picture of a flattening off in building activity over the past year. That reinforces our expectations that the peak in the construction cycle is fast approaching."
COMMODITY PRICES SLIP
The ANZ World Commodity Price Index fell -3.3% in August, with the pace of decline accelerating in the past three months. In NZD terms the decline was even greater. Falling dairy prices are largely behind the shift lower.
TOO DEPENDENT ON CHINA?
Is New Zealand too dependent on China as an export market? Gareth Vaughan talked to Stephen Jacobi on the importance of NZ's trade relationship with China, the risks to it, and the opportunities to diversify to other countries. Listen here.
TINY GAIN, BUT BETTER THAN THE REST
Although the NZX50 did ok last week when compared to the other major markets we benchmark ourselves against, it wasn't a terribly impressive gain from the week before, nor from a month before. But at least it was a gain. Fisher and Paykel Healthcare (FPH, #1) fell -2.0% for the week, Fonterra (FSF, #48) fell -5.5% and Restaurant Brands (RBD, #49) fell -5.9% for the week. Some of this was covered by the very large +17.9% rise by A2 Milk (ATM, #9). Most was covered by many much smaller gains.
PROPER SAFEGUARDS BUT PROPORTIONATE PENALTIES
In March 2022 the RBNZ sought feedback on the penalties and enforcement tools available to it when supervising insurers and on their powers to manage distressed insurers. There were eight companies and trade lobby groups that gave very detailed feedback. Among the feedback was a desire for the regulator to have a graduated and proportional set of penalties and enforcement tools responding to the severity of the breaches.
BATTLING NEGATIVE RETURNS
Research IP issued their August RIPPL Roundup, noting that aside from cash (bank bills), only the NZX50, ASX200, Emerging Markets and HFRX Global Hedge Fund index posted positive returns for the month. Commodities and cash were the only positive returning assets over the last 12 months. If inflation remains elevated at current levels, the real return on term deposits will be negative, they note.
INTEREST.CO.NZ RACKS UP "OF INTEREST" PODCAST EPISODES
Our 'Of Interest' podcast, through which we take a deep dive into a major economic or financial issue, has now been running since the start of June. Topics covered to date include the RBNZ's response to Covid-19, the housing market, China's economy, NZ's trade relationship with China, deposit insurance, central bank digital currencies, inflation, insurance & climate change and more. You can find all the episodes here, and keep an eye out for more to come.
INDONESIA UNDER PRESSURE
Indonesia regulates fuel costs, and the cost of that on public finances can't be sustained, especially as the cost of USD debt rises. Their government has raised key fuel prices by 16-32%, a move that will push average headline inflation to 4.5% in 2022 and 5.0% in 2023, above Bank Indonesia’s 2-4% target range. That means their central bank will raise its policy rate by +25 bps at each of its remaining four meetings this year, taking the policy rate to 4.75% by year-end. Next year it could go to 5.25%. (H/T ANZ.)
AUSSIE JOB ADS DEFY THE SLOWDOWN
There has been a set of international data released today but none of it is especially noteworthy - except perhaps Aussie job ads data which came in stronger than expected, rising +2%. Given other weakish Aussie data, it was expected this job ad metric will have fallen - but not yet, at least.
SWAP RATES PAUSE
Wholesale swap rates are probably little-changed today we all wait for the US to take its long weekend holiday. Our chart will record the final positions. The 90 day bank bill rate is up +4 bps at 3.52%. That is its highest since July 2016. The Australian 10 year bond yield is now at 3.66% and up +2 bps from this morning's open. The China 10 year bond rate is unchanged at 2.65%. The NZ Government 10 year bond rate is now at 3.99% and down -2 bps from this morning and now above the earlier RBNZ fix for this bond which was down -8 bps at 3.96%. The UST 10 year has now still at 3.20% and unchanged from this morning while the US is on its Labor Day long weekend holiday.
EQUITIES ON HOLD
The NZX50 has started this week down -0.3%. The ASX200 has started up a minor +0.1% after last week's dive. Tokyo is also down -0.2% in Monday morning trade. Hong Kong has opened much weaker in early trade, down -1.8%. Shanghai is unchanged at its open. None of these markets are closed for the typhoon yet. The S&P500 futures haven't given any signals yet for the upcoming week's trading, hovering at an unchanged level from Friday.
GOLD MEANDERS
In early Asian trade, gold is down -US$4 from its level where we opened this morning, down to US$1,709/oz.
NZD HOLDS
The Kiwi dollar is now down at 60.9 USc, lower than this morning by higher than this time Friday. Against the AUD we are unchanged from this morning's open at 89.7 AUc. Against the euro we are at 614 euro cents and also unchanged from this morning. That all means our TWI-5 is now at 70.6 and little-changed.
BITCOIN BECALMED
Bitcoin has been marginally softer, now at US$19,845 and unchanged from where we opened this morning. Volatility over the past 24 hours has been modest at +/- 1.1%.
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60 Comments
I do like my Bitcoin under 20K, suppose I'd better buy some more this week. Someone's got to add value to this market.
As always people; Dollar Cost Average !!
Now that's the kind of spruiking which would make Tony Alexander blush.
I think a 60% plus price-fall would make Tony Alexander s*** himself on the spot. Bitcoiners have ice in their veins :)
Under $10k is even better. It all depends on conviction.
Heaven described in mortal words there JC, well done. =)
15K would be nice, as Bitcoin is priced in USD. I much prefer buying BTC when the NZD/USD pair is in my favor, otherwise u do lose some value (in dollar terms) on the NZD's ride back up.
At these prices though, dollar-cost-averaging is a go. I don't mind buying on the way down. I don't seek to divine strict highs and lows.
Ethereum is the leader for this cycle I reckon. Up 100% or so since the June low. And the Merge upcoming in just 9 days or so
Don't get too carried away. Just remember; a hedge fund consistently returning 7% per-annum is considered excellent. 10% per-annum consistently is considered legendary.
Though you may be right about Ethereum, don't bet the whole farm on it.
Just an opinion, of course.
Never average down. To average down, after significant price drops, investors buy more at a lower price. That lower price averages down the total cost. In effect, this is a version of dollar-cost averaging. Investors averaging down expect a profit when prices rise above that lower averaged cost. The argument for doing this is that prices do not have to rise as much to profit. After all, the average cost is now closer to breaking even. However, averaging down has a poor record of breaking even. More often, a falling price parks at that lower level or falls further. When that happens, investors sell for a higher loss or sit on a dead investment.
I'm sure there are quite a few people who bought a chunk at $40k, $50k, $60k etc expecting it to go to $100k+ are still currently "averaging down".
I'm sure there are quite a few people who bought a chunk at $40k, $50k, $60k etc expecting it to go to $100k+ are still currently "averaging down".
Worse case scenario though. Some who added to their sack at 60K were also buying under 10K. Depends on who you are, your strategy, and risk appetite. Understanding your average purchase price relative to the current price is what's most important. From my observations and experience, the best time to buy is when people are convinced its dead. Of course past market cycles are not indicative of the future.
Consistency with dollar-cost-averaging is key - both on the way up and on the way down. Though taking a small stake to start off with is understandable for any investment.
Also, people understanding and believing in their investments is one of best protections people can have against loss.
Don't stop believing.. http://www.telephonecardcollector.com/
Gains were huge in the early days. So long as you're in on the ground floor she's all gravy baby.
Lol
Same can be said of every ponzi.
Unproductive zero-sum games are all the same - the early in and astutely out, make a killing.
Those further down the chain....... are the ones being killed.
They used too say there is one born every minute, but that phrase was coined when there was one billion of us. Must be 8 now....
Guess it all depends on how you look at things, and what is a ponzi.
The early entrants into various markets a century or more ago, could be said to have picked themselves up a bargain.
Later entrants pay more for some things, but also enjoy all manner of improved living; medicines, nutrition, instant global communication, entertainment media, transport, etc.
It's easier to take those things for granted when looking for downside.
Relax PDK, its all out of control.
Good point bw, but I suggest this applies more during typical times. With all prices dropping its fair to assume there will be upside in the future if your investing in quality companies.
As for crypto assets it's all speculation so nobody knows
Subscribing to Dollar Cost Averaging, and 'buying because the price is low' are opposite things.
This, ladies and gentlemen, is an investor in bitcoin. It explains a lot.
Is it time to short Aussie banks? One Wall St guru says yes (paywalled)
Bank of America’s strategy guru spotted Australia’s tumbling house prices and think our bank stocks will be next. But history says there are reasons to be cautious.
https://www.afr.com/chanticleer/is-it-time-to-short-aussie-banks-one-wa…
As I have said many times before, while the building stats are superficially good, they are lagging data and deceiving.
And as I have said since early 2021, the slump in residential construction would start in the second half of 2022, and more and more signs are emerging of that.
Hat tip to JC for this article painting a picture of big stresses building in the sector:
https://www.newsroom.co.nz/dark-days-continue-for-struggling-new-zealan…
That Newsroom article is real DGM content. Would never have made it past the editorial at Granny Herald.
Hahaha yeah
I should probably look at Newsroom more.
It just seems like yesterday that Orr was on his podium telling the banks and other creditors to lend, lend, lend to anyone and everyone at 0% interest to avoid falling real estate prices and a depression.
And now we have falling real estate prices....just with even more debt! The unsecured creditors are getting wiped out....and so soon may the secured if prices fall far enough.
Question is...do we also get the depression now that he was warning about if real estate prices fell - or was that just a empty threat from 2020 that no longer exists in 2022....its so quiet out there from him...shouldn't he be telling all creditors to lend, lend, lend even more now to avoid a depression?
If not, was he lying in 2020, or is his silence a lie now in 2022?
My base case for the economy in 2023 is much worse than what economists are forecasting. Not a depression, but a moderately deep recession, and unemployment rising up to between 5-6%.
But what would I know. I'm just a DGM loser.
Lol - that makes two of us...I might make some hats and t-shirts with 'DGM Loser' on them. Should I send you one?
Btw, what are the good prospects for our economy over the next couple of years?
I'm pretty doom and gloom on it.
Real estate, property development and associated sectors - down
'Export Education' - still pretty sickly
Tourism - still pretty sickly
Retail and Hospo - not sure, might tick along OK, but I suspect will be reliant on real estate / property development not slumping too far?
Maybe only agriculture really holding its own???
Its possible we are heading for a one in a hundred year event. The end of the long debt cycle as Dalio would put it.
Ultimately, we could be heading towards the end of USD supremacy - the US is going cripple the world as it creates more currency in order to prevent defaulting on its own national debt.
That in itself will cause global disorder.
The problem with calls of the end of USD supremacy is you'd need someone else in a relatively better position to take over.
You'll see a coalition of down and out nations swapping funds increasingly amoung themselves, but it's pretty unlikely the US will be upended in the medium term.
When the world isn't highly financialised, the 'down and out' countries no longer appear to be down and out! The ability to issue debt and use it against weak countries makes you appear strong by forcing your geopolitical will over them - which is exactly what the US is currently doing.
The US is technically bankrupt, or will be a some point in the coming future. When people realise this, there will be a run from the USD.
Putin knows this and based upon that speech he just gave, he's trying to speed up that process (same goes with the Euro).
But I also believe in the dollar milkshake theory - I think we will see people rushing towards USD initially....because nations still have debt to pay so demand remains, but once the herd switches and realise they US is bankrupt - i.e. it doesn't have the productive capacity to fund the debt it is issuing, then the rush to the exits could happen faster than people might anticipate - they will then rush for hard money/assets.
It's fairly restrictive to just look at the debt, otherwise there'd be a 1:1 relationship between currency values and their debt levels.
If there were some incumbent competitor with strong demographics, a wide array of natural resources, a competing global trade network, running at the edge of technology, I'd be more inclined to think the USDs days are numbered, but when you're closest competition is China it's hard to get super enthused.
I'd go long on things like liquidation firms, repossessors, security patrols, drug rehab centres, cheap motels, camping grounds, liquor stores with solid security.
Look on the bright side.
Last month I made a post about noticing a couple of formerly prompt-paying clients get behind (managed to get paid by all of them in the end).
For August payments, the trend continued/worsened - still have several outstanding that I am chasing.
I have historically averaged (over last five years - 1st Covid lockdown period excepted) less than 10% of clients as being slow payers, and most of those due to being disorganised as opposed to not necessarily being able to pay.
July that rose to around 20%, and for August roughly 25% of clients & total billable hours have been slow.
Speaking with my business lawyer, who I approached for advice re: slow payment, he says this is the worst environment he has seen post-GFC for business invoices not being paid or being paid very late.
Purely anecdata, but I'd be interested to hear what others are experiencing?
I don't rely on invoices for income, but I have heard rumblings in my area of some outwardly very wealthy folks slamming the doors shut on some expensive property developments/upgrades.
Also heard of a large car dealership with a warehouse full of vehicles they're planning on dumping. Good news for us, we'll need another vehicle shortly (paid for with cash, obviously).
I had a farmer unable to pay his rent on time this month. First time in 22 years in business leasing land. I guess the big jump in interest rates coupled with record on farm cost inflation is starting to affect cashflows.
Charming comments from the rentier class tonight....getting worried I hope. Still lovely and warm here in Fiji..
Make sure to tip everyone big!
Definitely been a bit slower with money coming in for us, the usual winter suspects (we are very seasonal) plus a few new tag alongs. We have always been tough on those that drag the chain, so they are reasonably well trained on the whole.
"Against the euro we are at 614 euro"
I have converted all my nzd and just purchase a ex russian yatch in Nice.
New high hit on TDs, 4.8% 5yr, China Construction Bank.
It's usually much more worthwhile reading international forecasts on our economy than local drivel from our home-based economists.
Big declines in house building and house prices forecast by Goldman Sachs. I think their house price decline forecast of 20-25% is about right, but I think building consent numbers will fall by more than 30% - possibly 35-40%.
https://www.macrobusiness.com.au/2022/09/ardern-horrified-as-new-zealan…
Yes the answer probably lies somewhere between the two.
Add in 18-24 months of 5-10% inflation, and in real terms, its a significant drop as a store of wealth (a 30-40% drop).
Its quite possible that if prices start falling 20% though that, from a behavioral financial perspective, that prices could fall much further in nominal terms. I can understand a drop of 10% and people don't panic. But when reports come out that prices are down 15-20%, its at that point that the herd starts to panic and even more houses get put to market and the banks really get scared as more owners find themselves in negative equity. It can be a seriously nasty feedback loop when it starts....credit is limited, prices drop.....so even more credit is limited and prices drop even more! Even as prices fall, buyers don't want to buy as the anticipate they can buy at a cheaper price in the future - even while mortgage rates fall.....and as a result, prices go much lower than anyone can first imagine. At least this is what I witnessed when working and travelling around the US during the GFC.
Time will tell of course....but given the speculative frenzy we have witnessed the past 5-10 years, it wouldn't surprise me to see people completely lose their heads on the way down also as prices fall.
A real drop of house prices of over 40% just might persuade my daughters (both in their thirties with job, partner and children) to think about saving a deposit and buying few years later when the deposit has accumulated. It is what I did in my mid-twenties.
Not happening, suggest they start saving now.
You know the world is in a very precarious position, when the most hated man on the planet (Putin) appears to be the only one in authority who speaks the truth about what is going on at the macro economic level.
https://twitter.com/MacroAlf/status/1566111781117775872?s=20&t=FOvDtDgN…
Why aren't Powell, Biden, Adern, Orr commenting on this - as this is what is unfolding around us....
My take is that the war in Ukraine is continuing in order to try and silence Putin - not because the west necessarily want to protect the Ukraine, but more that they must beat Putin otherwise we may see the collapse of the USD and Euro as the world reserve currencies as financialised economies won't be able to survive in their current form if Putin wins. There will be a run from those currencies and into hard assets.
If you have read The 4th Turning and Dalio's work on The Changing World Order - you will understand the significance of Putins speech. His aim isn't to beat Ukraine (its possible that he doesn't care about Ukrainian territory at all....he just needed to generate a conflict that causes inflation) - his aim to to end the dominance of the USD and Euro as world reserve currencies. It predicts that every 75 years, or there abouts, the reserve currency is replaced...and its been almost exactly 75 years since Bretton Woods at the close of WW2...so what we are seeing is right on schedule. And if the Fed tries to print more money next year to recover from the recession...they will just make the situation even worse.
Interesting take!!!!
I suspect the West's approach is more geopolitical and around not wishing to establish precedence for Putin (ie. if we let him take Ukraine or part of Ukraine this time, what's to stop him doing more of this), but it could also be what you describe.
Yes so if you want to go completely down this rabbit hole - Putin and Xi are colluding to try and destroy the USD supremacy. The war in Ukraine is to cause an energy crisis that is highly inflationary - while the COVID lockdowns in China are to destroy supply of goods to the west...again inflationary.
Both are controlled by the leaders of those countries and both occurring when they saw weakness in the Fed's policy - i.e. they made a blunder with their monetary policy in conjunction with Biden's build back better money for nothing as US citizens took helicopter money while producing no goods and services.
It could be all completely coincidental...but when I look at the timing of these events and now some of the statements that Putin is making....it really does make me wonder. That guy is smart - but also probably a psychopath.
They are doing everything that one would do if they want to speed up the demise of a world reserve currency. To say they are killing tens of thousands of young Russians just to grab a small part of Ukraine doesn't make sense. Doing so to end the USD and Euro as world reserve currencies does. i.e. the sacrifice relative to reward for Russia makes sense if they severly harm the euro and USD dominance...but just to claim a small part of Ukraine makes no senses at all.
The Russia + China collusion - interesting theory.
I certainly wouldn't write it off, but I'd favour:
-China locking down to more rigorously control it's population, which might be getting a bit restless
- Russia's adventures being about history (Ukraine independence an affront to Putin's notion of Imperial Russia, and him looking for legacy) and geospatial strategy (intolerance of the notion of Ukraine joining NATO)
Nato is the USD and the Euro. Attacking Ukraine is causing the USD and the Eurozone to issue even more currency to fund the war in support of Ukraine - money they can't afford to create relative to their productivity without creating even more monetary inflation. Putin can see that (I think) hence the strategy. If you remove the geopolitical borders, you have a war of currencies going on. And seeing who can afford to fund these wars. Excessive creation of money to fund the wars will cripple the countries unless they have;
1. real assets to back their currency (commodities/resources).
2. real productivity (goods and services0 to absorb the increase in money supply used to fund the war.
Putin backing Russia with point 1 believing that the US will not survive with point 2 as their productivity isn't high enough to sustain the level of money printing they are using to keep their economy afloat.
My take is the timing of Putins invasion was very calculated to impact western economies but not the dominant strategy.
Once Putin realised the Ukraine war would not be a push over and the west wagged economic war Putin altered his strategy and tacktics. The inflation impacts on the west are large and now its WWIII but just economic not militarily.
Guns are old school and not how the big boys fight anymore. As least not intil backed right into a corner
My only other point would be that geopolitical dominance (what the US and the Eurozone currently hold) are highly correlated to reserve currency status.
You can only afford to fund a military with global reach (i.e. dominance) if you hold world currency status because you can continue to create more currency (because their is global demand for it) to pay for the debt that you incur in funding that military.
The moment that global demand for your currency disappears, then you can't continue to create the currency to pay for the debts that fund your military with global reach (if you do create the currency but there isn't global demand, you experience hyperinflation).
Putin is attempting to destroy that demand for USD - and as a result if successful would destroy the US (and Eurozones) ability to fund a military without falling into hyperinflation.
Great points
Did getting reserve currency status award the strength or did the strength lead to that reserve currency status?
There was a lot of talk of 4D chess early on, but the whole invasion looks like a terrible miscalculation and everything since is winging it.
I'm not convinced it's a terrible miscalculation (don't take this as me being sympathetic to Putin - I'm not).
It's not going to be good for everyday people in Russia, in fact it will be bad - so in that sense one could wrongly assume it is a terrible miscalculation - but Putin doesn't care about 'the people'.
He cares about his power relative to the West. And he's kind of winning that power game with the economic damage he's inflicting.
It does seem fairly obvious Putin thought he could oust the Ukrainian leadership and reinstall a puppet regime in short order, with minimal interruption to the Russian economy. That decision will have been made using a whole host of inaccurate understandings regarding Russia and the Ukraine's various capabilities, and an assumption that NATO would continue to treat him with kid gloves.
Making energy costs high for a winter is irksome, but unlikely to swing much in his favour.
But yes he can act with relative impunity from the impact this is going to have on his own people.
You missed the excellent discourse, above.
Pity.
I think they're right. Most of the debt spooned - make that shoveled - our in the West, has no hope of finding a (non-inflationary) home. There simply isn't enough planet left. 300 trillion IOU's looking for a home on a never-so-depleted-planet, one overfull of us and our fodder-animals (only 3% of animal biomass now is wild, but there's more biomass than there ever was; all us and ours). Inflation or jubilee are the options, I reckon collapse more likely.
Putin is clearly aware of this. He was also aware that fracking was a temporary blip. I reckon he timed it perfectly. As someone above says, he probably doesn't care about Ukraine; this is about survival; last nation standing. He clearly gets that money is about to revert to being underwritten by reality.
Oh well I guess the next *insert indeterminate amount of time* will separate you from the long line of unfulfilled doom prophets from the last several millenia.
Or it won't and you'll cry it's all rigged.
I mean really:
- Putin doesn't really care about Ukraine
- The world's going to hell and real resources will be where it's at, Russia will prevail
- Let's go decimate our military in Ukraine anyway, making us and our real resources a soft target down the track.
Makes sense.
I agree Pa1nter, some of the posts above place far to much emphasis on the supposed super intelligence of one or two of our fellow beings.
I very much doubt that is the case.
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