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
ICBC raised two popular fixed rates today.
TERM DEPOSIT RATE CHANGES
No term deposit rates changed, but ICBC raised its Smart Saver savings account rate by +20 bps to 2.30%.
ANOTHER FIRM DAIRY AUCTION
Analysts expect another strong dairy auction rise tomorrow morning. The expectation is that WMP will rise +4.5% and SMP rise almost +4%. The butter and cheese rises may be more tame. Recall that two weeks ago this auction rose +4.9% in USD terms. Tomorrow's looks like it will be less than that but still a good rise. But there are still risks; the WMP Pulse auction a week ago actually brought a softer result. And remember the NZD has fallen -2.9% since the last auction, so the NZD returns are sure to be enhanced.
SHEEP & BEEF PRICES HIGH
More generally, prices for lamb and beef livestock are all running at record highs in both meatworks schedules and saleyard auctions. Check out our charts to get the full perspectives. Deer prices are lagging however, and wool prices remain in the dumps. You wouldn't want to look at these prices adjusted for inflation. That would be ugly.
BIG SALES, LOWER PROFITS
Clothing retailer Kathmandu (KMD Brands) (KMD, #32) reported record revenues in their full year results, almost touching $1 bln. But their shares sank to just $1.02 today. That was those record sales came with a -40% fall in profits to $37 mln for the year to July 2022. None of the company's cheerleading on the sales results has impressed investors.
NERVOUS NELLIES
In Australia, the RBA released the minutes of its September meeting today. They show they tossed up whether to raise by +25 bps or +50 bps, choosing the latter of course. So markets expect them to scale back future rate hikes, but not perhaps in October which is still seen as rising another +50 bps to 2.85%. That will be on October 4, 2022. After that a more conservative stance looks likely to kick in.
EIGHT YEAR HIGH
In Japan, consumer price inflation rose to 3.0% in August from 2.6% in July. This was the 12th straight month of increase in consumer prices and the fastest pace since September 2014, amid surging food and fuel costs accentuated by a slump in the Yen. Core inflation also rose above analysts estimates to 2.8%. Without food or fuel the rate was +1.6%. Now all eyes will turn to the Bank of Japan to see how they react. But while core consumer inflation exceeded the central bank's 2% target for five straight months, the central bank seems unlikely to raise interest rates anytime soon as wage and consumption growth remain weak, analysts say.
NO CHANGE
China reviewed its loan prime rates today but made no changes to either the 1-year (used as a base for personal lending) or the 5-year (used as a base for institutional lending).
SWAP RATES HANG ABOUT
Wholesale swap rates are probably little-changed today like all financial markets which are just hanging about for the Fed on Thursday. Our chart will record the final positions. The 90 day bank bill rate is unchanged at 3.69% after yesterday's big jump which is a new high since January 2015. The Australian 10 year bond yield is now at 3.70% and down -1 bp from this time yesterday. The China 10 year bond rate is also down -1 bp at 2.69%. The NZ Government 10 year bond rate is now at 4.02%, down -4 bps from this time yesterday and still below the earlier RBNZ fix for this bond at 4.04% which was also down -4 bps. The UST 10 year is now at 3.48% and up +2 bps from this time yesterday.
EQUITIES TURN HIGHER
Wall Street struggled to get traction today in their Monday trade, but when it did it rose and the S&P500 ended up +0.7%. Tokyo is up +0.4% in mid-day Tuesday trade. Hong Kong is up +1.2% in morning trade, Shanghai is up +0.5%. The ASX200 is up +1.2% in afternoon trade. The NZX50 is up +0.3% in late Tuesday afternoon trade.
GOLD FIRMS SLIGHTLY
In early Asian trade, gold is up +US$5 from this morning to US$1,675/oz.
NZD STILL ON DOWNWARD SLIDE
The Kiwi dollar has fallen another -20 bps from this time yesterday and is now at 59.5 USc. Apart from the pandemic dive, that is a 13 year low. Against the AUD we are -½c lower at 88.5 AUc. Against the euro we down to 59.3 euro cents. That all means our TWI-5 is at 69 and down -40 bps from this time yesterday. That is its lowest since October 2020.
BITCOIN RECOVERS
Bitcoin has risen today and is now at US$19,461, up +3.9% from where we were this time yesterday. Volatility over the past 24 hours has remained high at +/- 3.8%.
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61 Comments
Yip - the massive stimulus/market intervention in 2020-2021 reminds me of a drunk chugging a bottle of vodka before being thrown into rehab. Just got to get one last hit before I have to face the painful, unsustainable reality of the behavior and its associated consequences.
Do you prefer the rock or the hard place there Jimbo?
Central banks are actively crashing 'the economy' in order to reduce aggregate demand (and thereby control inflation). The only alternative is to keep money supply steading, stop all fiscal spending, and dramatically increase productivity to absorb the additional money supply pumped into the system in 2020-2021....but that isn't what the US, of any of the anglosphere (or Europe) are doing. Left wing governments will continue excessive fiscal spending, while the central banks try to reduce aggregate demand with interest rate rises, and then get confused as to why inflation remains to sticky.
So no need to worry about encouraging investment, when the powers that be are destroying said economy, because it is already over invested but just in the wrong place (residential property).
Yip you then ask the question....what was the point of having the 1-3% mandate the last few decades, if it was only so that massive debt/asset bubbles could be created with cheap credit/cost of capital, while we imported deflationary forces from abroad.
And now the reverse is happening - people are like...'hey this 1-3% mandate...lets not worry about it!'
Why now and not say this at any point the last 30 years? (honest question).
Does 7% become the new target so that people can plan their economic activites around this level of debasement of the fiat money in circulation?
And if inflation is to stay at 7%, the cost of capital for debt and equity will need to be at 7% in order to make projects/business activities worthwhile - otherwise one side of the creditor/debtor party is going to get a very bad deal!
Yes but the US is also in the process of destroying its own domestic economy, in order to save the USD as the global reserve currency (per our thread last night).
To them, causing internal unemployment, is a better outcome for them than losing global power.
But this is the insanity that plays out at the end of a long debt cycle involving a global reserve currency. It often results in geopolitical instability and war as it causes widespread hardship for countries all around the world.
Many countries may grow to seriously dislike the USA when this is done over the next few years because of the harm they will do to protect the USD. And it could give rise to psychopaths who promise revenge against the outside powers that caused the pain, like what happened in the 1930's.
Exactly, that's the basis for my point just above.
It will hit their housing construction market though, amongst other things.
So....there comes a point where the Fed keeps hiking, the US economy turns down but not too bad, the RBNZ keeps hiking, and our economy turns to absolute shite...surely then we can't keep following the Fed?
Do you understand the concept of the interest rate parity theory? Until you have your head around that, then some of what is discussed above might make sense. If you do already, then we can move onto the economic aggregate demand considerations of what is playing out (as opposed to the financial FX theories).
In my opinion, yes. And in fact more hikes to the OCR is likely to have limited impact on inflation.
The current OCR will start to have impacts over the coming months. Everyone knows it has a lag effect in NZ (compared to Aus where the impacts of hiking are much quicker).
But again, mine is a very minority viewpoint, and all that matters is what the RBNZ will do, which is keep hiking regardless.
The reverse could also be true in the short term. Raising the OCR feedsback to create even more inflation as increased debt servicing costs flow through the economy.
Bit like how there wasn't much inflation while we dropped interest rates....because debt was getting cheaper, that resulted in very little price pressures flowing through to goods/services (if you looked at the interest rate expense on the balance sheets of all businesses that produced goods and services within the economy that ultimately determine the cost of said goods/services by increasing/decreasing prices to ensure a net profit). Now the opposite is true (to breakeven on the balance sheet, as interest expense rises, so does the revenue required = increase price of goods/services).
NZDM, Wednesday, 24 August 2022:
The 2035 inflation-indexed bonds, which carry a coupon of 2.50%, was issued at a spread of 57 basis points over the 20 September 2030 inflation-indexed bond, at a yield to maturity of 2.19%. Total book size, at final price guidance, exceeded NZ$3.5 billion. Link
Jimbo - I think you might need to watch the video here:
Because the world needs Australian dollars to buy their iron ore, gold, gas and agriculture to name a few. People also want to visit Australia.
In New Zealand, we ban mining exploration, want to kill off cows and have the Misery Mile in Rotorua. People want to leave New Zealand.
Between Orr, Robertson and PM Ardern they printed and spent a record amount of money (per head of capita), giving it to bureaucrats, state media and often failing businesses.
Hope that clears things up.
You can always just sell your NZ dollars though.
Aussie needs USD to pay for oil and its derivatives.
What's more who needs $Aussie - a pimple on the elephant eurodollar.
Exports are necessary to earn foreign ccy to pay for imports or a store of foreign ccy reserves, not that which Aussie banks can print with abandon if they so wished.
But we have already hiked much more than everywhere else! Why are we losing so much ground to AUD when their cash rate is 2.35%?
Our year to date annual current account deficit is $27.817bn, and in need of USD funding.
Australia runs a $54.648bn current account surplus over the same time frame.
Exporters rely on imported materials and energy to create whatever it is they want to export. That gets built into prices, and will eventually make us uncompetitive. Tack on wage rises to match Inflation and that makes our export prices worse.
No matter which way you look at it, we are Import reliant, and we can't escape that with our current settings.
I'd add that USD 0.59 doesn't buy what it use to either, though the TWI at 0.69 does speak to it being a US dollar story.
As the fed increases rates, USD held offshore will flow back into America, this could easily increase their domestic money supply, thus increasing calls for the Fed to further increase rates. It's easy to imagine such a scenario further depressing the NZD/USD pair.
Not rate hikes. Happens every $ shortage problem (not that Zoltan can figure it out). Foreigners *buy* tons of LT USTs regardless of price while other foreigners have to liquidate stocks. You might have noticed both this year (NYSE; US inversion) Link
What Zoltan & his BW3 doesn't get; foreigners do *not* trust the Fed because why the hell would they? Euro$ shortages happen *every couple years* and the Fed? No f-ing clue it's happening, or that it happened. Gotta buy USTs because the Fed doesn't matter. Link
Even Krugman figured out $ is a huge global problem, and that it can't be because rate hikes. What is the problem? Euro$ #5 which is largely Tokyo (you might have noticed this, too, and not realized why JPY). Link
Follow today's stream of tweets here to grasp the eurodollar shortage issue.
Except that NZ only exports low or zero value added products, they go offshore where value is added, then New Zealanders pay to import the finished goods back at 10 times the price. So a low dollar costs us far more than we earn. And just check that $27B current account deficit out!
I need to refinance my mortgage in about 3 weeks.
Do one year or two?
Probably go for two years. Although I think the OCR will start to be cut next year, it's also going to move up a bit more in the next few months.
And I don't think cuts to it will really start to get going until early 2024.
Kiwi now down just shy of 15% in the last 6 months. At that rate, we'll have it at 50 cents by March. And, we'll have had the 25 cents fuel subsidy expire (removed?) before then as well.
Interesting times ahead of us.
(NB: "..and is now at 59.5" - 0.5935 as I write. Not much diff, but I just don't see where any support is going to come from absent monetary means)
Why would RBA slow rate hikes now? There is little sign of inflation returning to within their target banding any time soon, if anything wage growth supports a hypothesis of persistent inflation.
Jobs not done yet kids! It'll take more than the old college try to subdue inflation.
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