What happened Wednesday

Business / news

A review of things you need to know before you sign off on Wednesday; RBNZ serious about fighting inflation, QuayStreet sold, LIMs to expose climate risks, swaps jump and invert, NZD firm, & more

23rd Nov 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 to report yet.

TERM DEPOSIT RATE CHANGES
So far only General Finance has raised rates today. Nothing other than that to report here either - yet.

SERIOUS ABOUT FIGHTING INFLATION
The Reserve Bank has raised the Official Cash Rate to 4.25%, a level not seen since 2008. They headlined this new higher rate as 'necessary'. It now sees the OCR peaking at 5.5% and holding there for a year. Today's +75 bps hike is a record increase. More here.

PASSIVE TO ACTIVE?
The NZX has bought the funds management division of Craigs Investment Partners. They paid $31.25 mln for their QuayStreet business. It is a business with $1.6 bln under management, and that includes a $250 mln KiwiSaver scheme. This purchase will bring NZX's Smartshares business up to about $10 bln FUM. The Smartshares business has been essentially a passively managed portfolio. The QuayStreet portfolio has been essentially actively managed.

STOPPING BUILDING IN "DUMB PLACES"
Legislation has been introduced to improve information on natural hazards, such as flood risk and coastal erosion, for property owners and potential buyers in LIMs. Importantly, the Bill specifically allows for projected climate impacts to be added.

TOWER SATISFIED
Tower Insurance has had a good year, according to their Annual Results. Premium income rose +13% as customer numbers increased +5% to 319,000. Full-year "underlying profit including large events" was $27.3 mln, up +30% from $21 mln for the full-year 2021. However, "Reported profit" was only $19 mln, and little-changed from the prior year. "Reported profit" includes the costs of beefing up provisions, especially for their lingering Canterbury earthquake exposures.

MTF FINANCE GROWS
A record sales year as a result of launching new products has helped grow MTF Finance’s profit after tax by +5% for the year ended 30 September 2022, after an +11% rise in 'sales'.

SWAP RATE SHIFTS SUBSTANTIAL
Wholesale swap rates will be sharply higher today, but the real action comes near the close as market participants adjsut for the hawkish RBNZ views of what is to come. Our chart will record the final positions. The 90 day bank bill rate is up +1 bp at 4.32%. (But this was struck before the +75 bps OCR hike.) The Australian 10 year bond yield is now at 3.58% and down -2 bps. The China 10 year bond rate is at 2.84% and unchanged. The NZ Government 10 year bond rate is now at 4.27%, up +2 bps and still above the RBNZ fix for the NZGB 10 year which is down -13 bps at 4.11% (also set before the OCR announcement). The real action has been in the shorter NZGB yields, so that curves are now inverted. The UST 10 year is now at 3.76% and down -6 bps from this time yesterday.

EQUITIES VERY MIXED
The S&P500 ended its Tuesday session up +1.4% in New York today in a building set of gains. Tokyo has opened up +0.6% today, but Hong Kong is flat at their open after yesterday's large fall. Shanghai has opened up +0.2%. The ASX200 is up +0.7% in afternoon trade, but the NZX50 is down -0.8% in late trade.

GOLD HOLDS
In early Asian trade, gold is at US$1740/oz and down -US$3 from this time yesterday.

NZD FIRM
The Kiwi dollar bounced a little bit on the RBNZ announcement and is now at 61.6 USc and up a relatively minor +40 bps from this time yesterday. Against the AUD we are firm at 92.7 AUc. Against the euro we are still up at 59.9 euro cents. That all means our TWI-5 is now at 70.9 and up +30 bps from this time yesterday.

BITCOIN RETRACES
Bitcoin is now at US$16,190 and up +2.7% from where we were this time yesterday, but just taking it back to the prior day's level. Volatility over the past 24 hours has been moderate at just over +/- 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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65 Comments

by Justa comment | 23rd Nov 22, 5:24pm 1669177493

As expected, were heading for 5.5% OCR ("and holding it there for a year"). Best forecasting was ANZ Zollner and recent Kiwibank forecasts. Best part about this is the FLP taxpayer gift will now cost over 5% to the banks. Good news for savers and taxpayers. Some banks should have online call accounts starting with a 3 by friday. Will be interesting to see the fixed rate increases over the next week......5 year swap increasing strongly now

by J.C. | 23rd Nov 22, 5:05pm 1669176308

Just on forecasting, Kaumatua expects OCR hikes to 5.5% to cool inflation. Back in Aug, the RBNZ only saw the OCR peaking at around 4.1%.

Is he really a spiritual guru and seer? That's a big difference.

by DollarsandSense | 23rd Nov 22, 4:04pm 1669172686

ANZ now forecasting a peak of 5.75% in the OCR, wish their deposit rates moved as fast and as far as their economists forecasts

by fortunr | 23rd Nov 22, 4:31pm 1669174311

5.75% is a conservative forecast. I think that an OCR peak of 6% is now more likely.

by Noncents | 23rd Nov 22, 4:53pm 1669175624

I agree, the forecast will be revised at each announcement.

The best and brightest at the RBNZ seem to use a simple forecasting tool of OCR + 1.5%.

by Audaxes | 23rd Nov 22, 4:05pm 1669172718

The Reserve Bank has raised the Official Cash Rate to 4.25%, a level not seen since 2008.

The RBNZ has doubled the OCR just over four times from the 0.25% low.

A $4,000,000.00 deposit to save $10,000.00 per annum @ 0.25%.

A $235,294.12 deposit to save $10,000.00 per annum @ 4.25%.

by sit23 | 23rd Nov 22, 11:19pm 1669198758

General Finance is paying 5.75%. Top deposit rate in 1981 that we ever paid when I worked for them was 24%. Lent out at 29-31%. Happy days.

by Dgm | 23rd Nov 22, 4:06pm 1669172768

8% on the cards ..

by Foxglove. | 23rd Nov 22, 4:13pm 1669173228

likely that will only just par with inflation?

by IT GUY | 23rd Nov 22, 5:21pm 1669177313

Maybe, hard to see the economy being able to survive that for long, it woundn't slow it, it would kill it.

RBNZ already forecasting 1% GDP recession with only a 5.5% OCR

by Fossil Lover | 24th Nov 22, 6:51am 1669225893

Housing is not an economy. Mainstreet will be fine and continue to flourish, the FIRE sector will collapse, which we do not need to survive.

by Pa1nter | 24th Nov 22, 6:56am 1669226202

Usually housing is a bit of a canary for the rest of the coalmine.

As for survival, well we don't really need much of what's going on in our economies to survive, yet it's required to maintain high levels of employment.

by chemistpeter@g… | 23rd Nov 22, 4:10pm 1669173055

Glad I am mortgage free except for a 1% loan on a solar system with 3 years to pay.

by lonewolfnz | 23rd Nov 22, 4:31pm 1669174301

Me too and cashed up. Renters will even become happy over the next year compared to those with mortgages.

The financial difference between those able to deploy cash to invest in the next year or so, vs those deploying all their available cash to pay the mortgage will be huge when you extrapolate returns over the next 1-2 decades.

by Justa comment | 23rd Nov 22, 5:23pm 1669177381

If ever 'cash is king' it is surely now.

by sit23 | 23rd Nov 22, 11:23pm 1669198987

Wrong. Long term rental "landlords" are exiting the market in droves. Shortages and inflation will drive rents higher and higher. Just watch. Emergency government paid accommodation in Quest hotels at$200 a night for months on end will get bigger and bigger.

by Sluggy | 24th Nov 22, 7:05am 1669226752

Evidence ? Or do you know a guy...

by Pa1nter | 24th Nov 22, 7:09am 1669226981

Going by markets like Ireland, it's certainly plausible. When you nerf landlording, you get less landlords, a few more FHBs maybe, then those left over who can't or won't buy a home, and now have nowhere to rent.

by Fitzgerald | 24th Nov 22, 7:36am 1669228613

Sweet.

So the Irish crash was 26 years ago. And now they have a shortage of rentals.

So you blood sucking people farmers only need to wait for 26 years after this crash, and your rentals will be in high demand. You will SHOW those peasants who is BOSS. Because the landlord is always the winner, right?

Bahahahaha!

by Nzdan | 24th Nov 22, 9:27am 1669235237

Also from memory Ireland's house price index has only just this year broken through 2007's peak.

That's a 15 year wait just for a return of one's money, let alone a return/opportunity cost.

by fortunr | 23rd Nov 22, 4:34pm 1669174478

Hopefully this rate cycle will clean the housing market of many specufestors.

by IT GUY | 23rd Nov 22, 5:24pm 1669177440

Yes but the best investment strategy has always been to buy the bottom of a crash, and housing has a much easier bottom to see then shares, Housing bottoms out over years not weeks, as there is no liquidity.

by Justa comment | 23rd Nov 22, 7:17pm 1669184266

yes 15% drop from 2021 highs now a certainty. The question now is will it hit 20%, looking quite possible. Message- dont buy unless its at least 15% below 2021 high.

by Harvey W | 23rd Nov 22, 4:30pm 1669174216

Migration has turned, people flooding into the country. Can anyone advise whether this has a positive or a negative effect on inflation?

by kiwimm | 23rd Nov 22, 4:54pm 1669175686

A small bump to rents if demand outstrips supply from unsold-houses-becoming-rentals.

Migration will turn once the economy does. Net migration was negative after the GFC.

by IT GUY | 23rd Nov 22, 5:24pm 1669177499

Migrants do not come if there are no jobs, ie a recession

by kiwikidsnz | 23rd Nov 22, 5:03pm 1669176217

The 2024 onwards net migration will be significantly influenced by the outcome of the 2023 general election & the Anzac Day changes in NZdrs Australian residency requirements.

by Zen20 | 23rd Nov 22, 5:07pm 1669176470

It may help reduce inflation if the immigrant workers are sending much of their hard earnt NZD back to the mother country

by Carlos67 | 23rd Nov 22, 5:05pm 1669176351

Was a big day, missed the main event was getting my hands dirty in the garden and forgot all about the world for a while. Got visited by a couple of huge Quails on the driveway, now watching the 2 baby Swallows try and master the art of flight in this strong wind. Sometimes its just the simple things in life that make you smile.

by Foxglove. | 23rd Nov 22, 8:05pm 1669187136

True, very true. Likewise today witnessed an aerial battle between gulls and a harrier, soaring, whirling & wheeling, over the cliff face. Nesting urgency for the former, territory and prey for the latter.Kipling was a wonderful commentator on the truth , the reality of nature many years ago. None of that has gone out of fashion.

by Brock Landers | 23rd Nov 22, 8:53pm 1669190034

Life is like a box of chocolates. You never know what you're gonna get.

by Pa1nter | 23rd Nov 22, 9:40pm 1669192836

And most people leave the orange flavoured ones.

by Clementé | 24th Nov 22, 12:21am 1669202510

So are you hawkish or dovish ?

by J.C. | 23rd Nov 22, 5:12pm 1669176725

Aussie bitcoin miner Iris Energy defaults on $100+ mio loan and unplugs its hardware. Company backed by some of Aussie's heavy hitters in asset management.

https://cointelegraph.com/news/iris-energy-to-cut-mining-hardware-after…

by Chaosinflesh | 23rd Nov 22, 5:51pm 1669179071

“If price doesn’t go up soon, we are going to see a lot of Bitcoin miners out of business,” he added

by J.C. | 23rd Nov 22, 6:11pm 1669180309

70+% of existing rat poison is now effectively off the market and now held by long term holders. While people were panic selling at 20k and below, the OGs added 170,000 Bitcoin since the collapse of FTX.

Begs the question of why these people are selling? Weak hands.

by Officebound | 23rd Nov 22, 9:13pm 1669191192

You constantly talk about the fact most bitcoin isn't on the market as if its unique. Most property isn't on the market, same for bond, shares....

by J.C. | 23rd Nov 22, 10:33pm 1669195996

Currency and derivatives are always on the market. Almost like infinite supply. But the point is despite being 70% from ATHs, less than 1/3 is for sale.

by Kiwi Tim | 23rd Nov 22, 11:47pm 1669200431

1/3 wow! Why is so much for sale? Imagine if 1/3 of a companies shares came up for sale or is 1/3 of nz houses…

by J.C. | 24th Nov 22, 12:20am 1669202459

1/3 wow! Why is so much for sale? Imagine if 1/3 of a companies shares came up for sale or is 1/3 of nz houses…

Possibly much less. 70% of BTC is in cold staorge and has not moved for 12 months.

by Pa1nter | 24th Nov 22, 4:59am 1669219146

You still haven't ever explained what the point is of stating that not all Bitcoin is always for sale. It's like you've read someone else's bad argument and embraced it without fully thinking it through.

Your faith is admirable.

by Kiwi Tim | 24th Nov 22, 7:05am 1669226706

Ok cool. So hypothetically, if every single bitcoin holder in the world put their bitcoin in cold storage and vowed to never sell hodl etc. but then I went and sold my bitcoin and I got $1 for it, accepted that amount. How much would everyones bitcoin be worth?

by interesting1234 | 24th Nov 22, 8:23am 1669231382

Its worth would, without fail, be what the next person is willing to pay

by Nzdan | 24th Nov 22, 9:30am 1669235414

Just sell it to yourself for $1. Drag the market down. You'll still have bitcoin to use on things......

by Hamish | 23rd Nov 22, 7:44pm 1669185853

I asked a while back whether the cost of mining the next coin was in effect a floor price for bitcoin.

I think the answer was a yes, or thereabouts.

But, here it is.

by interesting1234 | 24th Nov 22, 8:21am 1669231316

Finally, a reprieve in the cost of graphics cards as the huge demand for them for BTC mining dries up like the California water supply

by Nzdan | 24th Nov 22, 9:31am 1669235504

Bought a 3080 late last year, thankfully there was stock at Computer Lounge. Was a lite hash rate card, which meant I didn't end up paying stupid money (from memory it was around $1800).

by Cur8or | 23rd Nov 22, 5:22pm 1669177333

$100 FUM? I'm guessing billions.

by J.C. | 23rd Nov 22, 5:37pm 1669178238

Someone needed to take the keys off Kaumatua before he drove the economy off a cliff. I think Robbo possibly called in sick today.

by Smudge02 | 23rd Nov 22, 7:09pm 1669183744

I think Robbo possibly called in sick today.

I doubt it. He knows he just has to pull out his generic 'Post OCR Announcement' speech again........."We have a strong labour market", "NZ is in a strong position to weather any financial storms", "Inflation is a global problem", "Other countries have higher inflation than us", "Its all Putins fault" blah blah blah.

by Independent_Observer | 23rd Nov 22, 5:39pm 1669178392

Swap market is a bit of a mess with its inversion. One year swap at 5.31 and ten year swap at 4.48.

About as mad as the inversion in the US treasury yield curve.

For those who don't understand yield curves - this is the alarm bell sounding that markets think the future looks far worse than the present. Be warned!

(hopefully this is doom goblin enough to maintain the much-esteemed DGM status)

by J.C. | 23rd Nov 22, 5:51pm 1669179111

I can pin the digital DGM badge on your lapel IO. You've earned it.

by Carinaz | 23rd Nov 22, 6:09pm 1669180176

Real Estate agents are fast to try to be positive for FHB

Email today by one of the major real estate agency to all on their data base :

The Reserve Bank has today lifted the official cash rate by 75 basis points, taking it to 4.25 per cent, its highest level since 2008. The RBNZ sees the OCR rising to a peak of 5.5 per cent in 2023.

What does this means for those buying and selling at the moment?

Financial experts are expecting an increase on interest rates and if you're buying at the moment, I would advise to be financially and mentally prepared to pay up to 8% or more interest so you're not caught by surprise.

In the end of the day, would you prefer to pay 8% interest rates on a house that you won or 100% rent?

Would you prefer to buy a house for $100,000 (or more) cheaper and have less competition and pay a higher interest rate or having to push yourself to your limit, with the risk of over-paying when interest rates are 2%?

The best time to buy is today or five years ago!

Banks are very tough at the moment, and lending is very strict, so if you're lucky enough to have your pre-approval, take advantage of this market. Less competition, more motivated vendors and reasonable prices.

We have some amazing homes that we are hoping we can sell and wrap up before our Christmas break.

by J.C. | 23rd Nov 22, 6:12pm 1669180367

I hope Squirrel Bolton is OK.

by Justa comment | 23rd Nov 22, 7:21pm 1669184500

dodgy 2nd tier loans now even dodgier.........

by Justa comment | 23rd Nov 22, 8:36pm 1669188997

ho ho ho, love those realestate letters, but of course they could never say "OMG this will be really bad" lol

by Foxglove. | 23rd Nov 22, 8:36pm 1669188973

Seems panic print to me. But then again why panic if a whole stream of houses are heading towards fire sales. Doesn’t the agent get their commission regardless?

by interesting1234 | 24th Nov 22, 8:25am 1669231540

I emailed a RE agent yesterday and got an auto reply to say they are no longer in the business hahaha. Fine choice madam

by Justa comment | 23rd Nov 22, 7:37pm 1669185422

I see AFT pharmacueticals is up today on the NZX. They make headache pills............. Property stocks RYM and SUM hammered again today, RYM $6.35 !!

by J.C. | 23rd Nov 22, 8:07pm 1669187230

Property stocks RYM and SUM hammered again today, RYM $6.35 !!

Makes sense. These thieves will get hurt bad by the unwinding of the housing bubble.

by RickStrauss | 23rd Nov 22, 8:14pm 1669187678

Witness the industry busy asking for more taxpayer subsidies right now.

by Independent_Observer | 23rd Nov 22, 9:00pm 1669190448

I thought SUM were getting over priced back in 2019 and sold to rebalance portfolio...missed the ride of 2020-2021 but speculative blow offs aren't my investment strategy. Still a 300% + return in the 4-5 years held before that which isn't bad.

The 1 year target for SUM is now $15 on yahoo finance! Might be dreaming. Will need to drop much further before it starts looking attractive again as an investment with TD's around 5%.

Summerset Group Holdings Limited (SUM.NZ) stock price, news, quote & history – Yahoo Finance

by Independent_Observer | 23rd Nov 22, 8:54pm 1669190092

RYM down 50% this year and back to 2013 prices.

by Pa1nter | 23rd Nov 22, 10:55pm 1669197341

In other news, more riots at iPhone factories in China today over lack of pay and covid restrictions.

It's like they're ungrateful for making all this cool stuff for everyone else for next to nothing.

by interesting1234 | 24th Nov 22, 8:30am 1669231811

Laughable right? The developed western world has profited immensely from the cheap labour of China, while the Chinese have seen an unprecedented surge in living standards to the point that they are standing up to demand proper working conditions and pay, which will increase the cost of labour and decrease their competitive advantage form the west who drain them for all they can. I respect the Chinese for doing so, everyone in the world deserves a good quality of life and standard of living.

The result as we are seeing is western countries divesting to India, and other developing countries where they can still exploit the labour market. It appears that we want to pay bottom dollar for everything and have a high standard of living, however in a balanced and fair world (if that is indeed a possibility) this simply doesn't equate.