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
As we write this, no main bank has yet changed its floating mortgage rates in response to the RBNZ +75 bps hike in the OCR. But the Bank of Baroda, a bank for the Indian community, has raised floating & fixed rates.
TERM DEPOSIT RATE CHANGES
No changes here yet either.
GOOD BUT NOT GREAT
Strong growth in incomes is allowing retail spending to hold up, and probably better than many expected. Q3 retail sales were up +15% higher in 2022 than in the same period in 2021. But sales volumes were up only +4.9%. But that was off a depressed base. Compared with pre-pandemic Q3-2019 the rise in retail sales volumes has been an anemic +2.3% pa since. Adequate and certainly not a decline, but not that flash either. We have 'recovered' but it is a modest recovery. Neither the cheerleaders not the doomsters can claim much from this data. (On that basis, we should be satisfied.) ANZ however notes: "Looking forward, the outlook for household spending has deteriorated with Wednesday’s hawkish OCR hike from the RBNZ. The RBNZ made it clear that they need spending to fall to tame inflation, and they’ll get it too – it’s just a question of how high the OCR needs to go."
SENTIMENT STAYS LOW, INFLATION EXPECTATIONS RISE
Consumer sentiment fell in November to its lowest level since June. But it has been in the dumps for most of 2022 so this month's downshift isn't significant. "Sharp increases in the cost of living and interest rates (not to mention falling house prices) are clearly hurting confidence, but excellent job security and strong wage growth have so far seen spending hold up far better than this level of confidence would normally imply," noted ANZ. The proportion of people who believe it is a good time to buy a major household item fell 9 points to -31%. Inflation expectations for price rises two years out lifted to 5.3%, from 5.0% last month. A separate RBNZ survey asking the same question has them at lower. No matter, both are well above where the RBNZ needs them to be, and over 5% they will drive a wage/price spiral.
RETIRING
BNZ has announced that Bruce Hassall (65) is to retire from the BNZ Board. Hassall is currently chairman at Fletcher Building, The Farmers Trading Company, and Prolife Food. He is also a director at Fonterra. Before becoming a professional director, be was CEO at PwC.
LOG PRICES DIP
An easing back in high domestic demand, and weakening Chinese markets for logs and sawn timber is bringing slightly lower export returns for logs. Indian demand remains lower too.
SEVEN DAYS TO GO
The last day to draw down on the Funding for Lending program is Tuesday, December 6, 2022. Each drawdown must be paid back within three years. The interest rate that applies floats equal to the OCR, which is currently 4.25%. Interest is accruing to the RBNZ on the current $18.7 bln balance at the rate of $2.2 mln per calendar day.
SWAP RATE SETTLE
Wholesale swap rates were likely a little higher today after yesterday's dip. The real action comes near the close as market participants continue adjusting 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 bps at 4.40%. The Australian 10 year bond yield is now at 3.58% and up +2 bps. The China 10 year bond rate is at 2.81% and unchanged. The NZ Government 10 year bond rate is now at 4.15%, down -2 bps and now well above the RBNZ fix for the NZGB 10 year which is down -12 bps at 4.08%. The UST 10 year is now at 3.67% and down another -2 bps from this time yesterday. Recall, it was at 3.82% this time last week.
EQUITIES QUIET
The S&P500 didn't trade in New York today dues to their Thanksgiving Day holiday. It will trade for a short half day tomorrow. Tokyo has opened little-changed today and holding on to its 1.2% weekly rise. Hong Kong is down -0.7 % at their open. Shanghai has opened down -0.3%. The ASX200 is up +0.3% in afternoon trade and heading for a weekly gain of +1.5%. The NZX50 is up +0.2% in late trade on its way to a weekly -0.4% loss.
GOLD HOLDS
In early Asian trade, gold is at US$1756/oz and up +US$2 from this time yesterday.
NZD HOLDS
The Kiwi dollar is unchanged at 62.5 USc as closed US markets keep volumes very low. Against the AUD we are holding soft at 92.5 AUc. Against the euro we are still up at 60.1 euro cents. That all means our TWI-5 is now at 71.2 and unchanged from this time yesterday.
BITCOIN HOLDS
Bitcoin is now at US$16,522 virtually unchanged from where we were this time yesterday. Volatility over the past 24 hours has been modest at just over +/- 1.0%.
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78 Comments
The last day to draw down on the Funding for Lending program is Tuesday, December 6, 2022. Each drawdown must be paid back within three years. The interest arte that applies floats equal to the OCR, which is currently 4.25%. Interest is accruing to the RBNZ on the current $18.7 bln balance at the rate of $2.2 mln per calendar day.
Thankfully, this acts as an offset to the 4.25% payment the RBNZ applies to the $54.402 bln settlement cash balance.
Strong growth in incomes is allowing retail spending to hold up, and probably better than many expected.
Hmmm. Need to be very careful about understanding the difference between value share and volume share.
Using the month of Sept, growth in $ terms is up 7% compared to the last corresponding "non-Covid month" (Sept 2019).
So that is growth in dollar terms. Now, if you consider the effects of price inflation, that suggests that volume growth is at best flat, if not negative.
Going back 5 years, growth is +15% for the same month. Once again, considering price inflation, that suggests that volume growth is not good.
From the venerable Chris Joye, RBA dats shows that 52%+ of borrowers will see “spare cash” fall by 20-100% assuming the cash rate hits 3.6%.
Spare cash = income borrower has after mortgage payments + “essential expenses”.
A staggering 15% of borrowers will have -ve spare cash, meaning they risk default.
Not unexpected but good to have it quantified.
That’s a lot of discretionary spending power removed from the economy. Same will apply here. 2023 will be a tough year for hospo, and to a lesser extent retail.
I got a couple of great deals on clothing items today at Black Friday sales, should be all good for next 2-3 years now.
We do tons of shopping at the op shops in the boom times. People get rid of nearly new clothes. I got 3 barely used paris of jeams for $15 aboit 4 months ago.
Sounds like its nearly time to switch back to the retailers now they will have nearpermanent sales to dump stock... while everyone else picks over fewer options at the op shops.
Just gotta do the opposite. Lol. Save while everyone else spends. Then spend what was saved when everyone else is broke.
More Aussie DGM from Chris Joye:
The epicentre of what will become the biggest housing crash in modern Aussie history has shifted from Sydney to Brisbane, where prices are falling at an incredible 20.3 per cent annual rate (Brisbane values have already shrunk 7.7 per cent peak-to-trough thus far).
Sydney dwelling values have fallen furthest, plunging a massive 11.1 per cent since their peak in absolute terms. Sadly for homeowners, Sydney dwelling values continue to decline at a 17 per cent annual rate based on the past three months of price moves.
This is a secondary channel through which monetary policy affects behaviour – via a huge negative wealth effect.
https://www.afr.com/wealth/personal-finance/interest-rate-shock-just-ar…
Yeah when house prices are rising , the as&clowns well illustrated by TTP's comments, insists that any pause in the growth of house prices in monthly stats, needs to be discounted as its the 3 month rolling average that counts..... BUT somehow when prices are falling these same as&clowns think a single month pause is a sign... NO ITS NOT.....
The 3 month average falls in NZ are looking real bad as are sales completed numbers.
All I am seeing is stock building - deadline sales turning to price by negotiation and xmas coming.... I am seeing people asking 770k for properties they purchased in 2018 for 450k.....
no one wants to be stuck on the island , purchasing in Nov 21 after things gapped up, only to find themselves on the other side of the gap down..... Remember BW many of these purchases are not traders , they have been sold the false believe that its TIME IN THE MARKET that counts..... well to even break even now they are going to have to enjoy a considerable period of time in the market.
You'll have seen that recruitment ad on TV for the Corrections Department, where at the end, when asked "So. What do you do?" the reply is a sheepish "I'm in banking"
Well....next time it's on, watch it and reverse the rolls, because bankers are just about to be hit with a wave of frustrated, raging people. Worried about their wife and kids, and looking for someone to show them how to get through.
I saw a funny post today in one of the property investors chat groups.
The question was asked: would you take on a tenant with credit issues?
The resounding answer was No. Heaps of people wrote that they would never take on a tenant with credit issues. It was pretty much unanimous.
I had a chuckle, and decided not to remind them that a good percentage of their group will have "credit issues" fairly soon.
They are throwing stones in glass houses.
Know your enemy!
There's a lot of pent up hatred for landlords. Especially here at interest.co. They have been waiting for years to gleefully express it. Yet people need and want to rent houses. It's a Kiwi thing I guess, the urge to cut tall poppies. Landlords have had it good for too long, they imagine, now the time has finally come to put the boot in.
There's a lot of pent up hatred for landlords. Especially here at interest.co. They have been waiting for years to gleefully express it. Yet people need and want to rent houses. It's a Kiwi thing I guess, the urge to cut tall poppies.
Property investors have been behaving rationally. They've been following all the incentives laid out for them by the govt, central bank, and commercial banks. You cannot hate them for that.
You can challenge their religious beliefs like house prices double every 7-10 years though.
There's a lot of pent up hatred for landlords. Especially here at interest.co.
We are talking about a group of people who unanimously decided to deny housing to anyone with credit issues. Housing is one of the most basic and vital of human needs, second only to air and food/water.
If that group of people were together in a room, and a man with credit issues walked in, then they would all unanimously judge him as being unworthy of shelter. Because of his credit issues, they all would agree that he should be homeless, sleep in his car, or couch surf, or go on the housing waiting list. It is like something out of a Charles Dickens novel - that man would have been thrown out on the streets or sent to the poorhouse.
As a unanimous body, they decided to judge that anyone with credit issues was to be denied housing.
And yet, the delicious irony is that many of them are eyeballs deep in debt and about to experience much worse credit issues. Will they judge themselves unworthy? Who will house the fallen landlord?
They were all busily throwing stones at others, not realizing that many of them are standing in glass houses.
Individually, they may all see themselves as "good" or "nice" people. "Christians" even, like Luxon. But as a collective they act as an evil, society wrecking force that has seen homelessness rates skyrocket, and immense social harm.
Want to see some of the mentality of these Landlords? These are some of the replies to a post where the tenant is in arrears and there's a delay in getting a tribunal hearing:
- "Disconnect the power and you'll hear from her"
- "Change the locks"
- "Never put a WINZ client in your property" "Don't rent to those WINZ parasites"
- "List the property for rent on TradeMe and let the new tenants deal with it".
- "That's what gangs are for"
Remember guys, these are "businesses" that are making these comments. People wonder why they get such bad rap.....
Whether its tenants, employees, customers, or potential debtors, there's an intelligent case for profiling and excluding those with higher risk.
Otherwise it's a charity. You know, the thing you could do with your spare time for the good of the community, instead of wasting it trolling chat rooms.
Theres a comment on investors group today from someone about the interest deducibility and how with interest rates going in the direction they are how it is abhorrent that it is still being pressed forward with from [insert slur at Jac and anything red]
the closing comment was that they as a group were "changing the world for the better" by providing rentals... coping with the Peruvian pre-workout seems to be the choice in that group ATM.
It’s a real shame then isn’t it, that between this government, the RBNZ & a needlessly crash dived OCR that a unprecedented volume of investors jettisoned their equity & term deposit investments and were propelled instead into the property market to the detriment of potential home owners.
We deny housing to nobody. My latest development is an AirBnb. This is because it makes me more money than a long term rental. If the council wants to make me long term rent it, then pass a law. Don't pretend I will rent it long term because it offends Fitzy's moral sensibilities. I will do what ever is financially the best for me, subject to the laws I live under, and subject to my own morals, of which I actually have quite a few.
When we were looking for a new rental, we got put second to another couple because we had kids.
15 minutes later, rung up by the prospective landlord who said they'd changed their mind because the other couple had a credit history.
I felt compelled to (and did) remind them that tenants don't have easy access to credit, so there's no easy way out of an adverse event that doesn't effect their credit rating, unless they've had time and the excess funds to plan for it. And also that the average tenant pays more than the average mortgage, so it's harder for them there too.
Since we knew their profession and place of work, we knew this landlord was asking for rent equal to their own salary - and had no hope of affording the mortgage without it. We then turned the rental down, as we had decided from the viewing that it was about $300 overpriced.
New Zealand is kind of quaint.
London. I got off the plane from NZ, took the tube to Fulham and went into a rental agent in Chelsea and asked to see what they and to rent. Long, and simple story short, an hour later, I had a fully furnished place to rent.
Christchurch, some years later. We had sold up in Christchurch and were looking to build a replacement place and wanted years accommodation whilst we built. Went to a reputable rental agent and asked to see what was available. The first question was, "Where do you work?" Answer : "We don't work. We are self-sufficient." Do you have any idea how difficult it was to find somewhere to live? Hard. And it was a sobering experience, rectified by "It's who you know".
Somewhere along the line we've lost sight of fundamentals. It's who the people are not what they are, but I guess that's all too hard to establish.
Talk to your PM then. Cue debates pre 2017 elections, handwringing pathos, this was a personal priority, child poverty, sleeping in cars was not acceptable. And she was right, convincingly so, it’s not acceptable. Trouble is though it’s got worse on her watch, hasn’t it.
I saw that one. Somebody asked if they had someone else lined up. "No". Also:
Hey folks, with the mortgage interest rates inching towards 7% fixed for short term, do you think Labor will drop the interest deductibility rule to help landlords alliviate costs, seems a bit far fetched but I am an optimistic person
The bookshop has delivered the Victor David Hanson Why the West has Won, ordered and delivered in three weeks and gave me a $6 discount.
I'll admit something. They very kindly were emailing me with Maori words included so my replies were all in Danish. Final notificstion was in plain English.
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