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
Kiwibank has reduced its two year fixed rate to 6.49%, the lowest of the main banks for this term. It also raised its one year fixed rate to 6.49%, matching BNZ and wth TSB at 6.29%.
TERM DEPOSIT RATE CHANGES
Kiwibank raised some term deposit rates out to a 12 month term, mostly by +10 or +15 bps. First Credit Union also raised rates today. And SBS Bank raised rates, but left its hot 6% one year rate unchanged (it cut its 9 month rate, however).
RURAL GOODS KEEP US AFLOAT
Our merchandise trade deficit fell in December to -$470 mln as exports rose and imports fell. This was the lowest deficit in seven months. Exports rose +10.5%, led by rural sector products from the dairy and wine sectors. These sectors account for 69% of our exports, up from 67.5% a year ago. The rising dominance is revealing. Meanwhile, goods imports slowed sharply, increasing at a slower +1.8% rate, and would have fallen if it wasn't for the one-off 'large items' worth $269 mln. Cars, machinery and oil account for 43.3% of all imports, down from 44.3% in December 2021.
WE TRADE THEM FOR CARS
Our trade surplus with China has been whittled away to virtually nothing in 2022. Buying Teslas from Shanghai saw to that. We ran larger deficits with Australia, the US and Japan too. Interestingly, Korea has now displaced Japan as our fourth largest import source, and we ran a -$2.9 bln deficit with South Korea in 2022, the largest with any country. Cars and machinery tell that story.
UP +$1 BLN
On average, across all mortgages, banks charged their home loan borrowers 4.24% in the December 2022 quarter. That was up sharply from 3.87% in the September quarter. The $3.5 bln in interest charged in the quarter was the most since the RBNZ started keeping this data in September 2014, and is +$1 bln more in Q4-2022 than in Q4-2021. But in relation to the amounts borrowed it is still lower relative level than pre-pandemic.
NO MORTGAGE STRESS EVIDENT
This data isn't showing any sign of excess repayment stress. Borrowers have been paying down their loans much faster that what the minimum, scheduled payments require. In fact the average has been quite impressive, more than +70% more than the required minimum/scheduled. For all of 2022 borrowers were obligated to repay $21.4 bln in principal. In fact they repaid $37.6 bln (other than repaying the loan outright), plus interest of $12.0 bln. You can see why both the banks and their regulator claim that they are confident borrowers will easily manage their scheduled repayment obligations even if things get tougher from here. It will be the voluntary repayments that dip first, and so far there is no sign that has even started yet. Risks to required repayments are miles away.
LABOUR MARKET PEAKED?
The number of filled jobs edged down slightly in December, with a -0.1% dip the first monthly decline since March 2022.
SWAP RATES MARGINALLY FIRMER
Wholesale swap rates likely firmed a little today. The real action comes near the close however. Our chart will record the final positions. The 90 day bank bill rate is up +2 bp at 4.88%. The Australian 10 year bond yield is now at 3.57% and little-changed from the open earlier today. The China 10 year bond rate is at 2.96% and unchanged even after their week off. The NZ Government 10 year bond rate is now at 4.17% and up +1 bp, but still above the earlier RBNZ fix for the NZGB 10 year which is up +3 bps at 4.10%. The UST 10 year is up +1 bp to 3.52%.
EQUITIES START THE WEEK NERVOUSLY
The NZX50 has started the week little-changed in late trade. The ASX200 has started down -0.2% in early afternoon trade. Tokyo has opened flat. Hong Kong has opened down -0.6%, while Shanghai is now back from a week-long holiday and is up +0.8% at its open and making up some of what it missed last week.
GOLD SOFT
In early Asian trade, gold is lower, now at US$1926/oz and down -US$3 from this morning.
NZD HOLDS
The Kiwi dollar is still at 64.9 USc where we started today. Against the Aussie we are still at 91.3 AUc. Against the euro we are still at 59.7 euro cents. That all means our TWI-5 is now at 71.5.
BITCOIN HOLDS
The bitcoin price is very little different from where we opened this morning, now at US$23,661 and up a mere US$30. Volatility over the past 24 hours has been modest at +/- 1.9%.
JUST A REMINDER
It is a public holiday today in the Auckland region (where we are based) and the top half of the North Island. But many of us are cleaning up and preparing for the next downpour.
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88 Comments
It will be interesting to see how long lasting the effect is. The best I've seen is that there have been around 9000 insurance claims so far. The final number will be a lot higher. However not all of these will be for buildings, some will be for cars and others for contents damage. The repairs will range from relatively minor to complete demolition and rebuild. For comparison there were around 20k consents issued in Auckland last year, so the amount of work looks significant in comparison.
Certainly Broken Windows fallacy at play, but this will certainly provide some support for tradies in Auckland.
It alters my view a bit on the economy, inflation and unemployment this year. That is, this will be inflationary, and unemployment may not be as bad as I predicted in building and the trades. The OCR might also need to go higher, or at least not come down as quickly.
What a strange and volatile world.
I'd say the inflationary side of things will be middling for quite some time, as this sort of work is time consuming but of a lower value than building a house or retail space over the same time period.
So trades will stay busy but at lower sales for a prolonged period.
Depends maybe on how much extra compliance might be enacted forcing people and authorities to spend way more on the like of storm water.
One plus is if the insurers are offshore then the claim work will be export revenue.
"Onwards and upwards with the OCR". Looks about right, if for no other reason than that "You can see why both the banks and their regulator claim that they are confident borrowers will easily manage their scheduled repayment obligations even if things get tougher"
Indeed, I hope you don't mind me reposting my very late comment, on this morning's "Breakfast briefing"
by Yvil | 30th Jan 23, 12:18pm
This large scale, very expensive catastrophe in the NI is not going to be good for inflation. It will increase non-tradable inflation, and no amount of OCR raising is going to help make the repairs or rebuild cheaper.
Interesting you say that Dr Yvil. Was just looking at the share of households that are renters, owners with a mortgage, or outright owners across 28 OECD countries. In terms of owners with a mortgage, NZ is not much better than the worse off U.S., Denmark, and the Netherlands. In terms of outright ownership, NZ is average at best, but nothing special.
https://www.oecd-ilibrary.org/sites/03dfe007-en/1/3/2/index.html?itemId…
It's all about tradeoffs Dr Y. The mortgage lending frenzy is more or less over. And public spending / taxation back in balance, so what does that mean? The economy is slowing. And this will continue if the punters are paying down debt and trying to save (possibly a futile move). That doesn't support the benefits of the wealth effect. Also, for the marginal buyer, they're still at risk of being crushed.
NO MORTGAGE STRESS EVIDENT Borrowers have been paying down their loans much faster that what the minimum, scheduled payments requireIn fact the average has been quite impressive, more than +70% more than the required minimum/scheduled. For all of 2022 borrowers were obligated to repay $21.4 bln in principal. In fact they repaid $37.6 bln (other than repaying the loan outright), plus interest of $12.0 bln.
A definite reduction in discretionary spending available for other goods and services.
Shift all of the money away from the profits of industrial capital that are reinvested in making new means of production. To expand capital into a shrinking economy where the financial sector intrudes more and more into the economy of production and consumption and shrinks the economy. Link
Yes. Even the ‘middle Boomers’, about age 65, would have parents aged at least 85-90 - obviously many would have passed away.
way past the middle of the cluster. Total guesstimate would be around 20-25% of boomers still to receive any inheritance they may be granted.
The more house equity that is eroded the less wiggle room for "repayment solutions" there is for a stressed mortgagor. Those in negative equity will be counted as "distressed" or non performing with no option left but to sell up. Banks want to to present charade as a "nothing to see here" and will do everything to contain this too big to fail property ponzi. Considering the price froth still evident, its still very early days. The numbers classed as distressed will grow exponentially as this correction continues to play out to its entirety. Interest rates higher for longer - housing price correction deeper and longer, chartered on an "L" shaped journey.
Pay rises have been more than soaked up by rampant inflation in everything but houses themselves. Despite the house price reductions you speak of, house affordability for the FHB is still the worst its ever been. In this instance, there is no evidence of imminent price support based on increased wages to date. Its not just gloom for the mere sake of it, it's reality gloom :)
Those anticipating realistic and sustainable price support is near, are dreaming. Super loose lending conditions and 3% mortgage rates that created this madness, they're in the rear vision mirror now.
Drove though a few streets of Ranui that I know very well.......whole rows of houses in many streets were 1/3 submerged.
No insurer in their right mind would offer flood cover going forward = no mortgage possible = complete collapse in value of largely rental or FBH housing.
These Landlords will see very large losses, to super low ball cash buyers looking for Big Yields. 60% to 70% off the peak 2021 values imho.
These Lords of the Land will need to pony up with big $$$ to find alternative accomodation for their hapless serf tenants.
Thats if that have any insurances at all.....some of the houses flooded just 18 months ago.
Will EQC buy up half a street that is habitable more than 99% of the time?? and just occasionally a giant swimming pool?
No losses for these hapless owners?
Plus many of the new builds that sprang up in the Kumeu/NW Auck flood plains.....again drenched.
Re: mortgage stress - I think it’s very premature to get excited about the lack of signs of stress. That data is from the December 22 quarter. Let’s see what it looks like at the end of this year, given so many mortgage holders will need to refinance this year at much higher rates.
I would like to see pressure to upgrade the speed/accuracy/regularity of our statistics reporting. The powers that be are making policy changes in a very fast moving situation based on stuff that sometimes happened 3 months (reporting cycle) + 1 month (time to deliver data) ago.
The ministry of education has just extended school holiday by another week in Auckland because of potential bad traffic. Seems like Auckland children’s education is the lowest possible priority. And why the very late notice, do they not realise that people have to work?
Labour try their hardest to fail don’t they.
Your pal McCollough:
M Hipkins has not done the cost-benefit analysis to make the determination he made today and so has just allowed a sweeping and uninformed regulation to pass. Shame on him.
During the pandemic, Hipkins also never did a cost-benefit analysis to work out whether the second lock-down in late 2021 was justified. It had terrible effects on a generation of school children. Those effects were, like the decision today, never estimated. Now he is at it again.
Getting a bit of tired with the 'mortgagors are all good' stories - as if they are all a homogenous bunch with the median loan of $280,000 and a fixed rate of 4% for 2 years!
If you look at the Stats NZ net worth data, and the time until fixed rates expire data (RBNZ S33), it is pretty clear that there are tens of thousands of households with mortgages of around $600,000 who took mortgages on at low rates and with incomes that were touch and go on the stress test. Importantly, all of those stress testing calculations were done before the other costs of living went through the roof - local Council rates, insurance, food, etc. The next few months are going to be telling - don't be surprised when things blow up.
Also worth noting that the growth in bank account balances (RBNZ C50) is stalling quickly as people stop borrowing and Govt net spending returns to zero. Last time this happened was 2009 (vintage year).
This website is pretty good, but agree. I get more information from commenters than from the news on NZ news websites. Sadly all (excluding interest) nz news websites are now nothing more than political soundboards. For example the hounding of the Auckland mayor. Labour constantly used the 9 long years of neglect Slogan to excuse their incompetence….well wasn’t the last couple mayors in Auckland labour lackies? It’s all about the narrative and no longer about reporting facts.
Jfoe, I understand your point, but Interest can only publish data taken from a wide range of people. Of course within this range there are people worse off and some are better off, but at the end of the day, it's the overall picture that matters. It's like the clown who managed to find a specific suburb to prove his point that housing values dropped by 30% by December 2022, well, no, for the vast majority of people they didn't.
Chippy has got labour ahead of national: https://www.nzherald.co.nz/nz/politics/chris-hipkins-and-labour-popular…
Asked if they trusted the main party leaders, 52.9 per cent of respondents said they trusted Hipkins while 26.9 per cent said no.
For Luxon meanwhile, just 36.9 per cent trusted him, while 43.8 per cent said they did not.
Problem for National is that Luxon has about as much charisma as a boiled egg. Of course there is though protein in an egg and Hipkins chirpy little chick etc that he is, has to now demonstrate and justify why if he doesn’t simply carry on from Ardern , which is what he himself has been advocating solidly for over five years, now needs to be readdressed and remodelled.
has to now demonstrate and justify why if he doesn’t simply carry on from Ardern
Luxon has the same challenge ahead. Proudly portrays himself as an outsider to politics but has been trying to slip the tired old migration and speculation tricks past us, just like his predecessors.
For a man who has led global frontier firms in his corporate career, I expect him to have higher aspirations than becoming yet another errand boy for unscrupulous businesses and landlords in NZ.
Have to agree. It is unfortunate to say the least. The nation needs both direction and leadership and the pool of talent on offer seems little more than a schoolyard of adolescents whose main interest is winning the pot shot of the day. Can you think of one current MP that you would like to work for or with or have work for you? I can’t.
Hello Kiwibank - you last changed your 1 & 2 year fixed mortgage rates on 9 Dec 2023 when the Interest Rate Swap rates on that day were 5.31% (1 Year) and 5.14% (2 Years). Since then the 1 year IRS rate has DROPPED 1bp to 5.30% and the 2 year IRS rate has DROPPED 23bps so your INCREASE of the one year fixed mortgage rate by 10bps and dropping of the 2 year year fixed mortgage rate by 16bps looks like you also have plenty of one year fixed mortgages coming up in February and March. How about a little self reflection?
From an article in the Herald today:
EMA head of advocacy and strategy Alan McDonald said many businesses were facing major financial impacts.
“One of the things we’ve found is there’s quite a significant number of people who aren’t insured,” he said.
“With things like Covid-19, a lot of businesses have dropped their insurance.
And now are we raising the expectations that the taxpayer will fund the shortfall!
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