What happened Friday

Business / news

A review of things you need to know before you sign off on Friday; a floating mortgage rate rise, retail sales rise, PMI better, China inflation risk, swaps up again, NZD stable, & more

10th Feb 23, 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
Heartland Bank have raised their floating rates by +26 bps to 6.25%. Resimac have cut fixed rates for terms 2-5 years, and now have an inverted rate card.

TERM DEPOSIT RATE CHANGES
No changes to report today.

SPENDING MORE - FOR LESS
Retail sales data from the StatsNZ monitoring of electronic card activity shows a good rise in January, up +2.7% year-on-year nominal. The rebound was spread across a number of categories, especially durables (+5%), hospitality (+10%) and apparel (+4%). Fuel and consumables missed out in January. Overseas travel helped significantly too (+8%). And perhaps some of the local increase was from international visitors who weren't here in the base year. But because few sectors had increases greater than inflation, retail sales volumes probably retreated.

FACTORY GLOOM LIFTS
The manufacturing sector had a positive start to 2023 after three consecutive months of contraction, according to the latest BNZ-BusinessNZ Performance of Manufacturing Index. New order levels rose but not to an expansion yet. Catchup production is driving the improvement. The Otago/Southland region is the most optimistic, Wellington the least. It’s hard to know if, and how, the subdued Auckland result was affected by the late-month flooding, but it’s something to keep watching.

ASB BUSINESS BANKING HEAD LEAVES
ASB says Tim Deane, its Executive General Manager of Business Banking, has resigned and leaves the bank today (Feb 10). Ben Speedy, ASB's General Manager of Rural Banking, will be acting head of business until a permanent appointment is announced. Deane previously held senior executive roles at Goodman Fielder and Fonterra.

FIJI ON THE UP
With international tourism in full flow, sales and profitability look encouraging in Fiji for firms there. Fiji may get almost 1 mln short term visitors in 2023, their most ever.

CHINA INFLATION RISK
China reported January inflation at a +2.1% rate although the rise from December was at an annualised rate exceeding +9%. Still, this was very much as markets expected. The producer price deflation however seems to be staying minor.

JAPAN INFLATION RISK
That is not the case in Japan where January producer prices came in +9.5% higher than a year ago (as expected), although in the December to January period they vanished.

START PREPARING
Auckland Emergency Management has warned Aucklanders to prepare for Tropical Cyclone Gabrielle which updated storm tracking suggests it may hit on Monday night with more very severe rainfall and wind. Insurers have tips on how to get ready. The Bay of Plenty and Coromandel may bear the brunt. (Strong winds are currently lashing the NSW coast.)

SWAP RATES RISE FURTHER
Wholesale swap rates likely rose again today across the curve. The real action comes near the close however. Our chart will record the final positions. The 90 day bank bill rate is up +3 bps at 5.00%. (The last time they were at 5% was on December 31, 2008.) The Australian 10 year bond yield is now at 3.74% and up a very sharp +11 bps from this time yesterday. The China 10 year bond rate is down -1 bp at 2.91%. The NZ Government 10 year bond rate is now at 4.21% and up +4 bps, and still above the earlier RBNZ fix at 4.20% which was up +8 bps. The UST 10 year is now up at 3.68% and up +7 bps.

EQUITIES STRUGGLE AGAINST HEADWINDS
The S&P500 ended down another -0.9% on Wall Street at the end of its Thursday trading as earnings undershoots (especially from the tech sector) and chunky bond yield rises kept the pressure on. Tokyo has opened its Friday trading up +0.7% and if that holds, heading for a flat week. Hong Kong has opened today down -0.6% and will end +0.7% for the week if that holds. Shanghai has opened down -0.3% towards a +0.5% weekly gain. The ASX200 is down -0.7% in afternoon trade today and heading for a weekly loss of -1.6%. The NZX50 is little-changed in late trade and might get away with only a -0.2% weekly dip.

GOLD LOWER
In early Asian trade, gold is now at US$1862/oz, and down -US$15 from this time yesterday.

NZD HOLDS
The Kiwi dollar is at 63.2 USc and again unchanged from this time yesterday. Against the Aussie we are marginally firmer at 91.2 AUc. Against the euro we are also unchanged at 58.9 euro cents. The TWI is now at 70.6 and also little-changed from yesterday.

BITCOIN DROPS
The bitcoin price has slipped again today and by quite a bit, down -4.9% to US$21,832. Volatility has been high at +/- 3.0%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

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55 Comments

by bw | 10th Feb 23, 4:11pm 1675998699

Unemployment still at historical lows; stock market stable to almost buoyant and as, alternatively reported elsewhere, "Kiwis keep spending despite inflation, rate hikes and recession risk" so what better time will there ever be than now for the RBNZ to normalise the OCR?

by IT GUY | 10th Feb 23, 4:24pm 1675999447

It seems that we just did not listen to the Nov plea to restrain spending, hard to see it at 50bps with this.... 75 and promise of more?

by Foxglove. | 10th Feb 23, 4:38pm 1676000339

No spending has not been restrained but neither will have the borrowing to fund said spending. Don’t forget during the pandemic, the strategy of this government to encourage borrowing to spend to save the economy. Well that may well have got the bit between the teeth or more likely, too many folk now have no other option. 9 months to an election and a prospect of 9 months of uphill & headwind for I would wager, the majority of NZ households. The newly reinvented government is going to have its hands full. Cliché certainly, but a winter of discontent looms undoubtedly.

by HouseMouse | 10th Feb 23, 4:47pm 1676000847

Let’s see how bad this storm is

by Jonny.Foe | 10th Feb 23, 4:25pm 1675999549

Domestic card spending is dropping quickly - tourist spend on travel and hospo is compensating. We will get overseas card spending data in a week or so that will show this more clearly. Unemployment is ticking up, filled jobs have dropped like a stone, wage growth stalled in mid-2022, the casual workforce hired for the summer season is about to join the dole queue, and mortgage interest has increased from $1bn per month to $1.25bn over the last year. Oh, and bank account balances are on the verge of going trend negative (last period like this was in 2009). RBNZ will be dropping the OCR within months.

by HW2 | 10th Feb 23, 5:07pm 1676002027

Trademe residential rentals 3865

On 5 February 4048

Continuing to decline.

This time last year there was over 5500 for rent in Auckland. A drop of 30 percent and still dropping fast I would say

And as IT GUY kindly reminds me, landlords are not putting up rents. Probably they want to be kind.

by HouseMouse | 10th Feb 23, 5:33pm 1676003636

Hard to know how impactful this is, eg. More young people might be staying at home with ma and pa

by Harvey W | 10th Feb 23, 5:41pm 1676004062

Tell us more what you think it means please HW2. Note 150k of net border arrivals since August. They're probably mostly in a bedroom somewhere.....

by gnx | 10th Feb 23, 5:47pm 1676004466

Rubbish…. Got any stats to back that up?

the last numbers I have seen only go up to November 22 and show a net gain for the first time in a while of 5700 that month

by Harvey W | 10th Feb 23, 6:17pm 1676006257

Unfortunately some of the info has dropped off the Customs website, have asked for it to be reinstated, but for the 6 months from August to January it is 149,177 net arrivals, I'd love to know what's driving it...

by HW2 | 10th Feb 23, 7:13pm 1676009591

Thanks Harvey for following up customs. Others can interpret the reasons and effects of lower rental numbers as well or better than I. Supply and demand situation, but we haven't seen much price movement yet, depending on who you talk to

I should say that this number is the lowest number of available rentals for any month I have seen, and I have kept records for over three years. Since before covid. So the figures cannot be all down to air bnb and intnl students

by nktokyo | 10th Feb 23, 5:43pm 1676004219

It's peak letting season in university towns and international students are back baby

by Jonny.Foe | 10th Feb 23, 5:48pm 1676004526

Yes, we will see the usual seasonal surge in rents in the uni towns. Increasing costs acorss a decent chunk of landlords will put the squeeze on this year though for sure. My heart bleeds obviously.

by IT GUY | 10th Feb 23, 5:54pm 1676004853

I agree its a sea of kindness

by HW2 | 10th Feb 23, 7:02pm 1676008954

Be kind ... keep rents low

We will soon have the highest min wage rate in the world, as per Heather DPA

by J.C. | 10th Feb 23, 5:49pm 1676004559

DGM on steroids from the mighty Chris Joye. If you're still in the denial camp, you might not want to read this. This is just a taste.

Unfortunately, there is no good news to report, and cash remains king. Contrary to popular belief, there ain’t going to be any great asset price recovery because we are witnessing a semi-permanent downward adjustment to valuations.

Remember the “new normal”? The “low rates for long” paradigm? It’s dead. Recall how we needed a “search for yield” because “there is no alternative” (TINA)? This spawned many new asset categories, and fuelled crazy demand for start-ups and tech stocks, crypto, commercial property, high-yield debt, private loans and income-rich equities. Those trades are all cactus.

With earnings recessions on their way, it is hard to fathom how equities are going to perform. I mean, even high-yielding equities are paying only 6 per cent annual income returns: this week, ANZ issued a BBB+ Tier 2 bond that pays 6.75 per cent annually (we bought it). If you can get that sort of return on bank bonds, why would you be buying vastly riskier and less liquid equities offering inferior yields?

Another expression of this capital structure paradox can be found in the listed hybrid market, where major bank hybrids are paying superior total franked yields to the franked dividend yields on major bank stocks. We have not seen this occur since early 2016.

Needless to say, this is all horrible news for the commercial and residential property markets, which are going to undergo truly massive price declines to compete with the much higher yields available on cash, government bonds and bank bonds.

https://www.afr.com/wealth/personal-finance/the-news-for-asset-prices-o…

by HouseMouse | 10th Feb 23, 6:01pm 1676005271

Yes I said a day or two back that I am still bearish on stocks, because I am bearish on earnings.

Joye is good value.

by J.C. | 10th Feb 23, 6:12pm 1676005934

Joye is good value.

Yes he is. But remember that Chris talks his own book to some extent. And related to crypto, not sure he's making too much sense if BTC in particular is uncorrelated to the OCR.

by Audaxes | 10th Feb 23, 7:01pm 1676008910

Households are buying T-Bills at a rapid pace given their attractiveness in today's macro environment. You get paid a juicy ~5% while waiting for better opportunities.

by IT GUY | 10th Feb 23, 6:11pm 1676005888

The Turangi pub complex is for sale, i think it has 4 leases of about 231k total, if you can get 6.75% in liquid (sell tomorrow) bonds from a bank, what yield do you need from a highly not liquid Turangi tavern building.... same for a shitebox in Manurewa or flatbush..... Ma and Pa are in for a hiding, no same person is going to invest in NZ residential until its 7-9% again. All that talk about a leverage super plan is now poo poo. link to sale https://www.trademe.co.nz/a/property/commercial/sale/listing/3980126941…; on paper so many assets have halved in value but their owners do not realise it yet as they do not have to M2M

by Pa1nter | 10th Feb 23, 6:20pm 1676006417

The good thing about most people is they're far from rational agents. You're calling that sanity, I spose that's in the same ballpark.

by IT GUY | 10th Feb 23, 6:25pm 1676006754

My brother in law, once donkey deep in the real estate game, used to say , the average guy is not that smart, and be definition half are thicker.

by JimboJones | 10th Feb 23, 7:17pm 1676009836

There is no definition that says half of a set are less than the average. Maybe he was in that bottom half.

by IT GUY | 10th Feb 23, 7:35pm 1676010935

that proves it

What type of distribution is IQ?

A graph of intelligence quotient (IQ), a measure of human intelligence, is an example of normal distribution, in which the most frequent scores are clustered near the center. The mean score is 100. The shaded region between 85 and 115 accounts for about 68 percent of the total area, hence 68 percent of all IQ scores.

by IT GUY | 10th Feb 23, 6:44pm 1676007843

Pa1nter / HW2 - what yield would you want on that Turangi deal considering you could get 6.75% bank bonds and sell tomorrow if you changed your mind.....?

by HW2 | 10th Feb 23, 8:04pm 1676012690

No idea without looking and doing a comparative. As for your bond rate it is still comparing two different things.

Send me the listing

by Pa1nter | 10th Feb 23, 11:32pm 1676025175

I don't usually buy a property based on its current return. Someone else generated that and wants a premium for it.

What's the potential for the site? There's no potential on a bond, she's pretty black and white.

by Foxglove. | 10th Feb 23, 6:26pm 1676006787

“Ma and Pa are in for a hiding.” That is a prospect that has dreadful implications beyond any specific sector. There is nothing more worrying to a nation than when ordinary folk’s ordinary livelihoods and lifestyle are threatened.

by IT GUY | 10th Feb 23, 6:41pm 1676007705

Let’s be clear, the central banks don’t want to leave much doubt to this monetary policy tightening cycle. They are not sparing the horses. They have explicitly stated they would much prefer to raise rates too high, and have a deeper recession, than the alternative of not lifting them far enough, and allowing the cursed inflation problem to become deeply embedded in consumers’ psyche.

And their No.1 focus is demand destruction: they are singularly committed to creating job losses to loosen labour markets to in turn reduce elevated wage growth. They consider this to be the key to securing long-run price stability. - Chris Joye

This was pretty much the attitude Orr came back from Jacksons Hole with... after all its group think, can't be fired for doing what the FEDs doing in the name of financial stability.....

The value of the assets has changed but the sellers don't realise it yet...... the buyers do.

by Foxglove. | 10th Feb 23, 6:53pm 1676008390

Hells bells. Somehow from somewhere a movie title resonates “There Will Be Blood.” Not normally a doomster but the foundation that has been laid in recent years hardly augurs well for our society at large.

by JimboJones | 10th Feb 23, 7:11pm 1676009515

I doubt young people will be too worried if houses prices tank.

by HouseMouse | 10th Feb 23, 7:44pm 1676011466

How about young people who bought in the last 2 years? Or all the young people working in building, trades, contracting and related (architecture, planning, surveying etc)? Or all the young people working in hospo who might lose their jobs?

by JimboJones | 10th Feb 23, 7:54pm 1676012079

I’m not sure all those things will happen - if people start losing their jobs then inflation should disappear and the RBNZ will lower interest rates and house prices will go back up. Unless we get stagflation that is. Anything could happen I guess.

by IT GUY | 10th Feb 23, 7:59pm 1676012346

if people start losing their jobs then inflation should disappear and the RBNZ will lower interest rates and house prices will go back up.

And if a pilot stalls the plane he will just push the stick forward and regain control.... you have never seen a hard landing.... watch and learn that once things turn to shit no one really knows how bad things could get. Its called FEAR. like the opposite on animal spirits... then again I am arguing with a Labour supporter who thinks things can be made good by increasing the minimum wage... just wait till the bond vigilantes turn on NZ and OCR is at 11

by JimboJones | 10th Feb 23, 8:11pm 1676013109

Sure that could happen. Although people have been wrongly predicting such outcomes every year since the GFC (and since Labour got elected)

by J.C. | 10th Feb 23, 7:45pm 1676011515

I doubt young people will be too worried if houses prices tank.

Probably because they don't understand the wealth effect and the implications it may have for their immediate livelihood.

by JimboJones | 10th Feb 23, 7:22pm 1676010155

It doesn’t matter what the yield is, you just need to wait 10 years until the capital value has doubled and then sell it and pay no tax on the profit. Have you never been to a property seminar?

by IT GUY | 10th Feb 23, 7:50pm 1676011805

You are just trying to make lower quartile comments now.......

by JimboJones | 10th Feb 23, 8:03pm 1676012586

If only I was stupid enough to believe that crap, I’d be rich by now.

by HouseMouse | 10th Feb 23, 8:10pm 1676013035

Great comment, haha

by IT GUY | 10th Feb 23, 8:20pm 1676013632

up voted you for that, but you would also have to have been smart enough to sell near the top to clear most of your debt.....

by JimboJones | 10th Feb 23, 8:42pm 1676014969

Like many people there were a number of times when we considered buying another property over the last 15 years, particularly when next door came up for sale which would have given us a lot of land. However I reckon I would have sold way too early, once we’d made a good profit I would’ve sold and then kicked myself as it went up much more. Timing is everything, and it’s usually more luck than skill.

by Foxglove. | 10th Feb 23, 7:57pm 1676012242

Perhaps true. But if the property in question is a home, then whereupon, after that sale does that homeowner actually go to put a roof over the family head. Sure a percentage may “play the market” buy on the low sell on the up but I wager that is minuscule compared to the folk that just have a priority to have their family housed. This misperception has been a huge failure in NZ, that is the difference in societal considerations between the family home as opposed to investor and speculator ownership.

by IT GUY | 10th Feb 23, 8:23pm 1676013812

we should have never allowed the foreign buyers in

by Caughtinthemiddle | 10th Feb 23, 7:34pm 1676010880

I've been sitting on my hands for over a year now but need to buy a modest Auckland City property to work out of for part of the week. I have been courting a REA for 5 months on a property that hasn't sold. I've kept a distant interest and the vendors have withdrawn the property after 6 months. On the HPI data it has dropped 24% from peak. I'm working off that figure as a top end of what it's worth. Today I've been asked for a value to "ensure I'm not wasting everyone's time". I have quoted 25% from peak and I have committed that I would make an offer at the end of this month which I had planned to do. They have walked away.

The market is sticky coming down. When asked if I "could do better", my response was that I had no desire to inherit the vendors negative equity. The REA simply shrugged.

by IT GUY | 10th Feb 23, 7:38pm 1676011091

You are not that vendors greater fool, look elsewhere, I suggest the next agent they appoint is worth approaching.....

by rolande | 10th Feb 23, 8:01pm 1676012502

That sounds annoying. Oneroof is also running articles that try to discourage low offers.

When vendors were asking 25%+ above valuation they said "that's the market", "don't miss out". Imagine if buyers had said: "don't waste my time with that insulting price".

The market's the market.

by Rob Reid | 10th Feb 23, 11:02pm 1676023370

Renting is a way better deal. Let someone else have the honour of holding the bags.

by Zack Brando | 10th Feb 23, 8:19pm 1676013561

A lot of properties in Christchurch are now being listed with prices:

https://www.trademe.co.nz/a/property/residential/sale/canterbury/christ…

by Foxglove. | 10th Feb 23, 8:25pm 1676013948

Funny that. But not funny ha ha.

by Zack Brando | 10th Feb 23, 8:34pm 1676014445

Many of them are still overpriced hovels IMO.

by Foxglove. | 10th Feb 23, 9:20pm 1676017238

Oh we have one of those nearby. But the owner, well she is overpriced too.

by JimboJones | 10th Feb 23, 10:16pm 1676020613

What is the going rate these days?

by Caughtinthemiddle | 10th Feb 23, 11:00pm 1676023221

Thanks for the replies. We're optimistic but not committed. Will report back.

by EpsomArtsandCrafts | 11th Feb 23, 12:03am 1676026998

Its obvious that there will be a rental shortage in another 12 months as there is just too much artifical negative intervention by Grant and Adrian.

Labour policies on not being able to deduct interest is massive and should be reviewed, capital gains tax within 10 years - thanks for nothing Labour and don't be surprised when your voters can't find a rental.

RB let emotions and politics influence their decision making and went too low for too long and now have to go too high - Also making property investment numbers not work, disappointed with the LVR which is just tall poppy stuff