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
None today here.
TERM DEPOSIT/SAVINGS RATE CHANGES
None today here either.
DOWN, BUT HOW MUCH MORE BECKONS?
The March REINZ data was released today and it showed the peak summer real estate sales season finished on a 12-year low for a March month. Bank analysts are taking the position the bottom is near, but given we are going into tough selling period until September at the earliest, these do seem brave calls. ANZ suggests we are approaching a floor, Kiwibank says prices "won't fall forever". Westpac says "the market is starting to stabilise". Infometrics says "we expect the total peak-to-trough decline will hit 21% before house prices start to moderate." Nationally the peak-to-trough is currently -16.2%. For Auckland it is -23% (the peak was November 2021). Of course all these declines are nominal. We don't get the March CPI data until Thursday, but high current inflation will add to those making the 'real' inflation adjusted falls much greater.
MORE HOUSES COMING
Ellerslie Racecourse and Fletcher Residential have been granted fast-track resource consent with conditions for a housing development on racecourse land. They will build around 370 residential units. The proposed housing will include a mix of detached, duplex, terrace houses and apartments.
TRENDING DOWN
There is another dairy auction tomorrow morning. It will be awaited nervously, given that prices have declined in nine of the last 12 weeks. Two weeks ago it was down -4.7% from the prior event, down -35% from a year ago. A week ago a WMP Pulse event resulted in the WMP price falling another -1.6% from the last GDT auction. Certainly Chinese foodservice buyers weren't out for the Pulse event. The best prospects seem to be for SMP. Butter may take yet another hit.
LOWER BALANCES, HIGHER INTEREST COST
Bank settlement balances at the RBNZ (on which the RBNZ pays interest at the OCR level) have slipped to $45.8 bln as at the end of March. That cost the RBNZ more than $200 mln in interest alone. But the bank's balances at the RBNZ are now at their lowest since August. These settlement balances fell -$3.25 bln in March from February.
FX CURRENCY SWAP ACTIVITY SURGES
FX market NZD currency swaps surged in March, their highest since October 2014.
CHINA BOUNCES
China's bounce out of its pandemic lockdown raised their GDP by +2.2% in Q1-2023 from Q4-2022. This was the rise analysts expected. However from a year ago, their GDP is up +4.5% which was more than the 4.0% expected. This was all driven by retail sales which were up +10.6% with widespread revenge spending. Electricity production was up +5.1% with coal production up +5.5% and imported coal flooding back in. Industrial production rose +3.9% when +4% was expected. If you think about these changes, they don't actually suggest a very stable situation but that may just be their systems stuttering to reopen.
A RISKY POLICY POSITION
The latest RBA minutes show they are prepared to raise rates again, despite their recent pause, because they fear strong population growth and big public sector wage rises will push up inflation again. The pause was nervously agreed, these minutes show. Inflation is currently running at 7.8%. The policy rate is still only 3.6%.
SWAP RATES FIRMER
Wholesale swap rates are probably higher again today, probably about +10 bps across the curve. However, the real action in swap rates comes near the close. Our chart will record the final positions. The 90 day bank bill rate is down -1 bp at 5.54% and 29 bps above the OCR. The Australian 10 year bond yield is now at 3.46% and up +9 bps from this time yesterday. The China 10 year bond rate is unchanged at 2.86%. And the NZ Government 10 year bond rate is now at 4.24%, and that is up another +7 bps from yesterday, and still above the the earlier RBNZ fix at 4.16% which is up another +1 bp and still in catch-up mode. The UST 10 year yield is now at 3.59% and up +8 bps from yesterday.
EQUITIES DIRECTIONLESS
The S&P500 ended its Monday session up +0.3% with a modest late rally. Tokyo has opened up +0.6%. Hong Kong has started its Tuesday session down -0.6% which Shanghai is little changed at its open. The ASX200 is down -0.3% in early afternoon trade. The NZX50 is down -0.4% in late trade.
GOLD SOFT
In early Asian trade, gold is softer from this time yesterday, down -US$7/oz at US$1997/oz. It closed earlier in New York at US$1995/oz and in London at US$1996/oz.
NZD HOLDS LOWER
The Kiwi dollar is still just at 61.9 USc and marginally softer from this time yesterday. Against the Aussie we are soft at 92.4 AUc. And against the euro we are still at 56.5 euro cents. That means the TWI-5 is still at 69.8.
BITCOIN SLIPS AGAIN
The bitcoin price has fallen another -2.0% since this time yesterday, now at US$29,434. At one point it hit US$29,801. Volatility over the past 24 hours has been modest at +/-1.7%.
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82 Comments
Left Field but am picking someone on here will have an idea. Im putting something together which will include a default interest rate provision. Does anybody know what a standard business loan default rate is in NZ? Im thinking of using a margin on BKBM to land somewhere near 15%...?
1.5% per month
Seen that quite a bit, never less, maybe 2 %in high risk environment.
2% over BKBM as a default/penalty interest rate? Doesn’t seem right…
no , 2 % per month total.
So credit card like rates. Hense why smb sized companies borrow against their houses, or secure against same.
Yup, unless you've got property, forget about a business loan from a bank for a small business.
Ahh apologies misread it! Cheers
Good luck to Fletchers in selling houses in that development…
Ellerslie has good public transport and right on the motorway. Being new builds they have the benefit of interest deductibility and five year bright line. I think they should sell.
I agree re location. But they won’t be cheap, and with current interest rates I think it won’t be easy to sell. But it’s Fletchers so they won’t be in a big rush and will do it in stages. They have that luxury which many of the smaller players don’t have.
Its bordering on corruption that the big boys get fast tracked consent and the rest of us just wait in the queue for council to finally get around to doing their job
The current consent process is a big reason not to expand a business in NZ
Its called democracy... joke. The RMA and asking neighbourhood nimbys for consent followed by public notification with every nimby nationwide getting a crack.
It used to be that councils would make decisions, now too afraid of something but I'm not sure what
Repercussions that’s what. Great example during the Canterbury EQ sequences. Prior to that if you wanted to add an extra louvre to the dunny window then the council was over you like a rash. Then suddenly, foundations? Oh no, we don’t need to get involved in them, trust the insurers engineers they are far better at that than us, just get them to sign off, we don’t even need to have a look. From our family experience(s) it was a despicable dereliction of duty. A fine display of the standard slogan, “all authority, no responsibility.”
To be fair to councils, the courts keep coming out with some ridiculous decisions that make councils (justifiably) more risk averse.
Rather than bashing planners and councils, David Parker should have a look at the damage his lawyer mates cause, and the judiciary.
The simple solution be to make public notification decisions more black and white. Unfortunately Parker’s farcical RMA reform makes things even more ambiguous than they are now.
if this content stands there will be litigation over many years and things will be worse than they are now. Hard to believe, I know.
yes desirable location.
Ellerslie is nice. Maybe zoned for RI and good primary schools. Not sure what high school they are zoned for?
Sure it’s nice. In fact I am not so far away and had Chinese takeaways from Ellerslie Village tonight.
It doesn’t take away from the fact that 2 bed townhouses and apartments likely selling for at least 900k won’t necessarily be easy to sell with mortgage rates above 6%.
Sales on Fletcher’s Caldera apartments, also in a good location in Mt Eden / Three Kings at that sort of price point, are sluggish.
Fletcher's will offer enticements. Is any of it kiwibuild. By the time they are selling in a year then the sales market will be recovering
Its funny that 370 homes get fast track resource consent and its a cause for celebration. Thats just a drop in the bucket as Auckland needs 13000 homes a year to maintain itself.
Around 13000 houses on trademe for sale in Auckland. Nearly every day more news comes out around house price crash HW2 you seem to comment regularly but I am not sure you read the facts in the articles, maybe you have some narrative but your comments are nonsense most of the time, try putting some thought into them.
The article refers to new builds. But thanks permabear
Fletchers don't operate in an open and competitive market they'll be fine
Of course they will always be fine. Eternally.
The proposed housing will include a mix of detached, duplex, terrace houses and apartments
NZ will need a development of that size completed every 4-5 days to house the number of net migrants coming into the country at the current pace.
Exactly
It’s almost like perpetual motion. Not enough immigrants not enough labour. Too many immigrants not enough housing and services. Unneeded reminder that the pendulum is only ever resting on vertical, when it has run out of power.
Except if there isn't enough labour, the price of wages goes up, housing demand goes down. Win win for everyone except the capital owning class who imports cheap labour to suppress wages.
If there isn't enough labour, businesses and policymakers will have to do more to get value out of our existing workforce (upskilling, economic reforms, labour-saving capital investments).
Our workforce is already underskilled, overworked and low-paid by international standards.
On another note, since July 2022, INZ has issued a tad over 200 visas to registered nurses, including renewals for those already here. We're so screwed!
Our workforce is already underskilled, overworked and low-paid by international standards.
Not by international standards. Maybe by OECD standards, but even then likely not on a like-for-like job basis except for a few outliers like Aus, US, Switzerland.
Nothing new under the sun.
In the early 1970s, New Zealand experienced a rapid increase in house prices caused by, among other things, a swift run-up in immigration and a shortage of builders and building materials. Between 1971 and 1974 real house prices increased by 60%. This caused alarm, and the government responded by loosening planning controls to allow more flats to be built in cities. Then the 1973 oil shock hit, net migration turned negative, and the economy entered into a prolonged slide. From 1974 to 1980, house prices fell by around 40% in real terms. By the end of the decade houses were no more valuable than they had been at the start.
So much so the Kirk Labour government introduced the Property Speculation Tax. Done rather hastily so too, but nevertheless it was effective to the degree that Muldoon then kept it in place until into the next government’s second term.
We lost a good one with Norman Kirk.
Aye. An understatement I think. Compulsory super, ACC, NZ Shipping Corp, the Rural Bank, Property Speculation Tax, enough backbone to stop the Springbok tour, frigate to the French nuke tests and undoubtedly a bit more my old memory has lost. A big man, a good man, one of our best along with Mike Moore.
More substance than style. The opposite of our previous PM.
Really..it seems to me removing negative gearing was a big move in my book, seems to fly under the radar of many here?
Not sure that I would celebrate ACC. Rural Bank ended up loaning into some dubious business cases. Compulsory super was an all in Govt account not personalized like Kiwisaver. Not sure I remember the two in detail.
Without ACC our health system would be under water. ACC takes a huge number of urgent elective work out of the DHB system. For example you will never see a knee arthroscopy in any of the public Auckland Hospitals - all done elsewhere.
As well believe one of the motives was to avoid the elements of litigation that abound in say the USA. For instance you backed your car into mine and now I need thousands of $ in back and neck treatment. Of course it is obvious that bureaucratic dead handedness and opportunistic claims have weakened and blunted the original aims.
In nominal terms though is a very different story.
Houses increased tenfold. Those with funds on term deposit were highly taxed on the interest. Those who invested in shares were double taxed on dividends before the days of imputation credits
Renters were no better off at the end of the decade but homeowners and fhb suddenly had a stack of equity.
So despite calls for the last one leaving to turn out the lights, it wasn't totally bad for residential investment
Key word in your statement is 'wasn't'. Anyone thinking the 'good' times of greedy house hoarders making bank anytime in the next long while is in a serious state of denile. Long may that continue and houses become homes again rather than the get rich quick pyramid ponzi we've had for way way to long.
We can check back on your position later
But there is totally a place for investors and always has been. If you dont like that more mum and dad investors got interested then blame pollies who let it get out of hand.
Sometime in the future the govt will run out of money and cut back non essentials. AS might be one of those and then houses will get cheaper. Rents will rise.
While it's true that there has always been a place for investors in the housing market, it's important to recognise the negative consequences of unchecked speculation and greed. The goal should be to create a sustainable and affordable housing market for all, not just a select few.
You can't blame people for preparing for their retirement after the pollies pulled the rug. Or buying homes when banks were begging them to borrow and offering stupid rates. Or offering alternative investments that just aren't as reliable or secure as real estate. Demand goes hand in hand with supply of homes to be affordable.
Change the environment in which investors operate. Like we do with any other unwanted activity... apart from ram raids which we let to continue with gentle responses by the police and courts.
Take away the lollies
Except the type of migrants we're attracting won't be living in developments like that, and certainly won't be buying them.
Nor in places like Queenstown renting them either. That’s a rather sorry example of a location that has outgrown itself in so far as being able to both acquire, and provide for, the labour force necessary to keep said location’s activities ongoing.
We're so intent on doing things properly that progress is glacial.
Coming through warkworth, there were literally professionally dressed road workers. They were using trowels and plastering the brand new kerb which had nothing wrong with it. All we could think was there were small imperfections and it had to be 200pct to get sign off. Why don't they stop wasting time and make it a priority to get real results.
It's the same in housing and all the drama of approval processes. There are so many restrictions and obstacles, its a lottery.
"The perfect is the enemy of the good"
Voltaire, ~1770
Agreed, I'm currently listening to the audiobook:
Prefect X
Great X
Good V
I am really curious to see what happens when ski season starts. Right now the rental situation is beyond dire during what is typically the quietest time of year. It could get very messy.
Queenstown business people are capitalists. They will find a way.
Capitalism is typically a very robust system. But the issues could have longer-term effects on Queenstown.
What happens if someone's stay is wrecked because of all the staffing issues? Then they go back to their country and tell all their friends and family how awful it was. Slowly but surely a reputation that's been built over many years can get torn down brick by brick until the allure of the place starts to fade which means you can lose future tourists, and repeat tourists which can have some nasty long-term effects on an industry as fickle as tourism.
Or it might all be fine I don't know, I struggle to extrapolate anything from Queenstown seems to exist in its own reality.
That’s rather a vague synopsis but that is quite fitting because it both describes and accompanies what appears to have been a rather vague city plan, for want of a better word, in the first place. Somehow NZ self describes the resort town as the St Moritz of the Sth Pacific. Wander round the township, it’s anything but and it’s a long long way to travel from say the Northern Hemisphere to find that out.
Yeah, I'm not even sure what to write about Queenstown these days. I live in Queenstown and the problems affect me to an extent but I can see the issues we have here aren't particularly relevant to wider New Zealand so aren't worth getting too worked up about. I think a lot of business owners are going to struggle for staff though that much is clear.
Tourism in NZ thrives on low-wage workers, not enough to pay through the high living costs in places such as QT. Not going philosophical in saying greed is the cause here, but simply the GVA per worker from tourism in NZ is 33% lower than the rest of the economy. So tourism operators generally speaking don’t make enough dough in the sector to cover exorbitant living costs of their staff.
Its the Labour Govt stupid law changes that has resulted in this problem. Those people with holiday houses can no longer rent them out, so the ski bunnies cant rent their houses out over summer, and the summer sunseekers cant rent them out over winter. Since Qtown has a very seasonal work force, taking a 6-8 month tenancy of an unused holiday home used to be perfect for seasonal workers who were mainly backpackers on working holiday visas, but the law change means that once rented for longer than 90 days you cannot get rid of the tenant. So thousands of holiday homes are forced to sit empty, except the ones that are upmarket enough to be put in the AirBnB pool. Fixed Term tenancies were important, Labour did away with them without ever bothering to think through all the consequences.
Just FYI, fixed term tenancies still exist, they weren't done away with. All that changed was landlords being able to kick tenants out in order to increase rent for the next lot with no cause.
There are plenty of short fixed-term tenancies in other holiday places - and holiday homes are not the panacea for local short-term employees you say they are, as the workers are required when the holiday homes are full, not when they are empty.
I think that has had some effect but you're probably overstating it.
This isn't a problem that is unique to Queenstown, look around the world and you will see this issue in similar locations all over the world. Aspen, Whistler, and even entire cities like Prague or Lisbon have similar problems. This issue seems to more stem from these being globally desirable places so you end up having remote workers move in and wealthy investors buying up all the property which effectively prices working-class people out of the market.
The problem is you actually need working-class people for these places to function which is where the problems come in.
Labour has changed the rules but they are rules that have been designed for the rest of the country, not an edge case like Queenstown. The rules aren't even that onerous compared to some that you would see in Europe and the States.
If people keep getting priced out of home ownership you can't be surprised when some regulatory pushback comes into play. Renters don't have any choice when it comes to securing housing, in contrast, landlords have more flexibility and can choose to sell their properties if they find the regulations to be overly restrictive.
Headline: House prices slide
Not really, for the first time in months, the median house price is up in NZ, more specifically 1.3% up over the previous month.
Of course, it doesn't stop the downward trend, but I thought it was important to be real and honest.
That same figure seasonally adjusted becomes -2.2% though. So yes, the first positive number in a while, but much less positive than we would normally expect for the month of March.
The REINZ numbers where -0.8% for all of NZ medium for the month, nothing positive about it.
Got a bit of a towelling yday when I posted about the Fed being bankrupt. If it were a private bank, it effectively would be.
Here's a great breakdown from the superb Lyn Alden on how the Fed went 'broke.'
"The U.S. Federal Reserve is now operating at a financial loss, and is months away from having negative tangible equity for the first time in modern history."
Why would you get a toweling for that...just facts? The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system - until it doesn't.
Why would you get a toweling for that...just facts?
Well, basically, central banks under the mighty Anglosphere wing of the Fed cannot 'go out of business.'
by Audaxes | 28th Aug 22, 12:35pm
As a sidenote, based on average Treasury yields at the various points that the Fed has expanded its balance sheet, we estimate that the Federal Reserve’s $9 trillion balance sheet is now underwater. If the Fed was an actual bank, and if banks marked their assets to market value, the Fed would be insolvent. Of course, the Fed doesn’t mark to market, nor have banks done so since the early-2009 market low, when the Financial Accounting Standards Board relaxed FAS Rule 157 (which is actually what ended the global financial crisis – by making bank insolvency opaque). In effect, the Fed has created liabilities for which there is now no corresponding asset, and now finds itself wandering into fiscal policy, which is the sole domain of Congress. Needless to say, nobody cares.
Even without capital losses (which can be recovered by holding the bonds to maturity), the Fed will also go underwater if the interest it pays on reserve balances exceeds the interest it earns on the bonds it purchased. In this case, the Fed can be expected to book any loss as a “deferred asset.” As Ben Bernanke explained before Congress years ago, when the Fed books a loss as an asset, “it is an asset in the sense that embodies a future economic benefit that will be realized as a reduction of future cash outflows.”
What Bernanke meant with that hand-waving gibberish is this: Fed normally returns the interest received on its asset holdings back to the Treasury, for the benefit of the public. If the Fed’s bond purchases lose money, that interest will instead be used to cover losses. See, “it is an asset in the sense that it embodies a future economic benefit [to the Fed] that will be realized as a reduction of future cash outflows [to the public].” Yay. Link -Hussman
Thanks very much for this reference. Will store in my arsenal.
Dairy auction prices down -35% pa, at a time of food inflation of +14% pa. Can someone please explain this to me?
I think you're dealing in wholesale prices from the farm with minimal processing.
Milk powder, butter fat and casein. Good luck eating those Yvil
Can you link the report -35%
-35% from a year ago
The link is the article above, lol
Wow I had no idea it was that big a move for WMP over a year, makes a bit of a mockery of China reopening unless they buying some where else?
China has its own farmers as we sent them live shipment breeding stock
China still opening up, the auctions will come right over the next year
Yeah but China buyers normally buy ahead, it does have a lead time and WMP can be stored..... serious issue here given no major downward NZD movement to compensate. No wonder all the sundry have been cutting the farm gate forecast for next year. Less earnings for current acc numbers as well. I wonder if recent weakness in NZD is international positioning for a leg lower , possible downgrade and confirmed recession.
Implies they see way less consumer demand, or are buying elsewhere, not sure what there alternatives are?
Probably running down stock levels as well. Nathan Penny from Westpac has put a higher milk payout on next year. If you dont know who he is you wont understand why I am quoting what he said.
I used to follow Con Williams more but he went private equity biz..... NP is ok but I think you will find ANZ may have the biggest book.
WMP been falling for a year, will not be all about stock levels, not many times its fallen that far without NZD adjustment lower in the past, can you remember a time?
Probably 2012
When interest rates drop there goes the dollar DOWN and the current account deficit UP
Look, I already solved this problem months ago. The way to make any food more appealing, including milk powder, is to chocolate coat it.
I don't even want royalties for the idea.
Future proof sales volumes by tipping some nicotine into it too. Trademark it Nicomilk.
Bank settlement balances at the RBNZ (on which the RBNZ pays interest at the OCR level) have slipped to $45.8 bln as at the end of March.
The bank settlement cash balance popped up to $57.745 bn, value 17/04/23.
The $16.195bn 5.5% 15/04/23 government bond issue was redeemed at par by Treasury.
Beat me to it, they've been preparing for that. Banks now getting $8m a day in interest (gross).
Nice coin while you can make it
by Audaxes | 7th Aug 22, 8:15am
Lowering the amount of QE would have also lowered the loss on those bond purchases (loss occurs by investing at a low interest rate, which the RBNZ did, and withdrawing your investment at a high interest rate).
But that was the plan - buy longer duration coupon securities from private bank portfolios and replace them with an inert zero duration OCR bearing security, hence transferring risk to the taxpayer - privatise the profits, socialise the losses.
A recent Bloomberg article described central bank easing with the phrase “pumping money into the economy.” That’s a misconception. Monetary easing is actually an asset swap. The public was holding savings in one form, and now it holds it in another. The Fed buys Treasury securities from the public, and replaces them with currency and bank reserves (base money) that someone has to hold, at every point in time, until the Fed sells its bonds and retires the cash. All monetary policy does is to change the mix of government obligations held by the public. Only fiscal policy – specifically deficit spending – changes the total amount of those obligations. - courtesy of Hussman
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