What happened Thursday

Business / news

A review of things you need to know before you sign off on Thursday; inflation cools sort of, realtor commission income sinks, NZGBs popular, inflation compounds house price falls, swaps lower, NZD lower, & more

20th Apr 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
None here today.

TERM DEPOSIT/SAVINGS RATE CHANGES
The Cooperative Bank raised term deposit rates today.

'RELATIVELY GOOD. ASOLUTELY BAD'
Annual inflation cooled to 6.7% in the March quarter, after months of highs above 7% in a result that surprised analysts. Petrol prices fell but domestic prices continued to climb. In fact, non-tradeable inflation was up +1.7% in Q1-2023 from Q4-2022 which was the second fastest raise since Q4-2010. That is fast and will worry the RBNZ. In fact, ANZ analysts noted: "annual non-tradables inflation is at a record high! So despite the weaker non-tradables starting point and weaker headline, we don’t think the sound of corks popping will be resonating through the RBNZ’s offices tonight."

AGENT COMMISSION INCOME SINKS
The residential property slump means that real estate agencies' commission revenue has almost halved over the last two years. Total residential real estate commissions in Auckland down by -58% compared to two years ago.

A FLOOD OF DEMAND BUT AT HIGHER YIELDS
The latest NZ Government Bond tender was a heady success. $400 mln was offered in three tranches which attracted more than $1.6 bln in offers. But despite that demand, yields rose. The May 2025 $200 mln went for a yield of 4.38%, up from 4.27% two weeks earlier. The May 2034 $150 mln went for 4.27% and up from 4.02% two weeks earlier. And the May 2041 $50 mln saw its yield rise from 4.21% two weeks ago to 4.45% today.

INFLATION-ADJUSTING HOUSE PRICE CHANGES
Now that we have the March CPI, we can work out the inflation impact on house prices over the past year. The NZ median house price was $775,000 in March 2023. In March 2022 it was $890,000, so that is a -12.9% fall over the year. But the inflation-adjusted price in March 2023 prices would have been $904,800 for March 2022, so that is a -14.3% fall in a year after inflation. On the same basis, Auckland house prices fell -16.6% in nominal terms ti $1,000,600. But they are down -21.8% when you apply the annual inflation adjustment. (From the peak November 2021 nominal house prices, Auckland is down more than -28%.) On the way down, high inflation hurts more than on the way up.

CATCHING UP
In Australia, their central bank is being 'reformed' in a way that will make it much more like the RBNZ (and many other central banks). Governor Lowe will become part of a wider group to decide the policy changes. They will give up their monthly review schedule to be less frequent. And the governing board will be a separate administrative entity. The RBA will also coordinate more with the Australian Treasury. For NZ readers, this all seems tame, 'normal', and mirroring changes we made a few years ago. But it is a big deal in Australia.

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SWAP RATES WEAKER
Wholesale swap rates are probably lower today on the CPI result, probably by about -5 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 -2 bps at 5.54% and 29 bps above the OCR. The Australian 10 year bond yield is now at 3.52% and unchanged from this time yesterday. The China 10 year bond rate is unchanged at 2.85%. And the NZ Government 10 year bond rate is now at 4.27%, and that is down -7 bps from yesterday, now the same as the the earlier RBNZ fix at 4.27% which is down -2 bps. The UST 10 year yield is now at 3.60% and up a mere +1 bp from yesterday.

EQUITIES STILL DIRECTIONLESS
The S&P500 ended its Wednesday session unchanged again in another lackluster session. Tokyo opened lower today but is recovering and currently up +0.1%. Hong Kong has started its Thursday session also little-changed. Shanghai is down another -0.6% in a weak start at its open. The ASX200 is unchanged in afternoon trade but the NZX50 is down -0.3% late in its session.

GOLD SOFT
In early Asian trade, gold is softer from this time yesterday, down -US$11/oz at US$1994/oz. It closed earlier in New York at US$1995/oz and in London at US$1991/oz.

NZD DOWN
The Kiwi dollar fell from 62 USc before the CPI release to 61.6 USc after which in the circumstances is a pretty mild adjustment given the retreating inflation track. Against the Aussie we are softish at 91.9 AUc. And against the euro we are down slightly tp 56.2 euro cents. That means the TWI-5 is down to 69.4 with a -40 bps retreat.

BITCOIN SINKS
The bitcoin price has fallen after yesterday's rise, now at US$28,867 and down -4.5% from this time yesterday. Volatility over the past 24 hours 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

This soil moisture chart is animated here.

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51 Comments

by Beanie | 20th Apr 23, 4:09pm 1681963749

More ferry cancelations...staff illness they say. Are the trying to go out of business on purpose?

It reminds me of the time when long serving staff were deliberately scuttling their freezing works so they would get huge redundancy payouts. They didn't give a stuff about the younger staff with families and mortgages.

by tomjones_04 | 20th Apr 23, 4:07pm 1681963656

Ooohh. Inflation adjusted Auckland down 28%... a few on here would have called you crazy if you had said that at the peak

by HW2 | 20th Apr 23, 4:22pm 1681964547

I dont see the point of adding and subtracting inflation from asset values. It applies to all assets equally. Give real int/div returns yes, as it shows you whether it's better to save or spend

The article is subtle trolling imo, pushing buttons and designed to stoke comment

"On the way down, high inflation hurts more than on the way up." Well yeah

by tomjones_04 | 20th Apr 23, 5:01pm 1681966887

We used to use way better descriptive words before 'troll' came along. This article would have been inflammatory or manipulative. 'Woke' is another one. I must be getting old

by Dgm | 20th Apr 23, 5:03pm 1681966998

I understand mathematics could be hard for some, especially when it suits

by HW2 | 20th Apr 23, 5:33pm 1681968803

I had someone tell me they are getting 6pct interest rates and "getting my principle investment back is a given". Lol no account of inflation. Also what he really means is principal

Inflation eats cash balances faster than real assets via noticeably reduced spending power on goods and services. The exception being if saving for a house, the deposit goes further.

by mikekirk29 | 21st Apr 23, 4:48am 1682009327

I did

And they did, for years

my forecast peak to trough is 40% when inflation is factored in

by J.C. | 20th Apr 23, 4:16pm 1681964215

The residential property slump means that real estate agencies' commission revenue has almost halved over the last two years.

Some of the glee projected towards the fall in REA's earning potential is awful. I think it's little more than envy towards those involved in the industry.

by Baywatch | 20th Apr 23, 4:41pm 1681965675

No no ..its glee, I know of one chap with commission of $1 million profit last year...now down to $200k. Bus drivers are more skillful than a typical RE agent.

by J.C. | 20th Apr 23, 5:06pm 1681967203

Coffee is for closers. No doubt about that.

by IT GUY | 20th Apr 23, 7:12pm 1681974720

Some truth to this, some of the best spruikers used to be timeshare salesmen on the Gold Coast

by Hastings | 20th Apr 23, 5:53pm 1681969982

Agreed. Arguably the most useless and parasitic ticket clippers we could come up with. A decent downturn should erase many like the effect a good flea treatment for a stray dog.

by mfd | 20th Apr 23, 6:33pm 1681972436

Those of us who arrive in NZ from certain other countries find the REA setup here incredible. I sold a home in the UK recently for about 0.8% all in, professionally handled, I wasn't even in the country. Why does it cost so much more here?

Nothing against them as people necessarily, although they obviously have their own incentives and biases that aren't always aligned with mine. But the industry seems to be incredibly inefficient with as much effort put into advertising themselves as into selling.

by HW2 | 20th Apr 23, 6:49pm 1681973378

Thats a good question that many have asked. Yet do you see much viable new competition, mike pero is one. Or do you see people saving 20k and selling privately, hardly ever

by IT GUY | 20th Apr 23, 7:13pm 1681974823

20k....... maybe in gore old man

by mfd | 20th Apr 23, 9:43pm 1681983804

Yes I don't really have an answer. It looks to me like getting to a place where there are half as many agents, selling twice as many houses each for half the price, would be a much better industry setup and less of a drag on productive society.

I almost bought a house through total realty who I think charge 1.25%. They do a few open homes, then run a deadline sale. Simple and effective - the house sold for more than expected and we missed out. I don't know why people willingly pay two or three times as much for the same service.

by lonewolfnz | 20th Apr 23, 4:21pm 1681964476

Remember when Doge coin, Shiba Floki and dog coins were making insane returns in 21?

2 years later (when funny enough bitcoin is at the same price) now apparently its Frog coins.

A few people appear to have invested $5000 or so and 5 days later that is worth millions.

And yes I got a little bit just in case.

by J.C. | 20th Apr 23, 4:23pm 1681964589

You know well Wolfie. The fortunes are made where people from places where people least expect.

by Beanie | 20th Apr 23, 4:29pm 1681964943

Fortunes aren't made in crypto, they are transferred.

by J.C. | 20th Apr 23, 6:06pm 1681970761

Fortunes aren't made in crypto, they are transferred.

I hope that's not envy. Like directed at the poor REAs.

by Zachary Smith | 20th Apr 23, 6:38pm 1681972704

Beanie makes a good point though.

by J.C. | 20th Apr 23, 4:24pm 1681964669

The Head of NY Department of Financial Services has testified to Congress that crypto had nothing to do with with Signature Bank's collapse. Contrary to what the SEC tried to insinuate the other day. NYDFS shut SB down.

It's getting interesting.

New York regulators are poised to set the benchmark for crypto firms in the U.S. and worldwide with its licensing regime that the crypto industry covets and loathes for its attainability.

Superintendent Adrienne Harris took the helm of the state's Department of Financial Services in January 2022, and has since expanded on the regulator's unique oversight over digital assets.

https://www.axios.com/2023/04/06/crypto-nydfs-harris-bitlicense

by Harvey W | 20th Apr 23, 4:48pm 1681966109

Inflation has topped. One more 25 point rise in the cash rate (but they shouldn't), then a National govt elected in October, then house prices slowly rising again before the end of the year, time to buy is now...

by Baywatch | 20th Apr 23, 4:53pm 1681966408

"Inflation has topped" 1 mark out of 4 - please do your homework tonight

by IT GUY | 20th Apr 23, 4:57pm 1681966672

You should multi all those bets with the Warriors winning the NRL

This is our Year !

by HW2 | 21st Apr 23, 8:05am 1682021116

Yes yes and yes

by Yvil | 20th Apr 23, 5:25pm 1681968306

Possibly a bit off topic but in relation to cost of food.

I'm at the Motel and a lady just came over in a minivan full of veggies and milk to give away. She comes most weeks and she can't find anyone to give this free food away to, that's why she's offering it to us. Of course I gladly distribute it to the guests but I don't understand why she can't give the food away, which is in perfect condition (milk good until 22/04) and veggies in good condition and slaw and carrots all nicely packed up. We couldn't take it all, because there's so much, so she said, well I can give it to the local farmer for his horses and pigs...

How is this possible, when we continuously talk about food being too expensive?

by Rhumline | 20th Apr 23, 8:06pm 1681977997

I guess its about the supply chain. How do you reach people in real need? Only through people who are already so stretched that they can't put your food in touch with those who need it most. Poverty has many layers. Those who try to combat poverty have many pressures (and objectives). The lesson I guess is don't let good food go to waster... but make sure that food is also attached to a pathway designed to reduce handouts?

For all those who think its an easy answer....

by Rob Reid | 20th Apr 23, 9:08pm 1681981733

"veggies in good condition and slaw and carrots all nicely packed up"

I wonder if that is the problem - none of that sounds remotely like KFC

by The Black Swan | 20th Apr 23, 5:00pm 1681966843

NZD down 1% against the USD today, 0.7% against the AUD. Next wave of imported inflation commences today as the currency weakens. Nasty stagflation ahead...

by J.C. | 20th Apr 23, 5:11pm 1681967464

Low growth + high inflation + property market crash

The DGM trifecta

by Yvil | 20th Apr 23, 5:32pm 1681968731

In a very weird post, we learned today that :

by ex agent | 20th Apr 23, 1:22pm

I would be embarrassed to say I was an agent.

by tomjones_04 | 20th Apr 23, 5:36pm 1681968999

Hahaha

by Jonny.Foe | 20th Apr 23, 5:44pm 1681969465

ANZ analysts noted: "annual non-tradables inflation is at a record high!

Sadly, they didn't note that the main reason for this 'high' is that quarter one of every year sees the annual increase in tax on cigarettes and tobacco... and it is inflation linked!!!

They also omitted to note that the method used to separate out tradables (imported) and non-tradables (domestic) inflation is completely worthless. It was put together in 2003. We have had 20 years of globalisation since then and our prices have become almost completely dependent on global markets (even the domestic price of our exported goods).

For example, would you say that the price of a restaurant meal might depend just a bit on the price of imported food? No, don't be stupid say Stats NZ, restaurant prices are 100% dependent on domestic factors. What about food grown here - could the price of imported fertilisers, diesel, or plastics be relevant? Nope, don't be silly... you get the picture.

Even RBNZ noted in their last MPC report that domestic prices have increasingly correlated with imported prices in the last ten years. They are now basically in lockstep. But, never mind, hike the rates, keep the faith, and as imported prices come down, and our CPI subsides (with everyone else's) help RBNZ celebrate the win for medieval monetarism.

by jt_nzl | 20th Apr 23, 6:32pm 1681972366

https://imgur.com/0Qjlozo

I've linked a chart that breaks down the ~100 classes within the CPI into categories that are more in line with what the U.S., U.K. etc. use. Each country has a slightly different recipe but our tradeables/non-tradeables distinction seems like an outlier.

Anyway, what this different slicing appears to show is 1) today's print is very encouraging - a clear disinflationary trend emerging, particularly in core inflation and 2) the recent headline values are dominated(!) by food (and tobacco, for the reasons stated in your comment). Housing and energy/transportation were a big part of the story last year, but have been trending down and now look close to the pre-pandemic pattern.

Between this, the declining YoY growth in filled jobs, and an apparent bottoming of the unemployment rate, I think a compelling case can be made that the economy has been slowly cooling for about a year. The real question is where it will all settle - sluggish below-trend growth or an outright recession?

by Retired-Poppy | 20th Apr 23, 6:06pm 1681970795

by HW2 | 20th Apr 23, 4:22pm

"I dont see the point of adding and subtracting inflation from asset values"

Of course you don't. Thankfully and for the sake of transparency, people way more qualified than you do. Its a disturbing reality that existing debt is rising against the sinking value of asset security. It will be near impossible for the leverage types of yesteryear to purchase the bargains of tomorrow - equity vanished. Not such a pretty picture on the downswing. Cash is once again becoming King :)

by Averageman | 20th Apr 23, 6:13pm 1681971198

Finally. Kaaaark.....

by J.C. | 20th Apr 23, 6:34pm 1681972465

Saying that "houses have fallen xx% in 'real terms'" is a cop out IMO.

by Retired-Poppy | 20th Apr 23, 7:15pm 1681974948

....and interest is being paid on this debt. Rental returns are lagging inflation and there is the fazing out of interest deductibility. From an investment perspective, this is not a great place to be right now. Looking forward, those who lose least will remain well financed to buy up distressed assets from those who over indulged.

by blobbles | 20th Apr 23, 7:36pm 1681976173

Why? An asset is what it is worth, is it not? And it's worth is essentially a comparison against current value of money. Inflation means yesterdays dollar is worth more than today.

For years spruikers have been saying "but you wouldn't be upset about having bought a house in the year 2000 because its gone up in value by $XXX". That value amount is expressed in the current value of money. Unless you want to reduce inflation amounts and express the value in year 2000 real values? Spruikers don't, because they want that number to be as big as possible to make them seem as "wise" as possible.

But they aren't wise, they were just born at a time when every central bank went money printing mad and decided asset price inflation both doesn't factor into inflation and doesn't cause a problem. Now those same people are shown to be idiots as the money is repriced to sensible levels.

by J.C. | 20th Apr 23, 8:24pm 1681979050

Adjusting prices for CPI growth is wrong-headed because it doesn't properly account for income growth. It's somehow used as a proxy for h'hold income and financial capacity. And as we know, income growth lags CPI and asset price growth.

'Real house price un-growth' is also used to trick the sheeple. For ex, fancy pants bank economists will come out with silly statements like 'we expect house prices to fall xx% in 'real terms'". What a load of nonsense. Most people pay no attention to "real prices". It's ephemeral. They're concerned about nominal prices. Sticker prices.

by IT GUY | 20th Apr 23, 7:33pm 1681975982

Investors have been absent from the market for some time, even the rough haired one, knows he cannot bullsh&^ the bullsh&^ers. there is no way in hell at the moment that you can possibly make a property cash flow positive..... and the market is falling like A ROCK. OK I am sure a 20bed halfway house, half way down dominion road may go cash flow positive but there is also a chance you could get stabbed managing it...... record low sales, record gap between Wasting everyones time Asking Prices and Wasting everyones time Offers.... Agents on the bones of their Ass , The best spruik HW2 can offer today is that FHBers have moved from 22% to 25% of buyers in the last 3 MONTHS. while sales are the LOWEST in 12 years (before population adjustment makes it ever WORSE). OK can anyone else see that really bad things could happen over the next 6 months? I am pretty cashed up, if I thought for a moment I could pull a few mil out of this setup i would be in before HW2 got out of bed to spruik the news..... but to me this looks bad and getting worse

by Averageman | 20th Apr 23, 7:50pm 1681977008

Agreed. It's a long way back to the math stacking up, made increasingly worse by every OCR update. Perhaps min wages will go to 100k and everything will be alright. Tui.

by Nifty1 | 20th Apr 23, 7:56pm 1681977380

there is no way in hell at the moment that you can possibly make a property cash flow positive

How about this ITGUY https://fb.watch/k0G2YnUY9V/?mibextid=Nif5oz Maybe you could sign up to his cashflow classes for some tips?

by HouseMouse | 20th Apr 23, 7:37pm 1681976265

NZ isn’t the only country posting massive trade deficits:

https://www.japantimes.co.jp/news/2023/04/20/business/economy-business/…

by Advisor | 20th Apr 23, 8:25pm 1681979140

Japan is still posting current account surpluses albeit smaller ones. Their businesses are likely still doing alright using offshore operations and repatriating financial gains into Japan. Their structural issues and declining workforce could be a key reason for this.

We on the other hand in NZ are incurring deficits on both our trade and current accounts.

by kiwikidsnz | 20th Apr 23, 7:49pm 1681976960

It must be election year...

All of a sudden, a capital gains tax is back on the political agenda | Stuff.co.nz

by Rob Reid | 20th Apr 23, 9:15pm 1681982154

It's actually quite a good time to sell a CGT. Any resistance will evaporate if they tell everyone they can get a tax deduction for their realised losses.

by Squishy | 20th Apr 23, 8:01pm 1681977718

In fact, non-tradeable inflation was up +1.7% in Q1-2023 from Q4-2022 which was the second fastest raise since Q4-2010. That is fast and will worry the RBNZ.

As your columnist, Keith Woodford, notes in his article two years ago "Inflation is not benign" non-tradable inflation often runs ahead of tradable inflation:

...for the 20-year period from Q4 (quarter 4) of 2000 through to Q4 of 2020, the prices of non-tradables increased by 84 percent whereas tradables increased by only 49 percent.

Over a ten-year period from Q4 2010, the non-tradables increased in price by 29 percent whereas the tradables increased by only 14 percent.

Over a five-year period from 2015, the non-tradable inflation totalled 14.2% whereas tradable inflation totalled 0.1% - effectively a big zero.

We get into big trouble when we start importing inflation which is why inflation doves and hawkers alike should be watching the Kiwi and international energy/commodity markets.

by bw | 20th Apr 23, 8:18pm 1681978689

Thanks for the reminder. Oh, and yes.

by WellingtonInvestor | 20th Apr 23, 11:50pm 1681991400

Coops new TD rates still appear to be below the big banks. . Not sure why I wouldn't go with a big bank instead.