What happened Friday

Business / news

A review of things you need to know before you sign off on Friday; many rate changes, sellers struggle with lower buyer sights, big reduction in mortgage demand, lower tractor sales, swaps slip, NZD softish, & more

21st 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
There are lots of changes being pushed through ahead of the defacto long weekend. Heartland raised its reverse mortgage rate by +50 bps to 9.50%. Simplicity raised its floating rate by +25 bps to 6.10%. First Credit Union, the Police Credit Union and the Bank of Baroda all also raised floating rates. HSBC raised its floating rate by +40 bps to 8.34% and its fixed rates for all terms. TSB raised its floating rate by +44 bps to 8.39%, and fixed rates for terms 6 through 18 months. Kiwibank has raised fixed home loan rates for terms to 2 years, and cut them for longer terms.

TERM DEPOSIT/SAVINGS RATE CHANGES
TSB and HSBC raised term deposit rates today in conjunction with their mortgage rates. Kiwibank did too, raising its six month rate to 5.30% and its 1 year rate to 5.75%.

BUYER & SELLER VIEWS DIVERGE SHARPLY
The gap between asking prices and selling prices has increased from $8861 in March 2021 to $108,823 last month, according to a new data comparison involving REINZ and realestate.co.nz figures.

LOAN DEMAND DOWN ON TIGHTER ASSESSMENTS
The latest Credit Conditions Survey (C60) shows banks reported another strong reduction in demand for mortgage credit over the past six months. Soft demand was the result of higher interest rates, perception that house price will fall further, and uncertainty around the outlook for economic activity. Mortgage credit availability had not significantly changed, but internal serviceability assessments remain tight due to previous increases in test mortgage rates. Banks expect demand for household loans to continue to decline over the coming months. The same survey showed that banks are using higher assessment rates than seen in recent years. Banks have been willing to accommodate requests for conversion from Principal and Interest to Interest Only, to provide relief to customers facing rising debt servicing costs and living costs.

COMPENSATION BUNDLING
New survey research by the Retirement Commission shows that nearly half of employers use a total remuneration approach to KiwiSaver for at least some employees. A quarter of employers always include employer KiwiSaver contributions as part of total remuneration. A further 20% of employers adopt both approaches, paying some employees earnings plus KiwiSaver, and paying other employees earnings that include KiwiSaver. Sixty per cent of respondents cited the reason they use a total remuneration approach was because it was simpler from an accounting perspective and 21% admit it’s cheaper for their business. Clearly, new employees should check what system a prospective employer uses. (The law allows compensation bundling in this way.)

HAVE THEY REALLY THOUGHT THIS THROUGH?
First Union, the union for a small portion of bank workers, is complaining their members aren't getting pay increases at the same rate as bank profits are increasing. But it is an odd argument to make given they didn't offer to take pay cuts in the 2008-2013 period when bank profits were falling, nor in the 2018-2021 when they dived sharply as well. Profit-sharing arguments can't really be separated from loss-sharing if they are to be credible. But First Union is also promoting a new 'excess profits taxes' campaign on banks. If that campaign is successful and dampens bank profits, it is hard to see them accepting an argument that pay rises should also then be limited.

VALUE VS VALUES
The latest edition if ResearchIP's RIPPL Sluice includes a look at the difference between "ethical" investing and ESG investing. ’Ethical’ has an implication of right and wrong, of morality, and involving 'values' judgment. ‘Value’, on the other hand, is a financial idea - make better returns, and maybe reduce risk. They’re not mutually exclusive concepts, there’s actually huge overlap between the two. More here.

TRACTOR PULL-BACK
One indication things are tougher in farming is that tractor sales are weak. After the rebound post-pandemic, tractor sales levels have settle back yo below 2019 levels. There were 197 new tractors sold in March 2023, the second lowest for a march in a decade (if you exclude March 2020).

TIER 2 COST +120 BPS MORE
Heartland Bank has set the interest rate for the first 5 years of its $100 mln unsecured subordinated bond issue at 7.51% pa. This equals the Issue Margin (3.20% per annum) plus the Swap Rate. The were seeking up to $125 mln. These bonds are being treated as Tier 2 Capital and are rated below investment grade. For reference, Heartland offers term deposit investors 5.30% for five years but the TDs will rank ahead of the subordinated bonds.

EL NINO COMING
The El Niño Southern Oscillation (ENSO) is currently neutral (neither La Niña nor El Niño). Oceanic and atmospheric indicators for the tropical Pacific Ocean are at neutral ENSO levels. However, there are some signs El Niño may form later in the year with a 50% chance of El Niño later in 2023. That may indicate eastern areas will be drier or suffer drought.

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SWAP RATES WEAKER
Wholesale swap rates are probably lower today on the CPI result, probably by about another -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 up + bps at 5.56% and 31 bps above the OCR. The Australian 10 year bond yield is now at 3.48% and down -4 bps 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 4.19%, and that is down another -8 bps from yesterday, now similar to the the earlier RBNZ fix at 4.18% which is down -9 bps. The UST 10 year yield is now at 3.53% and down -7 bps from yesterday.

EQUITIES STILL DIRECTIONLESS
The S&P500 ended its Thursday session down -0.6%. Tokyo opened little-changed today. Hong Kong has started its Friday session down -0.5%. Shanghai is down another -0.6% in another weak start at its open. The ASX200 is down -0.3% in afternoon trade but the NZX50 is unchanged late in its session and looks like it will end the week unchanged as well.

GOLD FIRMISH
In early Asian trade, gold is firmer from this time yesterday, up +US$9/oz at US$2003/oz. It closed earlier in New York at US$2005/oz and in London at US$2007/oz.

NZD DOWN SLIGHTLY
The Kiwi dollar remains at 61.6 USc with little-change from yesterday. Against the Aussie we are softish at 91.7 AUc. And against the euro we are dholding at 56.2 euro cents. That means the TWI-5 is still at 69.2. A week ago it was at 69.8, so a -60 bps fall or -0.8% slip

BITCOIN DIPS FURTHER
The bitcoin price has fallen further after yesterday's dip, now at US$28,229 and down -2.2% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.9%.

ANZAC DAY
Readers outside New Zealand should know that ANZAC Day is on Tuesday, April 25, a full public holiday. But you may find some businesses thinly staffed on Monday. We will be publishing normally however.

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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40 Comments

by quattroporte | 21st Apr 23, 4:46pm 1682052403

Reverse mortgage rates as scary! All the family members rubbing their hands together after grannie kicks the bucket in her quarter acre Epsom home will get a shock when Heartland sends the bill

by bw | 21st Apr 23, 5:00pm 1682053243

No bill.

Heartland just takes what they are owed from the sale price when the estate is settled. At age 60, the most Grannie could have taken was 20% of the then value.

by IT GUY | 21st Apr 23, 5:03pm 1682053424

Property halves every 10 years.... Be Quick !

by Juzz | 21st Apr 23, 5:12pm 1682053964

I thought it was 3? I guess we'll soon find out

by printer8 | 21st Apr 23, 5:26pm 1682054771

Agreed Quattroporte.

Actually, Grannie’s home is likely in for a double whammy - both reverse mortgage and also residential care costs are likely to reduce the inheritance to $256,000 threshold . . . and how many ways is that going to be split?

For many beneficiaries they won’t be getting a life changing inheritance.”

by Foxglove. | 21st Apr 23, 7:35pm 1682062535

No but at least they will have been paying their own such costs for themselves. Unlike those who never saved, had no assets, and acquired themselves of tax payers care for nothing, right from the start.

by Prickle | 21st Apr 23, 9:01pm 1682067706

Granny would have been better to have spent her money, sharing with needy relatives, going on cruises, getting every home comfort, brand new BMW. Then, nothing left, govt would have supported her in her rest home rather than taking the lot [apart from the 250,000].

by RickStrauss | 21st Apr 23, 11:32pm 1682076762

Or the entitled folk who used to use a trust to hide their wealth so as to have other taxpayers pay, before that loophole was closed.

by Justa comment | 21st Apr 23, 5:00pm 1682053221

Looks like the banks are closing the door the the optimistic who want to float, unless they can afford to pay 8.5% or more. On the other side, the 4 and 5 year TDs pulling back across the board, sliding under 5% in some cases. Maybe grab that ASB 5 yr 5.25% while you can?

by HSL | 21st Apr 23, 5:57pm 1682056621

I wonder how many loans roll over per month currently. It would be interesting to know if it’s relatively even or a larger number towards the end of the year. It must be a worry for allot of people.

by JohnfromtheTron | 21st Apr 23, 8:12pm 1682064724

Friend is breaking out next month. He spoke to the bank last week and the payments will be going up $1100... a fortnight!!!

by Rob Reid | 21st Apr 23, 8:33pm 1682066000

Wow. I am on a reasonable salary, but even +$500/fortnight would put me on the edge, and I'd fall off when the car needed tyres.

Surely there will be a cry to subsidise house owners soon?

by HW2 | 21st Apr 23, 8:47pm 1682066875

Two incomes, servicing an extra 550 per week.

These people have had it good, they have known what is coming and had time to prepare by putting extra aside.

by IT GUY | 21st Apr 23, 9:27pm 1682069238

Thats what we have been trying to point out to you for a while now hw1.5 many have had the warnings, many have had the time to prepare, but due to human nature they have not done so.

by HW2 | 21st Apr 23, 9:38pm 1682069919

Just because a few people have been stroking your ego, does not mean you have to basically repeat what I said. They going from a super sweet deal. Its like when govt depts adjusted their charges every ten or twenty years and the media cried foul that it was a big jump.

by DollarsandSense | 22nd Apr 23, 8:19am 1682108386

To determine accurately the volumes of loans maturing and the likely duration they will be rolled you don't need a deep data dive. You only need to watch what banks are doing with their fixed mortgage rates. Recent increases in the 1 & 2 year mortgage rates demonstrate banks have maturities coming up and expect customers to roll 1-2 years or if they are really lucky 3-5 where the easy and large margins are relative to interest rate swap rates.

by Yvil | 21st Apr 23, 8:18pm 1682065114

Banks have been willing to accommodate requests for conversion from Principal and Interest to Interest Only, to provide relief to customers facing rising debt servicing costs and living costs

An early, indirect sign that banks are concerned about some customers' ability to service their mortgage. A dangerous game for banks to play at a time when the collateral (property values) declines, and the mortgagor could well end up in negative equity. If/when this happens, at what point does the bank come to the conclusion: "no more capital losses, we need to pull the pin and force a mortgagee sale".

by IT GUY | 21st Apr 23, 5:10pm 1682053825

When you go into arrears as a owner occupier..... Or you are an investor with enough debt you fall into commercial lending, then they can have the "Difficult Conversations" that are necessary to protect the bank. Hint in case 2 you do not have to fall into arrears..... lots of Investors are having a Scooby Doo Ruh Roo moment.

by Yvil | 21st Apr 23, 5:18pm 1682054330

Nice, meaningless word salad.

by nigelh | 21st Apr 23, 5:32pm 1682055123

IT GUY usually has interesting readable comments. Perhaps this one is drinkie-poo friday

by Averageman | 21st Apr 23, 6:47pm 1682059632

At what point do banks do that is indeed the question. Happened in 1987 as a result of assets being massively overvalued and unsupported by income.

Sound familiar...

by NZGecko | 21st Apr 23, 7:07pm 1682060847

Are the exposed banks (ALL THE NZ/AU ones) better to bundle up the weak, overleveraged antelopes with more and more drugs (money noose) ......or shoot them to end everyone's pain!

by Jean Valjean | 21st Apr 23, 5:13pm 1682054034

Across the ditch "...ACCC launches probe into bank savings rates"

"While banks have generally increased variable rate home loans interest rates in line with the cash rate increases, increases to the savings interest rates that banks pay their customers have often been smaller or conditional."

Sounds familiar.

https://www.abc.net.au/news/2023-04-21/asx-markets-business-live-news-a…

by HW2 | 21st Apr 23, 5:14pm 1682054041

BUYER & SELLER VIEWS DIVERGE SHARPLY

The gap between asking prices and selling prices has increased from $8861 in March 2021 to $108,823 last month, according to a new data comparison involving REINZ and realestate.co.nz figures.

Good stat please keep publishing

Wide spreads are common at bottoms of markets

by IT GUY | 21st Apr 23, 6:09pm 1682057350

BS ALERT - Wide spreads are common at bottoms of markets

by IT GUY | 21st Apr 23, 6:25pm 1682058331

Me: in market pricing, are wide spreads common? and when do they most appear?

ChatGPT: Wide spreads in market pricing are relatively common in markets with low liquidity, high volatility, or in markets where there is a lack of information.

A spread refers to the difference between the bid and ask prices for a security, and a wide spread means that the difference between the two prices is relatively large. In a market with a wide spread, buyers will have to pay a higher price to purchase a security, and sellers will receive a lower price when selling it.

Wide spreads can appear in different situations, such as during times of market stress or high volatility when there is a rush of buying or selling activity. In addition, some financial instruments or securities may have wider spreads due to the lack of information or the complexity of the security.

However, in liquid and efficient markets, spreads tend to be narrower due to the high volume of trades and the presence of many buyers and sellers. As a result, prices are more transparent, and investors can more easily buy or sell securities at fair market prices.

Overall, wide spreads can indicate a lack of liquidity or market inefficiencies, and they can have an impact on the profitability of trading strategies that rely on buying and selling securities quickly.

by IT GUY | 21st Apr 23, 6:29pm 1682058540

Me: what is the accumulation phase of a market cycle

ChatCPT: The accumulation phase of a market cycle is the period when investors start to accumulate assets or securities after a prolonged period of price decline or consolidation. This phase usually occurs after a bear market or a period of extended price consolidation, and it's characterized by a slow and steady increase in buying activity.

During the accumulation phase, investors who have been waiting for the market to bottom out start to purchase securities or assets that they believe are undervalued. This buying activity can lead to a gradual increase in prices as the demand for the securities or assets increases.

The accumulation phase is typically followed by the markup phase, which is a more rapid increase in prices as the market gains momentum and more investors become interested in buying securities. This phase is often driven by positive news and investor sentiment, and it can continue until prices reach their peak.

Overall, the accumulation phase is an important part of the market cycle, as it sets the foundation for the next bull market. It provides opportunities for long-term investors to accumulate assets at lower prices before the market enters into a sustained uptrend.

by IT GUY | 21st Apr 23, 6:36pm 1682059014

The AI seems to understand investment better then you HW2, you have been bleating about buying all the way down so far,,,, Even the Comb says investors are not active but you are just spruiking ya guts outs...... hold on we are not at the bottom yet

by titans1350 | 21st Apr 23, 6:37pm 1682059072

IT GUY has definitely had a few rumbos and now is spending the evening chatting to ChatGPT.

by Shaft | 21st Apr 23, 7:31pm 1682062305

by Shaft | 21st Apr 23, 7:32pm 1682062356

FbW

by Averageman | 21st Apr 23, 9:41pm 1682070116

What about markets that dont buy and sell quickly, especially when the banks have pulled the rug out from buyers. A rug pull that is showing a greater and greater gap every day.

Sound familiar...

by HW2 | 21st Apr 23, 7:00pm 1682060437

4 responses from the IT expert and its only 7 pm

by NZGecko | 21st Apr 23, 7:14pm 1682061246

Ok enough trolling the IT guru....often gives useful nuggets.

Should we have bought yesterday, today or tomorrow?? Or best to wait for the end of the next 24 months of a likely further

25% drop?

by HW2 | 21st Apr 23, 7:22pm 1682061736

by NZGecko | 21st Apr 23, 7:51pm 1682063488

WWWWellgood. Thanks.

by Shaft | 21st Apr 23, 7:30pm 1682062218

by IT GUY | 21st Apr 23, 8:03pm 1682064218

Are u shafting HW or is HW shafting you....... not that i am judgemental in this woke age, seems to me you may both have your ego in your hand by all the W king going on and you all started this because I suggested that wide spreads where not a sign of a bottom in a functional market, why don't you guys provide some evidence that inefficient price discovery signals a bottom in price.....

by Frank Sobotka | 21st Apr 23, 8:27pm 1682065630

Agree it’s a good stat but not because it’s at bottom of market.

Per Bruce Dickinson

A tide of change is coming and that is what you fear

The earthquake is a coming, but you don't want to hear

You're just too blind to see

Have you seen the writing on the wall?

Have you seen that writing?

Can you see the riders on the storm?

Can you see them riding?

Can you see them riding, riding next to you?

by HW2 | 21st Apr 23, 8:39pm 1682066384

Volatility is a measure of price-change during a specified amount of time. When markets are volatile, this means that prices are changing fast in a short period of time. On the other hand, non-volatile markets refer to markets where prices change very slowly or remain totally unchanged

This thread has been volatile tonight. Hummmm