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
China Construction Bank made the merest of tweaks to fixed rates, moving its six-month and one-year rates up 16 basis points and the 18-month and two-year up by 10 bps. The rates now range from 6.76% (for six months) down to 6.55% for two years.
TERM DEPOSIT/SAVINGS RATE CHANGES
No changes on Wednesday.
TRADING OUR WAY TO A $1.3 BILLION MARCH TRADE DEFICIT
Exports are rising but imports are rising faster, and the latest overseas merchandise trade figures from Stats NZ for March show that the deficit between what we exported and what we imported hit a record high for a March of $1.3 billion. That was up from a $593 million deficit in March 2022. Stats NZ said in the month goods exports rose $40 million compared with March a year ago (0.6%), to $6.5 billion, but good imports rose $719 million (10%) compared with March 2022, to $7.8 billion. The ending of oil refining in NZ is continuing to have a big impact on the figures, with petroleum and related products imports up some 99% compared with March 2022 to $1.3 billion.
ANZ'S TRUCKOMETER SUGGESTS A SLIGHT LIFT FOR THE ECONOMY
ANZ economists' reading of the latest traffic freight data is suggesting a small lift in economic activity in the first quarter of this year. According to ANZ NZ's March Truckometer the Light Traffic Index rose 4.6%, while the Heavy Traffic Index lifted 2.7%. Chief economist Sharon Zollner, in noting that expectations of recession this year are widespread, said that so far, heavy traffic is not showing anything like the sharp declines seen in the Global Financial Crisis. "That doesn’t mean a recession isn’t coming, but it is consistent with our belief that if GDP does contract in Q1, it’ll be mostly ‘noise’ around supply-side and weather impacts. We are forecasting the ‘real’ recession to start in the third quarter of this year."
A TAXING KIND OF DAY
A report prepared by Inland Revenue says high wealth families pay a median effective tax rate of just 8.9%, as they earn significant income from untaxed capital gains. Meanwhile Treasury's chimed in with two tomes on the tax subject as well. The reports will re-ignite the debate around whether New Zealand should adopt a capital gains tax. Meanwhile KPMG said the reports appear to be setting the scene for an announcement of tax changes to “level the playing field”. “2023 is an election year. We expect that the findings from Inland Revenue’s HWI Project in conjunction with the Treasury analysis, may be used by the Government in the upcoming weeks and months to support announcements regarding its tax policies heading into the election.”
RBNZ DECIDES THE TIME IS RIGHT TO LOOSEN THE LVR LIMITS
The Reserve Bank's relaxing - probably from the start of June - the current loan to value (LVR) restriction settings that have been in place since November 2021. Deputy Governor Christian Hawkesby says: "Our assessment is that the risks to financial stability posed by high-LVR lending have reduced to a level where the current restrictions may be unnecessarily reducing efficiency. In particular, impeding the provision of credit to some otherwise creditworthy borrowers, which is not proportionate to the level of risk that we see."
IT'S STILL HOTTER ACROSS THE DITCH
In Australia, the Consumer Price Index (CPI) rose 1.4% in the March 2023 quarter and 7.0 per cent annually, according to the latest data from the Australian Bureau of Statistics (ABS). The quarterly rate was slightly ahead of market expectations, but the annual rate has slowed from 7.8% in December. However, at 7.0% Australia's annual rate is still running hotter than ours (6.7%) - albeit that both are way too hot for comfort. Michelle Marquardt, ABS head of prices statistics, said "CPI inflation slowed in the March quarter, with the quarterly rise being the lowest since December 2021. While prices continued to rise for most goods and services, many of these increases were smaller than they have been in recent quarters."
WHIPPED MILK - SYNLAIT SHARES SAVAGED BY MARKET AFTER HUGE FORECAST DOWNGRADE
Synlait Milk [SML] shares are getting a rare old beating on the market after the company downgraded its after-tax profit forecast made only last month by $20 million. Synlait shares were down 49c - that's nearly 23% - to $1.65 at time of writing. It should be noted that the market was having an overall bad day anyway. Synlait's after-tax profit guidance range is now -$5 million to $5 million. Synlait said further advanced nutrition demand reductions, "mostly from one of Synlait’s customers" would have a negative impact of $16.5 million, while the remaining $3.5 million was due to higher financing and supply chain costs.
SYNLAIT - A 'CUSTOMER' RESPONDS
The a2 Milk Company [ATM], a 20% shareholder in Synlait, said it was "surprised at the extent of the reduction in Synlait’s guidance range" in Synlait’s announcement, "which indirectly refers to a2MC". It said there is "no material change" to a2's outlook as confirmed at the time of the announcement of its first-half results in February. Nevertheless, the a2 shares slumped 31c (5%) to $5.93.
KIWIBANK EYES $200M BONDS/TIER 2 CAPITAL ISSUE
Kiwibank has registered a disclosure statement for an offer of up to $200 million of unsecured subordinated notes. They will constitute Tier 2 Capital for Kiwibank’s regulatory capital requirements, and have a 10-year term. The interest rate will be a fixed rate for the first five years, and then reset to a new fixed rate for a further five years. The offer is expected to open next week.
SWAP RATES LIKELY EASIER
Wholesale swap rates are probably slightly easier after Tuesday's public holiday. 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 bs at 5.57%. The Australian 10 year bond yield is now at 3.31% and down 2 bps. The China 10 year bond rate is up 1 bp at 2.83%. And the NZ Government 10 year bond rate is now at 4.09%, and that is down 7 bps. The UST 10 year yield is at at 3.41% and up 1 bp.
EQUITIES MOSTLY LOWER
The S&P500 set a bad mood for global equity markets with a 1.6% drop overnight after more negative banking sector developments. Tokyo has opened down 0.5% but Hong Kong is bucking the mood with a 0.6% lift. Shanghai though is down 0.5%. The ASX200 is just slightly in negative territory in afternoon trade, but the NZX50 is down with a bit of a 0.7% bump, not helped by some of the corporate news mentioned further up this article.
GOLD DARING ITSELF TO GO ABOVE US$2000
Will it or won't it? In early Asian trade, gold is virtually unmoved having risen overnight and a short while ago it was perched on US$1999/oz, seemingly waiting for cues to either have another run above US$2000 or back away again.
NZD MARKING TIME
The Kiwi dollar is virtually unchanged against the US currency from earlier in the day, at US61.4c. Against the Aussie we are just up at A92.75c. And against the euro we are at 55.9 euro cents. The TWI-5 is at 68.8, which is down slightly from earlier.
BITCOIN BACK ON THE SCENT OF US$30,000
The bitcoin price has been enjoying the risk-off equities sentiment of the past 24 hours, by driving back towards US$30,000 again after several days of weakness. At time of writing Bitcoin was up 3.3% in the past 24 hours at US$28,330.
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71 Comments
On Synlait
Further Advanced Nutrition demand reductions, mostly from one of Synlait’s customers, which impact consumer-packaged infant formula volumes and base powder production, are expected to have an NPAT impact of approximately $16.5 million in FY23.
Well, I'm guessing the customer is A2 and also guessing that the market is China.
More heavy narratives from Nick Gerli re the U.S. Only reaction this is getting around the water cooler is empty stares. Some of the 'highlights' (or should that be 'DGM-lights')
-- Money Supply contracts again in March. This is a massive economic warning. Money Supply contraction hasn't happened in 90 years. Only other times it has happened we had Depression / Major Banking Crisis.
-- What's amazing to me is how NO ONE is paying attention to this. Fed is sucking money out of the system through QT. Just while banks are at beginning of a credit crunch. And stock/real estate investors are still "risk on". Insane.
-- What's so problematic about this money supply contraction is that inflation is STILL an issue. So businesses will have less access to capital just as they need it most to pay for expenses and payroll expansion. Yikes. That's a recipe for mass bankruptcies and layoffs.
"Money Supply contracts again in March. This is a massive economic warning"
I find this statement really strange, money supply is contracting because of QT, it's actually the definition of quantitative tightening = having less money in circulation. Yes, it's not great for the economy, especially at a time when it's slowing down and inflation is still far too high, but wake up, that's the problem everyone already knows about.
QT... can be undone in a heartbeat.
FED will provide liquidity, whenevr .... which I'm thinking , will be more often than not.
Looks like my thread from yesterday J.C.
Note that each time money supply has contracted in the manner it just has and is trending to get worse, that unemployment rose to >10% everytime without exception. And that is with 100+ years of data.
And as I was trying to highlight yesterday is that inflation is still an issue, even though money supply is contacting so much - which is a very bad sign for the economy and asset prices.
If you don't have your ducks in a row (managing your risk/don't have too much debt!) by now do so...
https://pbs.twimg.com/media/Fulx9tqWcAYfX_2?format=jpg&name=large
Also the 2/10 is still deeply inverted in the US but is starting to trend back towards a normal spread (i.e. positive). This is typically when recession hits and asset prices get hit the hardest.
JC... Money contraction may not be the dire warning that guy thinks it is.
It is most likely due to money shifting from deposit accts into longer term deposits.
My understanding is that M2 does not include time deposits over $100,000.
The key thing is that credit growth is still there.. somewhat.
Ie. M2 contraction is not the result of credit destruction.. ( debt default ).
That's my view...
'It is most likely due to money shifting from deposit accts into longer term deposits'
I was thinking about this yesterday, attempting to figure out what the big changes were that were driving the big fall. My conclusion is the same as you.
But then thought about the subsequent problems/consequences that might arise from this. I was thinking liquidity issues we may have if this cash is out of the system in the near term - i.e. people won't be buying assets or consumption items with this money in the near term if its locked away. More demand destruction.
IO... Time deposits can end up as corporate bonds...etc. ( time deposit is an IOU.. and the money gets used )
I understand that Money market funds have undergone a "second life".
Apart from the 80s'... this secular shift in interest rates, as a result of inflationary pressures, is one of the biggest paradigm shifts ... in my lifetime.
Throw this on top of the Global debt burden... and it gets interesting.
One of the best articles I've read, in regard to this, is by Ray Dalio..... and things seem to be following his map...If u dig into the article... there is gold !
https://www.linkedin.com/pulse/starts-inflation-ray-dalio/
cheers
Thanks Roelof - yes I follow most of Dalio's interviews/posts of understand his logical/machanical way of viewing the economy/financial markets around money supply/inflation/interest rates etc.
Can definitely recommend his book 'The Changing World Order' (and 'Principles' as well) if you're looking for more of his work.
But still don't fully understand what it was within the M2 supply contraction (i.e. negative growth) that triggered the previous depressions/high unemployment.
Perhaps it is a lead indicator of debt destruction ahead - this is all I can draw on now. Which makes sense as its likely to be deflationary and when you have high debt levels, deflation can very quickly/immediately cause debt destruction.
Maybe central banks are too busy looking at lagging indicators like CPI, but missing the big picture (money supply contraction) and will severely over tighten monetary policy - just as they allowed far too much money supply to enter the system in 2020-2021.
Then again, we've never had inflation targeting before when money supply has contracted like this (i.e. the Fed either didn't exist or didn't have a inflation mandate when money supply previous contacted like it has in the past 12 months). So it might be a learning process for everyone involved.
A stable money supply mandate could be added to the financial stability mandate of central banks...who knows (happy to be corrected/educated if you know more than the above on this topic).
IO... here is a link to another guy I follow..
He has written a book on Financial crises ...as well as others .
he is very good.... and down to earth .. https://www.tychosgroup.org/
It relates to the M2 thing....as it is generally debt destruction ( mortgagee sales, bankruptcies etc ) the result in the big downturns.
Ie. Credit and Money supply contracts....
If M2 is contracting and there is credit growth....THEN ...something else is going on ??
https://fred.stlouisfed.org/graph/fredgraph.png?g=12RA8
I'm going through the components of M1/M2 to try and see where the big fall is coming from but struggling to see it so far.
Interestingly 'Small-Denomination Time Deposits' (included in M2) have grown sharply in the last year - as you could perhaps expect as interest rates rise and people are happy to reduce risk and are compensated for saving.
Small-Denomination Time Deposits: Total | FRED | St. Louis Fed (stlouisfed.org)
Will keep going through the data here and see if I can figure out component of M2 is causing the money supply contraction (at least as measured by this series)
You can view the data here:
Note that one of the big drops (and this is an M1 measure) is the 'Other Liquid Deposit' component defined as
'Other liquid deposits consist of negotiable order of withdrawal and automatic transfer service balances at depository institutions, share draft accounts at credit unions, demand deposits at thrift institutions, and savings deposits, including money market deposit accounts'
Other Liquid Deposits: Total (MDLNWM) | FRED | St. Louis Fed (stlouisfed.org)
So in the past 12 months:
M1 has reduced from $20.9 trillion to $18.9 trillion.
A reduction of $2 trillion.
And caused almost entirely by a reduction of 'other liquid deposits' (not currency or demand deposits).
All non-M1 M2 components have increased significantly. That is;
Small denomination time deposits have increased from $41 billion to $633 billion!
And Retail Money Market Funds have increased from $1 trillion to $1.3 trillion.
So in summary, it appears there has been a big movement out of short duration saving accounts into time deposits and money market funds. All of the liquidity that was pumped into the system in 2020 has moved out of liquid accounts, into longer duration savings accounts and money market funds.
JC...
"M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000)" note 2
https://www.federalreserve.gov/releases/h6/current/default.htm
March was just the first opening act to what is going to follow, only starting with the credit crunch (see: First Republic). Last Sept/Oct global fireworks was the preamble. As it continues to develop, the level of denial will be off the charts. https://youtu.be/EtoHFpFtou8 Link
TradeMe asking price down over $100,000 yoy to March 2023.
https://www.trademe.co.nz/c/property/news/aotearoa-s-six-figure-house-p…
So RBNZ drops rates to rescue everyone, causing a collapse in the NZD, an instant inflation pulse and a total blowout in the current account deficiet. Rating agencies cut hard, further deteriation in the NZD and .....
So if things are looking really bad and you're thinking of givin' it away
Remember New Zealand's a cracker and I reckon come what may
If things get appallingly bad and we all get atrociously poor
If we stand in the queue with our hats on we can borrow a few million moreWe don't know how lucky we are, mate
We don't know how lucky we are
We don't know how lucky we are, mate
We don't know how lucky we are
Since the end of the cold war we have lived through a period of incredible globalisation, where investment opportunities have been truly international. Part of your international equities’ exposure has probably even been invested in China. Going forward the world is going to become less global and probably more fractured between the USD lead and the China lead. Its going to be harder to move funds between these worlds. I think that the investment risks are going to increase. This is going to change our kiwi saver returns, and not for the better. I think the boomers may start to seriously close their wallets as they realise they are house asset rich, income poor. The housing is falling in value and there may soon be new taxs around wealth. You can bet the new tax will not be aimed at the 400 people at the top of the stack only.
Service industries have done well in NZ historically but I things will take a turn south over the next decade. Lets see over the next few years the % of Chinese that return as Tourists compared with the peak.
Aussie arming up with Nuclear powered subs and starting to build domestic missile capability does not, in my book, bode well.
Druckenmiller shorting USD.
The US Dollar Index, which compares the greenback against a basket of other global currencies, hit 20-year highs last fall, thanks to aggressive monetary tightening from the Federal Reserve.
But it's a rally that Druckenmiller wasn't a part of: "It was probably the biggest miss of my career."
https://finance.yahoo.com/news/billionaire-investor-stanley-druckenmill…
The sheeple might be waking up to house prices falls as the mainstream media start to push the price fall narrative (after years of doing the reverse).
New Zealand sees house prices 'plunge' by six-figures in March, Trade Me says | Newshub
Don't underestimate the psychological factors/forces at play when house price falls start - if it becomes the common narrative within society, it can take a long period of time to turn that sentiment around (it can be like an avalanche that gathers momentum and changing its direction like turning a merchant ship....very slowly - was certainly the case when I lived through the GFC in the US)
“We are still seeing a market that’s correcting itself after the huge gains made in the past few years. The national average has dialled back to similar levels we saw at the end of 2021, and with the OCR rising yet again, we expect these drops should continue for a little bit longer.”
“There's even more good news for buyers. Not only did prices fall in March, so too did demand (down 12 per cent year-on-year) while supply saw an increase (up 7 per cent year-on-year).
“When there are more options to choose between and less competition looking at properties, those in the market to buy have greater negotiating power.”
I love how they try to put a positive spin on the news with nothing but hope.... presents no evidence that we are near the bottom, no uptick in sales during peak selling time, no evidence price drops are slowing at all nothing, but some how there is ony a little bit more to go.
This is spin not journalism. At least there is admission its good for buyers, I am sick of hearing how bad its been for sellors, they had there chance end of 21
Perma bulls on property always claim it has been about supply and demand (forgetting that the demand component is by credit worthy borrowers of bank debt only...which the banks appear to be running out of) so this can't be good for prices:
“There's even more good news for buyers. Not only did prices fall in March, so too did demand (down 12 per cent year-on-year) while supply saw an increase (up 7 per cent year-on-year).
OneWoof will continue to do their best to shamelessly spruik, but I agree with you - at some point, possibly quite soon, the penny will truly drop for the sheeple.
Ironically, that might actually lead to the market stabilising, albeit at a level a little bit lower than present - as sellers get more realistic.
I wouldn’t mind a few well thought out business subsidies that keeps large industrial operations within our shores to be brutally honest.
Not a popular opinion on this website but still we should be more worried about the billions spent each year on the ‘ambulance at the bottom of the cliff’.
I am talking about the $14 billion a year funding boost that MSD has received in the 6 years under Labour. And if you are wondering, there is more non-super funding in that increase than otherwise.
the tax payer paid for it, and then it seems like the tax payer paid the oil majors $80m to take it off our hands?
https://en.wikipedia.org/wiki/Marsden_Point_Oil_Refinery#Reform_and_pri…
"Exports are rising but imports are rising faster, and... the deficit between what we exported and what we imported hit a record high for a March of $1.3 billion." + "RBNZ DECIDES THE TIME IS RIGHT TO LOOSEN THE LVR LIMITS" = "I know, Chris! Dust off Plan A. Inflate Asset Prices and spur Private Debt to allow us to keep that imbalance charging along"
Remind me what the definition of lunacy is again, please.
More affordability would help, a large surge in FHBs as a % of total sales will be a signal a bottom in the market is in. reinforced by investors buying bargains, have you seen much investor activity HW2, The Comb says they are not in the market..... some from 2021 are making headlines getting out.
UPS flashes a warning sign about the US economy
America’s largest trucking company said Tuesday that revenue fell 6% in the first quarter compared to a year earlier, as its operating profit fell 22%. Its earnings fell just short of Wall Street forecasts for the period.
UPS flashes a warning sign about the US economy | CNN Business
“There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.”
― Robert A. Heinlein
“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
― Frédéric Bastiat
“No nation has ever taxed itself into prosperity.”
― Rush Limbaugh
There's certainly a balance to be struck.
No nation has ever cut taxes into prosperity either.
The tax take as it is now in itself isn't super problematic, the issue is with how heavily skewed the tax burden is on income rather than other sources. Broaden the tax base but don't increase taxes. We need a tax shift, not a tax cut.
It was a year ago today that David Parker announced the review of how much tax the wealthy pay.
On that same day, I predicted what the outcome would be, and then suggested this will be a big lever for the election.
Half way there, watch this space :)
Govt plans to legislate tax 'principles' | interest.co.nz
by Officebound | 26th Apr 22, 4:42pm
I watched this live, and it felt like the building blocks of a good election strategy.
Legislating the need for IRD to report on how progressive the tax system is when all is included (inc GST, Capital profits).
This will show the rich dont pay as much tax, so Labour must evolve their tax policy to favour the low/mid, and can contrast th is against Nationals tax cuts for the wealthy/property owners.
Good agenda setter
It was a year ago today that David Parker announced the review of how much tax the wealthy pay.
Somewhat of a fraud IMO. At the same time he was gushing over the work of Thomas Piketty. This whole action seems to be copying what Piketty says. Zero points for original thought.
https://www.stuff.co.nz/national/politics/300328824/revenue-minister-da…
I pay more PAYE tax than people who earn less than me do but in my case the percentage is higher! If we are going to have a regressive tax system I want my fair share too, let’s make the lower tax rate the highest and the top tax rate the lowest to encourage wealth.
Maybe we could start building missile components for Aussie, we already have rocket lab, they could do ballistic and guidance stuff no problem, we could get into shoulder based rocket launchers and anti tank munitions...
Diversify away from sending milk and honey to China and make things we could fire at them instead.....
We could sell a lot into Africa until the big one kicks off.
Ouch, the S&P 500 had a bad day. But to be fair it’s been pretty strong over the last couple of months.
Grantham’s theory is quite interesting, that the stockmarket historically always gets a boost in the 6 months leading up to the April in the year before a US Federal election. The US government needs to bolster employment before the election to promote its credentials, and needs at least 12 months for that to start working ahead of the election.
What we all already know - from Aussie this evening.
How Australia’s property obsession is damaging the entire economy (via SMH)
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