What happened Wednesday

Business / news

A review of things you need to know before you sign off on Wednesday; some call rates getting up there; grim outlook for residential construction; Auckland Council in tougher spot; swaps & NZD stalled, & more

10th May 23, 3:58pm by David Chaston

Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).

MORTGAGE RATE CHANGES
Heartland Bank have raised most fixed rates by +25 bps, but they have also cut their three year fixed rate by -15 bps to 5.80%, a market-leading rate.

TERM DEPOSIT/SAVINGS RATE CHANGES
Rabobank have raised their PremiumSaver call rate to 5.00% and their RaboSaver rate to 4.00%, and their 60 day NoticeSaver rate to 5.10%.

DATA FORESHADOWS A TOUGH TIME AHEAD
There's a gathering storm in the residential construction industry. The latest data suggests an approaching downturn in residential construction could be quite severe.

ANOTHER CENSURE
The FMA has censured Aurora Financial Group for misleading existing and potential clients about KiwiSaver returns. The FMA found that during the client sessions and in statements of advice, one-year and annualised returns figures were presented in connection with the Aurora funds. The figures were based on the historical returns of the underlying, third-party funds into which the Aurora funds would be invested, once the Aurora funds launched. The returns figures implied that the Aurora funds had an established history which they did not. In the period the returns figures were used, 2474 Aurora Financial clients joined the Aurora funds of the 4051 who received the advice.

AIA BOND PRICED
Auckland International Airport's November 2028 bond offer has closed attracting $150 mln. The interest rate is 5.29% being +100 bps above swap.

TOUGH CHOICES AHEAD
Auckland Council says the recent storms have made the task of balancing its 2023/24 Budget harder with the forecast ongoing operating gap widening to a -$325 mln shortfall, from -$295 mln previously. An inability to maintain its AA credit rating would bring even higher costs given it has $11.4 bln in listed debt.

INQUIRY INTO LATITUDE'S HUGE DATA BREACH
New Zealand and Australia's privacy watchdogs have announced a joint inquiry into Latitude Financial Services' data breach.

HOW WILL CHALMERS AFFECT ROBERTSON?
Here is a savvy review of the Australian Budget which was released late last night. It is a policy release that will ripple over New Zealand. Is it stimulatory enough to trigger more RBA rate rises over the Ditch?

MORE MONEY TO COLLECT MORE DATA
The Aussie Budget allocated NZ$185 mln over 4 years to expand the coverage of their statistics agency, the ABS (Australian Bureau of Statistics). They are moving from a trial to a full monthly CPI. New Zealand will be the only OECD country left relying on quarterly CPI data.

EYES ON US CPI
Late tonight NZT the US will release its April CPI data. Any significant variation from the expected 5.0% (or 5.5% for "core inflation") will likely bring financial market reactions. The lack of any significant changes today in markets is due to the anticipatory calm before this data.

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SWAP RATES FLAT-LINED
Wholesale swap rates are probably a touch softer today. 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 again unchanged at 5.62% and 37 bps above the OCR. The Australian 10 year bond yield is now at 3.46% and down -1 bp from this time yesterday. The China 10 year bond rate is unchanged at 2.76%. And the NZ Government 10 year bond rate is now at 4.18% which is down -5 bps from yesterday, but still just above the earlier RBNZ fix at 4.17% which down -3 bps from yesterday. See this local yield curve review. The UST 10 year yield is now at 3.51% and up +1 bp from this time yesterday.

EQUITIES MIXED & QUIET
In New York, Wall Street ended down -0.5% on the S&P500 in its Tuesday trade. Tokyo has opened down -0.4%. Hong Kong is down -0.7% today in early trade. Shanghai has opened down -1.2%. The ASX200 is down -0.2% in afternoon trade. The NZX50, is up +0.2% in late trade today.

GOLD LITTLE-CHANGED
In early Asian trade, gold is little-changed at US$2031/oz and up +US$7 from where we were this time yesterday. That is below the earlier New York close of US$2034/oz and above the earlier London close of US$2030/oz.

NZD HOLDS
The Kiwi dollar is little-changed from this time yesterday at 63.4 USc. Against the Aussie we are +¼c firmer at 93.7 AUc. And against the euro we are up a tad at 57.8 euro cents. That means the TWI-5 is still just above 71.1.

BITCOIN STALLED
The bitcoin price is virtually unchanged from this time yesterday, now at US$27,687. Volatility over the past 24 hours has been low at +/- 0.8%.

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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61 Comments

by bw | 10th May 23, 4:07pm 1683691645

The best bit from that savvy review?

What the government really needs is substantive tax reform or other measures to drive higher productivity.The government should be preparing for the next negative shock, whether a financial crisis, a global pandemic, or a geopolitical emergency. The sad reality is that such preparations often require the courage to make politically unpopular decisions.

Let's hope that if anything rubs off Chalmers onto Robertson, that's it.

by sit23 | 10th May 23, 4:12pm 1683691934

There are only 2 sectors of our economy that bring in the dough. Farming, and tourism. Possibly, just for a change, our government could introduce just one policy that helps either of them be more productive. Instead they try their hardest to hamstring both, at the screaming behest of the loud minorities again.

by JimboJones | 10th May 23, 4:27pm 1683692844

There are plenty of countries that rely almost solely on farming and tourism - most of them are poor.

by Pa1nter | 10th May 23, 7:30pm 1683703816

The biggest for farming is the USA, then Holland. They seem to be doing better than most.

I'd still love to know what we'd be better at.

In a way it'd be like walking up to someone working the checkout at the supermarket, and asking why they're wasting time on the checkout instead of making the big bucks as a plastic surgeon.

by ShoreThing | 10th May 23, 4:28pm 1683692934

Tourism is crap. I'll never vote for anyone whose economic plan for this country is for Kiwis to serve coffee and mince pies to affluent foreigners coming here to spend their money. The plan should be for Kiwis to work in industries that earn good incomes so that we are the tourists.

by ACB | 10th May 23, 4:53pm 1683694393

It is even worse given the profits often end up offshore and we import many low-skilled immigrants to operate the hotels/restaurants, sometimes in a questionable manner as per the Chateau.

by powerdownkiwi | 10th May 23, 5:26pm 1683696403

Often the same with farming.

Which isn't a process of ' bringing in the dough' - it a process of turning many calories of fossil oil, into one calorie of food. The whole format is temporary. And has to avoid its real costs - pollution in other words. And the cost of monoculturised land - dead soil.

by Baywatch | 10th May 23, 5:42pm 1683697366

Tourism is not a sector that brings in the dough..most of it goes to offshore bagholders.

by company of heroes | 10th May 23, 4:12pm 1683691954

Auckland Council says the recent storms have made the task of balancing its 2023/24 Budget harder with the forecast ongoing operating gap widening to a -$325 mln shortfall, from -$295 mln previously. An inability to maintain its AA credit rating would bring even higher costs given it has $11.4 bln in listed debt.

“Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.” - G. Michael Hopf

by Uninterested | 10th May 23, 4:26pm 1683692817

11.4 billion!!!!

With the rail tunnel and sewerage interceptor disasters to come!

by Justa comment | 10th May 23, 7:34pm 1683704090

Wayne Brown was dreaming with 4.6% rate rise. The sale of the airport shares just delays the inevitable 7 to 10 % rate rises needed.

by chebbo | 10th May 23, 4:27pm 1683692862

"A hard man is good to find" - Ex Wife's Bumper Sicker

by JimboJones | 10th May 23, 4:44pm 1683693876

There's a pill for that these days...

by J.C. | 10th May 23, 4:21pm 1683692492

This morning Gally linked to this wonderful description of the banking crisis penned by crypto wunderkind Arthur Hayes who is incredibly gifted at explaining complex financial and banking matters with clarity. Highly recommended read.

The most well-run banking systems establish an agreed upon set of rules governing these types of situations before any crisis occurs, ensuring that everyone knows how a failed bank will be dealt with, eliminating any surprises. Because banking systems are believed by the financial and political elite to be so integral to a well-functioning nation state, it’s safe to assume that in almost every country, banks will always be bailed out. The real question becomes, which schmucks get included in the denominator responsible for paying to recapitalise the bank? Regardless of what division of costs has been agreed to prior to any bank failure, once a bank actually collapses, every stakeholder involved will always lobby the government to avoid being part of the denominator.

https://cryptohayes.substack.com/p/the-denominator

by Uninterested | 10th May 23, 4:29pm 1683692952

This is why I favour Kiwibank over the Oz banks. The govt will step in, you can bank on it...

by J.C. | 10th May 23, 4:47pm 1683694073

This is why I favour Kiwibank over the Oz banks. The govt will step in, you can bank on it...

Not sure if you read the article. Re the U.S. regional banks, the govt will also step in. 100% guaranteed.

But that's not the point. The point is to think about what the trade-offs will be.

by Jonny.Foe | 10th May 23, 4:50pm 1683694211

Can we please stop it with the whole labour costs are out of control nonsense? Real wages have been flat for the last year (see below) and are down about 2% over the last two years. Wages are going up because living costs are going up and workers are pushing for higher wages so they can eat and pay the bills.

Maybe we could have a look at Japan, Spain, or Switzerland to see what they did about this. Spain, for example got inflation down from over 8% to 3.3% in 12 months(!) by spending money on controlling critical input and household prices, which kept prices low, and prevented pressure building on wages. Meanwhile in NZ, the Govt stands aside whilst RBNZ make things worse by hiking interest rates, which is adding *billions* to the cost of doing business and doing nothing about prices because inflation is not demand-driven here!

Change in Real Wages - 2022Q1 to 2023Q1 (HLCPI Adjusted)

Forestry and Mining: -4.4%
Wholesale Trade: -2.7%
Accommodation and Food Services: -2.2%
Public Administration and Safety: -2.2%
Education and Training: -1.3%
Information Media and Telecommunications: -1.3%
Electricity, Gas, Water and Waste Services: -0.8%
Arts, Recreation and Other Services: -0.4%
Retail Trade: -0.3%
Manufacturing: -0.3%
Professional, Scientific, Technical, Administrative and Support Services: -0.2%
Total All Industries: -0.1%
Financial and Insurance Services: 0.1%
Rental, Hiring and Real Estate Services: 1.0%
Transport, Postal and Warehousing: 1.0%
Health Care and Social Assistance: 1.4%
Construction: 2.1%

by Independent_Observer | 10th May 23, 5:07pm 1683695267

'Spain, for example got inflation down from over 8% to 3.3% in 12 months(!) by spending money'

Always sounds strange when a nation controls inflation by spending more money.

Bit like the US 'Inflation Reduction Act' (that requires even more government spending).

by Jonny.Foe | 10th May 23, 6:26pm 1683700017

Its not strange at all. If I spend some money on some solar panels, doesn't that reduce my electricity bill? If I stop fertiliser costs crippling food producers, does that not reduce the pressure on food prices (and therefore lowers pressure on wages)?

Inflation isn't some mystical voodoo thing - it's a network of prices interacting and racheting up. If you can spot the triggers you can prevent the contagion.

by JimboJones | 10th May 23, 7:05pm 1683702311

I’m not sure I agree with the fertiliser part. If something is in short supply then we need people to change their demand to something else rather than manipulate the price so they can keep on consuming. Same goes with fuel. If governments try and circumvent supply and demand pricing they will only exasperate inflation.

by Jonny.Foe | 10th May 23, 7:16pm 1683702973

Fair challenge. But, the price of fertiliser and fuel in Spain (and NZ) are not demand sensitive. Fertiliser prices went up because natural gas prices spiked, and fuel prices because oil prices spiked as the Saudis used their market power to make good whilst the sun shone. Both price spikes were exaggerated by futures markets going nuts for a bit. It now looks like the countries that responded to these spikes and market disruptions by smoothing the shock for their households and businesses, are the ones that will emerge most quickly from this inflationary episode. Look at Germany, Switzerland, Japan, Spain, France.

by nigelh | 10th May 23, 11:17pm 1683717423

In NZ fertiliser shortage is in part artificially created by the govt by limiting the supply sources.

by Independent_Observer | 10th May 23, 7:35pm 1683704156

"Its not strange at all. If I spend some money on some solar panels, doesn't that reduce my electricity bill?"

Depends how much demand is chasing solar panels and if solar panels are included in the Consumer Price Index.

Assuming people think they will save money (power bill) using solar panels, then there will be increased demand for these items, and unless we can produce more of these items (the productive capacity of the economy) to keep supply/demand in balance, then the price of these will go higher (be inflated). So the average consumer may save with their power bill, but pay a premium to buy the solar panels.

"If you can spot the triggers you can prevent the contagion"

What if the trigger are the people now fighting the inflation - that is the government and the central bank? How do you spot the trigger and prevent the contagion if you are the trigger?

If you create money at a rate that is faster than the ability of the workers of the economy to improve their productive capacity, then you will end up with price inflation in goods measured in the CPI.

by Jonny.Foe | 10th May 23, 7:54pm 1683705266

There is a lot going on here.

Obviously we don't produce solar panels. In fact, the price of the solar panels kit is completely detached from domestic demand in NZ. What might be more sensitive to levels of domestic demand is the price paid for installation, which is why in countries that have done this well, they have locked in medium-term contracts. The pending collapse in residential construction is the ideal time to contract for solar installation at scale, which will absolutely lower the cost of electricity, which is most certainly in the CPI basket.

The triggers for this period of inflation are pretty obvious - excess demand for renovations (way back in late-2020), shipping costs, profiteering in wholesale and retail, imported fertiliser and fuel prices, interest rates, imported foods etc. You can track the contagion through the CPI data over the last couple of years. But, yes, it is fair to say that the RBNZ / Treasury are blind to this reality - they are just following economic orthodoxy and making things worse. Worth noting through that Govt spending has been flat for the last 6 months - the idea that Govt spending is driving inflation is fanciful.

I don't subscribe to the view that an excess quantity of credit money drives inflation - the theory has way too many holes. But, I agree that an economy based on households taking out ever larger mortgages is heading for a crash.

by Independent_Observer | 10th May 23, 8:18pm 1683706717

"The triggers for this period of inflation are pretty obvious - excess demand for renovations (way back in late-2020), shipping costs, profiteering in wholesale and retail, imported fertiliser and fuel prices, interest rates, imported foods etc"

The flipside of this was reduced output (of goods and serivces) at the same time (while we locked people down, people got sick, changed the way we worked for social distancing etc) - moved equilibrium up across a range of supply/demand factors.

by Independent_Observer | 10th May 23, 5:37pm 1683697044

Also on this topic - we've just spent the last 30 odd years reducing interest rates and extending debt, primarily for mortgages, to increase demand for the ever cheaper and ever increasing available quantity of goods (and sometimes services) from poorer Asian nations - that was to keep the CPI print positive and not negative over that time (avoiding a deflationary depression).

So to summary the recent past, the solution to importing deflation was to pump a massive debt/asset bubble in residential property. But now if we are consistent and increase interest rates because we are importing inflation (to reduce demand for these goods and services, keeping the CPI suppressed), this is considered stupid -because of the negative consequences of falling house prices (or is it something else?)

Strange how people seem to want to have their cake and eat it too.i.e. to have something work in one direction, but not in the reverse.

Crazy huh?

by powerdownkiwi | 10th May 23, 5:28pm 1683696495

Well said.

by Independent_Observer | 10th May 23, 5:57pm 1683698260

Basically we have made our lives better by rigging a system in our favour compared to other nations. But that only works for so long.

i.e. we have swapped debt for cheap labour and thought we were 'wealthy'.

But in the end, the only thing that makes you wealthy is improved productivity - which ain't us here in NZ (nor in many other parts of the anglosphere). We all just have massive housing debt burden and interest rate risk.

by Jonny.Foe | 10th May 23, 6:34pm 1683700474

Absolutely. Our GDP has grown in lockstep with private debt. Our economy is a mirage.

by J.C. | 10th May 23, 5:31pm 1683696689

So to summary the recent past, the solution to importing deflation was to pump a massive debt/asset bubble in residential property.

The bubble also substituted for the wage growth of the boomers. Wage growth has lagged CPI and asset price growth.

by Independent_Observer | 10th May 23, 5:59pm 1683698381

Yes why I find it hilarious that people argue houses can grow at 7% (i.e. double every 10 years) while wages only grow at 2% (i.e. the target inflation level).

And now that one (house prices) is 8-10x the nominal value of the other (incomes), and one (houses) is priced using the future cash flows of the other (incomes), how is that ever going to be sustainable?

It only works if you drop the discount rate for those cash flows from 20% to 2% - i.e. what we have just done from the 1980's through to now.

If interest rates normalise or rise over the next decade - that theory is seriously going to be put to the test.

For example - if this year hosue prices rise at 7% from a base of $900,000, that is a $63,000 increase in price.

If wages increase at the target rate of inflation, then they only increase a fraction of that (a few thousand dollars p.a.). This leaves a massive shortfall/disconnect if you run the sum of the future discounted cash flows of this arrangement and compare it to the projected future house price growing at 7% - it simply doesn't add up (there is a massive hole between the asset price and the sum of the future cash flows! - playing silly buggers with the discount rate fixed that the last few decades...but perhaps no more).

And if you argue...'but wages are going up at 7% right now...'. If they continue to do that, the OCR will be 7% before you know it and mortgage rates will be 10% and house prices will be falling even further.

by J.C. | 10th May 23, 5:58pm 1683698305

And if you argue...'but wages are going up at 7% right now...'.

What is frightening is that the govt and its cheerleaders have been doing just that highlighting this extremely short period of wage growth as some kind of victory and indicator of their superior economic management.

by Independent_Observer | 10th May 23, 6:01pm 1683698510

Yip the democratic party in the US amuse me when the celebrate this and the number of jobs 'they have created' - not realising that this is just more ammunition for the Fed to keep cranking interest rates and make the cost of living crisis worse for many people.

Once you've dug a hole (the last 30 years or so), there is no easy way (or pain free way) of getting out of it.

by nktokyo | 10th May 23, 5:04pm 1683695085

"New Zealand will be the only OECD country left relying on quarterly CPI data."

FFS...

by Justa comment | 10th May 23, 7:36pm 1683704213

and without a GCT.........

by Rob Reid | 10th May 23, 9:55pm 1683712527

CGT?

by J.C. | 10th May 23, 5:33pm 1683696788

Here we go. Carrots being dangled.

Renters in the U.K. will be able to borrow up to 100% of the value of a property without a guarantor or deposit in a new mortgage plan introduced by Skipton Building Society.

A building society is a British financial institution that provides banking services for, and is owned by, its members. The new mortgage product, aimed at first-time buyers who are currently renting, has a fixed rate of 5.49% for five years, over a maximum term of 35 years.

https://www.cnbc.com/2023/05/09/property-brits-are-being-offered-no-dep…

by kpnuts | 10th May 23, 5:54pm 1683698083

bought my first house in the Uk over 25 years ago with a 107% ,mortgage from the now defunct Northern Rock building society ! Was a repossession so was never really in negative equity at 55k when similar houses on the street were in teh high 70's and the work needed was really cosmetic -

Could never have saved a deposit at the time -- but was able to service the mortgage which was significantly less than rent !

Had to take insurance out against unemployment -- so the bank had security --

by tomjones_04 | 10th May 23, 6:04pm 1683698669

Can't see how that scheme would work in New Zealand? It relies on the mortgage payments being no more than the current rent. Prices here are so far out of whack that prices would need to halve to get the scheme off the ground.... or rents double (God forbid)

by J.C. | 10th May 23, 6:13pm 1683699198

Good points

by Justa comment | 10th May 23, 7:38pm 1683704322

will they have to comply with the UK 4.5x DTI ?

by Squishy | 10th May 23, 6:25pm 1683699927

They are moving from a trial to a full monthly CPI. New Zealand will be the only OECD country left relying on quarterly CPI data.

Seat of our pants.

It might be possible to publish a monthly CPI mini-update at a far lower cost using data scraped from public websites. Most consumable items have prices published online, there is no need to have some poor bugger traipse around shops with a clipboard collecting information.

by J.C. | 10th May 23, 6:30pm 1683700236

The blockchain world has been on top of this for quite some time.

Truflation offers a more reliable view of inflation, contrasting with government metrics that have outdated methodologies and limited transparency. With over 10 million data points, it updates daily and has a dynamic and transparent methodology that responds to global market conditions.

https://truflation.com/methodology/

by Averageman | 10th May 23, 7:10pm 1683702654

And inflation dominated by debt speculation....I mean housing.

by Nifty1 | 10th May 23, 9:18pm 1683710283

The $1 reserve property sold for $400k today...not a bad marketing result. Good work IT GUY for sharing it around... https://i.stuff.co.nz/business/131999791/property-put-to-auction-with-1…;

by Independent_Observer | 10th May 23, 7:25pm 1683703551

"The property was valued at $480,000 by CoreLogic when Faber first listed it about six weeks ago, which he agreed with.

The $80,000 reduction, which equated to about a 17% fall, was fairly typical of how the market had moved since, Faber said"

Are Corelogic typically out by approx 20%, or has the market actually dropped by 17% in 6 weeks?

by IT GUY | 10th May 23, 7:30pm 1683703806

Just doing Gods work

by Independent_Observer | 10th May 23, 7:37pm 1683704274

Helped old mate in Palmerston North lock-in a $80,000 drop in price in 6 weeks by the look of it.

by JimboJones | 10th May 23, 7:54pm 1683705299

If that place was worth almost half a mil in palmy then the world has gone mad.

by IT GUY | 10th May 23, 9:21pm 1683710466

The world went mad when a Manurewa shitebox was worth more than a Devon thatch cottage.....

by Nifty1 | 10th May 23, 8:05pm 1683705915

1 sale doesn't set the market value... If you list for $1 reserve you wouldn't really expect a large price - $400k is pretty good considering.

by Independent_Observer | 10th May 23, 8:15pm 1683706509

Considering what?

by Nifty1 | 10th May 23, 8:27pm 1683707274

Considering having only a $1 reserve at auction & not having any interest prior to doing this?

by IT GUY | 10th May 23, 8:58pm 1683709128

I think he got about market right now..... what did it rent for per week maybe $500? 26k income and 400k purchase.... 6.25% gross yield.... pretty low maint if you handy , now lets rerate all NZ investments to this yield.... ouchy ouch

by JimboJones | 10th May 23, 8:57pm 1683709039

400k is good considering it’s probably only worth 300k next year.

by IT GUY | 10th May 23, 9:18pm 1683710317

STOP it!, your teasing us now! ..... thats 8.6% gross , at that I am starting to get interested, just not in that god forgotten location..... I hate Palmy , its like the Tron but more boring. John Cleese was on the money

by JimboJones | 10th May 23, 9:35pm 1683711310

Who said you will get $500 a week every week of the year. It didn’t look like the most desirable place. And then subtract rates and insurance, plus management costs unless you plan on relocating to palmy. Then compare the yield to a term deposit. And that’s assuming you also do all the handy work and it’s never trashed.

At least Palmy hasn’t been flooded or shaken recently. Probably the second safest place in the country in terms of natural disaster, with your other hated place being the safest.

by IT GUY | 11th May 23, 6:47am 1683744432

so you would need 10-12% gross yield?

by HW2 | 10th May 23, 10:56pm 1683716193

PN has been sounded out as a future parliamentary location. If that does happen, property prices will change overnight

by IT GUY | 10th May 23, 11:07pm 1683716864

If there is a WTGN earthquake or an Auckland volcanoes the same will happen …. Brain farts not an investment strategy

by bw | 10th May 23, 8:01pm 1683705709

What does a Real Estate Agent do when the commissions dry up, and they lose an avenue of servicing any negatively geared property portfolio?

They sell it.

More to come.