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
ASB moved rates up almost immediately the OCR decision was announced, adding +25 bps and taking their floating rate to 8.64%. Even before the OCR was announced, ANZ added +25 bps to their business overdraft and business indicator base rates.
TERM DEPOSIT/SAVINGS RATE CHANGES
ANZ added +10 to +25 bps to its TD offers for all terms 3 to 9 months. ASB added +25 bps to their SavingsPlus and Savings on Call rates. They added +35 bps to their Headstart rates for children's accounts taking it to 5.00%..
ONE LAST ONE, & DONE
The RBNZ has raised the Official Cash Rate by 25 basis points to 5.5% as expected - but has surprised by indicating that this will be the peak, with no more rate rises seen. The surprise drove the NZD lower.
SPLIT DECISION
For the first time since the OCR decision has been made by a committee, there was a split decision. Two committee members voted for no change.
MORE PAIN, NO GAIN
The number of homes selling at a loss is increasing and it could get worse, CoreLogic says. More pain and less gain in the housing market is what is ahead they see. These judgements were made before the RBNZ called 'time' on this rate hiking cycle today, however.
RETAIL SALES SHRINK
Retail sales volumes dropped for a second consecutive quarter to March. Stats NZ says decreased volumes in hardware and vehicle retailing helped drive a fall in total retail sales in the latest quarter.
FHBs HOLD MORTGAGE LENDING FROM EVEN LARGER FALLS
Total monthly new mortgage commitments were $4.3 bln, down -$1.7 bln (-28%) from $6.0 bln in March. The value of new commitments this month was the second lowest on record for an April, with only April 2020 (during the first COVID-19 lockdown) recording a lower value. Records began in August 2013. The monthly decrease was largely driven by drops in lending to owner occupiers who were not FHBs, which fell -$1.1 bln or down more than -30% to $2.5 bln, and lending to investors, which fell by almost -33%. On the other hand, lending to first home buyers only fell by -$200 mlnto $1.0 bln.
JAPANESE FACTORY MANGERS TURNED POSITIVE
After four months of negative sentiment, Japanese manufacturers are feeling positive again with a sharp mood change. Ditto in South Korea.
SWAP RATES DROP
Wholesale swap rates are likely sharply lower today after the unexpected OCR signals (? -20 bps ? possible more). 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 +4 bps at 5.87% and 62 bps above the OCR prior to its rise. But it is likely this will correct sharply lower tomorrow. The Australian 10 year bond yield is now at 3.63% and down a mere -1 bp from this time yesterday. The China 10 year bond rate is unchanged at 2.72%. And the NZ Government 10 year bond rate is now at 4.36% which is down -11 bps, and now below the earlier RBNZ fix at 4.46% which is up +6 bps from yesterday and was recorded before the OCR decision. It could drop as much as -15 bps tomorrow. The UST 10 year yield is now at 3.69% and down -2 bps from this time yesterday.
EQUITIES ALL LOWER - EXCEPT HERE
In New York, the S&P500 ended its day down -1.1% on Wall Street as markets are still waiting on progress from the politicians on the debt limit. Tokyo has opened its Wednesday session down -1.1% too. Hong Kong is down -1.1% in their early Wednesday trade. Shanghai is down -0.6%. The ASX200 is down -0.6% in afternoon trade today. The NZX50 was looking at a -0.6% loss until the OCR, then that drop evaporated.
GOLD FIRMS
In early Asian trade, gold is up to US$1974 and up +US$13 from this time yesterday. Earlier the gold price closed at US$1976/oz in New York, and earlier still at US$1969/oz in London.
NZD DROPS SHARPISH
The Kiwi dollar dropped sharply on the OCR decision, down -75 bps on the announcement and down a full -1c from this time yesterday to 61.8 USc. Against the Aussie we are down -½c at 93.8 AUc. And against the euro we are down more than -½c at 57.4 euro cents. That means the TWI-5 is down -90 bps at 70.4.
BITCOIN ON HOLD
The bitcoin price is marginally higher today, now at US$27,158 and up a mere +0.4% from this time yesterday. Volatility over the past 24 hours has been low at just over +/- 0.8%.
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85 Comments
The RBNZ has raised the Official Cash Rate by 25 basis points to 5.5% as expected - but has surprised by indicating that this will be the peak, with no more rate rises seen.
I'm still trying to figure out where this is coming from. Where did they say no more rate rises? If this is being implied from the OCR projection then it shouldn't have come as a surprise. The OCR was already projected to peak at 5.5% back in the February MPS.
The only "surprise" I can think of is that the OCR peak projection remained unchanged from the previous MPS, despite markets pricing in higher. But if it's such a "surprise" that it stayed the same, why would we assume that this one won't change?
The mind boggles.
Two indicators ... My emphasis added.
The Committee was comfortable with the projected forward path for the OCR. The Committee discussed the suitability of keeping the OCR on hold at 5.25% or increasing it to 5.50%. The Committee agreed that neither decision would cause unnecessary instability in output, interest rates, or the exchange rate.
And
The case for keeping the OCR at 5.25% with the same forward projections rested on the recognition that monetary policy is having a sufficiently moderating effect on demand and inflation, and that we are yet to see the full effects of past tightening on the economy. A pause would also allow more time to assess the impact of the significant tightening, and the timing of any further increase that might be needed.
So perhaps not exactly "no more hikes" but a pause because they "haven't seen the full effects yet". Those effect are working their way through and soon it'll be obvious that the RBNZ has overcooked it.
The text you've quoted refers to the case that was made for a pause at 5.25%, before ultimately achieving the terminal rate of 5.5% (which would've been communicated through the dot plot). From the MPS and subsequent press conference, it is clear the committee don't envisage the need to raise rates further from here.
Depends....
Some of the people I've talked to/provided advice to have $500,000 + cash. e.g. retirees.
Their yearly expenses have increased by $5,000 or so due to the higher inflation over the last few years....but the higher term deposits have increased their income by $10,000+.
So overall, they are far better off because their gain from higher rates vastly exceeds their increased costs from inflation. It comes down to how much you spend (that has been inflated in your consumption) relative to how much your income has increased with higher TD/cash rates.
So saying that everyone is worse off due to inflation is limited thinking. People loaded up with debt and like to consume a lot are significantly worse off - that is for sure. But those who are sitting on a pile of cash (hundreds of thousands or millions) are doing just fine as long as their consumption isn't excessive and their TD returns have gone from 2% to 6% (3 fold increase).
It really isnt worth it, and getting less and less worth it every year.
The removal of interest deductibility, coupled with a likely jump in the mortgage repayments, and not to mention the usual increases in insurance and rates is going to bring a lot of pain to investors.
Add to that the fact that we have no way to remove a tenant (other than moving into it ourselves) and can not insure against them trashing the place, it really is a terrible investment.
And.... a lot are highly leveraged or were not running profitably in the first place, before house prices have dropped up to 30%.
But the issue is, first home buyers, who every one says there is an infinite amount of and they are all supposed to somehow have a deposit sitting there, are more than likely unable to afford the repayments either.
Ah well, I have just written my house off as a loss until I sell it in 10 years for high density development, which is needed in Hamilton.
Jaw dropping stuff from across the Tassie. The private company of the man who was CEO at PwC during the entire tax leaks affair has received over $6.2 million from Aussie taxpayers in just 24 months - including a $55,000 "consultancy" contract just last week.
This is taking the proverbial pis.
Stunning journalism from Anthony Klan. Unfortunately, we don't have journos of this ilk.
Sayers was PWC Australia CEO from 2012 until May 2020, and so boss of the company for the entire relevant period it was illegally selling Federal Government tax policy secrets, the scandal roiling the company and making international headlines.
Just like PwC, Sayers Group cashes in on government “outsourcing”, making large sums of money from government contracts by providing services that were previously undertaken by the public service.
In just the past five weeks, three new Sayers Group contracts totalling $330,550 have been disclosed on AusTender, the Federal Government’s tender register.
And the interesting thing to see will be if any of that Consultancy payment(s) went back to anyone who awarded the contracts in the first place. Would any of us be surprised?
That would be pushing it too far IMO. Any kickback corruption would involve some sleight of hand. More damage for the PwC brand. Surely this guy should not be taking govt contracts after leaving PwC so soon.
F'more, the relationship with Frydenberg stinks to high heaven.
Yeah, would be good to know.
interest.coers, a penny for your thoughts: I've got a refix coming up in 10-11 months. Would you a) save as hard as possible to pay off as big a chunk as possible. b) save moderately, pay a bit off, but continue to put a bit into other investments (basically shares, and maybe one of those trek cycles talked about this morning). Just thinking ahead.
I have a refix coming up in December.
My mortgage terms with ANZ allows me to pay back up to an additional 5% of the mortgage amount each year with out any penalties.
With my current rate of ~4.3%, this means any investment needs to return about 6.2% before tax to make it more profitable than just saving up a chunk and dumping it on. And looking ahead, once it jumps to 6.7% that investment needs to be returning about 9.6%!! So once I get my pay check in July I will have the max amount I can put in and will do so. After that ill just live like normal and see how much spare cash I end up with on the date.
I am still dollar cost averaging into my investments, as I expect these to out perform the interest expense in the long term, I will likely just cut back my cash buffer for a month until the next pay check comes in.
The lowest risk strategy is to attack the debt. Shares and investments can crater if there is a meltdown, and although it will recover you just don’t know how long it will take. Also, you never know how high interest rates will go in the meantime. That’s my thinking anyway.
It will depend upon the value of your collateral.
If the V bit of your LVR has fallen since the last roll-over/drawdown, expect some pointed questions ahead of any negotiations you might want to engage in. Renegotiation Time isn't the fait accompli it used to be a couple of years back. (Don't be surprised if you're asked to cut the limit of your credit card, for instance)
A 5.5 OCR peak combined with current government fiscal policy will see a slow grinding down of the poor.
The decision today not to break-the-back of the housing market, combined with mass immigration will be great for those employed in the justice and social-service industries.
Will the RBNZ consider reintroducing a 'Funding for Lending Programme'?
YOU think my question sounds preposterous!? Well, consider this: She's ALL Done, the RBNZ believes it's taken the necessary steps to curb inflation (in general) and doesn't want large house price falls..
After Labour's largest wealth transfer in NZ history and the OCR decision today - NZ will become a nation of renters - it's baked into the cake. Immigration (larger households to service rents) and generous government subsidies will see spec-mortgages are serviced.
The expectation is that ever more people will rent, house prices are irrelevant as they're a commodity the majority will never purchase. Those that can purchase/borrow will be doing so for additional properties and WILL be happy because prices Will increase. The RBNZ will conditionalize the next Funding for Lending Programme and tack on a word like 'targeted'.
The failed KiwiBuild programme was originally for 'owner occupiers' and has morphed into (here I go) soviet styled housing/thinking. You can see how the thinking has changed. NZ will continue to have declining homeownership rates.
Obviously all this is terrible for living standards, not to mention the dollar.. yet that's the decision that was made today.
Good Luck
As you may be suggesting, there was an element of "The RBNZ has got this under control" until today. And if so, whatever they (collectively) might want will be irrelevant in the face of larger issues ; offshore economic influences.
What the RBNZ did today, was surrender control. And whether they know it or not, that spells trouble for them and for us.
As per normal ... NZ Banks raise floating rates way beyond acceptable levels to force those re-mortgaging onto fixed term rates while knowing full well that those fixed rates are going to look damn awful when the OCR falls fast because the RBNZ has over cooked it.
For J.C.
【Breaking: 144,256kg of silver was delivered today from SFE silver vaults】 After a slight increase in inventory yesterday, a big outflow of 144,256kg was seen from SFE silver vaults today. This is the largest single day outflow in the 10 years since the silver was listed. Link
Govt pours gasoline on the wage and price spiral. All imports plan on a price hike.
I guess election year is a bad year to allow financial reality to occur. The longer Orr bauks at doing his duty the more likely we will have an extreme event. Being either hyper inflation devistating all but bank profit and speculation, or, an ever bigger property reset at some stage.
What to do indeed.
Some are trying to make a big deal out of debt ceiling resolution. T-bill deluge and a jump in feds' TGA which will lower bank reserves. Who cares! There's $2.2T in reverse repo right now along with an "extra" half trillion in GC repo (how much more in other safety bids). Link
Falling rates in GC repo markets along with high volumes indicate massive safety bid. As deposits leave banks for interest rate reasons MMFs and the like are relending but only to the safest, most liquid borrowers. Why? Rate hikes aren't it. CRE is just a start. Link
I've been saying all along #bankingcrisis isn't about rate hikes/deposit flight not really. Banks should be able to borrow funds back in wholesale because the funds sure showed up there (repo). Hundreds of billions did; from before SVB, too. Why didn't it or First Republic? Link
Short term swaps down 30bps in response to the OCR announcement today. 1 year swap still 25bps above OCR.
30 and 90 day bankbill rates up today - not down. 90 day up to 5.87%.
Can imagine Orr and the team will now be hoping these market rates comply with their desires over the next 6 weeks or so.
Fascinating times in history to be interested in finance/economics.
National potentially flip-flopping on MDRS. Any legal people know if there would be legal recourse for people who have invested on the basis of extra development rights conferred by MDRS?
https://www.nzherald.co.nz/nz/politics/housing-density-national-party-l…
You were anti MRDS not so long ago.
I find it funny that we all think this election has anything to do with the performance of the politicians. It’s all about the media, they were all for Ardern, then they turned against her, then they liked Chippy, now they seem to be on an anti Luxon vibe. The media will decide which team gets those swing votes, democracy is dead.
No I think it’s been on the cards for a while, I know many who were shafted in 2008 or so and this was the obvious repeat. I just pointed out that construction was performing much better than expected a few months back, the doom and gloom hadn’t hit then. Even now I’m amazed how much is being built, who is buying it?
Luxon is a terrible campaigner, and he doesn't help himself. His flip-flopping is out the gate at the moment.
But reading the article about the greenfields proposal (I think the OP is referencing) there was some paragraph about Luxon's comments on Waka Kotahi, agriculture and spending that literally read like some kind of Reddit "clap back" in a very snarky tone.
There is 0 chance you'd see an article with the same tone about a Labour/Green politician - it just wouldn't happen.
Luxon should be smarter and know better but you are on the money that there seems to be a clear attempt in mainstream media at shaping the narrative.
Willis is just the anti everything politician. Easy for National to be anti Labour’s policies, but I’m not certain what National are actually proposing themselves.
It’s hard I guess, they took a stand against giving out free prescriptions and the media turned against them (maybe paid for by pharmacies). If $5 is too much for user pays then we must be becoming pretty socialist.
My expectations were low, but somehow they keep surprising me.
"Greenfields development", so let's turn our valuable, irreplaceable farmland into single-story sprawling low-quality housing that requires a massive amount of new infrastructure, rather than focusing on building near our existing arterial infrastructure that is surrounded by massively underutilized properties.
It's backward myopic thinking that got us into this mess and they're just going to repeat the exact same mistakes all over again. It's insanity. Clearly, something we were doing wasn't right but they're just going to take us down the same path all over again.
What on earth is wrong with our politicians, where is the vision, the leadership? The bureaucracy behind them doesn't achieve a damn thing except diluting responsibility to a point where nobody is held accountable to anyone. Change is desperately needed but none of the current parties are offering anything that will help the country at all, the only thing on offer is different options that screw us over in unique but significant ways.
arghhhhh.
There’s also quite a few investors and developers - typical Nats voters - who have put a lot of stock in MDRS.
At the same time, plenty of Nats supporters in leafy central suburbs dead against MDRS. People like Yvil who said people on the North shore were NIMBYs for opposing intensification, then submitted against it when it was proposed in his backyard. Hypocritical NIMBY!
It’s just not a great look on a bipartisan initiative. Flip flop.
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