A review of things you need to know before you sign off on Wednesday; worryingly large current account deficit, IAG signals big premium rises coming, food prices jump, massive Settlement Account balance movements, swaps up, NZD firm, & more

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
TSB has raised some key fixed home loan rates. Kāinga Ora/HNZ has raised its floating rate to 8.50% but trimmed two fixed rates slightly.

TERM DEPOSIT/SAVINGS RATE CHANGES
Co-operative Bank added +10 bps to its 6 month rate taking it to 5.60%.

STILL WORRYINGLY LARGE
Our current account deficit shrank to -8.5% of GDP in the first quarter of 2023 as funds flows from international tourism start to return. In Q4-2022 this deficit was -9.0% of GDP. Although this is 'good', we should recall that since 1990 this deficit didn't fall below -7.8% of GDP until June 2022. The current -8.5% level is still the second worst in those 33 years. We are very lucky overseas creditors will still lend to us and in NZD (so they take the currency risk). If they stop doing that, it could get tricky fast.

PRESSURE RELIEF
Part of the balance of payments improvement and pressure-easing has been from a spike in funds flowing in from reinsurers for the recent storm events. In fact, this inflow was the most since the Christchurch earthquake events in 2011 (and actually more than for the Wellington/Kaikoura quake events in 2016).

LEVERAGING MARKET DOMINANCE
This fast increase in insurance claims has the dominant general insurer in New Zealand (IAG) toughening up its approach. In briefings to investors, it promised in New Zealand it would "protect margins" and "optimise its cost base", both code for ensuring higher premiums and restrained service levels are coming for its clients. It is working from a high 92% customer retention level and battling claims that are ~60% higher due to the weather events, car claims ~16% higher, house and contents claims ~12% higher. Clients will notice "more automation" in the way they interact with the company, and more AI. They signaled car premiums will rise about 20%, commercial premiums will rise "15-20%", home premiums will rise "20-30% - adjusted for [the] EQC impact". Investors may be reassured; it is unlikely customers will be.

TWELVE PERCENT MORE
Food prices continued to climb in May led by fruit and vegetable prices, according to the May update from Stats NZ. Prices were up +12.1% from the same month a year ago, and up. After adjusting for seasonal effects, they were up +0.5% (an annualised 6% rate) so recent trending is lower. This recent slowdown is broadly confirmed by the slight slowdown in the Infometrics Grocery Price monitoring.

AUCKLAND RENT INCREASES RISE
Rent index data for May was +3.8% higher that the same month a year ago, on a national basis. This was the same increase for recent bond transactions as it was for the overall stock of rental houses. But there is a noticeable acceleration in the rate of increase in the Auckland region. In 2022 Auckland increases were notably low. They started 2023 in january with a +2.8% annual rise. But by May that had steadily rised to +6.8% above year ago levels. Only provincial South Island is seeing faster rent growth (+8.0%).

BUSTED MARKET
For a second successive quarterly auction, there were no more carbon credits (NZ Units) sold by the Crown today because the offer prices were too low. 8.9 mln units were on offer, none sold. There is a review underway of this broken market and until it is completed, participants will have little confidence in trading this market. Meanwhile in secondary trade, a NZU currently goes for just $60, what it was in October 2021. NZU auctions started in March 2021.

"NOT COMMERCIAL WITHOUT CROWN INVESTMENT"
Ruapehu Alpine Lifts is in Administration. PwC is the Administrator, and they report the best option to save the business and amenity is for the Government to take a 25% cornerstone shareholding of a reconstituted company "and with Crown loans for working capital requirements".

BIG BANK BALANCES, HUGE MOVEMENTS
The Crown Settlement Account at the RBNZ fell a massive -$18.4 bln, its largest since this data series started in December 2001. The comings and goings of NZGB bond maturities have previously seen this move between +$8.5 bln and -$9.5 bln month-on-month, but never something as large as -$18.4 bln before. If you know why, please note it in the comment section below. Meanwhile, "Settlement institutions' balances" (all banks together) saw their balances rise by +$8.9 bln in the month. The highest ever for a month was +$14.2 bl in March 2020, and the biggest outflow was -$8.4 bln (in January 2023). After these movements, the April Crown balance was down to $17.4 bln, and the total of all bank balances was up to $54.7 bln as at April 30, 2023. Together, there was $72.0 bln in these RBNZ Settlement Accounts - which ts $10 bln lower than the record high in November 2022.

SWAPS UP
Wholesale swap rates are likely higher today on international influences. 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 -1 bp at 5.68% and +18 bps above the 5.50% OCR. The Australian 10 year bond yield is up +8 bps at 3.98%. The China 10 year bond rate is down another -3 bps at 2.64% and a new 8 month low. And the NZ Government 10 year bond rate is at 4.60%, and up +7 bps, but that is still higher than the earlier RBNZ fix which is up +4 bps to 4.55%. The UST 10 year yield is now at 3.70% and up +8 bps from this time yesterday.

EQUITIES LED BY WALL STREET & TOKYO
Wall Street ended today's session higher again, with the S&P500 ending its Tuesday session up +0.7%. Tokyo has opened its Wednesday session up a strong +0.9%. However, Hong Kong has opened down -0.2%. Shanghai is little-changed in its opening Wednesday session. The ASX200 is up +0.3% in its afternoon session. The NZX50 is down -0.1% in late and uninspiring trade.

GOLD LOWER
In early Asian trade, gold is at US$1947/oz and down -US$10 from where we were this time yesterday. Earlier, gold closed in New York at US$1943/oz and in London earlier again at US$1954/oz.

NZD FIRMER
The Kiwi dollar is up almost +½c from this time yesterday at 61.6 USc. Against the Aussie we are firm at 90.9 AUc. Against the euro we are also firm at 57.1 euro cents. That means the TWI-5 is up +20 bps at 69.6.

BITCOIN LITTLE-CHANGED AGAIN
The bitcoin price is little-changed again today, now at US$26,022 which is up a mere +0.2% from this time yesterday. Volatility has again been modest at +/- 1.3%.

This soil moisture chart is animated here.

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