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
Kiwibank raised some key fixed rates today, by between +10 bps and +20 bps. The Police Credit Union also raised its one and two year fixed rates today.
TERM DEPOSIT/SAVINGS RATE CHANGES
SBS Bank launched an outsized one year TD offer of 6.5%, well above all other banks for this term (and probably above the CPI inflation level we will get on Wednesday for June - forecasted at 5.9%). More here. Kiwibank also raised many term deposit rates by +5 bps to +20 bps, taking their six month rate offer to 5.75% and their one year offer to 5.90%.
SLIDING LOWER
Evidence of the slowing in the service sector was clear in the June BNZ-BusinessNZ PSI. It contracted to a steady-state with the May expansion almost gone, and continuing a declining trend that started in October 2022. Perhaps the May result was an outlier. The local PSI has failed to match the resilience in the global PSIs, which is disappointing. New orders are still expanding however, but at levels well below 'normal'. If you are stretching for positives, this PSI is still better than what the QSBO recently reported for Q2.
"HAVE YOUR SAY" (BUT NOT TO UPEND PRIOR COMMITMENTS)
Auckland Council is reminding residents that they can comment on the draft Future Development Strategy. With half a million more people expected to live in the city by 2058, this is their plan to make sure homes, jobs and infrastructure are built in the right places, at the right time. (But previous commitments to halve greenhouse gas emissions by 2030 and reach net zero emissions by 2050 are key constraints to any option proposed.)
COMCOM TOUTS SUCCESS IN REINING IN HIGH-COST LENDERS
The Commerce Commission says a review of high-cost lenders following the 2020 introduction of new rules in 2020 shows they've either quit the lending market or reduced interest below 50%. Specific rules for high-cost lenders require them to cap interest and fees at 100% of the total loan amount; cap the interest rate charged per day at 0.8%; whilst lenders are restricted from making high-cost loans to some repeat borrowers; and lenders have additional disclosure obligations. Separately, ComCom is going after pecuniary penalties for the first time in High Court civil action, this one against Eagle MAN.
GOING WITHOUT
The number of new tractors sold in June was unusually low - only 174. That was even lower than immediately after the pandemic struck (188 in June 2020). In fact you have to go back to 2015 to find a lower level (158) and the ten year average for a June has been 194. In June 2022, there were 227 sold so this year is about a quarter less. In fact, the 12 month rolling sales levels are now lower in 2023 than 2022, and in fact - apart from the pandemic 2020 year - we haven't seen this level of long-term weakness since the shadow of the GFC in 2010.
LOWER BALANCES
Updated data shows Settlement Balances at the RBNZ lower for banks. They were under $45.4 bln and their lowest since August last year. (They are now -$11 bln lower than their December pear, down -20% from then.) The Crown Settlement Balance is now $21.6 bln and little changed from May. (It peaked in March 2021 at $42 bln.)
MORE REGIONAL BANKING HUBS
Three new regional banking hubs are to open from this week as part of the regional banking hub trial led by ASB, ANZ, BNZ, Kiwibank, TSB and Westpac. The three new hubs will be in Waimate, Whangamatā and Ōpōtiki. The first four regional banking hubs opened in late 2020 with banks deciding to extend and expand the trial last year. The hubs are designed to test community and customer demand for multi-bank services in towns that don’t have enough customer demand for bank branches.
LOW BASE EFFECT BOUNCE ...
China's economy expanded by +6.3% in the second quarter from a year earlier, fueled by recoveries in retail sales and the service sector, and partly thanks to a low base effect. This was lower than the expected +7.3% but was higher than the +4.5% rise in Q1-2023. Between Q1 and Q2, up just +0.8% (annualised at +3.2%) and emphasising the size of their challenge to regain momentum.
BUT JUNE WEAK I ...
Electricity production however only grew +2.8% from a year ago in June. Some use this metric as a more insightful indicator of actual economic activity in China. It rose +5.6% in May, and this June result is the lowest since February.
AND JUNE WEAK II
Retail sales were another weak point in today's data releases from China; there were up +3.2% from a year ago in June with the re-opening surge seemingly having passed through their economy now.
HOLDING PAT
Separately, their central bank did not change its 1-year Medium-term Lending facility rate at 2.65%.
A NEW PRIMARY ENERGY SOURCE?
Our eye was drawn to an article by AEP (a serial embellisher) to the potential of geologic hydrogen. That led to a USGS survey released in April that claimed: "The good news is, if even a small fraction of this estimated volume could be recovered, there would likely be enough hydrogen across all the global deposits to last for hundreds of years." Also see this. AEP might be right about something, sometime. Forget 'brown', 'blue' or 'green' hydrogen, or even ammonia; this is 'white' hydrogen'.
SWAPS SLIP AGAIN
Wholesale swap rates are probably lower again 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 unchanged at 5.65% and now +15 bps above the 5.50% OCR. The Australian 10 year bond yield is down -3 bps from this morning at 3.97%. The China 10 year bond rate is unchanged at 2.69%. And the NZ Government 10 year bond rate has again fallen back, this time by another -7 bps to 4.55%, but still higher than the earlier RBNZ fix which also fell -10 bps to 4.52%. The UST 10 year yield has fallen back by -2 bps, to just on 3.81%.
EQUITIES MIXED
The NZX50 has started the week weak, down -0.5% near the close. The ASX200 is little-changed in afternoon trade. Tokyo has opened its Monday trade with little-changed from Friday. Hong Kong has opened up +0.3%. But Shanghai has started its Monday down a very sharp -1.2% with investors unimpressend by the data releases today. The S&P500 futures suggest Wall Street will open tomorrow virtually unchanged from Friday.
GOLD STABLE
In early Asian trade, gold is little-changed from this morning, still at US$1953/oz.
NZD ON HOLD
The Kiwi dollar is little-changed from this morning's open, perhaps a td softer and now at just on 63.6 USc. Against the Aussie we are unchanged at 93.2 AUc. Against the euro we are softish at 56.6 euro cents. That means the TWI-5 is little-changed at 71.
BITCOIN LITTLE-CHANGED
The bitcoin price has slipped -0.4% from this morning and is now at US$30,278. Volatility has been low at just under +/- 0.5%.
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73 Comments
It's been that way for 30 years or more. The profit in farming over that time has come from buying the neighbours' farm and reselling the lot after 5 years at double the land value or more. What happens in between - the farming bit, was described to me as "You'll get 1/5 good years. 3/5 average and 1/5 bad. And, if you're lucky, you won't have a nasty accident with the PTO in the meantime..." (Oh, and as a city escapee who thought "farming in New Zealand had to be it", the old farmer who passed a bit of his holding on suggested "farm whatever you like - as long as it doesn’t have eyes")
You forgot to mention Nationals new 'support the landlords at a cost to young peoples retirement fund' policy.
National promises to let under-30s raid their KiwiSavers for rental bonds | Stuff.co.nz
Edit: Sorry D, I see there is a separate main article.
Notice that they are putting the blame for this policy on the young nats. Landlords, many who are national voters, ultimately benefit from this policy because it allows them to put up rents without the increased bonds needed being much of a factor.
Kiwisaver gets worse at every change of government.
Colleague has blogged on the Japan bubble. I like this quote:
Things started to get out of hand as speculation on land reached unprecedented levels. New BOJ governor, elected in 1989, stated the following during his acceptance speech:
"The nation is frustrated with the increasing wealth disparity among them resulting from the land and stock price boom”
Ironic considering Japan has relatively low inequality compared to the Anglosphere and China in particular.
https://www.aumacro.com/japans-real-estate-bubble-and-subsequent-bust/
Had lunch with a mate who also works in the urban development advisory space. We agreed that developers are increasingly putting things on hold. The well resourced / unleveraged ones can do that without too much pain.
The key question is how will people reliant on development go over the next 2 years. Including me and my mate, haha! (We both have eggs in a few baskets and have funds for a rainy day so should be OK, although a bit of belt tightening will be required, like fewer lunches)
IMO is it soley dependant on migration and interest rates. In Oz a lot of builders seem to be going bust. I don't think the Autrlaian building standards are as good as NZs either based on inspection videos I have seen, which may account for why houses over there being so much cheaper to build.
one of the structural engineers put the total cost of repairs for the building at $50 million to $100 million which could mean a bill of about $240,000 per lot owner.
https://www.smh.com.au/national/we-ll-be-destitute-sydney-apartment-own…
RE: US
Banks continue to cut back. Lessons of Bear Stearns now into July '23: raise cash/collateral, hedge, and de-risk. The de-risking continues, banks selling securities and cutting back on lending. Another big drop in bank credit in latest weekly data. https://buff.ly/3JZxnzM Link
Those settlement balances are already back to $53 billion. RBNZ throwing $8M of Govt money per day at the banks in interest payments because they need to keep the cost of credit up - the same credit that is crippling kiwi businesses and many households. What a world we live in.
Updated data shows Settlement Balances at the RBNZ lower for banks. They were under $45.4 bln and their lowest since August last year.
Balances back up to $53.330bn as of 13/07/23. Would have been $5.0bn higher if Treasury had not settled a $5.0bn tap debt issue on the same day.
"WORSE than the GREAT DEPRESSION. Interesting video on what people were making in 1933 during the worst part of the Great Depression. And showing inflation adjusted what that equals today. The money we make has less value than ever"
https://twitter.com/WallStreetSilv/status/1680662653553844226?s=20
Average US wage would now need to be $95,000 USD to give equal buying power as compared to depths of great depression.
Are we living through a depression by stealth? (one that has been covered over by money printing?)
I.e. we haven't had the unemployment because we created excess liquidity/demand, and yet we are collectively poorer for the benefit of that - relative at least to our ability to buy the things we need to live (e.g. consumption items as well as buy housing/service mortgage debt).
And isn't that the point of working? Or the incentive to work hard? To improve our ability buy the things we need to live/prosper?
It may turn out that we would have been better off to have had a 1930's depression, where 20% of the population lost their jobs, but at least that forced the bad debt from the system, and then it could restart.
Instead we are maximising the pain for the many, so that the wealth of a few (top 20%) doesn't crash (in terms of the assets they own).
Like Jfoe - my mind boggles at the stupidity of this all.
Yes I’ve heard the same argument that they should’ve let it correct during the GFC. Instead they kept the system going despite the shaky foundations and human suffering.
“We stepped in before the banks had collapsed and we did some things to fix the financial system which are very hard to explain because they are objectionable things,” Hank Paulson
Would it have been worse if they allowed the banks to fail? I don’t know.
I'm not sure about the 20% unemployment bit, but we do need a reset! Our economy is now reliant on either private sector debt expansion, or net govt spending (increased debt), and when we do enough of either of these things to sustain decent employment levels we blow out our trade deficit and end up shovelling interest payment to overseas investors. RBNZ then respond by hiking rates and redistributing workers earnings to the already wealthy. It's a third world primary industries, debt-fuelled model and we have maxed it out.
“Are we living through a depression by stealth? (one that has been covered over by money printing?)“
All too often throughout history, states have attempted to cover their debts through debasing the currency, causing inflation. Why would we be any different today? I’d love to have an answer to that.
Another worry that has crept up on me thanks to ‘Energy and Civilisation’ by Vaclav Smil and others such as PDK’s arguments is that we may have been living beyond our means since we humans started heavily relying on oil. The ‘value’ of our currency is backed by cheap energy, should energy availability become an issue, more money is needed to chase the same goods.
If they’re correct, then inflation and the cost of living crisis is not going to be resolved any time soon.
Or perhaps the inflation measures they are using aren't really doing a good job of relating the change in purchasing power over time?
Which is more likely, the middle of the depression was a more plentiful time than now? OR the numbers they are using are poorly calculated?
How do you measure it though? I’m sure you can buy a lot more TVs with your wage today than then. Maybe less houses.
The average US wage earner is hardly poor, most probably have everything you can imagine, middle class poverty these days is when you can only afford 2 streaming subscriptions and 3 cars.
Simple. There were 2-and-a-little-bit billion humans on the planet, then. And we'd not burned the bulk of the fossil energy, or created most of the pollution. As well, less folk were first-world consumers, and those who were, consumed a lot less than us per head.
So of course they were better off.
Courtesy of John Hussman (PhD) - twitter
"Ooof. Our estimate of S&P 500 "equity risk premium": -7.2%
Projected 10yr SPX total return over and above Treasury returns. Not that Treasury yields are great either. Worst projection in U.S. history next to the March 2000 and August 1929 bubble peaks"
https://pbs.twimg.com/media/F1BFL36WAAgAg9i?format=jpg&name=medium
"Same data in levels form - yellow bubbles show points where the S&P 500 was projected to lag Treasury bonds. Brackets show subsequent periods, typically about 20 years, in which S&P 500 total returns did, in fact, lag Treasury bond returns"
https://pbs.twimg.com/media/F1BH4E2WwAQEv7k?format=jpg&name=large
https://twitter.com/hussmanjp/status/1679920517413732380?s=20
This is great. NZ needs journos like The Klaxon.
The global PwC tax leaks scandal has claimed its first government scalp with one of Australia’s most senior tax officials departing amid revelations by The Klaxon.
Anthony Klein, who was just halfway through his three-year term, has “resigned” as director of the Board of Taxation after The Klaxon queried his past, including his having worked directly with at least two PwC tax partners at the heart of the tax leaks scandal.
Oh dear. Stressed homeowners running to third tier lenders to keep their houses. What could possibly go wrong, and where have we heard this all before?
https://www.oneroof.co.nz/news/43942
(But previous commitments to halve greenhouse gas emissions by 2030 and reach net zero emissions by 2050 are key constraints to any option proposed.)
Aucklands population growth rate makes achieving that extremely unlikely. They'd be better off working on a per capita basis.
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