Breakfast briefing: APRA targets unlisted asset values

Economy / news

Fewer Americans apply for consumer debt; China's growth disappoints; Singapore rocked by more scandal; APRA tackles unlisted valuations; UST 10yr 3.80%; gold stable and oil lower; NZ$1 = 63.4 USc; TWI-5 = 70.7

18th Jul 23, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news those unlisted Aussie funds are going to get a hurry-up on proper valuations from their prudential regulator via their superannuation system.

But first, in the US, the New York State manufacturing survey dipped in July from June but the shift was in fact minor and much less than was expected. Activity held steady in July and minorly positive. New order levels are still positive.

Meanwhile, applications by consumers for 'credit' (debt) are falling and are now at their lowest level since October 2020. And that means that those who are applying are increasingly likely to get turned down. In fact the rejection rate jumped to almost 22% in the year to June 2023.

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.

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.

Retail sales were another weak point in yesterday's data releases from China; they were up +3.2% from a year ago in June with the re-opening surge seemingly having passed through their economy now.

Separately, their central bank did not change its 1-year Medium-term Lending facility rate at 2.65%.

In Singapore, their graft scandal isn't the only issue rocking the ruling Peoples Action Party. Now two more senior MPs have had to resign over a secret affair, and one the Government has been trying to resolve in secret. One was being groomed for the PM role. Recently there have been accusations levels at their Foreign Affairs minister and their Home Affairs & Law minister, but the ruling party managed to deflect those.

The Russia/Ukraine grain deal that allowed exports though the Black Sea has collapsed with Russia refusing to renew it. Prices for wheat rose on the news, but good supply in the rest of the world has kept the rises relatively minor and nowhere near the levels even in June.

In Australia, prudential regulator APRA has been pushed into a crackdown on their superannuation funds, and how they value unlisted assets. The suspicion is that many of these assets are being carried a values that can't be achieved in a high yield market. And that is even after many funds wrote as much as 15% off their extensive unlisted office property investments in their end-of-financial-year valuations. There is more to come it seems, and it will hurt.

The UST 10yr yield will start today at 3.80% and down -3 bps from this time yesterday. Their key 2-10 yield curve inversion is also little-changed at -93 bps. Their 1-5 curve is slightly more inverted at -131 bps. And their 3 mth-10yr curve is little-changed at -150 bps. The Australian 10 year bond yield is now at 3.98% and down -2 bps from yesterday. The China 10 year bond rate is softish at 2.68%. The NZ Government 10 year bond rate is down -6 bps from yesterday to 4.56%.

Wall Street has opened its week with the S&P500 up +0.4%. Q2 earnings reports are not causing waves, yet anyway. Overnight European markets all closed lower with Frankfurt down -0.2% and Paris down -1.1% to bookend their activity. Yesterday Tokyo ended its Monday session very little-changed. Hong Kong was shuttered early for a typhoon (Talim). Shanghai ended down -0.9%. The ASX200 ended down -0.1% and the NZX50 ended down -0.6%.

The price of gold will start today at US$1955/oz and up just +US$1 from yesterday.

And oil prices are -US$1 from this time yesterday at just on US$74/bbl in the US. The international Brent price is now at just under US$78.50/bbl.

The Kiwi dollar starts today down -¼c from yesterday at just over 63.4 USc. Against the Aussie we are down similarly to 92.9 AUc. Against the euro we are down a bit more to 56.4 euro cents. That all means the TWI-5 is now down at 70.7 and -30 bps lower from yesterday.

The bitcoin price has fallen in its recent yoyo pattern and now is at US$30,050 and down -1.1% from this time yesterday. Volatility over the past 24 hours has stayed low at just on +/- 0.8%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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41 Comments

by nguturoa | 18th Jul 23, 7:35am 1689622501

All this news of growth slowing is good for the long term stability.

I see asset values which were artificially pumped up in the last decade to keep the downward trend for next couple of years and then just stay there for few more years

The way up is long way away. The ones who borrowed too much in crazyness of last two years will remain slaves of debt for a very long time, probably their life time.

by nktokyo | 18th Jul 23, 8:31am 1689625877

Want to bet?

I'm not saying I want this to happen, but all of that inflation is banked in as devalued currency and won't reverse. Nobody's salaries are going down. The cost of construction is going down only over Fletchers dead body.

Once lending rates stabilise and this cycles round of bad debt is digested one way or another, people in a couple of years will be earning 20-40% more in raw dollar numbers than they had been pre-inflation, but with the same sized mortgages and we will be back to more dollars chasing limited assets.

by JimboJones | 18th Jul 23, 9:00am 1689627637

Yeah I agree, in fact the banks are effectively paying you to take out debt - the interest rate you pay is less than the amount your debt is being eroded by inflation (although that will probably change in the next CPI). If you have 500k of debt today it will feel like nothing in 5 years time assuming inflation stays at a similar level.

by Advisor | 18th Jul 23, 9:24am 1689629054

NZ is like a spoilt teenager spending its generous allowance on shiny new things and the parents (foreign creditors) are happy to foot the bill for the time being.

by kiwikidsnz | 18th Jul 23, 2:39pm 1689647960

Reminds me of 1984: foreign creditors had NZ as collateral, if we can't pay the debt they collect the country.

by General Comment | 18th Jul 23, 7:56am 1689623792

Just for those wondering, the IRD are still making retrospective Cost of Living payments. Received an email this morning (everything seems legitimate) saying my partner will receive the payment over the next two days as FY22 income was below the threshold. Yes, we're that far behind with our returns.

Of course, that $350 is worth about 7% less this year. Oh well.

by Baywatch | 18th Jul 23, 8:02am 1689624170

So her Shareholder salary was under $70K...well done more bubbles this week?

by General Comment | 18th Jul 23, 8:39am 1689626345

A bill just came in for exactly the same amount, for children's extracurricular activities (up 9.4% on last year). Easy come, easy go...

by Hamish | 18th Jul 23, 9:35am 1689629735

The encouraging thing is that the scripts written for this look like they are working :)

by The Person | 18th Jul 23, 10:12am 1689631974

You'll be charging ird late payment penalties i assume?

1% penalty on the day after payment due date
4% penalty for remaining tax including penalties on 7^th day after payment due date
1% penalty every month the remaining tax including penalties is unpaid.

https://www.ird.govt.nz/managing-my-tax/penalties-and-interest/penaltie…

by bw | 18th Jul 23, 7:59am 1689623992

Perhaps we should take a leaf out of the property markets' book when we look at Inflation and move the comparator back. "The Quarterly Rate of Change of CPI might be falling, but if we compare prices to pre-Covid ones then....."

by Richardfromauckland | 18th Jul 23, 8:19am 1689625168

Nothing to see here folks. It's all good.

https://www.theguardian.com/environment/live/2023/jul/17/europe-heatwav…

by upquark | 18th Jul 23, 8:45am 1689626747

Could get a lot worse if the last 65 milion years are anything to go by.

by T-Bone | 18th Jul 23, 10:10am 1689631838

Use a graph that goes back well before humans existed to show that we will be sweet as with higher temps?

by upquark | 18th Jul 23, 10:59am 1689634748

The planet probably will be, not sure about humans. The dinosaurs did ok at higher temperatures until the meteor hit.

by Zwifter | 18th Jul 23, 12:17pm 1689639441

There are people on here that think that 50C is fine, just stay in your shorts and a singlet while sipping a Pina colada. Then same climate change deniers probably think a meteor strike will actually solve the problem, you know chuck up a bit of dust to block the sun and cool things down just a little.

by bw | 18th Jul 23, 8:29am 1689625780

"those unlisted Aussie funds are going to get a hurry-up on proper valuations..."

The lesson the status quo took from the Great Depression is to cover up private-sector over-valuations and bad debts with vast expansions of credit....The conventional account claims that the Depression was the result of a "Federal Reserve policy error"; the Fed tightened credit when it should have loosened it. This is nonsense. What actually happened was credit expanded rapidly in the Roaring 1920s, which is why they were Roaring....what happened was a gigantic credit bubble inflated that pushed assets to unsustainable heights of over-valuation..The real policy error was protecting the wealthy who owned the debt from a debt-clearing write-down. The wealthy own debt, the non-wealthy owe debt. When the debt is defaulted on, the lender / owner of the debt has to absorb the loss. The debtor is freed of the burden. In a debt-clearing event driven by defaults, insolvencies and bankruptcies, the wealthy are the losers and the debtors are freed of the burden of debt. Various programs were implemented to stave off the consequences of default, as if pushing losses into the future would somehow enable the credit bubble to reinflate. That's not how it works...

https://www.oftwominds.com/blogjuly23/coming-depression7-23.html

by donny11 | 18th Jul 23, 8:45am 1689626701

Will be interesting to see if Labour loses 5% of the party vote to the Green's over the next few months on account of their refusal to consider a wealth tax or CGT. A lot of those on the left want changes to the taxation system to address the systemic unfairess. Pandering to the latest woke social issue is becoming a bit tiresome to these people. Guess we will have to wait and see.

by JimboJones | 18th Jul 23, 9:21am 1689628865

I'm sure they will be happy if some voters move to green but they win back some of the middle voters who don't want a CGT. At the end of the day this election will come down to left vs right not National vs Labour.

by donny11 | 18th Jul 23, 9:31am 1689629471

Ultimately if on account of the tax policy even if Labour loses 3 votes to the Greens for every 1 vote they take off national or NZ first they are still winning in a way...... So long as Labour, Greens & TPM get 47% combined they should be in government.

by Advisor | 18th Jul 23, 9:58am 1689631139

Agreed. Don't forget that, for all the talks of good governance, NZ elections are nothing but popularity contests among party leaders. There's no doubt that a few minutes into the pre-election debates Hipkins will wipe the floor with Luxon and steal some last-minute votes back.

by Audaxes | 18th Jul 23, 8:56am 1689627402

Nothing to see here: Aggregate wealth of UK households has fallen by £2.1tn in cash terms. UK household wealth comprised 650% of national income in early 2023, down by nearly 200% since early 2021. Link

by Audaxes | 18th Jul 23, 9:00am 1689627601

Expectations that corp America will massively grow its profits – which are already historically giant – are not what's lifting stocks. Multiple expansion is name of the game as share prices outpacing puny expectations for profit growth. S&P 500 P/E multiple has risen from <17 to 19.5 YTD. https://axios.com/newsletters/ax Link

by KH | 18th Jul 23, 9:03am 1689627832

I can't get over the idiocy of the Nats KiwiSaver brainfizz.

Better if they took a fifty year view. KiwiSaver that is universal, contributions at a level that actually supports retirement and which eventually replaces national super.

We have to live as owners, not perpetually owing.

Long term vision please.

by JimboJones | 18th Jul 23, 9:16am 1689628584

It seems pretty minor to me. It sets a bad precedent, but I doubt it will have much overall effect on peoples retirement.

I'm sure they have plenty of worse policies yet to announce.

by donny11 | 18th Jul 23, 9:19am 1689628749

I think its more of a "policy for the sake of policy". National don't really have any decent policy except for removal of interest deductibility & other measures to inflate the housing market so they sort of have to make something up.

by JimboJones | 18th Jul 23, 9:22am 1689628923

I'm guessing they were trying to get some of the student vote instead of none.

by Advisor | 18th Jul 23, 9:43am 1689630235

I think Luxon is so deeply tucked in bed with property investors that he can't think up a single policy that doesn't benefit that cohort in some manner.

~65% of respondents in the most recent poll believed the current government is taking the country in the wrong direction and yet it's a close call on the party polling between Nats and Labour.

Luxon's inability to market himself as a credible PM who can represent all Kiwis and not just the wealthy bunch is making many voters nervous.

by JimboJones | 18th Jul 23, 9:49am 1689630575

Or is it just the Hipkins is more likeable and keeping Labour in the race. I doubt many NZers even know what National's policies are, I'm not sure I do.

by gnx | 18th Jul 23, 9:50am 1689630628

Students normally pool the bond… so it’s only one week each if four flatmates.

Hardly worth opening up KiwiSaver. I would love to know the balance of your typical 20yr old student.

I think National are showing us they have a list of things to do for the banks which involves throwing everything including the kitchen sink at the housing market.

gonna be a humdinger of a show watching this all unfold

by KH | 18th Jul 23, 10:01am 1689631317

I would prefer politicians to say. Yes this bit is a dumb stopgap/bribe.

And also the real policy to solve the underlying problem is .......

And it's made clear the second is the important.

by The Person | 18th Jul 23, 10:15am 1689632143

I think the unemployed should be able to draw on their kiwisaver to put a tank of gas in so they can drive to job interviews.

by sparrow | 18th Jul 23, 11:16am 1689635771

It could have a huge effect on people's retirement, money put in while you're young has far more time to compound than money put in later. And saying it's only a temporary removal of funds is wrong, property managers know every trick in the book to avoid having to repay bonds.

The outcome will be the old and rich stealing the retirement savings of the young and poor.

by refactornz | 18th Jul 23, 11:22am 1689636135

It's of the order of $1000 - $2000 so will hardly make a difference to retirement savings. I still think it's a daft policy though.

by The Person | 18th Jul 23, 2:06pm 1689646007

but how many times are they gonna draw down. Kicked out by a landlord who is cashing up every couple of years, snaked out of the bond, some people will be drawing down bond faster than they are paying in.

by sparrow | 18th Jul 23, 2:18pm 1689646696

$2000 in the account of a 20 year old turns into $42,000 at age 65 assuming a 7% rate of return.

by HughJorgan | 18th Jul 23, 11:43am 1689637417

Tenants will fight less to get it back if they know it is just going to KiwiSaver... so yeah, more will end up with Landlords.

by JimboJones | 18th Jul 23, 12:43pm 1689640999

For anyone that doesn't think duopolies are inefficient, Countdown are blowing $400 million on a rebrand. If they had to compete I doubt they would do that. The duopoly are costing us more than just their excessive profit.

https://www.nzherald.co.nz/nz/final-countdown-supermarket-giant-spendin…

by KH | 18th Jul 23, 12:59pm 1689641973

The big supermarket system is not efficient. The profit comes from achieving market control.

Break them up.

by The Person | 18th Jul 23, 2:09pm 1689646140

oh yes a different word stuck to the outside of the store, that is really goign to "transform" the business.

by HughJorgan | 18th Jul 23, 2:16pm 1689646593

Oh yeah, so exciting /s

The Commerce Commission is failing New Zealand.