What happened Wednesday

Economy / news

A review of things you need to know before you sign off on Wednesday; some more mortgage rate rises, CPI fall less than it seems, dairy price fall risks payout drop, swaps stable, NZD dips, & more

19th Jul 23, 3:59pm 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/LOAN RATE CHANGES
The Co-operative Bank raised all its fixed rates from 18 months to 5 years. China Construction Bank raised its floating rate by +6 bps to 8.14% today

TERM DEPOSIT/SAVINGS RATE CHANGES
No changes to report here today.

LITTLE REAL PROGRESS IN BEATING INFLATION
The headline annual rate of inflation fell to 6.0% in the June quarter from 6.6% in the March quarter. This was more than expected (5.9%) splitting the difference between the professional analysts and the RBNZ (6.1%). The March-to-June rate ran a 4.4% annualised rate. But the real story is the sticky-high level of non-tradable inflation which came in at 6.7% driven by higher prices for construction, rents, and eating out. In March this was 6.8%. That is virtually no movement and shows there is a lot more work yet to do to quash inflation. It is hard to see the RBNZ thinking it is making progress. The pressure is on for another RBNZ rate push higher, something financial markets had not priced in recently. However the analysts are dusting off their 'one more hike in 2023' earlier guess.

DAIRY PRICES SLIP YET AGAIN, PAYOUT THREATENED
Dairy prices continued to slip overnight. This latest slip wasn't expected but it does add to many recent retreats. The sluggish Chinese economy continues to weigh on dairy prices. Westpac noted they now see clear downside risks to their 2023/24 milk price forecast of $8.90/kg. "As a result, our forecast is under review."

GRANTS FOR DISPLACES STORM VICTIMS
North Island storm victims who have been displaced will get some new Government support. This payment will help bridge the gap until repairs are undertaken or a decision is made on the future of their property. It will be delivered through a MSD claim system. Payments are not taxable and will not affect Working for Families and most other social assistance entitlements. They may be claimable from June 1, so could involve an initial lump sum.

HYDRO LAKES IN GOOD SHAPE
As you might expect, our hydro lake storage situation is in good shape for the coming summer (which is 19 weeks away now).

MORE ON WATER SAFETY
The EPA tested 131 drinking water sources looking for "forever chemicals". They only found trace indications in 15 of these, and "at levels well below New Zealand's safety limits for drinking water".

SWAPS ON HOLD
Wholesale swap rates are probably little-changed again today, or maybe on the firm side for a change. 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 again at 5.65% and still +15 bps above the 5.50% OCR. The Australian 10 year bond yield is down -6 bps from yesterday at 3.92%. The China 10 year bond rate is unchanged at 2.68%. And the NZ Government 10 year bond rate is little-changed from this time yesterday at 4.56%, but still higher than the earlier RBNZ fix which rose +1 bp to 4.52%. The UST 10 year yield has fallen back by -3 bps to just on 3.77% so little-changed.

EQUITIES MIXED AGAIN
The S&P500 ended its Tuesday trade on Wall Street up +0.7%, mainly on good earnings reports. Tokyo has started its Wednesday trade up +0.7%. But Hong Kong is down another -1.3% at its open today taking this week's drop to -3.4% so far. Shanghai is down -0.2%. The ASX200 is down -0.4% in afternoon trade. The NZX50 is up +0.1% in late trade.

GOLD RISES
In early Asian trade, gold is up +US$22 at US$1977/oz. Earlier it closed in New York at US$1977/oz too, and earlier still in London at US$1975/oz.

NZD DIPS
The Kiwi dollar is about -40 bps lower, now at just on 62.9 USc. It fell more than that before the CPI data release, then rose sharply on the news before slipping back somewhat. Against the Aussie we are almost -½c lower at 92.4 AUc. Against the euro we are soft at 56.1 euro cents. That means the TWI-5 is down almost -50 bps at 70.

BITCOIN VIRTUALLY UNCHANGED AGAIN
The bitcoin price is slightly lower from this time yesterday at US$30,058 and down just -0.5%. Volatility has been modest at just under +/- 1.2%.

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

Daily swap rates

Select chart tabs

Source: NZFMA

This soil moisture chart is animated here.

Keep abreast of upcoming events by following our Economic Calendar here ».

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

52 Comments

by Dgm | 19th Jul 23, 4:10pm 1689739826

Moral of the story.. higher rates for looooonger..

Every day, there is a hike from one of the lenders...

by Audaxes | 19th Jul 23, 4:14pm 1689740067

Rate hikes, $667bln in QT (just USTs)and yields have gone nowhere. Prime example of how QT (or QE) has no effect on markets, on the economy, nothing. One of these day people should ask what the Fed actually does because it ain't what they want to think. https://buff.ly/3Oi9VjW Link

by TronMVP | 19th Jul 23, 4:19pm 1689740354

3 year swap rates already down to 5%, though, and at this decline, they will likely continue to drop to 4.8% or thereabouts

by Independent_Observer | 19th Jul 23, 4:25pm 1689740741

I'm 50/50 as to whether what we are seeing in wholesale rates is the ceiling or the new floor going forward. Can see both options being a possiblity (as opposed to being parked in the camp that rates have definitely peaked and can only go down from here).

Looking over a timescale of decades, this may now be the new floor in rates.

e.g. take a look at the US 10 year and view the full timescale. We are now only back at what would be considered a very low rate of interest over the last 60 years.

https://fred.stlouisfed.org/series/DGS10

by TronMVP | 19th Jul 23, 4:32pm 1689741174

Do you think therefore that 3 year rates will bounce up again and remain in that 5- 6% area?

by Independent_Observer | 19th Jul 23, 8:05pm 1689753901

You'll need to assign a timescale to a question like this because I don't know if you are talking months, years or decades.

Edit - to clarify. I hold little confidence in my ability to predict short term rate movements. But looking over decades, there is just as much of a chance that the rates we now see are the new floor (as that they are the new ceiling).

What the 3 year does in the coming months...I have no idea.

by Foxglove. | 19th Jul 23, 4:17pm 1689740238

Third heading. Little real progress in beating inflation. Sobering reality check that is. Powers that be may twist and turn but they can’t spin out of that one. Vast majority of households ,will tell you likewise. The government will tell you they know all about it and care about you all. At least the hugs aren’t offered up anymore.

by HouseMouse | 19th Jul 23, 4:23pm 1689740596

Jimbo J reckons everything is swell.

by Advisor | 19th Jul 23, 4:34pm 1689741270

Hard to see the pitfalls of cheap money when your financial success is linked to a perpetual inflow of it into real estate.

You could say that about Luxon as well.

by Foxglove. | 19th Jul 23, 4:34pm 1689741292

by printer8 | 19th Jul 23, 4:35pm 1689741358

HouseMouse

Well you thought CPI was going to be sub 4% by May.

Cheers

by HouseMouse | 19th Jul 23, 5:14pm 1689743681

And you lied 😂 and were found out. Gee I would be too embarrassed to ever comment again after that

i predicted Cpi of 5.9% yesterday - close!

one terrible prediction from me - wow! How does that compare to numerous terrible predictions from your beloved bank economists?

lol

by printer8 | 19th Jul 23, 6:15pm 1689747337

HouseMouse

Don't get triggered. As part of your outlandish baseless accusations you forgot about the part that I'm a manager for ANZ bank . . . so lol.

I don't lie: "CPI to 3% by May 2023. ‘May Day’ HouseMouse"

As previously said, your approach to forecasting is using the shotgun approach;" make lots of predictions, then deny when wrong and gloat when by chance a pellet is close.

I really hope you don't behave like this in the office.

Cheers

by HouseMouse | 19th Jul 23, 6:25pm 1689747922

You don’t lie?

You have pompously portrayed yourself as the wise patriarch to your sons on all matters financial.

A month or so ago you said that your family sold their properties in 2021 (before the crash). Portraying yourself and your family as financially savvy.

I quoted a comment from you in mid 2022 that said two of your three sons still owned investment property.

so that’s not a lie? Am I being harsh, do you just get a bit confused sometimes?

Hopefully it’s the latter - it’s very hard to take anyone seriously that lies / or is misleading .

by Retail shop | 19th Jul 23, 7:25pm 1689751557

Get a room you twerps.

by HouseMouse | 19th Jul 23, 7:29pm 1689751746

I’d do him. I imagine him as a short old dweeb.

no match for my 6’1’’, 93 kg frame

by Foxglove. | 19th Jul 23, 7:41pm 1689752484

Up until now visualised you as a Mickey, but now see you are a Mighty Mouse!

by HouseMouse | 19th Jul 23, 7:46pm 1689752779

All power, in mind, body and spirit.

It’s the Scottish and Viking DNA 👍

by Foxglove. | 19th Jul 23, 7:50pm 1689753012

mind, body and spirit. MBS! When you get to my vintage you will re-read that as .“my bloody spine.”

by Norm | 19th Jul 23, 8:32pm 1689755542

I imagined you two the other way around. I recollect you saying, quite recently, that you were going to "behave" HM? One too many pre and after dinner drinkies perhaps?

by printer8 | 19th Jul 23, 10:22pm 1689762165

HouseMouse

You really do have some issues.

Fine for you to initiate a dig at Jimbo but then you get really triggered if someone has a similar dig at you.

You really need to control that temper of yours - wild baseless accusations followed by threats of physical altercations.

Cool down.

Cheers

by JimboJones | 19th Jul 23, 4:45pm 1689741925

4.4% annualised inflation based on this quarter, and its heading down. But you can always find something in the data that looks bad...

I didn't say it was swell, I said that it looks like a soft landing, it may not be the level of doom and gloom predicted.

by Pa1nter | 19th Jul 23, 5:04pm 1689743058

Something's gonna go ping.

by JimboJones | 19th Jul 23, 5:12pm 1689743548

When though? I've been hearing that since the GFC!

by Pa1nter | 19th Jul 23, 5:29pm 1689744587

The resilience in the overall economy does sometimes seem supernatural.

Then again many people wake up in Russia every day and their life isn't much worse than 24 months ago, and you'd expect the place to go to hell in a handcart overnight under the circumstances.

by HouseMouse | 19th Jul 23, 5:39pm 1689745188

You know what? I think lots of people are only just hanging on.

I see more and more cases of personal stress and mental illness around me - at work, amongst friends, in public.

That doesn’t necessarily show up in ‘data’.

by Pa1nter | 19th Jul 23, 5:48pm 1689745708

The mental illness is a sideline gig on its own, irrespective of what the economy is doing. We'll be paying for that for decades to come.

But for sure added protracted financial stress doesn't make for happy times. We won't know if the landing is soft for a good year or two yet.

by HouseMouse | 19th Jul 23, 5:52pm 1689745963

Covid lockdowns were a big part of it. Financial stress now on top of that. I am seeing aggro people everywhere. Is anyone else?

Feel free for you, Jimbo and even Printer8 to mock me in a year’s time if we get through this with a ‘soft landing’. It would certainly be time for me to resign from commenting if that is the case.

by Pa1nter | 19th Jul 23, 8:31pm 1689755473

Probably veering into tinfoil hat territory, but I actually think the issues extend much further than the covid era. Consumption of drugs due to mental health, both legal and illegal is through the roof, and the generations of kids coming through are burdened with adult level mood disorders on a wide scale.

Something like a covid or economic downturn only really amplifies the fragile mental state of society

by Zachary Smith | 20th Jul 23, 6:06am 1689789972

It's because people have very poor diets too. Too many carbs and not enough meat.

by HSL | 20th Jul 23, 6:53am 1689792785

And told that the world is coming to an end through climate change, everything is the white mans fault, that they can be whatever sex they want (actually said that at my sons school)…….the level of crap our young ones are exposed to is terrible. Thanks labour it is 100% your fault (And didn’t include the Covid will kill you…when kids were of very little risk, closing schools…the list goes on).

by powerdownkiwi | 19th Jul 23, 7:36pm 1689752168

Jimbo - classic cranial curtailment.

You''ll be dead one day. Guaranteed.

Doesn't matter how many of the days of your life it doesn't happen; it will.

by HouseMouse | 19th Jul 23, 5:16pm 1689743801

Have a Chardonnay for me! And say ‘hi’ to Michael Woods!

just as disconnected from reality as your Labour idols!

by TronMVP | 19th Jul 23, 4:27pm 1689740821

As David said, the real problem is non- tradable inflation stuck at 6.7%. This is going to be hard to shift - I don't see the cost of eating out coming down any time soon with food and labour costs being so high.

On the positive side, the "headline inflation" ie CPI is likely to fall to 5.3% at the next announcement, which I think will be after the General Election.

by JimboJones | 19th Jul 23, 4:42pm 1689741729

" I don't see the cost of eating out coming down any time soon" - it doesn't need to, it just needs to stop going up as much. Do you think they can put the prices up another 6% and still have any customers next year?

by Frank Sobotka | 19th Jul 23, 6:35pm 1689748544

Boomers getting 6.5% on their TD to go with the millions in tax free gainz won’t be put off by that

by CeeJ | 19th Jul 23, 7:00pm 1689750054

That's the source of inflation

by Norm | 19th Jul 23, 8:41pm 1689756117

6.5% less tax!!! You'll be a boomer one day, what are you going to do, donate your super to a charity?

by Advisor | 19th Jul 23, 4:12pm 1689739972

I don't see how CPI could head much lower without a pullback in Crown funding that continues to stimulate aggregate demand. The Crown is budgeted to spend $30b more in 2023/24 than it did in 2019/20; $7b more than in the previous fiscal year.

Meanwhile, Robbo has responded to the CPI release by reaffirming his government's commitment to "helping bring down the cost of living and supporting those doing it tough".

by Squishy | 19th Jul 23, 4:50pm 1689742210

... the real story is the sticky-high level of non-tradable inflation which came in at 6.7% driven by higher prices for construction, rents, and eating out.

I'm keeping my fingers crossed that tradable inflation subsides because there isn't much evidence RBNZ or Government could stomach an inflation fightback.

by J.C. | 19th Jul 23, 4:53pm 1689742422

Over in Aussie, the entire fed govt tax “Advisory Panel" (47 people) who provided “real time policy advice to the Treasurer" axed after 21 yrs. Stacked with Big Four people including 4 current PwC Australia Tax Partners.

The mighty Klaxon does a great job.

The Klaxon on June 24 put detailed questions to Klein, the Board of Taxation, and to Treasury, asking if Klein had been aware of, or been involved in, PwC’s tax leaks scam — or whether he was among the 63 on the “list” of current or former partners PwC says received at least one email in relation to the tax leaks scam.

All repeatedly refused to answer.

https://theklaxon.com.au/ztem-47/

by J.C. | 19th Jul 23, 4:56pm 1689742613

Robert F. Kennedy Jr has thrown a cat among the pigeons talking about strengthening the U.S. monetary system with precious metals and the ol' rat poison.

And no tax payable on conversion of BTC to USD.

"“My plan would be to start very, very small, perhaps 1% of issued T-bills would be backed by hard currency, by gold, silver platinum or bitcoin.”

https://www.thestreet.com/cryptocurrency/rfk-jr-announces-plan-to-back-…

by Wrong John | 19th Jul 23, 4:57pm 1689742652

Robbo's addicted to spending money. He just loves it. And he's very good at it looking back over the last 5 years or so. Go Robbo. Spend is the trend ay boyo?

by malamah | 19th Jul 23, 5:00pm 1689742822

You must somehow have less money than you did 5 years ago. Have you been hiding under a rock?

by IT GUY | 19th Jul 23, 5:29pm 1689744544

Its going to take ages to put inflation back in its bottle...I am doing my bit, brewed 6 different 10L beers in the last week.... kegs will be full and less spend on craft beers, have a 300kg cow ready for freezer and will do a sheep cull for the freezer very soon as well, goat is in vege garden cleaning up before i replant.... Lets hope Ruapehu gets snow next few days, ticket sales well down as just not open enough... I wonder if this is going to be a slow lingering death due to climate change. I imagine either Cadrona or Remarkables might have there eye on the Sky Waka for relocation...

by HouseMouse | 19th Jul 23, 5:56pm 1689746196

The basketcase of a newspaper the Herald is all over the place on its CPI reporting. It’s gone from saying there was a big drop, to now saying it’s not so great (non-tradeable inflation) and that interest rates won’t fall anytime soon.

by Nifty1 | 19th Jul 23, 6:48pm 1689749316

What do we want? CLICKBAIT

When do we want it? The answer will shock you.

by HouseMouse | 19th Jul 23, 6:54pm 1689749671

Lol

by Independent_Observer | 19th Jul 23, 7:13pm 1689750815

A few updated charts and comments from Westpac/Eckhold:

Today's CPI wasn't flash. Some decent falls in imported inflation offset continued strong homegrown inflation - particularly services. This is part of a global trend. Wages costs drive these sectors which is keeping inflation high. Labour market indicators are now key.https://pbs.twimg.com/media/F1YBIRuacAAtk3h?format=png&name=small

Looks like a long path back to the inflation target right now doesn't it?

https://pbs.twimg.com/media/F1YBuhjaUAUpBwe?format=png&name=large

by HouseMouse | 19th Jul 23, 7:51pm 1689753086

Wow, townhouses in Auckland starting to surge on TradeMe. All those new builds being completed. Good news for renters!

by IT GUY | 19th Jul 23, 7:57pm 1689753468

Will eventually be good news for buyers as well. things just have to run a bit more

by nzphoenix | 19th Jul 23, 7:51pm 1689753095

Adrian Orr needs to channel his inner-Volcker.