What happened Tuesday

Economy / news

A review of things you need to know before you sign off on Tuesday; home loan affordability isn't improving, Truckometer suggests no recession, Auckland's $4 bln hit, swaps firm, NZD up, & more

25th 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
ICBC raised their fixed home loan rates across the board.

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

STILL A TOUGH PLACE DESPITE HOUSE PRICE FALLS
The latest home loan affordability review for June shows the housing market is still not a happy place for aspiring first home buyers on average wages. There have been only small moves in house prices and interest rates in June, leaving home loan affordability little changed.

POLICY COMPARISONS
We have opened our Election 2023 policy comparison tool, a resource we have been doing for the past seven elections now. You can find it here, with an explanation here. It will be progressively updated as each party release is available.

TRAFFIC VOLUMES SUGGEST NO RECESSION
ANZ's Truckometer tracking of roading activity for June was released today, and it shows that their Light Traffic Index (essentially car volumes) rose marginally from May, while the Heavy Traffic Index (essentially trucks) fell in the month. But that closes off the Q2 results, and ANZ says it indicated Q2-2023 will come in with a low but positive GDP change, and the expected outcome - so we will dodge a recession.

AUCKLAND COUNCIL SEES WEATHER HIT OF UP TO $4 BILLION
Auckland Council says "initial estimates" show it faces costs associated with the flooding and cyclones earlier this year of up to $4 bln. This includes recovery costs plus short-term investment, like the proposed property buy-out scheme, and longer-term investment in infrastructure projects that aim to increase climate change resilience. Funding options include; reducing or deferring other capital spending, further sale of assets, further service reductions, considering the level of future rates increases, and debt finance.

UNSECURED DEBT DEMAND DRIVES RISE IN CREDIT APPLICATIONS
Equifax says overall consumer credit applications increased by +5.3% in the June quarter from a year ago. But it was unsecured credit applications (comprising personal loans and credit cards) up +15.1% on the same basis. Mortgage applications reduced by -1.7% however.

NO RECESSION IN SOUTH KOREA EITHER
South Korea said its economy grew more than expected in Q2-2023, a second straight quarterly expansion. This is despite a decline in exports. Now their central bank expected their GDP will grow +1.6% this year from 2022, slightly higher than the IMF's forecast of +1.5%.

CRIKEY MATE
If you know Sydney, you will know that Grosvenor Place is in the heart of its CBD, and the primest of prime real estate there. Now it is revealed that the icon office tower there has a 30% vacancy rate. More evidence that even the best office building investments are in for a vicious valuation haircut.

SWAPS MAY BE FIRMER
Wholesale swap rates might be a little firmer today following yesterday's late rise. 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 5.66% and now +16 bps above the 5.50% OCR. The Australian 10 year bond yield is holding at 3.99%. The China 10 year bond rate is up +2 bps at 2.68%. And the NZ Government 10 year bond rate is hardly changed from yesterday at 4.66%, but still higher than the earlier RBNZ fix which was unchanged at 4.61%. The UST 10 year yield is up +2 bps at 3.87% today.

EQUITIES HIGHER IN THE BIG MARKETS
The NZX50 is soft in Tuesday trading after a good day Monday, now down -0.8% near the close. The ASX200 is up +0.4% in afternoon trade.Tokyo is down -0.3% in morning trade. Hong Kong is flying, up +3.2% today, but that is not inconsistent with its usual volatility. Shanghai is up +1.9% and that is actually more impressive than the Hong Kong trend. Wall Street ended its Monday session up +0.4% and that probably encouraged the change of heart in most other markets.

GOLD LITTLE-CHANGED
In early Asian trade, gold is at US$1962/oz and up +US$2 from yesterday. It closed earlier in New York at US$1954/oz and earlier still at US$1960/oz..

NZD MOVES BACK UP
The Kiwi dollar is up +½c from this time yesterday, now at just on 62.2 USc. Against the Aussie we are firmish at 91.9 AUc. Against the euro we up more than +½c at 56.1 euro cents. That means the TWI-5 is up at 69.9.

BITCOIN FALLS
The bitcoin price is down -2.4% from this time yesterday at US$29,129. Rumours about Binance's phantom "wash trading" could be catching up with them. Volatility has been modest at just over +/- 1.7%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

This soil moisture chart is animated here.

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73 Comments

by Zwifter | 25th Jul 23, 4:04pm 1690257888

Looks like Bitcorn is tanking again. Did wonder why it took a big hit yesterday.

by J.C. | 25th Jul 23, 4:12pm 1690258364

-3.42% over past 24 hours and - 4.7% for the week. Realistically, 10%+ in a day is a 'big hit'.

Doge up 3.7% and 10%+ for the week on the Twitter rebrand. X token up 2000%.

by Pa1nter | 25th Jul 23, 4:18pm 1690258713

Realistically, 10%+ in a day is a 'big hit'.

Quick everyone, let's run from the uncaring, viscous single digit annual inflation of central bankers, to the caring, nurturing, and fluffy double digit daily figures of crypto.

Huzzah and Hurrah!

by J.C. | 25th Jul 23, 4:29pm 1690259344

Quick everyone, let's run from the uncaring, viscous single digit annual inflation of central bankers, to the caring, nurturing, and fluffy double digit daily figures of crypto.

You snooze, you lose.

Great thing is you can always short these markets. But the short positions seem to get wrecked quite regularly. Open positions on ol' ratty are thin right now. The gamblers have had the energy and resources sucked out of them.

by Officebound | 25th Jul 23, 5:59pm 1690264773

Don't invest, speculate!

#CryptoForever

by Nzdan | 25th Jul 23, 5:14pm 1690262044

It's a deflationary currency, that serves only to enrich early adopters and will only encourage people to hoard rather than spend. Imagine if it does go mainstream, and Government's can't easily tax it.

Cheers of joy from the early Bitcoin anarchists, followed by scowls as they see the state of roads, hospitals and other core government services starved of tax revenue. 21st century greedy Boomers, instead of hoarding houses it's under the table, untaxable transactions.

by J.C. | 25th Jul 23, 6:03pm 1690265028

It's a deflationary currency, that serves only to enrich early adopters and will only encourage people to hoard rather than spend.

Trust me. We're still early.

by WinHonourHelp | 25th Jul 23, 6:12pm 1690265524

Trust me, we are not still early.

by Pa1nter | 25th Jul 23, 9:17pm 1690276668

Going balls deep in 2013 would've been early.

by Squishy | 25th Jul 23, 6:58pm 1690268310

Not a currency.

by Nzdan | 26th Jul 23, 10:30am 1690324251

Cryptocurrency?

by Dgm | 25th Jul 23, 4:26pm 1690259179

More rate rises... can't they just push it to 10%.. and save everyone the hassle

by TronMVP | 25th Jul 23, 4:33pm 1690259638

You must be delighted - Pepper money now has a rate over 10%

by Rob Reid | 25th Jul 23, 4:47pm 1690260463

Behold! Tis as the Prophet hath foreseen!

by TronMVP | 25th Jul 23, 4:59pm 1690261146

2 year rates with mainstream banks still only 6.79% which is a long way off 10%

by Hawkes Bay | 25th Jul 23, 4:51pm 1690260662

I think there is a new Scroll that gets released when the first Mainstream Bank sells a 10% mortgage rate.

I had better go check that back bedroom. See what The Prophet has left us

by TronMVP | 25th Jul 23, 4:55pm 1690260953

You must be delighted also!

by TronMVP | 25th Jul 23, 7:26pm 1690269973

Did you find that new scroll?

by Pragmatist | 25th Jul 23, 9:07pm 1690276054

And was it written on papyrus, or was it purex or quilton as I suspect?

by Pa1nter | 25th Jul 23, 9:20pm 1690276826

I had better go check that back bedroom. See what The Prophet has left us

I don't what what it was but he got some on the curtain

by Independent_Observer | 25th Jul 23, 4:36pm 1690259784

J.C. - on Shiller's remarks about asset prices falls after rate hikes (and something I've been mentioning as a possiblity on this forum in the past 12 months) is that we may see even more house price (and sharemarket) falls after the RBNZ has stopped raising rates.

Why? Because that is when deflation has hit and we have rising unemployment and people defaulting on mortgages (it is also what I witnssed first hand while living in the US during the GFC - house prices continued to slide as mortgage rates were dropping).

Here's a chart showing the US and asset price crashes in recent decades - noting they have followed the periods of rising rates.

https://imageio.forbes.com/blogs-images/jessecolombo/files/2018/09/FedF…

What we have seen so far may just be the end of the beginning (no guarantees of course - the central banks might pull of the perfect soft landing!)

by TronMVP | 25th Jul 23, 4:40pm 1690260022

Sounds like carnage is being predicted!

by Independent_Observer | 25th Jul 23, 4:46pm 1690260405

It is a possibility - but its also possible that central banks do find a soft landing and we don't see much more of a drop from here.

Nothing is a certainty.

by TronMVP | 25th Jul 23, 5:03pm 1690261389

Is it not the reserve bank that would have to orchestrate a soft landing with cuts to the OCR?

by Independent_Observer | 25th Jul 23, 5:09pm 1690261772

I'm not sure what your point is. Dropping OCR isn't a guarantee that buyers will immediately go running back into the house market - per my observation living in the US during the GFC.

If the collective narrative is that house prices are going to keep dropping because people are defaulting on their debt as they lose their jobs (as happens in deflationary busts), then house prices could fall another 20% from here in nominal terms before we start finding another 'bottom'.

by Jonny.Foe | 25th Jul 23, 5:20pm 1690262459

Nope, our only hope of a soft landing is if Govt go for a fiscal response and there is zero chance of that. It angers me greatly that a complete lack of coordination between RBNZ and Treasury juiced the housing market in 2020/21 and made some wealthy people very wealthy, and now RBNZ and Treasury are both slamming the brakes on and basically guaranteeing a serious downturn that a new (clueless) Govt in October will not know how to address.

So many countries across the world are getting this right now - but we're stuck with medieval monetarists in the central bank and a Labour govt that has promised to be fiscally austere to please their swing voter focus groups.

by kiwikidsnz | 25th Jul 23, 5:36pm 1690263384

"So many countries across the world are getting this right now..."

Such as ?

by Jonny.Foe | 25th Jul 23, 5:50pm 1690264224

Depends on your criteria, but if you are looking for countries that have tamed inflation without stalling their economies, you could look at Spain, Denmark, US, Switzerland, Japan, China. I am not saying any or all of these are perfect, but they have not made the basic fiscal / monetary coordination mistakes that we have made.

by Advisor | 25th Jul 23, 6:38pm 1690267091

Japan, Switzerland and Denmark have balanced low inflation with very low levels of unemployment going back decades.

High domestic savings rates, strong current account surpluses and low crime rates.

Countries that didn't fought to keep their industrial sector with product specialisation and R&D do have it going well for themselves.

Link

by Jonny.Foe | 25th Jul 23, 7:04pm 1690268668

Yes, it appears that countries that have an actual economic strategy to balance trade, tackle inequality, etc seem to be doing better than those that just 'trust the market' to work things out.

by Advisor | 25th Jul 23, 8:36pm 1690274180

The “market” has helped NZ diversify its economy away from dairy, meat and log exports towards debt and migration-fuelled domestic consumption.

by Pa1nter | 25th Jul 23, 9:37pm 1690277820

You make very basic correlations.

In the 80s, Japan had 13 of the world's top 20 companies. Today it has one.

Their crime is low, because they have a strong monoculture that incorporates very strong values around obedience, public face, and pacifism.

Their currency has tanked and wages are low. Savings are high, because there's no where else to put money.

Japan's a great country with some fantastic features, but not one I'd say has been managed overly well the past 3 decades.

by Yvil | 25th Jul 23, 7:20pm 1690269618

Jfoe, I agree with many of your posts, but I really think you got this one wrong. Switzerland, Denmark and Jspan never had runaway inflation, China is a mess and sure the USA look good, for now.

Most countries are using similar "tightening" measures, NZ is not an outlier.

by HouseMouse | 25th Jul 23, 4:44pm 1690260267

Good points.

Also, and related, note that unemployment lags recession and pausing and cutting of interest rates, sometimes quite significantly.

GFC hit NZ in 2008, unemployment didn’t peak (around 7%) till 2011-12.

by Independent_Observer | 25th Jul 23, 4:50pm 1690260640

True - it shows that inflation prior to the bust is our friend (even though it is currently being called public enemy no.1) because it is preventing people from defaulting on their debt. But how long that is sustainable for is a real concern.

Eventually the cost of living day to day consumes enough peoples resources to the point where they have no rainy day fund left - and this can be like a tipping point that starts very slowly and accelerates very rapidly across society (and very quick reverses into deflation).

by Jonny.Foe | 25th Jul 23, 5:15pm 1690262100

You can see this starting to play out in the bank deposit data - with non-financial businesses and household bank balances in reverse (particularly in real terms). What these balances don't show is the variance within each sector - with a decent cohort of households now eating right into any savings, and some businesses (e.g. horticulture) in real trouble and relying increasingly on expensive revolving credit arrangements. Lending for construction is also in reverse.

Needless to say I do not share ANZ's optimism that we are going to see any real growth in Q2 - and if we do it will be a dead cat bounce from inward migration. As commented above, unemployment is coming - job growth has been flat for months despite the net arrivals, and people that are reliant on benefits as primary source of income is up in Waikato, Northland, Hawkes Bay, Gisborne, and Manawatu (and up relative to pre-COVID by more than 50,000).

by J.C. | 25th Jul 23, 4:51pm 1690260692

Your thinking is counterintuitive and makes sense to me. Similarly in Japan, after the bubble burst and the cash rate progressively moved to zero, people didn't automatically behave in a manner of 'off to the races." It was a behavioral shift and they hoarded more cash, even though they were generally savers to begin with. Contrary to what people may think, the Japanese were not exactly the same as their Western drunken sailor counterparts during their bubble.

by bw | 25th Jul 23, 4:54pm 1690260864

Hard to disagree with that. But with one observation. The GFC was now 15 years ago, and during that time the ageing demographic of workers has gone into full swing. Workers are leaving the workforce at an ever-increasing rate from here to 2030, and there is a dearth of talent to replace them - everywhere. Those leaving work will still be consuming, of course, and in that lies the lurking problem. The weight of retirees cashing in their pension plans and selling-up their assets is perhaps going to overwhelm the capacity to pay. Fun times dead ahead ...literally.

by HouseMouse | 25th Jul 23, 4:59pm 1690261186

Yes interesting times here right now and also ahead of us, demographically speaking. Both inflationary (labour market) and deflationary (property market)

by Independent_Observer | 25th Jul 23, 5:04pm 1690261469

The 4th Turning I would definitely suggest for everyone on here given their interest in financial markets/economics/demographics.I found this book brilliant.

And I see that Howe has just put our the updated edition of the book 'The Fourth Turning Is Here'.

https://www.amazon.com/Fourth-Turning-Here-Seasons-History/dp/1982173734

by J.C. | 25th Jul 23, 5:07pm 1690261651

On my tablet but unfinished. Gets a bit monotonous but need to read it properly.

by Independent_Observer | 25th Jul 23, 5:11pm 1690261910

Yip I had to do it in short bursts and reflect, then go again.

But when I view the different generations now and the battles that appear to be going on between then, it makes much more sense now. It also aligns with Dalios long debt cycle theory - just a different way of describing the same phenomenon.

by Independent_Observer | 25th Jul 23, 5:00pm 1690261236

Yes I agree with you BW - as it stands I have 5 widows living in 3 bedroom homes within a stones throw of my current location. Each with 400 - 800Sqm sections that are much too big for them to manage (so I find myself doing lawns, pruning, do home maintenance for them). I'd say within the next 5 years they will be looking to downsize - this could be reflective right across society.

To your point - inflationary pressures may remain high for sometime and the deflationary bust may not arrive. We could see asset prices continue to be eroded away in real terms for years to come.

But as I've been saying on here for years now, that I thought house prices could fall 50% in real terms (I just didn't know if the fall in nominal terms would be very high or not as they would depend on whether we have a deflationary bust or not).

by IT GUY | 25th Jul 23, 6:38pm 1690267126

these houses will sell at 2015 levels

by Flying high | 25th Jul 23, 6:51pm 1690267918

"Could fall 50 percent in real terms .... over years"

What does this mean for actual nominal dollars, will they also drop when we look back in time

by IT GUY | 25th Jul 23, 7:08pm 1690268925

not much for the old crowd that purchased decades ago.......... very bad news for anyone who got in at the top via debt

by Flying high | 25th Jul 23, 7:28pm 1690270124

I suspected as much,,,, thanks for the heads up on the low down

by J.C. | 25th Jul 23, 5:06pm 1690261584

The weight of retirees cashing in their pension plans and selling-up their assets is perhaps going to overwhelm the capacity to pay. Fun times dead ahead ...literally.

Correct and good thinking. There is an expectation that younger people must behave like the 'old farts' (it's just a joke). And the 'wisdom' is embedded into financial education, advice, media, etc like a mantra. But when you consider these things, expecting that post-WWII easy life is not realistic.

Young people need to think independently and invest in assets that are not necessarily held by the boomers. Or else they're on a hiding to nothing.

by Yvil | 25th Jul 23, 7:24pm 1690269840

Asset prices falls after the Fed end hiking rates a possibility

Any prediction which ends in "a possibility" is absolutely worthless.

"snow in Auckland in August a possibility", well... true it's possible.... so what?

by HouseMouse | 25th Jul 23, 5:48pm 1690264083

Yep, it’s absolutely ‘not worthless’ - it is worth something! You are right

I have been guilty of being too categorical. Better to talk of scenarios, and preferably their probability.

by Yvil | 25th Jul 23, 7:24pm 1690269898

Thanks for picking up the extra "no", corrected now

by Independent_Observer | 25th Jul 23, 5:56pm 1690264577

"snow in Auckland in August a possibility", well... true it's possible.... so what?

Risk management....make decisions based upon the probabilities and severities of risks. This is also very true for making financial decisions.

Nothing is a certainty - although that appears to be your assessment of what a good prediction is.

e.g. "with 100% certainty I predict that XYZ will happen at this date".

Don't confuse luck with good forecasting/predictions (e.g. per the discussion around Taleb and being fooled by randomness).

by Yvil | 25th Jul 23, 7:27pm 1690270040

It's all about risk management, Nothing is a certainty

Well, we certainly agree there!

by Dgm | 25th Jul 23, 6:44pm 1690267466

Wow, you have a crystal ball, right.. I guess you're one of those that makes statements with no backing.. while there are those more pragmatic about their statements

by Yvil | 25th Jul 23, 7:27pm 1690270076

???

by Audaxes | 25th Jul 23, 4:38pm 1690259937

Despite what central bankers say about "inflation" pressures, the evidence continues to show - everywhere - that deflation not inflation is the greatest economic threat. Recession and worse continues to lead to worse outlooks. https://buff.ly/3rxKhi3 Link

by Sam B | 25th Jul 23, 5:05pm 1690261515

I like Jeff Snider, but the predictive power of his ideas has been very, very low. His insistence that rampant inflation is not inflation but just 'price rises' is starting to feel a bit dogmatic, a bit resistant to reality....

by HouseMouse | 25th Jul 23, 5:01pm 1690261292

Stackloads of new townhouses for rent in Auckland being listed on TradeMe.

by IT GUY | 25th Jul 23, 6:29pm 1690266543

they are just too expensive to buy... so they rent them.... surely devaluing them as new homes......

by KH | 25th Jul 23, 7:45pm 1690271120

Between a Rock and a Hard Place. Can't sell them. Renting covers outgoings maybe, maybe not. And capital gain is negative.

by HouseMouse | 25th Jul 23, 8:10pm 1690272634

That will be part of it. But some of them will be investment properties

by Rob Reid | 25th Jul 23, 9:56pm 1690279012

Erm, would you guys please stop scaring the investor class? I need somewhere to rent.

So let's do that again shall we?: Those places are great investments - summer is coming, inflation and rates have topped, immigration running hot - hoover them up while there is still time before the market picks up in spring! Be Quick!

by J.C. | 25th Jul 23, 6:01pm 1690264876

Target and Kmart merge to create Aussies first monopoly large-format discounter.

Listed conglomerate Wesfarmers is merging its store networks Target and Kmart into a singular $10 billion business in a bid to boost returns and bring better value to customers.

Kmart will continue to be price-driven and Target largely centred on affordable apparel and soft home furnishings, he added.

https://insideretail.com.au/sectors/wesfarmers-to-merge-back-ends-of-ta…

by Poission51 | 25th Jul 23, 6:26pm 1690266392

James Shaw just released the new ETS updates with changes to reserve prices and availability.Due to work in progress with new electricity generation and the GIDI projects,most of the additional costs will fall on transport.

https://www.beehive.govt.nz/release/emissions-trading-scheme-settings-u…

by nktokyo | 25th Jul 23, 6:31pm 1690266675

The front page of the Labour Herald is carrying a story about Seymour being accused of politicising Kiri Allan's downfall.

She is a politician.

Who drove while intoxicated.

And resisted arrest.

What is the opposition supposed to do, hand out a participation certificate and a ribbon?

by solardb | 25th Jul 23, 7:34pm 1690270446

I doubt she will be too bothered by what Seymour says. I imagine her opinion of him would be a few degrees worst than Jacinda's description.

by nktokyo | 25th Jul 23, 7:47pm 1690271254

It's like the Emperor's new clothes...

"She drove drunk"

"That is NOT kind"

by solardb | 25th Jul 23, 7:54pm 1690271682

Not excusing her behaviour, though the low level breath reading was probably way surpassed by her apparently been in no fit state of mind to drive. No question she had to resign either. but she has gone and that is that. seemed obvious that Luxon and Seymour were just out to make political hay to me. I actually thought Luxon was worst , and it won't go down well with female voters.

by nktokyo | 25th Jul 23, 9:02pm 1690275751

Most female voters I chatted with at kiddos soccer training were shaking their heads at the government's trying to downplay driving drunk and resisting arrest. Havent heard anyone annoyed at the media coverage or opposition not lining up to give her a cuddle.

by Firstclass | 25th Jul 23, 10:13pm 1690280038

The people I spoke to today, and there were a few females in the group, all stated that this Labour party is in no shape to govern. Each week something new, to embarrass themselves and to show everyone that they are the worst party ever in charge of this country.

by Squishy | 25th Jul 23, 6:54pm 1690268071

If you know Sydney, you will know that Grosvenor Place is in the heart of its CBD, and the primest of prime real estate there. Now it is revealed that the icon office tower there has a 30% vacancy rate. More evidence that even the best office building investments are in for a vicious valuation haircut.

Rezone to residential apartments?

by HughJorgan | 25th Jul 23, 7:44pm 1690271054

It’s not easy to undertake use change from office to resi. It is being done, but it’s hard and expensive.

by Ahuhyeah | 26th Jul 23, 4:38am 1690303131

Will the Auckland Council flood costs affect its credit rating?

Assume the flood costs are unbudgeted so this year's machinations over the budget will pale in comparison to next year.