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%.
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73 Comments
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.
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.
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!)
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'.
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.
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.
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.
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.
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.
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).
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).
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.
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.
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.
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
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.
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).
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.
"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).
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
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!
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…
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…
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?
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.
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?
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