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
Nothing to report.
TERM DEPOSIT/SAVINGS RATE CHANGES
ANZ raised their rate card to match BNZ and Kiwibank. That has been followed by Westpac. More here. And here.
INFLATION BITES HOUSEHOLDS HARDER
Statistics NZ says the cost of living for households rose +7.2% in the year to June 2023, while food prices increased by some +12.7% for the average household.
NO SHORTAGE OF DEMAND
More than $1.7 bln was bid today in 148 separate bids for the $500 mln offered in the latest NZ Government Bond tenders. There were three tenors, all popular and all achieved yields very similar to the tender of the same tenors two weeks ago. More than $1.2 bln went unsatisfied today so there is no shortage of demand.
STUCK IN A ZOMBIE RUT
China industrial profits data has been released for June showing them falling -8.3% from June a year ago. This is better than anticipated because the decline for the first half of the year rolls up to -16.8%. That indicates the profit pressures are receding somewhat. That said, "operating income" has been bouncing along at break even for every month of 2023 and that is indicative of a zombie situation. Given the companies tracked in this data series are large state-owned enterprises mainly, that isn't a good thing.
22 YEAR HIGH
The US Federal Reserve raised its policy rate by +25 bps to 5.5%, in line with market expectations and to the same level as the RBNZ OCR. It takes American benchmark borrowing costs to the highest level since January 2001.
SWAPS ON HOLD
Wholesale swap rates are probably little-changed 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 5.66% and now +16 bps above the 5.50% OCR. The Australian 10 year bond yield is down -7 bps at 3.95%. The China 10 year bond rate is down -2 bps at 2.68%. And the NZ Government 10 year bond rate is unchanged from yesterday at 4.69%, but still higher than the earlier RBNZ fix which was down -2 bps at 4.64%. The UST 10 year yield is down -4 bps at 3.86% today.
EQUITIES UP EXCEPT WALL STREET
The NZX50 is marginally firmer late in its Thursday session, now up +0.1% near the close. The ASX200 is up +0.7% in afternoon trade. Tokyo is up +0.2% in morning trade. Hong Kong is up +1.5% today in early trade. Shanghai is up +0.5%. Wall Street ended its Wednesday session essentially unchanged.
GOLD RISES
In early Asian trade, gold is at US$1980/oz and up +US$18 from yesterday. It closed earlier in New York at US$1972/oz and earlier still at US$1966/oz in London.
NZD STABLE
The Kiwi dollar is up more than +½c from this time yesterday, now at just on 62.6 USc. Against the Aussie we are firmish at 92 AUc. Against the euro we also firm at 56.4 euro cents. That means the TWI-5 is up to 70.1.
BITCOIN STILL STUCK
The bitcoin price is little-changed again from this time yesterday at US$29,359 which was up only +0.6%. Volatility has been low at just over +/- 0.9%.
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64 Comments
"clowns to the left of me, jokers to the right..."
Te Pāti Māori proposes suite of changes in new tax policies | RNZ News
TPM's tax policy is absolutely the closest to what the majority of commentors here have been advocating. A serious wealth tax on property, land and empty houses in favour of a significant tax-free threshold. Perhaps take your hood of and critique it? I'm not in favour of it, but that's not the point.
I doubt that "...the majority of commentors here...:(not including the repetitive echo chamber of the few usual suspects) will support blatant envy theft of private property rights if they take the time to consider where it could never end.
But, then again: "The theory of Communism may be summed up in one sentence: Abolish all private property." Karl Marx.
The company tax rate will hit foreign resident investors the most.
However, our FDI figures shows NZ has barely attracted new investments since 2009 anyways, so this tax is probably designed to claw back some of the big margins from the Big-4 banks and Woollies - which I am all for (as are the sheer majority of Kiwis).
Foreign direct investment in New Zealand continues to increase | Stats NZ
I read some of their policies, social justice and co-governance aside (easier said than done, these being huge ideological barriers for most) their socioeconomic policies aren't all that bad.
Haha true. Every time the idea of wealth taxes is floated, some commenters here and on other media platforms foresee an exodus of the wealthy from NZ.
Good time to scare foreign investors away then as they will be getting less in capital gains out of the housing market than they would've a year ago.
The party said this would mean a person earning $60,000 would keep an extra $6520 a year, and a person on $90,000 would keep an extra $6220 a year. They suggested take-home pay would increase for 98 percent of people.
Seems a good idea..unless of course you earn over $300K a year?
For context, NZ has the 4th highest threshold to be in the wealthiest 1% of the nation, https://www.businessinsider.com/top-one-percent-monaco-us-uk-china-rich…
This distribution is grotesque - you can point the finger squarely at our lack of capital gains tax and property friendly taxes. I don't advocate for TPM's tax policies, but if I'm a young pakeha from a working class family you better believe I'm voting for them.
Without disclosing too much, I earn a very reasonable amount from my primary job, and I ran TPM's policy over my income for last year. I was surprised to find that under their proposal I would still have a few hundred more in the hand.
I'm supporting a wife, two children, a decent mortgage, and an assortment of animals on that income. I very much acknowledge and appreciate the lifestyle my income affords, but it seems almost generous for TPM's policy to give me a bit more.
While I'm not keen on the wealth and business tax side of things, the income tax regime at least seems eminently reasonable of they can balance the books on it.
"clowns to the left of me, jokers to the right..."
Frank likes it. A lot. It’s all sensible tax options which have been proven to be feasible overseas. A good first step in getting the country back on its feet.
It’s only the kiwi inertia and “know-best” isolation mindset which has stopped this in the past.
Next step, levelling up the super industry with Australia. Look at their investment and infrastructure funded by compulsory super. No wonder their economy is booming
The household living costs index up again. Over the last two years, nearly a fifth of the increases in the cost of living have been due to higher interest rates. Now add in the pass-through from the extra $10 billion in interest being paid by businesses (about 5% of consumer expenditure).
I know and zero capital risk weights for bank buyers. Nonetheless:
Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real cost of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation. Inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historic standards). Link
Bottom line - you need to own a lot of them to make the risk free aspect overcome inflation concerns in one's own life time, but they never ring up asking to unblock the dunny.
Historical moment. Last night, the House Financial Services Committee of the U.S. Congress passed two pieces of legislation—with bipartisan support—that provide robust consumer protections and legislative clarity for the digital asset ecosystem. These are the “Financial Innovation and Technology for the 21st Century Act” and the “Blockchain Regulatory Certainty Act,"
We're a step closer to digital assets being properly regulated in the U.S. A harbinger of things to come.
https://financialservices.house.gov/news/documentsingle.aspx?DocumentID…
Interesting charts for anyone who is interest in sharemarket prices relative to central bank fund rate movements:
https://pbs.twimg.com/media/F2AXom0aIAMRJKz?format=jpg&name=large
https://pbs.twimg.com/media/F19Utj5aYAAwIB6?format=jpg&name=4096x4096
In recent recessions, the majority of asset price destruction occurs as the funds rate falls - not as the rates are rising.
"Investors should keep a close eye on the 10-year Treasury yield The last 2 moves above 4% resulted in blowups in financial markets: UK pension fund and US regional bank"
https://pbs.twimg.com/media/F1368mXakAEyOwv?format=jpg&name=large
https://twitter.com/GameofTrades_/status/1683824425622474754?s=20
Mmmm, productivity losses, plus the disencentive to any additional growth or investment.
The government has told industry that the future is constant re-calibration and increases of rules and procedures. No business model is safe, and anything you invest can go just like that.
Bankruptcies are spiking in the US:
https://pbs.twimg.com/media/F19UjHqakAE8rwe?format=jpg&name=large
More than $1.7 bln was bid today in 148 separate bids for the $500 mln offered in the latest NZ Government Bond tenders.
The associated interpolated mid swap yield for the 1.5%, 15/05/31 (7.7918yr) tender issue is quoted at -8.55bps to the note yield, indicating dealer reluctance to extend balance sheet capacity for those seeking to be in receipt of fixed unless a premium is extracted.
On our planet earth – as opposed to the very different planet that economists seem to be on – all markets are rationed. In rationed markets a simple rule applies: the short side principle. It says that whichever quantity of demand or supply is smaller (the ‘short side’) will be transacted (it is the only quantity that can be transacted). Meanwhile, the rest will remain unserved, and thus the short side wields power: the power to pick and choose with whom to do business. Examples abound. For instance, when applying for a job, there tend to be more applicants than jobs, resulting in a selection procedure that may involve a number of activities and demands that can only be described as being of a non-market nature (think about how Hollywood actresses are selected), but does not usually include the question: what is the lowest wage you are prepared to work for?
Thus the theoretical dream world of “market equilibrium” allows economists to avoid talking about the reality of pervasive rationing, and with it, power being exerted by the short side in every market. Thus the entire power dimension in our economic reality – how the short side, such as the producer hiring starlets for Hollywood films, can exploit his power of being able to pick and choose with whom to do business, by extracting ‘non-market benefits’ of all kinds. The pretense of ‘equilibrium’ not only keeps this real power dimension hidden. It also helps to deflect the public discourse onto the politically more convenient alleged role of ‘prices’, such as the price of money, the interest rate. The emphasis on prices then also helps to justify the charging of usury (interest), which until about 300 years ago was illegal in most countries, including throughout Europe.
However, this narrative has suffered an abductio ad absurdum by the long period of near zero interest rates, so that it became obvious that the true monetary policy action takes place in terms of quantities, not the interest rate.
Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky.
The banks thus occupy a pivotal role in the economy as they undertake the task of creating and allocating the new purchasing power that is added to the money supply and they decide what projects will get this newly created funding, and what projects will have to be abandoned due to a ‘lack of money’.
It is for this reason that we need the right type of banks that take the right decisions concerning the important question of how much money should be created, for what purpose and given into whose hands. These decisions will reshape the economic landscape within a short time period.
Moreover, it is for this reason that central banks have always monitored bank credit creation and allocation closely and most have intervened directly – if often secretly or ‘informally’ – in order to manage or control bank credit creation. Guidance of bank credit is in fact the only monetary policy tool with a strong track record of preventing asset bubbles and thus avoiding the subsequent banking crises. But credit guidance has always been undertaken in secrecy by central banks, since awareness of its existence and effectiveness gives away the truth that the official central banking narrative is smokescreen. Link
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