What happened Thursday

Economy / news

A review of things you need to know before you sign off on Thursday; no retail rate changes, profits higher nearly everywhere, giant BNZ bond, NZGB yields over 5%, swaps fall back & flatten, NZD holds, & more

24th Aug 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
No changes to report today.

TERM DEPOSIT/SAVINGS RATE CHANGES
None here either.

LENDING BY PURPOSE
The RBNZ released new data today revealing "Lending by Purpose" (C33). We will take a few days to absorb what this new series is telling us. Purpose categories include property purchases, top ups, changes in loan provider and other reasons. Although 40% of borrowers took out top-ups, the value of top-ups fell to their lowest share of lending since 2017 and they almost halved in the past twelve months. But these are just initial reactions.

RECORD PROFIT
Kiwibank June-year profit hit $175 mln after tax as income surged, but loan impairment losses more than double. A good jump in net interest income propelled the State-owned bank to a record profit.

SUBSTANTIAL TURNAROUND
Air New Zealand (AIR) soared from the financial trough of the pandemic to emerge with its second-highest profit ever of $412 mln after tax which was a +$1 turnaround in just one year. Meanwhile rival Qantas also posted a huge profit of AU$2.47 bln and will return a further AU$500 million to shareholders. It was so large that there is intensified scrutiny of its of its fare levels in Australia and their contribution to inflation.

LOWER PROFIT
Meanwhile, Genesis Energy (GNE) reported a -12% profit drop to $196 mln after tax.

PROFIT RECOVERY
Auckland International Airport (AIA) has reported its first profit since the pandemic of $148 mln after tax, and said it will press ahead with its multi-billion dollar upgrades despite opposition from airlines.

$1 BLN BONNANZA
Yesterday we noted the successful BNZ bond issue, but we got the size of it wrong. We reported their interim demand indication, and not the final demand they accepted. It was impressive in the end, with BNZ accepting $1 bln in bond offers. They are going to pay 5.872% pa for that funding, about what they offer term depositors for one year (5.90%). But given they lend it for home loans at 6.79% (2yrs fixed) it would be unusual if they could sustain that 90 bps margin for very long.

TRAFFIC WATCH
ANZ's monitoring of traffic activity, their Truckomer, shows a modest rise in light traffic activity, but as they point out, it isn't really reflecting the sharpish rise in immigration levels. They say: "This is consistent with discretionary spending being under pressure as tighter monetary policy bites." Heavy traffic levels are weaker they observe and are wondering if that is weather-related or a sign of a demand drop.

NZGBs NOW YIELD 5% OR MORE
There was more than $1.1 bln bid for the three NZ Government bond tenders today, and $500 mln was issued. That April 2027 bond went for a yield of 5.06%, up sharply from the prior 4.24% four weeks ago. The May 2032 bond saw its yield rise from 4.80% two weeks ago to 4.97% today. And the May 2051 $100 mln went for 5.41%, up from 4.91% three weeks ago.

SWAPS RETREAT
Wholesale swap rates were probably retreated and flattened today following global trends and following yesterday's heft drop, but the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is down -1 bp at 5.63% and now +13 bps above the 5.50% OCR. The Australian 10 year bond yield is sharply lower, down another -12 bps from this time yesterday to 4.12%. The China 10 year bond rate is holding low at 2.57%. And the NZ Government 10 year bond rate has fallen to 5.04% and down -12 bps from yesterday, but still higher than the earlier RBNZ fix which was down a very sharp -15 bps to 4.99% and now well off its July 2011 highs. The UST 10 year yield is at 4.20% and down -11 bps from this time yesterday.

EQUITIES MIXED
The NZX50 is down -0.5% near the end of trade today erasing yesterday's gain. The ASX200 is up +0.4% in afternoon trade. Tokyo has opened up +0.4% today. Hong Kong is up +1.5% at their open, but Shanghai is virtually unchanged. Wall Street closed earlier with the S&P500 up +1.1% in Wednesday trade.

GOLD UP
In early Asian trade, gold is at US$1920/oz and up +US$19 from yesterday. It closed earlier in New York at US$1915/oz, and earlier still in London at US$1917/oz.

NZD FIRMS SLIGHTLY AGAIN
The Kiwi dollar is up marginally from yesterday at 59.7 USc. Against the Aussie we are down -¼c at 92.1 AUc. Against the euro we are slightly firmer at 55 euro cents. That means the TWI-5 is up +10 bps at 68.7.

BITCOIN RISES
The bitcoin price is firmer today, now at US$26,428 and up +1.5% from this time yesterday. Volatility has been modest at just over +/- 1.9%.

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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53 Comments

by Mofo Fomo | 24th Aug 23, 4:10pm 1692850217

Ute o meter reading?

by kiwikidsnz | 24th Aug 23, 4:11pm 1692850308

Cassandras "just asking the question"...how did the RBNZ justify & sneak in ~$80M/34% increase in their operational funding agreement over the current & next year (apparently the law doesn't require parliamentary scrutiny) ?

Spending (lots) more….with no parliamentary authorisation | croaking cassandra

Perhaps the RBNZ/Public Service are playing the old game of increasing their budgets in preparation for NACT to require"savings"

by profile | 24th Aug 23, 4:31pm 1692851471

"It was bureaucratic gamesmanship, presumably abetted/approved by the Minister, to minimise budgetary scrutiny and accountability on what is a huge increase in allowed spending."

by K.W. | 24th Aug 23, 4:59pm 1692853185

That will cover their pay rise and bonuses, which will probably be paid before October.

by nigelh | 24th Aug 23, 6:52pm 1692859959

Maybe this was before this budgetary increase but RBNZ hired a number of what I classify as non essential staff, spin doctors in the last two years or so.

by J.C. | 24th Aug 23, 4:15pm 1692850547

Your bubble is bigger than mine.

The Canadian housing market is at high risk of unravelling, according to one expert.

The level of debt that Canadians have taken on in comparison to their incomes has put many in a precarious position should mortgage rates continue to rise — which is likely, Phillip Colmar, partner at Global Strategist at MRB Partners, told BNN Bloomberg in an interview on Tuesday.

“Canada is probably sitting on the largest housing bubble of all time,” he warned.

Colmar argued that the inflated home prices in Canada are a result of two decades' worth of easy money supplied by the Bank of Canada’s monetary policy for numerous reasons. At present the moment, he sees risk in mortgage rates climbing as Canadian bond yields are dragged up, particularly at a time when debt-to-income ratios are sky high.

“The worst part for a housing bubble is when you have [a] credit bubble underneath it,” Colmar warned.

“The amount of Canadian leverage into the system versus incomes is pretty astronomical — and we’ve seen debt serving going up dramatically.”

https://www.bnnbloomberg.ca/canada-likely-sitting-on-the-largest-housin…

by Independent_Observer | 24th Aug 23, 4:23pm 1692851030

AUS and NZ are in a similar position to Canada - both had housing bubbles that didn't burst in 2008 when many other nations did. And also have demographic challenges with boomer generations as a result of our involvement in WW2.

by J.C. | 24th Aug 23, 4:38pm 1692851883

Don't know about you, but I get the feeling something's going to give.

But I reserve the right for my intuition to be wrong.

by Frank Sobotka | 24th Aug 23, 7:01pm 1692860508

Have you spoken to the prophet or consulted the scrolls???

by General Comment | 24th Aug 23, 4:39pm 1692851948

We would have been better to let it crash in 2008. The majority of Boomers would have had time to recover in time for retirement, and younger folk would have received a warning up front to not assume property is a one way bet before barreling head-first into a debt hole. I was a new home owner during the GFC and the banks closed shop on me during renovations, nearly sending me to the wall, but the value of my house was never a consideration in my decisions, as long as I could still pay the mortgage (which I'd been doing comfortably even at pre-GFC rates) I was still afloat.

by Yvil | 24th Aug 23, 4:50pm 1692852628

"We would have been better to let it crash in 2008"

Absolutely, but unfortunately we want to "save everyone". It would have been far better to weed out the weak, learn a lesson and feel the power of consequences rather than having the good and diligent bailing out and supporting the bad and careless.

by Pa1nter | 24th Aug 23, 4:56pm 1692853001

I often think over half of us would starve if our lifestyles weren't supported by fiscal policy. Most jobs arent producing much of relative worth, and people lack even rudimentary survival skills.

Declining purchasing power is showing us this, but in slow motion.

by Independent_Observer | 24th Aug 23, 5:00pm 1692853251

But how would you have made your $1,000,000 in untaxed capital gains there Yvil from your property/ies that you told us about a few years back? (i.e. you were one of the ones being saved). Not to live in the past, but it was pretty popular for many at the time, yourself included - that is, pumping house prices so people could make some spectacular gains.

I was on here arguing about the consequences of this insanity, only to get belittled as a doom gloom merchant, but it is funny how times change when reality comes knocking at the door.

'Oh we can't all just get rich by selling houses to each other? There are consequences to this - nobody warned me!'

by Pa1nter | 24th Aug 23, 5:10pm 1692853833

The whole economy is a ruse.

But it's the world which we occupy. You can actively try to change it, work within its parameters, live outside it, or just lament it.

by Yvil | 24th Aug 23, 7:38pm 1692862732

Fantastic post Pa1nter, I said something similar a while ago.

There are 3 types of people in this world:

1) the ones who complain about the rules of the game because they're not winning (the vast majority including commenters on this site)

2) the ones who accept the rules and play the best they can within these rules (I believe that's what I'm trying to do)

3) the unicorns (because they are extremely rare) who sacrifice their whole life to try to better the rules of the game.

I admit that the unicorn is a better person than me

by Mofo Fomo | 25th Aug 23, 1:41pm 1692927715

4) a combo of 1) & 2) .. you can complain while playin the rules. They are not mutually exclusive. Most people complain at bad shit but go hard where they can!

by Mofo Fomo | 25th Aug 23, 1:43pm 1692927828

Everybody tries all of those at some stages in thier life.

by Yvil | 24th Aug 23, 7:32pm 1692862365

That is a very confused post IO. Firstly, I didn't make just 1 Mill but several. Then I don't need to "be saved" by anyone, I like to be accountable for my own success and failures. Next "how would I have made money?" Simply by improving something so that someone is willing to pay me good money for it. Lastly I do not have the power "pump up house prices" (you give me too much credit there), this was simply a result of loose monetary policy, which I do not control.

by Pa1nter | 24th Aug 23, 7:54pm 1692863682

The path to productivity is clear.

The slowest, most burdensome employee sets the market rate for a job. They're secure, with no compulsion to go the extra mile. They can enjoy our full suite of employee benefits.

Just get more efficient at the same task, and be paid on output, not hours in. Employee others who operate the same.

by Beanie | 24th Aug 23, 5:00pm 1692853206

I'll eat my beanie if that post doesn't flush out housemouse!

by Yvil | 24th Aug 23, 7:20pm 1692861623

🤣

by Mofo Fomo | 24th Aug 23, 9:59pm 1692871173

Yip, the best way to kill the corporate grèed and the wage - inflation spiral is to stop propping up failures.

by J.C. | 24th Aug 23, 5:05pm 1692853509

The majority of Boomers would have had time to recover in time for retirement

Really? I think the boomers are possibly screwed. Not just the house bubble, but the 60/40 portfolio will be looking sketchy. Who's going to be paying top dollar for the equities? The kids are all tapped out.

by Pa1nter | 24th Aug 23, 5:11pm 1692853906

The boomers might be screwed, but they're probably the least screwed.

by Hitch22 | 24th Aug 23, 9:34pm 1692869649

Why is the 60/40 looking sketchy?

According to QV all NZ change in house prices down 10.1% in last 12 months.

My 60/40, actually 64/36 is up 8.91% in last 12 months.

Houses are for living not investing.

by Flying high | 24th Aug 23, 5:23pm 1692854617

"housing bubbles that didn't burst in 2008"

Were you in the country and do you know what you're talking about

Probably 10 times the level of mortgagee sales as now. Values went down less than last 18 months but the prior rise not as rapid

by Pa1nter | 24th Aug 23, 5:28pm 1692854928

I think he's meaning burst and stayed burst.

Which is more to do with the burst economies than the real estate. The likes of Greece, Italy and Japan were all in fairly different states/stages to the countries that didn't pop and stay popped.

The likes of NZ likely have 1-2 more rounds left of doing the QE and asset inflation game.

by Flying high | 24th Aug 23, 6:16pm 1692857774

On that defn then hardly any markets "burst" did they?. Has probably blocked us painter, beats plugging ones ears and chanting.

by Pa1nter | 24th Aug 23, 6:16pm 1692857764

Some lose value, and never recover.

by K.W. | 24th Aug 23, 5:01pm 1692853303

Importing 1.2 million people in the last year is what is driving the housing bubble. Canada has an unrivalled immigration ponzi, although Australia is desperately trying to catch up. New Zealand is just getting the immigrant dregs now.

by J.C. | 24th Aug 23, 5:08pm 1692853716

Importing 1.2 million people in the last year is what is driving the housing bubble. Canada has an unrivalled immigration ponzi, although Australia is desperately trying to catch up.

Yes. The immigration ponzi is outrageous. I watched a doco about the Vancouver bubble many years ago - more or less, a dumping ground for capital flight and filthy lucre. The local govt honchos knee deep in the corruption and enabling. Aussie and Canada are quite similar in that respect.

by Roelof | 24th Aug 23, 6:34pm 1692858857

Its not just the importing of people.... AND excessive immigration really is a ponzi thing.

In aggregate, land values are a function of money supply growth. ...AND...money supply growth in our debt-based financial system is systemic .

Chronic current acct deficits and foreign direct investment play a part here..

lowell manning wrote a really interesting piece here

https://www.interest.co.nz/opinion/64724/lowell-manning-says-problem-ho…

Our leaders could not care less about affordable housing.... the understanding is beyond them.... in my view

by OldSkoolEconomics | 25th Aug 23, 9:27am 1692912452

We are foolish to keep the immigration game going - it driven by our 4 year election cycle and the publics desire to see house price rises in the short term.

In the mid to long term we are creating a total wellbeing disaster for ourselves. Overstretched public services, a mass exodus of young professionals, increased crime, traffic congestion ... you name it.

by The Person | 24th Aug 23, 4:17pm 1692850644

We'll know people are really doing it tuff when the bike-o-meter starts showing growth with the suv-o-meter trending down.

All this talk of 'cost of living' pressures everywhere, yet I still see the bulk of people driving around on short trips here and there. Can't be that pushed for cash with so much petrol money going up in smoke.

Yes yes, some people out there have no legs and need a car to get around, but the bulk don't.

by Mr. Smith | 24th Aug 23, 4:37pm 1692851864

Made the same comment to my wife last Sunday. Seems the weekend traffic is worst than my work commute.

by Eschaton | 24th Aug 23, 4:38pm 1692851893

Lots of people travelling on holiday too.

by M0ralHazard | 24th Aug 23, 4:26pm 1692851197

Good to see Greedflation is alive and well at AirNZ and Qantas, but remember, its your pay increase that is the real problem.... /s

by Jonny.Foe | 24th Aug 23, 4:30pm 1692851424

That mortgage data is pretty scary - in the last 12 months new lending has totalled about $60bn - down from $100bn at the peak (and that's without adjusting for inflation). That's $40bn less stimulus coming into the economy over the last 12 months, which, when coupled with major reductions in net Govt spending, means we are in real trouble. Treasury and RBNZ are engineering a hard landing so spectacular that the rest of the world will marvel at our idiocy.

by Nzdan | 24th Aug 23, 4:49pm 1692852574

We've basically continued to borrow from the future, and now the future is here.

by Yvil | 24th Aug 23, 4:52pm 1692852735

LOL, well said !

by Roelof | 24th Aug 23, 6:12pm 1692857536

yes and no Jfoe..

Most of that $40 billion less of new money might never have spilled into the wider economy as "stimulus".... Im guessing most sellers of houses would NOT spend that money , and would probaby invest it..

In reality...maybe its only a % of that total that ends up circulating around the economy., as spending.??.. ( Maybe the Govt deficit compensates ?? )

More constraining might be the profoundly massive rise in interest rates.... For me its a major paradigm shift.

AND... concerning for me is the worsening trade balance/current acct... longer term consequences of that might be international lenders wanting higher interest rates..?? ( Back to the days when NZ had structurally higher rates than our partners )

https://fred.stlouisfed.org/graph/?g=184yF

by Jonny.Foe | 25th Aug 23, 1:27am 1692883624

As you are aware, at the end of every chain of property sales is someone cashing out. My contention would be that the % of newly created mortgage money that actively stimulates the economy won't have changed that much. So if total new loans drop 40% the withdrawn stimulus will be significant. Now combine that loss with higher rates, which effectively take money from spenders to savers, and much reduced deficit spending, and you have a recipe for what we are seeing - plummeting real terms cash balances in transaction accounts. As you note we alsobhabe a steady flow of money and bonds going abroad, which adds to this. I genuinely think we will be in spectacular trouble early next year.

by Sam B | 25th Aug 23, 7:37am 1692905845

But do we want more people (always rich people) cashing out, driving up demand for Ford Rangers and investment properties in the regions, keeping inflation and inequality high?

I don’t want to see rates come down until the property leverage game is dead, stone dead, in a sealed coffin with a silver dagger through its heart. Until then, any stimulus is just an inflationary gift to the already wealthy.

by J.C. | 24th Aug 23, 5:15pm 1692854151

Chyna property. Analysis by the Vampire Squid:

In a nutshell, they need to hawk USD2 trillion worth of real estate. Where's Ashley Church?

To put this into context, our China property team’s estimate of 2023E primary market property sales is Rmb 13.2tn, meaning that developers’ inventory equates to around 4.8 yrs in terms of current sales. Our China property team has estimated the liquidation value for the inventory sitting on stressed developers’ balance sheets is between Rmb 15tn (USD 2.2tn) in their base case scenario, and Rmb 20tn (to USD 2.9tn) in their bull case. For stressed developers to engage in comprehensive restructurings of their balance sheets, we believe large-scale asset liquidations will be needed. This will require liquidating projects from mostly privately owned developers, many of which are located in lower tier cities.

https://www.ft.com/content/f4382d3a-b423-4151-a204-8789960ff42a

by Roelof | 24th Aug 23, 5:41pm 1692855709

What if....China bulldozed all that "surplus" property......and then rebuilt..??

I recall Japan "building bridges to nowhere "... back in the 90s' ( the term became a metaphor for Govt. non-wealth creating nonsense )

I would not surprise me if China is already doing that sort of thing...... they seem to be mirroring Japans rise and fall ???

It generates GDP... both the demolition and rebuilding... but of course it falls into the "intellectual but idiot" (Nassim Talebs term ) realm of solutions.

by J.C. | 24th Aug 23, 5:59pm 1692856798

I recall Japan "building bridges to nowhere "... back in the 90s' ( the term became a metaphor for Govt. non-wealth creating nonsense )

There's an infamous book called 'Dogs and Demons' that focuses on this in Japan (published in 2001).

Kerr offers up sometimes astonishing comparisons, like data that suggest planned spending in Japan on public works in the next five years will exceed that in the United States by 300 to 400 percent, despite there being only a twentieth as much land area to be manipulated. The Japanese lay 30 times as much concrete per square foot as does the United States, and Japanese spending on public works exceeds American spending on the space program.

http://alex-kerr.com/html/dogs___demons__english_.html

by Pa1nter | 24th Aug 23, 6:55pm 1692860154

The problem with that example is that Japan uses way more concrete in its roads than the US.

by J.C. | 24th Aug 23, 8:16pm 1692865002

Where did you learn this young sock puppet?

by Audaxes | 24th Aug 23, 6:48pm 1692859714

What if....China bulldozed all that "surplus" property......and then rebuilt..??

Hardly credible - CPC would rather house people than reward property builders/speculators at this juncture.

Krugman misses a key point: China has accounted for 35% of the cumulative rise in global GDP since the Global Financial Crisis. The US is not a closed economy — it draws much support from global growth. A China crisis would undermine that support. Link

by Audaxes | 24th Aug 23, 6:51pm 1692859890

Unsurprisingly, Huawei is leading the charge in China’s fierce counter-attack in the tech war. The indigenous Chinese supply chain takes shape — a necessary, but not sufficient, building block for indigenous innovation. Another US strategic miscalculation! Link

by Audaxes | 24th Aug 23, 6:37pm 1692859053

The May 2032 bond saw its yield rise from 4.80% two weeks ago to 4.97% today.

The associated interpolated mid IR swap rate was minus 19.6578 bps at 4.7753%.

Market makers pull back their fixed quotes to make it worthwhile engaging balance sheet capacity to meet the demands of those wishing to receive fixed, to pay floating.

by Audaxes | 24th Aug 23, 6:55pm 1692860136

Quite simply, it takes some financial institution’s balance sheet capacity to take on an interest rate swap (the farther the maturity, the more capacity it requires). If balance sheet capacity (the real money in the system, therefore liquidity) is systemically impaired, as in a crisis, or a crisis that doesn’t really end, then to get dealers to give up their precious balance sheet capacity and engage on the other side of a swap someone would have to pay a hefty premium to make it worth it (risk-adjusted) for the dealer to do so. J Snider

by Spiceeh | 24th Aug 23, 11:27pm 1692876437

How is it tha BRICS expansion didn't make it into this article? It's got to be one of the biggest economic news items of the day, considering they will now represent more than 30% of the global economy.