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
Heartland Bank raised all its fixed rates today.
TERM DEPOSIT/SAVINGS RATE CHANGES
Heartland Bank also raised term deposit rates. Of note is their 5.50% and 5.75% rates for 4 and 5 months respectively. These are levels at least 100 bps higher than bank rates. Xceda Finance also raised its offer rates, taking their one year rate up to 7.50%.
NO MONEY LEFT?
Future governments will have a very tight budget. Treasury’s pre-election update says the Government will need to borrow an extra +$9 bln over four years and will have to spend less than in Budget 2023 for the foreseeable future. The PREFU documents are here.
MORE BORROWING
Specifically, Treasury says the forecast 2023/24 NZGB program has been increased to $36 bln, +$2 bln higher than published at the Budget Economic and Fiscal Update 2023. The forecast NZGB program for 2024/25 and 2026/27 have also been increased, by +$3 bln and $4 bln respectively. The forecast for the 2025/26 year is unchanged. The +$9 bln rise is actually less than the +$10 bln analysts expected. The Treasury Debt Management Office will launch two new nominal NZGB lines, via syndication, before the end of the fiscal year on June 30, 2024. The maturities of these bond lines will be 15 May 2035 and 15 May 2054. All this borrowing will come at a much higher cost of interest to the taxpayer - but investors will be happy.
TURNING UP
The latest QV House Price Index shows houses nationally have had their first three-monthly increase in values since the start of the downturn in late 2021. (Expect the REINZ August results tomorrow.)
IMMIGRATION GAINS
Stats NZ reports that strong arrivals of non-NZ citizens, the relaxation of border restrictions, and the changes to immigration settings have driven record net migration gains in the year to July.
TOURISM GETS A JULY FIFA BOOST
Based on visitor data released today from Stats NZ, Infometrics says: "The 2023 FIFA Women’s World Cup had a noticeable effect on tourist arrival numbers in July. We estimate that arrivals were higher for the month by about 16,500 people, or 8.5%, than if the tournament had not taken place. By far the biggest effect was seen in arrivals from the US, which were up 11,400 from their June level, corresponding to a lift from 82% to 162% of pre-pandemic arrival numbers in 2019. We estimate this result was equivalent to an additional 13,800 arrivals from the US due to the World Cup. The other most significant effects were recorded in arrivals from the Philippines and Japan, which were both about 1,000 higher than might have been expected without the tournament." School holidays and ski season helped too, of course.
CARD SPENDING RECOVERS
Stats NZ figures also show that total card spending rose by +0.9% in August, reversing a drop of the same magnitude in July. However, spending on consumable and durable goods was down.
LOOKING AT US FROM AFAR
British-based and Fitch-owned BMI Research (Business Monitor International) sees weak loan markets here extending to the rest of 2023, but that there will be a good pickup in 2024 (+3%) on the back of a stronger economic backdrop, looser monetary policy, and stronger sentiment. They say that financial stability risks remain limited as key measures of banking stability indicate a healthy banking sector.
"SIGNIFICANT" CONSEQUENCES
Sixteen of Air NZ's 106 aircraft have a particular model of Pratt&Whitney's GTF jet engine. These are going to require major inspections and updates which will take the Airbus A320/321NEO aircraft out of service. The engine-maker says the disruption could last until 2026, globally. As a consequence, Air NZ says it will "need to make adjustments to its schedule in coming months, some of which may be significant". The same issue affects up to 700 other engines globally (~350 aircraft?). No relief on airfares coming anytime soon.
SWAPS ON HOLD
Wholesale swap rates were probably little-changed today across the whole curve. But the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is up +1 bp at 5.67%. The Australian 10 year bond yield is down -2 bps to 4.15%. The China 10 year bond rate is also down -2 bps at 2.67%. The NZ Government 10 year bond rate is down -3 bps to 5.04%, but still above the earlier RBNZ fixing of 4.99% which was up +4 bps today. The UST 10 year yield is down -1 bp from this morning, now at 4.29%.
EQUITIES MOSTLY LOWER AGAIN, EXCEPT WALL STREET
The NZX50 is down -0.3% near today's close. The ASX200 is down -0.1% in early afternoon trade. Hong Kong is down -0.6% at its open, but Shanghai is only down -0.1%. Tokyo has opened its Tuesday trade up +0.3%. The S&P500 ended up +0.7% in Monday trade on Wall Street.
GOLD STABLE
In early Asian trade, gold is at US$1922/oz and down -US$1 from this time yesterday. Earlier in New York it closed at US$1922/oz also, and earlier still in London at US$1925/oz.
NZD STABLE
The Kiwi dollar has risen to 59.2 USc, a very minor rise since this time yesterday. Against the Aussie we are down -¼c at 92 AUc. Against the euro we are little-changed at 55.1 euro cents. The TWI-5 is still just over 68.7.
BITCOIN LOWER
The bitcoin price is lower, now at US$25,158 and down -2.1% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.9%.
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54 Comments
Coincidentally, to your first point, I met a recruiter today to discuss a few roles we have on offer.
Some public sector orgs are now paying $125-140k a year with 5-7 years of relevant experience for domains such as finance, IT, etc. and 160k+ to candidates with ~10 years of experience. Contractors in those domains can expect rates of ~$130-150/hour.
Those figures are particularly worrisome because that is nowhere close to private sector rates. Even reputed employers such as Air NZ and Xero are not that generous with their payroll; good luck competing with that for those running small to medium-sized businesses.
If you're meaning software engineers etc by IT, then $160k is very much middle of the road for salaries at 10 years into your career for talented employees. Australian companies like Canva or Atlassian will pay top dollar for NZ seniors ($150-200k+) even if they're working remotely from here. That's not even counting things like stock options either.
Richard Holden at the AFR has just come to the realization that Aussie has not invested in or established the investment environment for productive activity. Everything's been pissed up against on a wall through the property bubble.
Yet in the past nearly 20 years we’ve done the exact opposite of this. We’ve made Australia a less attractive place to invest. Our company tax rate has gone from being among the lowest in the OECD to the second highest. Our personal marginal tax rates are comparatively high yet kick in at comparatively low levels of income. We tax labour income too much but consumption too little. The stability and efficacy of our political institutions have more in common with those of present-day Italy than Australia between 1983 and 2006.
We have fetishised property as an asset class – replete with a barrage of special tax breaks – to the point where one could be forgiven for thinking that we as a nation invest in almost nothing else.
https://www.afr.com/policy/economy/the-ugly-truth-australia-is-not-a-gr…
Michael Hudson: Corruption. Your central – when I was down in Australia, Karl took me to your very nicely-designed capital of Canberra and I met with the central bankers there. And they said, “We’re a very lucky country. We live in the – we’re a neighbour of China and we can balance our payments and really get by just through exports. We don’t need any industry and quite frankly, we don’t need people.” So, this is – the corruption is just the bank-centred world view that Australia should be run for the benefit of the mining interests, the iron mining interests that created the wealthiest lady, I’m told, in Australia.
And the central bank is run for the mining interests and for the foreign investors. The Bank of Australia policy is made by England, which is made by the Federal Reserve so just as you elected a socialist Premier or Prime Minister, the Queen of England’s local representative in Australia said, “Well, you’re a colony, we don’t agree with that person. You can’t elect them. You can only elect people that we agree.” This is what Australia did and so, it passed a neoliberal regime of the government in Australia that is even worse than Tony Blair in London. And the same thing in New Zealand under Douglas economics. Link
For multiple reasons, borrowing and deposit rates aren't coming down anytime soon. In fact, if anything, there's more potential on the upside. If future Governments don't adhere to the required fiscal discipline (and they probably won't), foreign investors will inevitably punish us for living beyond our means. Lets not mention the FED willingness to offload its bloated balance sheet on the world......
Lets not mention the FED willingness to reduce its bloated balance sheet......
Beware of mirages. Anyway, good overview of this from Wolfie Richter. However, take a peek at the Bank Term Funding Program (BTFP). More central bank absurdity.
https://wolfstreet.com/2023/09/07/fed-balance-sheet-qt-105-billion-in-a…
Re: PREFU I don't profess to understand all the numbers, nor have any grasp on what the future holds (all I'll say is that the opposition is obviously going to make the numbers out to look as bad as possible, and the government will do the opposite to make themselves look good).
However, eyeballing a few headlines and media outlet social posts, most seem to be taking a fairly 'middle of the road' approach (PREFU not as bad as expected - perhaps due to Robbo's last minute hack and slash job - but hardly amazing either). Similar tone to what the Interest.co.nz article had.
Then you've got NZ Herald all but declaring that the 'rockstar economy' is back, proclaiming in bold type:
- Housing market roars back to life
- Surplus projected (isn't that like 4 years away?)
- Immigration takes off again
If you just read the headlines, you'd be forgiven for thinking the glory days are back again - maybe it's all that property advertising money wanting to create confidence?
Outside of political arguments and pure opinion (where you are free to spin the results to suit a narrative), how can a mainstream media outlet have such a divergent view to the rest?
True, for my sins I know a thing or two about clickbait headlines (as I've worked in a few roles where part of my job was literally maximising the impact of clickbait content) BUT what's weird to me in this instance is how Stuff, Newshub etc are taking so much more of a measured approach whereas the Herald is today not far removed from throwing a giant block party/carnival, with Grant Robertson rocking out on the top of a building, ala U2's Where The Streets Have No Name, and Tony Alexander on drums.
with Grant Robertson rocking out on the top of a building, ala U2's Where The Streets Have No Name, and Tony Alexander on drums.
Robbo likes to think he's something of a hipster because he has a Flying Nun record collection.
No disrespect to FN, but that is probably more of a reflection on Robbo as little more than a parochial provincial chancer.
I think the PREFU GDP forecasts are slightly too rosy although obviously high immigration levels are contributing to that. We have some big headwinds on the way - construction sector, dairy, retail and hospo. And how will international tourism fare as the economies of some of our major tourist sources slow?
Also immigration levels are likely to slow markedly as employment weakens
There's a pent up mountain of debt waiting for an income to consume. Show me the income, Granny Herald. Where's it coming from? Trade income is falling, govt spending will be cut, so where, in the private sector, is all the money coming from that will service this rockstar housing market? Immigration is the final straw and if/when that breaks, it's kaput.
Maybe immigration could be enough to keep it up? Especially with National in power; they've made it explicit that using migrants (and their money) to keep the pyramid going for as long as possible is the idea. Back to JK's glory days. I don't like it, but maybe it could work?
We've had the immigration taps on full for what, a year? Daily stories about dire living conditions of immigrants in Auckland. Just come to the end of the fast track residency application period (ended 2 years ago, fast tracked up to two years off). I agree, it could, but it could also have the exact opposite effect due to lack of infrastructure and jobs to cater to migrants due to cut in spending. Things aren't squaring up well in my head, but I could easily be proven wrong.
There's never been any point where NZ has had the infrastructure for it's migrants.
Yet people seem to keep coming. Once they stop, I guess we slide into being something like Japan, Greece or Italy. Cheap houses, ballooning state costs, reduced services, lower wages and a low currency.
Speaks volumes about the skills we're bringing in and the quality of businesses hiring those migrants - has been the case since mid-2010s. Getting cheaper labour from overseas to make your coffee and cook your takeaway is hardly going to deliver higher GDP per capita.
A better reflection for what's wrong with our economy is NZ's GDP per worker stats, since "per capita" is still artificially inflated by a shift in NZ's main population growth driver from net natural increases to high net migration.
Getting cheaper labour from overseas to make your coffee and cook your takeaway is hardly going to deliver higher GDP per capita.
In theory, our higher paid, higher skilled indigenous population will have their valuable time freed up not doing lame things like cooking and cleaning, or looking after their ailing parents, to produce more higher value output (and therefore GDP) with said saved time.
Or just spend the time chilling out on the internet.
our higher paid, higher skilled indigenous population
Weren't we trying to solve a skill crunch of our own with migration? In your mind, are we a country full of brain surgeons and rocket scientists in desperate need of imported help only for our menial work? If so, I do have a bridge to sell to you.
I was talking in reference to your claim with migrants filling the lower end menial jobs you are talking about. In theory, that should free up people on higher skilled jobs to produce more with their time than clean socks and baked beans on toast.
We aren't producing the skills in our own population to fill jobs in many areas of the economy. From digging holes, to shooting rockets into space. That's either because there just aren't enough people, or the ones that are here, aren't interested in working in a field where there is definite demand.
We can use migrants to plug many of these holes, but not all of them.
Again, I don't know what the future tax implications are if we just let our population age naturally.
or the ones that are here, aren't interested in working in a field where there is definite demand.
Or the wages on offer aren't enough to attract locals and the employers aren't willing to train. Of course, recent arrivals will work more for less because they want residence valued at hundreds of thousands. It's comparing apples and oranges while conveniently ignoring the side effects (costs) that the public has to pick up.
Or the wages on offer aren't enough to attract locals and the employers aren't willing to train.
Why not a bit of everything.
You mentioned salary figures earlier above, presumably you think they're high. They can be earned by someone doing something as menial as gypsum plastering. But that's a crappy job most people don't want to do anymore, I wouldn't imagine it entering most teenagers minds as an option. You can't automate that job, but it's still fairly necessary to produce finished offices, homes, etc. What to do? And that's just one job.
For anyone putting any weight on med-term surplus projections (warning: just don't) in the Dec 2019 HYEFU the OBEGAL forecast for the yr to June 24 was a surplus of 1.5% of GDP (on Robertson's then indicated operating allowances). The f'cast for 23/24 now? A 2.7% of GDP deficit. Link
Formed from a roll up of distressed PGC assets and other finance companies such as Marac but has survived and grown since the financial crisis with luck on their side with a long period of low interest rates, a growing NZ economy, and a over-performing reverse mortgage position. But still BBB.
"NO MONEY LEFT?
Future governments will have a very tight budget. Treasury’s pre-election update says the Government will need to borrow an extra +$9 bln over four years and will have to spend less than in Budget 2023 for the foreseeable future. The PREFU documents are here."
So, hand on heart who do NZdrs trust to run a tight budget ? With a focus on eliminating wasteful expenditures & saying no to unnecessary but noisy gimme distractions ?
LABOUR/Greens/TPM
National/ACT
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