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A review of things you need to know before you sign off on Friday; Westpac trims rates, fewer big renos, Zollner goes full hawk, space center opens, swaps up, NZD firm, & more

Economy / news
A review of things you need to know before you sign off on Friday; Westpac trims rates, fewer big renos, Zollner goes full hawk, space center opens, swaps up, NZD firm, & more

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). It's a skinny edition today.

MORTGAGE/LOAN RATE CHANGES
Westpac cut many of its fixed home loan rates today. Details here. Other banks will no doubt follow. Discretionary discounts are active at all banks at present. You just need to ask. For example ANZ's carded 1 year rate of 7.39% can be had for 6.89% for existing customers. But their carded 2 year 6.89% rate can be had for only 6.85% however. No doubt the large 1 year discretion discount will pull back when/if ANZ changes rates next week. But we will all just have to wait and see how this plays out. Separately, Kookmin Bank has cut its 2 to 5 year fixed rates today.

TERM DEPOSIT/SAVINGS RATE CHANGES
Westpac also trimmed a number of term deposit rates as well, generally by more than the mortgage rate cuts. However a few days ago they did raise their 6 and 8 month rates.

FEWER CONSENTED RENOS
The number of homes having major alteration work done is steadily declining. The volume of building consents issued for major dwelling alterations is down -15% over the last two years and from the recent peak in February 2022. The current declines are the most since 2011.

SHOCK FROM ORR?
Economists at our largest bank now say the Reserve Bank could shock in their next two reviews by lifting the Official Cash Rate +50 basis points to 6%. Meanwhile many other economists are backing off their 2024 rate cut predictions, or at least pushing them much further out, as the data that drives the RBNZ's decision-making turns to not support rate cuts.

MORE LOCAL SPACE INFRASTRUCTURE
The new runway at the Tāwhaki National Aerospace Centre near Christchurch opened today. US-based Wisk Aero recently conducted its world-first airspace integration test flights for an uncrewed aircraft from Kaitorete, and Dawn Aerospace and Kea Aerospace will now conduct horizontal space launches and stratospheric flights from the site.

AUSSIE HOUSEHOLDS SPEND LESS
Household spending rose +2.3% in December from a year ago in Australia. This was the smallest growth in household spending since February 2021. But that is before inflation was accounted for. Discretionary spending actually fell -0.6% (also before accounting for inflation). This data highlights how their cost-of-living crisis is affecting them.

AN IMPORTANT CHANGE COMING
We should note that next Wednesday is election day in Indonesia. They will get a new president. Indonesia (the world's fourth largest country by population) rarely features in Kiwi minds. (It should do.) But it does figure large in Australia, and if it matters to Australia, it will end up mattering to us.

SWAP RATES RISE FURTHER
Wholesale swap rates will probably be higher yet again today, perhaps boosted by ANZ's big call. However, the key reaction will come at the close. Our chart below records the final positions. The 90 day bank bill rate is down -1 bp to 5.69%. The Australian 10 year bond yield is up +1 bp at 4.13%. The China 10 year bond rate is little-changed at 2.44%. And the NZ Government 10 year bond rate is up another +4 bps at 4.89% and a one month high, while the earlier RBNZ fixing was at 4.79% and down -2 bps from yesterday. The UST 10 year yield is now at 4.15% and up +5 bps from yesterday. The UST 2yr is at 4.44% and so that key inversion is now just under -30 bps.

EQUITY WINNERS & LOSERS
The S&P500 closed its Thursday session little-changed at 4998 index level. At no time did it touch or breach 5000 however. But the NZX50 is down -0.5% late in its Friday session and heading for a weekly -0.8% retreat. But the ASX is up +0.1% in early afternoon trade, and if it holds that will end their week down -0.6%. Tokyo is up +0.3% at their open heading for a +1.6% rise. Hong Kong has opened its Friday session down -1.7% but is heading for +1.6% weekly rise. Shanghai is on holiday for their Lunar New Year break. Singapore has opened down -0.6%.

OIL PRICES UP
Oil prices are up +US$2 from this time yesterday at just over US$76/bbl in the US while the international Brent price is now just under US$81.50/bbl.

GOLD EASES SLIGHTLY
In early Asian trade, gold is now at US$2034 and down -US$3 from this time yesterday.

NZD FIRM AGAIN
The Kiwi dollar is now just on 61.2 USc and marginally higher than this time yesterday. But it has been volatile in between. Against the Aussie we are up sharply, up +¾c however to at 94.3 AUc. We haven't been this high since May 2023. Against the euro we are holding at 56.8 euro cents. That means the TWI-5 is now at just under 70.5 today and up +10 bps from yesterday.

BITCOIN FALLS BACK
The bitcoin price has fallen back today, now at US$45,361 and down -2.5% from this time yesterday. There's been modest volatility again over the past 24 hours of just on +/- 1.3%.

Daily exchange rates

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Daily benchmark rate
Source: RBNZ
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End of day UTC
Source: CoinDesk

Daily swap rates

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Opening daily rate
Source: NZFMA
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This soil moisture chart is animated here.

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54 Comments

ANZ - either a forecast of brilliance or an egg on face moment, only time will tell.....

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Do people actually go back and check what banks predicted 1-2-3 years ago? But I always ask myself why are banks coming out and saying these things rather than just staying quiet.

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Yes.. the reserve banks do exactly the same thing. And they always get it wrong. Truth is no one can predict the future.. So they always have to change there tune 

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People expect them to be the font of all knowledge. Plus its a marketing tool.

But they probably would prefer to stay quiet.

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They have so much money they can employ irrelevant high salary economists (while axing those on low pay in branches). 

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So swaps have been climbing.. 2 articles today about higher rates.. what more can the housing market ask for.. 

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I cannot wait to see how TA will spin this as a positive, some of the spruikers on here will just parrot how well the econo0my must be doing for another 2 hikes to be needed.  I have heard a few Silverdale engineering businesses say that things have fallen off a cliff since pre xmas....     

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Yes I think the market got a bit ahead of itself pricing in cuts. There is almost 0% chance of a cut at the next RBNZ meeting, and probably the one after too. 

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There is not going to be any cuts until the second half of the year. A couple of 25bps cuts in the second half are quite likely though, in my opinion. 

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If the leading bank expects OCR increases this year, and some other banks don't expect the OCR to drop this year, and the messaging from the RB doesn't want banks dropping lending rates, why are banks dropping their interest rates? Isn't the move from the banks to drop rates more likely to lead to more OCR increases and increase inflation? The whole point of the OCR is to bring down inflation, which should mean that people have less money to spend. Banks reducing interest rates means that people have more money to spend.  

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Banks still need to compete if they want new customers. 

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Double paste Yvil?

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A 1:10,000 coincidence, a glitch in he matrix, or a multiple account poster....

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Quick look for a phone box

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A 1:10,000 coincidence, a glitch in he matrix, or a multiple account poster....

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So Jimbo Jones posts something, Yvil posts exactly the same comment, then Jimbo deletes his. Yeah right.

 

Yvil's predictions are so wrong he needs to make his own echo chamber :)

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Is jimbo Jones evil?

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looking yvil.........   100% screwed it up

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Not really, raising interest rates encourages people to save their money and not spend it.

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But isn't that what the reserve bank wants, people to not spend (saving does  this), to help bring down inflation. That money can then be invested in businesses for growing the economy.

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Yes, but you said it was choking the demand out of the economy, that's not the intent. It's actually rewarding people with money, paying them interest just for holding money. And discouraging people from having no money, or being in debt. This encourages people to hold money, thus they value it more, thus inflation goes down.

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Raising interest rates does 3 things:

1) Encourages people to save not spend

2) Forces those with debt to spend less

3) Improves the currency to make imported goods cheaper

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3) Improves the currency to make imported goods cheaper

Not necessarily. Using System 1 thinking, you are correct.

1. Remember the GFC when AUD and NZD got smashed against JPY despite a favorable interest rate differential. 

2. Economies with high-cost structures like Nu Zillun cannot bank on cheaper imports but the fact that prices need to be higher for commercial viability. 

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It improves the currency compared to not raising rates (i.e. the currency would drop less than without the rate increase). 

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As I said, not necessarily. It's a fair assumption to make. But it's not some kind of watertight cause-effect phenomenon.

For the same reasoning, you would argue JPY should never be strong relative to high-yield currencies. But if capital started flowing back to Japan, you could imagine JPY would strengthen dramatically as a leading creditor nation. 

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If the Japanese increased their cash rate, wouldn’t that increase cash flows back to Japan and increase their currency? 
It’s all relative. You could increase your cash rate and have currency go backwards, but that backwards is likely to do with your economy not doing so good, and you would have gone more backwards without the increase. 
Buy yes none of those things are guaranteed to happen. 

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If the Japanese increased their cash rate, wouldn’t that increase cash flows back to Japan and increase their currency? 

To some extent, yes. 

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All of that sounds good for NZs economy. So why do banks want lower rates... 

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Banks still need to compete if they want new customers.

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Utter rubbish, completely wrong. 

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Most people refixing will be coming off much lower rates anyway. It doesn't really matter if it's 6.9% or 7.3% if you're coming off 4%.

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Western media now insinuating China is to blame for putting the Anglosphere property market at risk of being flushed down the toilet. So we blame China because of our silly valuations on banks' balance sheets?

The Global Tremors From China’s Real Estate Crisis Are Only Just Starting

  • Overseas developments from Mayfair to Toronto hit the market
  • Discount prices could force a reassessment of industry losses

Chinese investors and their creditors are putting up “For Sale” signs on real estate holdings across the globe as the need to raise cash amid a deepening property crisis at home trumps the risks of offloading into a falling market. The prices they get will help finally put hard numbers on just how much trouble the wider industry is in.

https://www.bloomberg.com/news/articles/2024-02-09/china-s-real-estate-…

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The first offer is often the best offer JC....

 

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Which western media is that? Pure Trumposhere….  No, this property bubble has been completely our own work, and no amount of spin to find someone else to blame can mask that

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However I agree that the world is only just starting to see the fallout of China’s property crash, which has been going on for some time now (but has way further to go)

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When I posted this morning, the betfair market gave Biden a 31% chance of winning the next election, now he's down to a 26% chance.

Trump's odds unchanged, the democratic field has moved in to fill the gap (Obama, Harris, Newsom) 

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He talks to dead people

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And Trump to imaginary people 

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Harris is unelectable. That is demonstrated in part by Biden being pulled out of the ditch in 2020 when the Dems finally realised none of the others were electable. Yet regardless of that dawning, they selected Harris as Vice President, and now four years later, she is even more unelectable.

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Musings on gold via Bloomie Intelligence:

Gold may be on a sounder footing than before the GFC. At the start of 2008, the per ounce price of the metal was around a 30% discount to the S&P 500 and US nominal debt was about 40% below GDP.

Though both gold and the S&P 500 have been flirting with record highs, gold is around a 60% discount to the stock market and US debt exceeds GDP by more than 20%.

Relative to the benchmark measure of risk-asset beta, this represents the lowest gold price since 2005.

It took US government deficit spending of about $2.65 trillion in 2023 for nominal GDP growth around $1.53 trillion. This may mean strengthening tailwinds for gold. The sharp rise in deficit spending, on the back of the GFC helped the metal breach $1,000-an-ounce resistance at the start of 2009. We see parallels around $2,000 now. 

 

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So basically gold has done badly so now it must do well? Or maybe it’s just been replaced by criminals with Bitcoin. 

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JP Morgan Jimbo? .hmm I think they did that with FIAT ? Criminals love cash... untraceable..

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So basically gold has done badly so now it must do well? Or maybe it’s just been replaced by criminals with Bitcoin. 

It's Bloomberg Intelligence using their own analytical parameters. But you have a point, has ratty become the go-to asset for wealth preservation? Too early to tell IMO but the idea does resonate to some extent. Given than central banks are increasing gold purchases, it could be that the gold price has been suppressed by the likes of vested interests such as JPM through derivative instruments.   

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A little off topic but it is in the news today. What is the non story about Mark Mitchell and Coster being polite to each other all about? It is quite normal in the private sector to disagree over business but still wish people a happy Christmas and congratulate people on a new job. No wonder labour had bullying issues if they think you have to be unpleasant to everyone who disagrees with you.

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Funny I thought the same,  being polite is free and creates goodwill....   

The media is so in the lefts pocket I no longer trust anything written in the Phillipines for Stuff.   

 

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From todays Kiwiblog, summing it up well 

"Hugh Jarse
Re Coster and Mitchell’s texts conversations. It seems beyond the experience of the angst ridden teenage girls in the media that two older white males who have to work together while perhaps not particularly liking each other can be polite and professional in their communication. They seem to judge everyone by their own limited experience and inter personal tools. Pathetic"

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Sydney's more popular and well-known eateries are doing it tough.

"....data from the Australian Securities and Investments Commission shows that insolvency claims in the accommodation and food services sector surging by 92 per cent in the December quarter compared to the same period in 2022."

https://www.smh.com.au/goodfood/sydney-eating-out/popular-crown-street-…

 

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Aussie has not really had a recession for so long, going to be a real eye opener

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I think here too judging by my experience tonight. Very popular restaurant, usually at least 90% full, 40-50% tonight. Last time I went there was the same time last year, it was heaving.

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Random question, do you guys think a notable contribution to current inflation is simply due to rising nihilism as a result of cost of living and property being out of reach for a large percentage of the population? I imagine a growing percentage of people are spending money they would have otherwise put aside for their first home or who would already own a home and be paying off a mortgage with that money instead.

Takes a decent amount of discipline to not spend money leftover from renting especially if owning a house seems out of reach in the short to medium term. 

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Yes but i think it was a 2023 story

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Really interesting thought. I am sure it plays a part but how much is the big question.

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As a young person this is absolutely true, I know people who literally gave up in 2021 and spent their deposits on other things. Other friends aren't even trying to save, presumably just waiting for a housing crash or inheritance, whichever comes first. Actually working and saving your way to success seems almost impossible to gen z. 

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I knew people in the 1970s & 80s who thought like that, some spent years looking for the greener grass in NZ & overseas.

The housing crash & inheritance never happened then either.

 

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