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 today.
TERM DEPOSIT/SAVINGS RATE CHANGES
Nothing here either. Update: SBS Bank raised its 4 month rate to 4.30%, its 5 month rate to 5%, and its nine month rate to 6.15%.
INFLATION UPDATES LOOK TOPPY
The March quarter CPI will be released next Wednesday. But today, StatsNZ released some important monthly updates about half of which will feed into that quarterly release. Food prices rose +0.7% in March from a year ago, the lowest rise since April 2021. International airfares fell -15% on the same basis. But rents were up +4.6% in this data series, and petrol was up +14.6% largely on tax changes. So despite the low food price rises, analysts are now expecting Q1-2024 CPI to rise by +4.0%, to 4.2%, which are down from the Q4-2023 rate of 4.7% but still far above where the RBNZ wants it to be (and even above the RBNZ's own MPS forecast for Q1 of 3.8%).
SEVERE DOWNTURN
March retail spending (using electronic cards) fell a worrying -0.7% which follows an even worse -2.0% downwardly revised drop in February. Analysts had expected a +0.8% rebound in March. These levels are terrible when you realise that inflation has been running at way north of 2% and population growth has been +3% on top of that.
RECORD HIGH
New dwelling completions in Auckland hit a record high in February and the sharpish downturn in building consents is yet to affect the supply of new homes in the Queen City
FACTORIES IN UNHAPPY PLACE
After improving steadily from October 2023 when it sunk to a rather severe contraction, unfortunately the factory PMI for March couldn't keep the improvement going, so it hasn't shifted out of the contraction zone now for a full year now - and it isn't showing any signs it will soon. Worse, it is weak new order levels that are driving the contraction trends. The steam went out of the normally robust Canterbury region. Wellington (Central) is in sad shape. The pullback was minor in Auckland but it still isn't expanding. The Otago region's current expansion remains the only bright spot - but it is the smallest.
NZX50 PROFILE UPDATES
Readers should note that our NZX50 profiles have been updated, with the latest reported changes for Channel Infrastructure (CHI, #37) and Scales Corp (SCL, #39). A list of all the profiles we cover is here.
A FAST FADE
This time last week, money markets were pricing in three OCR rate cuts in 2024. But sticky inflation in the US, and here, both have traders changing their tune, so that there are now only two cuts priced in for 2024. The October 9 review is where the first is now priced for, the November 27 review for the second. The conviction for these two is easing off too, and kind of quickly. The earlier May or July pricings have now completely vanished and seem a distant memory.
HEAT RECORDS BECOME NORMALISED
In Australia, their forecasters are saying that the upcoming winter there will be their warmest on record. And it may be dry to start that April-July period. El Niño continues to decline and is near its end. Global sea surface temperatures have been the warmest on record for each month between April 2023 and March 2024. Notably, the Atlantic Ocean is showing exceptional and prolonged warmth in sea surface temperatures. Goodbye sea ice. It will be hard to be in the winter sports industry.
SWAP RATES UP AGAIN
Wholesale swap rates are likely to be higher again today after the NZ indications that CPI will miss here too. Our chart below will record the final positions. The 90 day bank bill rate is unchanged at 5.64%. The Australian 10 year bond yield is up +5 bps at 4.33%. The China 10 year bond rate is down -2 bps at just over 2.29%. The NZ Government 10 year bond rate is up +6 bps from this time yesterday at 4.93% and the earlier RBNZ fix was at 4.84% and up +3 bps. The UST 10yr yield is up another +4 bps from this time yesterday to 4.57%. Their 2yr is down -1 bp at 4.94%, so the curve is now less inverted, now by -37 bps.
EQUITIES MIXED
In late trade today, the NZX50 is down -0.6% in late trade and heading for a weekly retreat of -1.2%. The ASX200 is down -0.4% in early afternoon trade and if that holds it will finish its week little-changed. Tokyo has started its Friday session up +0.5% and sniffing a weekly rise of +0.6%. The normally volatile Hong Kong has started today down -1.5%, but might finish up +1.1% if it stays like this. Shanghai has opened unchanged and heading for a -0.7% weekly fall. Singapore is down -0.2% today. The S&P500 rose +0.8% in its Thursday Wall Street session, and is unchanged through its first four days of trade this week.
OIL PRICES HOLD
Oil prices have fallen -50 USc to just over US$85.50/bbl in the US while the international Brent price is up +50 USc to just over US$90.50/bbl.
GOLD AT RECORD AGAIN
In early Asian trade, gold is up +US$51 from this time yesterday at US$2392/oz and yet another all-time high. At 3:06pm today it hit US$2395/oz. Silver is having a moment too, but isn't yet back to its 2020 highs.
NZD FIRMS
The Kiwi dollar has firmed +¼c to 60.1 USc in the settling down space after the US CPI release. Against the Aussie we are a touch firmer at 91.9 AUc. Against the euro we are now up at just on 56 euro cents. This all means the TWI-5 is now up to 69.5.
BITCOIN HOLDS
The bitcoin price has slipped today to US$70,356 and off a minor -0.4% from where we were this time yesterday. Volatility of the past 24 hours has been modest at just on +/- 1.2%.
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83 Comments
Lol. Let me ask you this simple question.
Higher interest rates added $5 billion to business costs last year. Who paid for that?
To put that into perspective, $5 billion is about 2.5% of total household consumption expenditure.
I don't think the US has much to do with this shift. I think you are overlooking a key reason - two in fact. First Chinese consumers have made a small (but in gold market terms, important) shift to increasing their holdings as a sort of personal emergency fund - as they watch the failure of their property markets. And secondly, the Chinese central bank is buying more internationally. Other central banks are too, but some of the 'stans have become sellers. It is the extra PoBC volumes that are market moving. Again not 'large' by normal standards, but significant in this market. Together, they are compounding the demand and prices are rising.
These demand changes are important because supply is rising too. Without both demand trends, it is likely that the rising supply would have kept things stable.
I was being slightly facetious and I appreciate there is a slight flight to safety out of China. Nevertheless there are plenty of other asset classes making new highs as well and those expecting lower rates imminently are ignoring history. Life wasn’t great in the Weimar or Argentina or Zimbabwe.
Always pleased when you join the amateurs in the comments section David.
I think there is a connection here that is being missed. China have a massive trade surplus with the US, and historically they have amassed US Treasuries as a consequence of this imbalance. However, China now view an over-reliance on US Treasuries as dangerous - they've seen that US is willing to weaponise their reserve currency status. So what do they do with the USD they accumulate? They buy other stuff - and recently that has included quite a lot of gold.
So my point here is that a hot, deficit-funded US economy consumes more and creates surpluses domestically and offshore. These surpluses would have historically been invested in US Treasuries, but they are now heading into alternative asset classes.
Amateurs? I am pretty sure we would give most trained economists a run for their money.
My point is this, you want to cut rates because times are tough. I disagree, times are tough because of inflation and while cutting rates will may make a small difference in the short term, it will just push the real pain a little further out. We need to get it under control and take our medicine, that way there will be good times again.
I agree that Biden is making life tough together with mass immigration to an extent.
Fair.
But... I don't necessarily want to cut rates.
It is true that private debt at 140% of GDP, interest rates at 5.5%, and a rentier economy are incompatible. But, getting out of our current malaise will require some actual action. An intervention of some kind. Dropping rates is an intervention, but by no means the optimal choice. Dropping rates for investment in the real economy would be preferable. As would some govt investment in infrastructure and housing.
I don't buy the pain now to save pain later narrative. The last two times we took this approach (91 and 08) we never recovered.
Problem is we didn't learn from 91 and 08, didn't choose to correct the domestic imbalances and continued with the status quo, the same ways that got us into the situations.
According to this we did recover from 91.
https://www.beehive.govt.nz/sites/default/files/Past_recessions.pdf
Domestic growth recovered quickly from the downturn in the 1991/92 recession. Annual growth peaked at 7.3 percent in September 1993. At the same time, unemployment fell, from 10.9 percent in September 1991 to 6 percent in September 1995.
It would appear that neither the Reserve Bank nor our politicians are capable of actually learning from the past. They/we continue to blindly follow ideological/economic dogma and then wonder why we keep getting the same results. We're unable to join the dots and instead continue with a very narrow minded, almost blinkered approach (must fit the model). The left hand doesn't know what the right hand is doing and vice versa, instead it's power struggles and immature children stuck in the he said, she said blame game. Until we get adults in the room with intelligence and wisdom we are screwed. Governments, both central and local and the RBNZ ideally need to cooperate, not operate as siloed ivory towers. Economic (GDP) growth is non existent because the new narrative is Financial Investment. The majority of citizens are merely pawns in a zero sum game, literally being farmed by the oligarchs and our alleged representatives are simple egotistical puppets.
Riddle me this Batman, if interest rates are too high then why is gold rallying to reach all time high's in both US$ and NZ$?
The US perhaps stealing $300 billion in Russian-owned U.S. Treasury securities. Since the idea was floated, gold has gone up $500 per ounce.
Russia owns 3,000 metric tonnes of gold. Russia is making out like a bandit.
I have the opposite view of Jfoe. Inflation targeting works bloody well; we had inflation, the RBNZ thought it was transitory, the inflation got worse, RBNZ raised rates, inflation went away. But using super low interest rates and crazy quantitative easing to battle deflation, that’s the dumb idea, and that’s what got us into this mess.
The RBNZ may well have thought inflation was transitory but Finance Minister Robertson knew it was transitory otherwise he would not have repeatedly & unctuously assured all of New Zealand that, that was just so. The OCR was dropped too fast and too low and then raised too late and too slow. And in between times, Finance Minister Robertson spent willy nilly all that money that rolled out of the public purse, the RBNZ’s printing machine. Of all the decades of our Finance Ministers & RBNZ Governors lamenting quite rightly, the historical abysmal saving record of New Zealanders these two wilfully about faced and embarked on a policy that New Zealanders instead needed to borrow to spend to save the economy, and so they did. And here we all are now.
They would be saving money .? At the moment they are paying the OCR rate on settlement cash....which goes to the private Banking system.??
( maybe sent offshore as repatriated dividends )
In a way the LSAP was a term rate swap... swapping short term interest rates for long term interest rates.....which was great when the OCR was .25% and not so great when it is now 5.5%
In hindsight ...LSAP has been a bit of a disaster.... The only winners being the Banks and Holders of those Bonds.. (Often ...it pays to cut ones losses!! )
https://www.interest.co.nz/banking/120577/combination-very-fast-rising-…
Now, on that we can agree. Quantitative easing is proper dumb. What central banks have not worked out is that the guarantee of buying bonds at a given price is enough to keep market interest rates at the target level. If banks have to follow through on said guarantee and buy loads of bonds then they weren't convincing enough when they offered their guarantee!
The other guys are calling for cuts because they need cuts to lend out more money and if rates go up any more there will be a sharp jump in distressed mortgage holders. Its going to get pretty bad as it is, the pain has only just started, the job cuts are coming thick and fast and the economy is going to tank in a couple of months time. Rates are at their peak for New Zealand, another 1% and it's all over.
I am a bit like a broken record when this comes up. The US has huge problems with vacant office blocks hitting valuations hard, plus higher interest rates reduce capital values. We have the latter but no sign of the former. NZ REITs consistently report occupancy rates in the high-to-very-high 90%s while US is barely in the 80%s Nationwide (with regional variation meaning some areas have way too much office space).
Not sure if you're being sarcastic, but yes. In this situation of office block valuations, and at this time, we are very different. The price of REITs on the NZX suggests others don't realise this which provides an ongoing buying opportunity, as far as I'm concerned.
Things could change in the future, of course.
Hmmm this is a subject close to my heart. I have worked in this space for approx 30 years. My personal view is that valuations are still too high. Essentially the Valuers are paid by the listed REIT’s to value their assets. If the answer isn’t what the REIT wants they rotate their Valuers. The Valuers all know this so are reluctant to pull down values. They will slowly manage any decline in value over an extended period.
It is also worth noting that there is a significant time lag between an economic downturn and vacancy rates peaking. We are only recently starting to see vacancy rates increase. This will continue now for at least another 12 months.
If you look at what cap rate or yield most Valuers have adopted for the main REIT’s you will find it is in the range of 6-6.5% whereas their interest costs are typically circa 8.5%. Given this yield gap values can only drop.
They are all sweating on interest rate decreases.
Thanks, I appreciate the input. I wouldn't be surprised to see more cuts in valuation, but I don't expect to see the magnitude priced into the market. I mostly follow KPG who are selling at about 27% below net asset value. Their gearing is about 35% so that's some hefty falls still priced in.
Meanwhile, they are selling one of their assets, Vero Centre, for a "small discount" to book value. Not clear exactly what small is, but surely not the 15-20% implied by the current share price.
Certainly seems a no-brainer compared to buying a rental property myself, and worth a go for part of my portfolio.
Plus they over built as a result of cheap and foreign money pouring into US real estate, and the likes of WeWork signing up for an astronomical amount of floor space. Then during Covid companies hired tons more people (Amazon alone doubled its workforce from 800k to 1.6M) and also reserved large amounts of rental space in anticipation of even more future hires. Then WeWork went bust, and companies are now busy downsizing and ending leases.
There is also a demographic issue with States like California and New York losing population and businesses, as people and companies seek to escape high taxes and move to places like Florida where taxes are lower or non existent. The commercial property market in those States have a pretty dire outlook because those empty office towers are likely to never be filled. That's the primary reason why all the banks that have gone broke are based in California or New York.
I'm the same broken record MFD, I reiterate that the next major downturn will be caused by commercial RE, most of which have not been properly revalued down. The banks can turn a blind eye to the values of commercial RE being upside down (= loans larger than valuation) as long as the cashflow pays for the loans, but as soon as the cashflow is insufficient, well, then the bad loans will be called in, and there won't be enough to go around, not even close. Some banks will fail as a result.
It also came with the debt. So the buyer agreed to take over the debt and paid $3.5m. Gotta show some level of consideration.
imagine if NZ banks allowed people to buy houses with the mortgage attached if the new buyer could show they can service the existing debt where the old owners couldn’t.
old owners wouldn’t get any money, and would be consigned back to the rental pool.
could mean humble pie for some.
but nz wouldnt do that. How else are the boomers to keep growing their wealth and stealing from their grandchildren?
How else are the boomers to keep growing their wealth and stealing from their grandchildren?
The same way they always do. Non means tested benefits and support packages that are fully funded while stripping services and support away from those who need it below 65.
Ensuring their children will forever face increasing non means tested pension benefit costs the country cannot afford while health services and needed support is cut from them at the same time.
Google dropped the "Do No Evil" motto in 2018.
"In January 2023, Greenwald obtained one of these judicial orders that revealed arbitrary bans on democratically elected congress members of the House and Senate, including 25-year-old politician Nikolas Ferreira, who garnered record-breaking support.
Ferreira not only secured a historic victory by amassing the largest vote total of any congressional candidate in Brazil's history but also garnered over a million votes in his state, surpassing all other candidates in the 2022 election.
However, despite his widespread support, the judge overseeing the censorship regime arbitrarily banned Ferreira from all online platforms, silenced him, and deprived him of his online presence without any explanation or opportunity for due process.
Senators, journalists, and activists who express dissenting opinions or criticize this censorship are similarly targeted for censorship by the same judge, highlighting the authoritarian nature of these actions.
"Needless to say, Google, YouTube, Facebook, Instagram, and WhatsApp, which is by far the most popular chat platform in Brazil, have always just meekly complied with every censorship order they got from Brazil, but Elon Musk decided he had enough."
Wowser. Important to note that state bank officials (equivalent to RBNZ) being sentenced as well for accepting bribes from Madame Lan.
Perhaps we need some draconian laws to keep our bankers in line.
Behind the stately yellow portico of the colonial-era courthouse in Ho Chi Minh City, a 67-year-old Vietnamese property developer was sentenced to death on Thursday for looting one of the country's largest banks over a period of 11 years.
It's a rare verdict - she is one of very few women in Vietnam to be sentenced to death for a white collar crime.
The decision is a reflection of the dizzying scale of the fraud. Truong My Lan was convicted of taking out $44bn (£35bn) in loans from the Saigon Commercial Bank. The verdict requires her to return $27bn, a sum prosecutors said may never be recovered. Some believe the death penalty is the court's way of trying to encourage her to return some of the missing billions.
https://www.bbc.com/news/world-asia-68778636
There will be a few more of these situations on the horizon: https://www.stuff.co.nz/nz-news/350243626/woman-loses-200000-after-fail…
"Georgina specializes in helping women entrepreneurs build their dreams, accelerate their results and create richer, more fulfilling lives.
For over 10 years Georgina has been studying and implementing transformational success principles"
In other words scammer tried to scam with other people's money. Got caught out when telling people just to be positive (with no qualifications or professional registration in that) is not a valid career for a bank mortgage.
Next in news: The transformational success principle of how to secure mortgage financing before you put a deposit down on a property,
Children aren't going to know what snow is.
"Mongolia is enduring its most severe winter in nearly half a century, grappling with the devastating effects of Dzud. Since November last year, extreme weather has now enveloped 76% of the nation in White Dzud and Iron Dzud conditions. These conditions cover grazing areas with deep snow and ice, critically limiting access to food for livestock.
However, since February this year, the livestock mortality rate has surged, affecting about 75 percent of all herder households. With the current toll of lost livestock exceeding 4.7 million, official forecasts predict the situation to worsen."
https://www.ifrc.org/press-release/ifrc-launches-appeal-mongolia-faces-…
I am not sure why people are jumpy about the partial-CPI release today. The comparison to a year ago might look patchy, but the quarterly change is barely anything. Around half the basket increased in price (weighted average of price increases was 1.9%) and around half the basket decreased in price (weighted average of price decreases was 3%). Rents, petrol and tobacco are pulling CPI up, air fares are pulling it down (this month).
You can see the quarterly increases across the dataset in this complex graph here - note that the last several months data looks like 2019 - just random items jumping up and down each month.
The pain is getting real amongst home owners.
I live in a new subdivision in a rural Waikato town, popular with FHBs like myself who bought about 2020-2021.
Quite a few houses being listed because the owners can’t afford to keep them. A number around me were built to rent, and have evicted tenants to be put on the market. Shrinking the rental supply at the same time that some home owners are going back to renting as well.
Almost makes me want to buy a rental property now.
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