What happened Thursday

Economy / news

A review of things you need to know before you sign off on Thursday; Westpac nudges home loan rates, consumer & business sentiment low, progress on inflation, home loan borrowers switch more, swaps firm, NZD soft, & more

27th Jun 24, 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
Westpac has trimmed some short fixed rates. More here.

TERM DEPOSIT/SAVINGS RATE CHANGES
None here today.

MIXED SIGNALS
The ANZ-Roy Morgan monthly consumer confidence survey shows a small dip in June from May to be miles below the 20-year average level. And this survey shows inflation expectations rising from 3.8% in May back up to 4.2% in June. ANZ notes however it’s volatile, but gradually trending lower. The survey also showed expected house price inflation ticked up from 3.2% to 3.4%.

'MEANINGFUL PROGRESS'
The ANZ Business Outlook survey shows 'meaningful progress' on bringing inflation down however, at the firm level at least. That means the ANZ economists say they are optimistic the Reserve Bank will be in a position to cut the Official Cash Rate 'considerably earlier' than August next year that the RBNZ currently expects.

THE EXCESS DEMAND LEVEL EASES
There was $738 mln bid for the $500 mln on offer in today's NZ Government Bond tender. That is as light as we have seen it in a long time. Yields on two of the offers were little changed from the prior equivalent events.

MAXIMUM DEMAND, MINIMUM MARGIN
Mercury's $300 mln 20 year unsecured, subordinated capital bond offer closed with them taking the maximum $50 mln in oversubscriptions offered, so a total of $350 mln. The interest rate to the First Reset Date (11 July 2029) is 6.42% pa being a +2% margin over the benchmark.

BACK IN FAVOUR
Household deposits rose +$1.4 bln in May from April to a record $246 bln. That was all driven by a +$1.4 bln rise in term deposit balances, now at a record $132.9 bln. At 54% of all household deposits, the share that is in TDs is now back to its pre-pandemic levels.

SWITCHING ACTIVITY RISES
Banks made +$6.9 bln in new residential mortgage lending in May, the most in two years. And of some note, this was driven by borrowers changing banks. In fact almost a quarter of new residential lending was for these switches, the most since this data series started in 2017. On the other hand, loan top-ups remained little-changed at about 11.5% of all new lending.

MORE BANK LENDING TO FARMERS
Bank lending to rural businesses usually rises in May and June on a seasonal basis. But this year the rise in May from April topped $½ bln, the biggest one-month jump since before the pandemic. +$371 mln of that went to the dairy sector. Total lending to the rural sector is at $62.2 bln but still well off the record-high levels of $63.5 bln in July 2019.

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REVERTING TO THE MEAN, FAST
Job vacancies in Australia are now falling as fast as they rose. There were 353,000 job vacancies in May 2024, down by 10,000 from February, according to new figures from the Australian Bureau of Statistics. In May 2023 there were 428,000 and in May 2022 there were 476,800. The current level is even below the May 2021 level. However they remain far higher than the pre-pandemic level of 227,300 in May 2019.

OWNING PROPERTY DRIVES AUSSIE WEALTH
Staying in Australia, total household wealth was AU$16.2 tln in the March quarter, which was +10.2% or +AU$1.5 tln higher than a year ago. Residential land and dwellings was the largest contributor to quarterly growth in household wealth, adding +1.3 percentage points. That makes it six straight quarters of rises.

HOLIDAY SCHEDULE
Tomorrow is a public holiday in New Zealand (Matariki). We will be publishing on our normal weekend schedule on Saturday and Sunday.

SWAP RATES FIRM
Wholesale swap rates are likely to be higher on the extending global rate moves. Our chart below will record the final positions. The 90 day bank bill rate is up +1 bp at 5.63%, a level it has hovered around for 120 days now. The Australian 10 year bond yield is up another +10 bps from this time yesterday at 4.45%. The China 10 year bond rate is down -1 bp at 2.23% and very near its all-time low. The NZ Government 10 year bond rate is up +8 bps at 4.74% and the earlier RBNZ fix was at 4.67% and up a sharpish +12 bps from yesterday. The UST 10yr yield is up +7 bps from yesterday at 4.34%. Their 2yr is now at 4.75%, so the curve is less inverted at -41 bps.

EQUITIES MOSTLY LOWER
The NZX50 is down -0.5% today in late trade ahead of the holiday. But the ASX200 is down a full -1.0% in afternoon trade. Tokyo is also down -1.0% at its open. Hong Kong is down a larger -1.7% at its open, and Shanghai is down another -0.7% and continuing their slide. Singapore is holding, up +0.1%. However Wall Street ended its Wednesday session up +0.2% on the S&P500.

OIL SLIPS AGAIN
The oil price is down -50 USc at US$80.50/bbl in the US, and just over US$84/bbl for the international Brent price.

GOLD DOWN
In early Asian trade, gold is softer, down -US$19 from this time yesterday at just on US$2299/oz.

NZD LOWER
The Kiwi dollar is more than -¼c softer from this time yesterday, now at 60.8 USc. Against the Aussie we are -20 bps softer at 91.4 AUc as echos from their CPI data roll on. Against the euro we are also -20 bps softer at 56.9 euro cents. This all means the TWI-5 is down -20 bps at 70.5.

BITCOIN SLIPS
The bitcoin price has fallen -1.9% from this time yesterday after yesterday's outsized rise, now at US$60,908. Volatility of the past 24 hours has been modest at just under +/- 1.4%.

ENJOY YOUR LONG WEEKEND

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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30 Comments

by bw | 27th Jun 24, 4:12pm 1719461537

And what will happen if the OCR is cut? Easy answer - Property Price will rise, necessitating the creation of more Debt to transact deals in the future. It's right there above, in the comment "expected house price inflation ticked up from 3.2% to 3.4%." But let's be honest, that's pretty much all we have underpinning our economy. When the better answer is, less Debt of course, that would be needed with lower transaction prices. But not to worry! We aren't on our own with what's coming....

"The world is mired in $315 trillion of debt. This latest global debt wave has been the biggest, fastest, and most wide-ranging rise since World War II...

And also from above; and lending some realism to the afternoon, "inflation expectations rising from 3.8% in May back up to 4.2%". Cut the OCR and just see what happens to that 4.2% expectation...

by Independent_Observer | 27th Jun 24, 6:45pm 1719470747

Agree - and a reminder of just how elevated our house prices are in real/inflation adjusted terms:

https://fred.stlouisfed.org/series/QNZR628BIS

Of note, prior to around 1990, house prices were more or less flat for the previous 100+ years in real/inflation adjusted terms. Why? Because the cash flows used to determine house prices are wages and wages rise (in the long run) at the same rate as general consumer inflation. The last 30 odd years could be an extreme anomaly (edit: ‘where house prices have risen approx 7% pa in nominal terms while wages have been no where near that - meaning extraordinary real returns for housing - perhaps far too good to be true)

by JimboJones | 27th Jun 24, 6:50pm 1719471003

Prior to 1990, did the councils stick their nose excessively into every house build? I suspect not.

by Let me be Frank | 27th Jun 24, 7:00pm 1719471622

the inspection regime was pretty much as now...though the quality/experience of the inspectors is somewhat lesser.

by JimboJones | 27th Jun 24, 7:25pm 1719473133

The plans for our old 1950s house were just a few basic drawings in pencil. The consent for our new build is hundreds of pages. In the old days they trusted builders and inspectors, now it’s all about paperwork and the blame game.

Also our 1950s house is completely outside current house to boundary height rules. I doubt anyone cared then, and I doubt you needed surveys to check if you complied.

by Justa comment | 27th Jun 24, 7:32pm 1719473524

Exactly. Perfect on paper at the Council, but not actually done on the ground or inspected properly. Corners cut by contractors supported by the developers. The surveyors, contractors and builders were true professionals back in the day and the Councils knew that and the process was fine with very little paperwork.

by Let me be Frank | 27th Jun 24, 7:35pm 1719473729

The drawings and specification is required to be more detailed agreed, but then there wasnt autocad back in the day...and the health and safety requirements are more onerous than in the past (not council caused) but the inspection regime is pretty much the same as it was ...as to recession planes and boundary set backs, why would you expect them to meet current standards?....they were required to meet the standard of the period of construction.

by Independent_Observer | 27th Jun 24, 8:01pm 1719475293

We started 2% inflation targets which continued to drive interest rates down (and house prices up up up) as central banks tried to create aggregate demand for goods and services as we imported deflation from offshore using cheap Asian labour. Result = house prices rising multiples of inflation each year.

This isn’t sustainable however as the cash flows that determine the present value of the asset (the house/mortgage) can only be justified if the discount rate (interest rates) continue to fall or remain exceptionally low (anyone who has spent time asset pricing using discounted cash flow models will understand what I mean here - low discount rates can cause asset prices to grow substantially even if growth in cash flows is minimal). My belief is that we have been or still are living far far beyond our means where our private debt levels can’t be justified by our productivity/incomes and something has to give.

by OldSkoolEconomics | 28th Jun 24, 7:18am 1719515917

Exactly.

It's starting to give now. An increasing Rich poor divide. Increased crime. Crumbling infrastructure and public services.

Our standard of living has crumbled and cost of living outweighs the benefit of being here (vs alternatives) so the smart younger kids are off to australia being replaced by immigrants from poor countries who (we think) are mostly low skilled and who bring a lot of family members who can't contribute but add cost. I suspect for every immigrant who arrives the existing taxpayers probably pick up the tab for $1m+ over the immigrants lifetime here.

We HAVE to reduce house and rental pricing and better control future rises, whilst halting immigration..... and doing that will force the economy to find a new engine.if we don't do it purposefully then it will happen anyway.

by ThoughtsAndTorts | 27th Jun 24, 4:32pm 1719462723

> "The world is mired in $315 trillion of debt. This latest global debt wave has been the biggest, fastest, and most wide-ranging rise since World War II...

Where is this quote from?

by J.C. | 27th Jun 24, 4:40pm 1719463254

Just looking at a graph of US liabilities - approx USD57 trillion. So quite possibly this sum is accurate when you include derivatives, etc.

by Audaxes | 27th Jun 24, 5:06pm 1719464775

https://www.cnbc.com/2024/05/29/global-debt-has-grown-to-315-trillion-i…

by Flying high | 27th Jun 24, 4:36pm 1719463015

And what will happen if the OCR is cut? Easy answer - Property Price will rise, necessitating the creation of more Debt to transact deals in the future

I am curious to know what was the interest rate/s when you were making money from property

by IT GUY | 27th Jun 24, 5:18pm 1719465511

Good money was made from 2004-2008, as rates where lifted, many house priced doubled from 2002-2008

by Flying high | 27th Jun 24, 10:22pm 1719483723

When bw was investing in property here and overseas it was double D ie double digits?

by J.C. | 27th Jun 24, 4:30pm 1719462629

The blind leading the blind.

Rattled by tech’s latest trend, businesses have turned to advisers at Boston Consulting Group, McKinsey and KPMG for guidance on adopting generative artificial intelligence.

Generative A.I. sales are helping the industry find growth after a postpandemic lull. The management consulting industry in the United States is expected to collect $392.2 billion in sales this year, up 2 percent from a year ago, according to IBISWorld, a research firm.

https://www.nytimes.com/2024/06/26/technology/ai-consultants.html

by Audaxes | 27th Jun 24, 4:57pm 1719464232

Banks made +$6.9 bln in new residential mortgage lending in May, the most in two years. And of some note, this was driven by borrowers changing banks.

Some must have been extinguished over the same period if one believes the C5 claim that the latest outstanding level of bank household lending rose $1.397bn.

by J.C. | 27th Jun 24, 5:22pm 1719465727

Japan retail sales charging.

Retail Sales (yoy) May: 3.0% (est 2.0%; prevR 2.0%)

Retail Sales (M/M): 1.7% (est 0.8%; prevR 0.8%)

Dept Store, Supermarket Sales (Y/Y): 4.1% (prev 2.7%)

https://www.reuters.com/markets/asia/japan-may-retail-sales-rise-30-yea…

by Justa comment | 27th Jun 24, 7:35pm 1719473731

Interesting that tourism is flourishing now in safe countries (Japan, Singapore etc) that also don't have lunatic religions.

by Audaxes | 27th Jun 24, 5:32pm 1719466379

Total lending to the rural sector is at $62.2 bln but still well off the record-high levels of $63.5 bln in July 2019.

What happens when the following is imposed here?

EU state to tax cow farts

Denmark is set to become the world’s first country to place a levy on greenhouse gasses produced by livestock

by Wrong John | 27th Jun 24, 6:07pm 1719468437

The good news about the tough times mean it is a bit easier getting around the place. Plenty of car parks available as well.

by K.W. | 27th Jun 24, 6:08pm 1719468499

Canada cut its OCR and inflation jumped the most since 2022. Seems the Canadian central bank is firmly in Trudeau's pocket and putting the election before inflation.
"Core CPI – goods and services less food and energy – spiked by 4.9% month-to-month annualized in May from April, the hottest since September 2022, according to Statistic Canada today."
https://wolfstreet.com/2024/06/25/inflation-in-canada-throws-another-cu…

by J.C. | 27th Jun 24, 6:23pm 1719469415

Bankruptcies off the hook in Canada

by IT GUY | 27th Jun 24, 6:28pm 1719469719

Wow that is either bad luck, bad timing or bad judgement. or perhaps its real hard in this point of a super cycle to expect to be able to get back under 3% band, given the massive increase in money supply. Perhaps people can spend more now, vs historically , even if unemployed.

The other major categories, on a year-over-year basis (from inflation rate in the prior month):

Transportation: +3.5% (from 3.1%)

Food: +2.4% (from 2.3%)

Energy: +4.1% (from 4.5%)

Healthcare and personal care: +3.6% (from 3.0%)

Alcoholic beverages and tobacco products: +3.2% (from 3.4%)

Recreation, education, reading: +1.3% (from 1.0%)

Household operations, furnishings, equipment: -1.5% (from -2.1%)

Clothing and footwear: -3.0% (from -2.6%).

by Justa comment | 27th Jun 24, 7:37pm 1719473855

Looks like too impatient there in Canada.

by Justa comment | 27th Jun 24, 7:41pm 1719474094

New lows at RYM today $3.56. This sector really getting hammered now. RYM said nothing about a CR at results day, will be interesting if suddenly there is one. Right now, there almost seems to be an oversupply of these village units, at the same time as high interest and operating costs for them.

by Independent_Observer | 27th Jun 24, 7:52pm 1719474768

Ouch a 70-80% drop from peak. Back to 2012 share prices - about the same time when our residential market departed from rationality and in my view, entered into irrational exuberance (people buying based upon the expectation of capital gains as opposed to any fundamental analysis/risk analysis)

by IT GUY | 27th Jun 24, 8:54pm 1719478482

Tough market for oldies to be selling into, often they need complete reno and maintenance as well.... right now I am not sure FHBers want a full reno job..... so they sit a bit stuck on the old house. I know a few on rural.

by Greeneggsandham | 27th Jun 24, 9:48pm 1719481719

The FHB often can’t borrow the extra 100k or so required to strip and retrofit these old dwellings to make them livable for their tenure. No, I don’t mean have a brand new fit out with the bells and whistles, just make it safe and remediate the damage from years of neglect and deferred maintenance that permeates from knowing it will go up in price regardless.

by IT GUY | 27th Jun 24, 9:57pm 1719482247

https://www.oneroof.co.nz/news/hamilton-grandmothers-heart-wrenching-de…

a little bit different but tough time to sell a development site.