A review of things you need to know before you sign off on Wednesday; RBNZ cuts, some banks follow quickly, RBNZ data shows recession, ASB profit falls, swaps slip, NZD retreats, & more

Yes, so fix next week for 6 months at 6.5% ?      then again in march 25 at ?    5.5% ? for 6 months

assume 25 bps cuts at most meetings but on data watch internationally and domestically

A big change but almost fully priced by the market, 5y swap fell only 5bp.

Wait until the currency starts yeeting itself and the longer dates will actually rise.

They look mighty incompetent 

Congrats Yvil you called it first. What's everyone's prediction for the total cuts before it flatlines ? I recon its going to drop 100bps total so another 75 to go early next year. The property market is going to see a pretty quick recovery.

I wonder if in 2-3 years looking back it would be obvious to a blind man (in hindsight) to have stacked up on NZ property at this point (thinking of interest rate structure that is along with changes to regulation and taxes).  

Quite possibly Wolfie. We might be winding into the mother of all property booms without the support of filthy lucre from China. 

Wolfie in 2002 after dot com crash and in 2009 after gfc you had the added tail wind of global asset price reset and global low rates 

right now we have yet to have any global landing in USA though in china the plane ✈️ is somewhere in Southern Ocean (no landing going to happen )

so it’s a very different cycle to past buying opportunities, we are out of sync with the rest of the Anglo world and Asia 

While you may be right to some extent, I believe that the debt to income ratios recently introduced along with job insecurity will hold things back a bit. 

I think you’re probably right. If I had the funding and inclination I’d buy something. 

was she once a Real Estate agent?  asking for a friend...

Big jump on some of the listed companies related to property prices. RYM up 6%, KPG up 5%, OCA, SUM and even FBU up 4%. Other REITs up 1-4%.  

Don't be misled. Private sector wages moved quickly to keep up with living costs. Public sector wages always move much more slowly. Here's the data for the last few years. Remember also that LCI is not wages.

Agreed, tail wagged the dog.

Inflation is in the band. 1.8 is going to drop out and anything less than 1.5 for the sept qtr has it at 3%. We are half way through the qtr. the data just needs to be reported

Nah it was time to cut, it was a no brainer. We have just beaten the FED by a month, watch the FED cut rates very soon. We will probably see another cut before the end of the year.

"Orr has buckled to noise from the banks."

That's a misread of the situation. (aka Pub-economics.)

The RBNZ was caught between a rock and a hard place ... all of their own making.

The rock: Remember they kept rates too low, for too long, and kept throwing cheap money at the retail banks, again for far too long, during and after covid. At the same time, supply chains were broken all over the world and that fool Pootin invaded the Ukraine and energy prices spiked and we got hit with a massive deluge from not one, but two, cyclones. And yet the RBNZ was still juicing the economy.

The hard place: The RBNZ completely lost the plot after inflation started coming down. Not only did they not adjust the OCR to reflect falling inflation, in May the told NZ that rates weren't coming down until Q3 2025 and they may even raise the OCR even higher. (All of that was total b.s. by the way!) In May, there was very, very clear evidence that the economy was contracting fast. And the last MPS, July, it was writ large. But still they did nothing. And since November we've had a new government turning the tap off at high speed. DOUBLE WHAMMY !!!!

Finally they recognised the huge damage they've done and are now predicting yet another RECESSION.

Tell me, what choice did they have? If they'd held the OCR that would extend an already unprecedented length of time for the RBNZ to have held at peak - and the damage would mount exponentially. One of their remits is financial stability. Hitting yet another RECESSION so soon after the last one isn't anyone's definition of financial stability. They have failed! Again!

How bad will the RECESSION be? Hell. It's only just getting going. Brace yourselves.

But the whiners who are worried about getting lower interest rates on their cash (are you one?) will be able to buy up the broken pieces with their surplus cash at rock bottom prices as the RECESSION unfolds. 

"Central Banks, working for rich people!" That's their raison d'etre.

Rent controls are a disaster zone, generating some of the worst unintended consequences 

They will probably be electoral toast if they don’t work it out pronto

Superbly framed with data that is relatively easy to access while accounting for public policy.

The big known unknown is the consumer behavior piece - a space that I have a particular interest in.

Now, how much will those lower rates encourage people to borrow to buy a bargain-priced weatherboard shack? 

I have talked about conjoint analysis before - how people make trade offs on things like price, cost, etc. Conjoint is used mainly in research for understanding how to position and to measure demand for goods and services. Not sure why the RBNZ boffins, govt, and industry experts don't use it. It would be relatively expensive to execute as you would need to recruit different segments like potential marginal buyers, exiting homeowners, investors, etc.  

Question Jfoe; You state that the lower interest cost paid by mortgagors will amount to about an additional $3bn pa, should you not equally take into consideration the lower interest earned by depositors ?

Because recoveries depend on fiscal policy.

Increased bank lending underpins economic recovery.

MICHAEL HUDSON: It’s not so much that we’re in a recession; the whole economy has been shrinking really, since 2008. The idea of a recession is a fantasy created by the National Bureau of Economic Research. And the whole principle underlying all of its models is that the economy works in a sine curve; it goes up and down, and there are automatic correction factors. Once it goes up, there are internal correction factors that move it down, but it’s always rescued, because when an economy moves down, labor becomes cheaper, there’s unemployment, it is hired again, and employers can make more profits, and there’s a recovery.

This is not how economies have worked for the last 5000 years. What does the National Bureau leave out of account? That every recovery from a recession has started from a higher and higher debt level.  Link

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What percentage of NZ's population can afford debt?

Because they can. Society should demand legislation that prevents such an occurrence.

Big trouble in little china.... rebar price has collapsed.

lithium is ugly

We thought we could Dukes of Hazard jump over a pandemic economy.

They went through 325 General Lee's on the show.

Snorted debt like mindless meth fiends till the over indulgent host collapsed.

It's a cycle. Whenever the really greedy are fat on OPM (other peoples money), they overflow indulgence. Simply cant help themselves. Social brag media makes easier to spot them this time around. Roll's and Jets are the red light flashing "pull up ...pull up". Same in 87, GFC and today.

Those being mocked on here for an age for calling "bullsido" are now doing paying attention scouting opportunities. Cash cannon primed and ready to mop up the remains of the dazed and confused.

Has Brad Olsen ever had a proper job