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A review of things you need to know before you go home on Tuesday; BNZ raises floating rates, tough in the property sector, proper migration policy sought, TDs popular again, swaps up, NZD soft, & more

Business / news
A review of things you need to know before you go home on Tuesday; BNZ raises floating rates, tough in the property sector, proper migration policy sought, TDs popular again, swaps up, NZD soft, & 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).

MORTGAGE RATE CHANGES
BNZ has raised its floating home loan rate by +39 bps, to a level that matches ANZ's new rate. Bank of China raised both floating and fixed rates across the board.

TERM DEPOSIT RATE CHANGES
None here today. BNZ did not change its savings rates in its announcement today.

BEHAVIOURAL ECONOMICS
Today brought a raft of indicators that highlight how vulnerable our economy is when it is dominated by the property sector. First, building consents retreated in April from a very high March level. This underscores the warnings from both Capital Economics and ANZ that significant house price falls are coming. Significant house price corrections are regular market events in most developed economies, and have been very rare here. But new memories are about to be established that could affect buyer sentiment for decades to come (a la the 1987 share market rout). Just as the RBNZ tamps down inflation hard with rapid interest rate hikes, population growth has plummeted. As a result, home building is now running well ahead of what’s needed to keep up with population growth, and the housing shortages that developed in many regions over the past decade are now being rapidly eroded.

BUILDERS FACE GLUM FUTURE
The May ANZ business outlook survey isn't flash reading for the residential construction industry either, recording rapidly deteriorating sentiment in that sector, and overall inflation expectations are still 'far too high'.

COST GROWTH, BUT LITTLE REAL ACTIVITY GROWTH
Infometrics has noted that non-residential building consent activity is largely about cost inflation. Growth in non-residential consent values remained solid in April, as the annual total reached $8.5 bln. However, growth in non-residential activity is being inflated by the significant cost pressures the sector faces.

CLEAR STRATEGIC DIRECTION NEEDED
In its final report on an inquiry into New Zealand long term immigration settings, the Productivity Commission recommends abolishing the category of 'permanent resident'. They are also urging the Government to set out a "clear strategic direction".

MORTGAGE BANKERS ON STARVATION DIET
Despite inflation, the heat is going out of the mortgage market. $337.1 bln was owed to financial institutions as at the end of April, a rise of just +$1.3 bln from March. Apart from the lockdown jolt in August 2021, this is the smallest monthly rise since the March-June 2020 lockdown. You have to go back to early 2019 to find a small non-lockdown level rise - and don't forget that median prices have risen +56% since then.

'DON'T NEED YOUR MONEY'
Farmers are not taking on new debt. In fact they are paying down what they owe. They now owe $61.4 bln, the lowest level since Mar 2018. It is hard to tell whether this is because banks are restricting access to new debt, or because farmers aren't seeking it. Given the good economic conditions, high commodity prices, and the drying up of expensive dairy farm conversions, it is probably the latter.

'LEND ME MORE'
But other businesses are borrowing freely. Banks (and other financial institutions) lent almost $1 bln extra per month in each of the past eight months, the strongest period of lending to businesses ever.

TDs POPULAR AGAIN
After rising a heady +$2.8 bln in March from February, the +$0.6 bln rise in household bank balances in April seems modest by comparison. They now total $219.9 bln, up +7.3% in a year, and now representing 51.4% of all bank account balances (companies and the Government hold the rest). But this +$0.6 April rise was after households added +$1.3 bln to their term deposit balances, largely a shift out of their savings account balances and building on the March shift.

RECORD ANNUAL PROFIT FOR SBS BANK
SBS Bank has posted a +9% increase in annual net surplus to a record high $44.863 mln. This comes with operating income up +8% to $163.825 mln, and gross lending up +9% to $4.426 bln driven by home loans and consumer lending through the bank's Finance Now subsidiary. Agriculture lending fell -43% as SBS continues to wind-down its rural lending book.

IT'S NO BETTER FOR BUILDERS IN AUSTRALIA
It is not only looking like a sharp downturn in the residential construction industry in New Zealand, Australia has recorded a fall in building consents too - made to seem worse because a rise was expected, and that now means 23 of the past 25 months have booked retreats from the prior month, and year on year the April level is a whopping -36% lower.

IT'S TOUGH IN THE WORLD'S FACTORY TOO
China's officials are noting that their May PMI's "rebounded" from April. But they are still contracting after the disaster that was April. And that is true for both their factory and service sectors. That makes it three consecutive months of decline. It will take a magical turnaround for them to book a 5.5% GDP growth in 2022 as they were targeting. It seems most unlikely at this point. Factory export orders are contracting as they have done every month for the past year.

SWAP RATES RISE
We don't have today's closing swap rates yet but they have probably firmed sharply again. The 90 day bank bill rate is up another +2 bps today at 2.47% and adding to a string of quite big moves up. The last time it was at this level was in March 2016. The Australian 10 year bond yield is now at 3.34% and up +9 bps on global moves. The China 10 year bond rate is now at 2.79% and up +1 bp. The NZ Government 10 year bond rate is now at 3.60%, and up +7 bps from the same global pressures and now just marginally higher than the earlier RBNZ fix for this bond which was up +6 bps, now at 3.56%. The UST 10 year is now at 2.84% and adding a sharp +10 bps in aftermarket trading following more Fed rate hike indications.

EQUITIES HESTITATE
After starting a little higher, the Tokyo stock index is now unchanged. But at least it is holding yesterday's big gain. Hong Kong is doing the same (no change so far today but holding yesterday's big gain). Shanghai has opened -0.2% lower after yesterday's modest gain. The ASX200 is down -0.3% today after yesterday's rise. The NZX50 is up +0.4% near its close. Wall Street returns from holiday tomorrow and the S&P500 is indicating it will open flat.

GOLD DOWN
In early Asian trade, gold has fallen -US$11 from this time yesterday to US$1849/oz.

NZD SLIPS
The Kiwi dollar is moving down marginally, now at 65.3 USc. Against the AUD we are softer at 91 AUc. Against the euro we are drifting at 60.8 euro cents. That all means our TWI-5 moved down to just under 72.

BITCOIN RISES
Bitcoin is now at US$31,538 and up another +4.5% from this time yesterday. Volatility over the past 24 hours has been high at +/- 3.7%.

Daily exchange rates

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End of day UTC
Source: CoinDesk

Daily swap rates

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Opening daily rate
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This soil moisture chart is animated here.

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68 Comments

Maximum DOOM today....

House prices halve every 10 years......

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The Ponzi looks shakier and shakier.

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11

I see BNZ head research says the "wheels are falling off"    I wonder how JA and GR are going to spin that....     

The wheels on the bus are falling off,

Falling off

Falling off

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Oh it has all  been expected. All other nations are worse, don’t you know. . A cushioned landing is arranged, followed by a “V” bounce. And don’t worry about the recession, it’s the one New Zealand needs to have. We found that in the Paul Keating text book of sharp ones.

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I remember that, the recession the lucky country needed to have......

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Firstly I am bias having sold out of my residential rentals at the start of this year but I just hope any crash doesn't take too long. Let's revalue back to where the market needs to be, clear bad debt and move forward again wiser than before. Rip the bandage off so to speak.

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The foundations are being shaken....

Wait, property 'development' increasingly won't even get to foundation stage...

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1-year swap rate on a new high - yet again. It is almost a daily event now. 

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Looks like you got to this first fortunr....so ignore my post below on the same topic...

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Bank derivative books are expanding as a result - Derivatives in an asset position expanded $11.485 billion for the month ending April 2022.

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56% increase since 2019

i assume that was the blowoff phase

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I see the 1 year swap is now up to 3.5%, which was last seen back in 2015. 

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Damn I knew I should have bought bitcoin...

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Damn I knew I should have bought bitcoin...

The ol' rat poison has just completed 9 x lower weekly closes. That is a record. We're not into the 4th longest downturn in its history.  

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We have a couple of builders in the neighbourhood. Prior to the pandemic both busy, not flat out, over extended, but nicely steady. Neither though had since exactly got back to that and right now both are stuck with builds running longer than contracted, scarcely half completed. Worse though nothing new after that. Both good blokes, experienced good builders. Bleak.

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What damage do think Fletchers have done to the GIB brand?

 

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I am not in the trade. But from experience of our family having a EQ rebuild some five years ago, absolutely astounded at the vast extent of their grip on building supplies and componentry. Totally dominant. No alternative. This is one of NZ’s greatest dilemmas now. For the New Zealand consumer that is. The building supply sector, supermarkets, insurance all virtual single sellers or cartels. No government in their right mind would have allowed this to eventuate.

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Allowed it - you mean regulated it. Try using a different brand of identical plasterboard on your build and have the friendly council inspector tell you to rip it all out because the bracing calculations were done on the Gib website and only apply to Gib. 

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Winstone Wallboards make the best plasterboard in the world, there's no way in hell we'd allow any inferior products to be imported no matter how big a market share they have elsewhere.

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Anyone with enough money could build a plasterboard factory but why would you when the market for this product peaks and troughs to the extent that the investment would likely fail. Luckily we have Fletchers. This is nothing to do with any Govt.

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Great video

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What happened Monday? Today is Tuesday.

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Yes its that bad!

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lol :)

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Wow, glad you sorted that at.  I thought I had enjoyed one too many

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Gee on a Monday. 

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Avid Commentator on Twitter compares "the current falls in New Zealand housing prices with those of the U.S housing crash from the time America entered recession in Dec 2007.

Quote: "Price falls nationally ex-Auckland are actually pretty similar. Auckland/Wellington much faster."

https://twitter.com/AvidCommentator/status/1531480014960869377

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It's an interesting scenario....back then during the GFC the OCR was 8% so dropping it to 2.5% avoided a big drop.

Now we are going from rock bottom 0 OCR into the worlds greatest inflationary challenge in 40 years. It will be interesting indeed. 

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On an alternative front ... 

NZ’s business environment is interesting.  I sold a couple of businesses in the last two years, have had a six months’ sabbatical, and am sitting on cash waiting to be re-invested.  I’m too old and opinionated to want to work for anyone else again, and they wouldn’t want me for the same reason.  Property and shares are way over-valued for me, have been for years, so small business is where I’m looking again.

I’m currently doing due diligence on purchasing a failing business – it’ll be a joint venture with a former staff member.  Here’s how I’d rate the people with whom we’ve been interacting:
Vendor: 1/10 – no financial accounts, string of unpaid people. Result: a discounted asset sale price only.
MBIE: 10/10 – ease of setting up new company structure still impresses every time.
Big four bank: 3/10 – despite both parties to the joint venture being existing, long standing customers with that bank, it takes five working days to open a business bank account. WTF? Please ask MBIE how to do it better.  And don’t tell me on your website I can open an account by phoning, if all the numpty on the phone then can say is: you have to do the on-line application first, then we’ll allocate it, then someone will call you.  That’s crap service, a poor use of digital technology and a waste of your customer’s time.
Landlord: 4/10 – bought commercial building as investment, but never got any plans or consent information for the building, nor enough gumption to figure that Council might have them, nor any idea why a tenant needing to do fitout might want to see plans.
RE agent: 3/10 – "I’m on holiday this week, I’ll chase it up when I get back” – what, no back up from your agency, no colleague to provide support and meet customer’s needs in a timely fashion? 
Council: 3/10 – also takes them 5 working days to pull out plans and e-mail them to someone.  It’s just (1) search, (2) save, (3) attach file and (4) send e-mail, folks.   Where’s the 5 days of rocket sciencery in that?
Conclusion: there’s some flashes of competence, even brilliance, and also lots of turgidity and incompetence and foot dragging in NZ’s economy, across both private and public sectors.  And sometime the instant/on-line/real-time is brilliant, and sometime its just a flashy smokescreen for continuing bureaucratic bullshark that is slower than the old walk-into-an-office-and-talk-to-a-person approach that is now made to be not an option.

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been watching the auction houses, the flow is starting and in 6 months time things will be super cheap, u can buy a starline dishwasher for hundreds  at the moment, hospo is about to implode.....

 

then watch small commercial resl estate fall over...    CBD dead and dying, can see higher end real estate turning south here quickly as well.  

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Interested in seeing where oil and petrol prices go from here now China is reopening. Another leg up for inflation?

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so we have 5000 cases a day and they have.... 20, i would not believe anything they say... at all.......

 

Nationwide, the number of new cases with symptoms on the mainland fell to 20 on Sunday, down from 54 a day earlier. The capital city of Beijing reported eight new Covid cases for Sunday, while Shanghai recorded six.

 

Imagine living in a country where the politicians just make things up...... oh.. yeah.

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20 per day, haha pull the other one

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Interested in seeing where oil and petrol prices go from here now China is reopening. Another leg up for inflation?

Well, watch out for deflationary impulse on consumer goods as so much pent-up supply with a consumer that is now watching their wallet. Same thing happening across SEA for Western food products like butter and cheese. Prices cannot go up because consumers see this as discretionary consumption.  

https://twitter.com/FinanceLancelot/status/1531498104343642115

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Jet A1 up 26 cents plus GST tomorrow, AvGas up 34 cents plus GST. 

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$120 a barrell, NZ/USD 65. This cant be supressed, more inflation.

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Yeah, there is such a divergence in the S&P500 this year. Energy sector is up over +58% while the index languished down over -13%. Predominantly that's been driven by dirty energy.

Still US rig counts have not fully recovered to the pre-pandenic level yet which suggests to me this has way further to go.

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Over in Aussie, the best and brightest didn't see it coming 

https://www.afr.com/companies/financial-services/apra-alert-for-loan-re…

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When’s National going to realise the game is up?

are they still wanting to make changes to the cccfa rules?… yep

do they still think seven house Luxon is the man for the job….it could be just bad timing but I don’t know that landlords are going to be that popular or an aspiration anymore…

How about John Key….does he still have the same respect now he’s in business with a couple of brothel owners

the whole country is turning into a Shakespearean comedy tragedy

 

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That '7 house Luxon' is quite catchy....but I'm sure its not something that he will want to stick. 

As I've pointed out before, if he were serious about being prime minister, he really needs to sell his rentals and put his assets into a blind trust. Until then, I just can't take him seriously as a leader who is worth voting for. 

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You won't vote for him until he trys to hide his assets in a trust... makes alot of sense...

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IO is just hilarious yep sell all the houses put the millions somewhere else and it's all good. What's next he should probably just donate all the money to a good cause ?

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John Key put his assets into a blind trust in order to be seen as impartial.

Its an intelligent move for any high net worth politician. 

Redicule me if you like 😂

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Do you understand the point of a blind trust for politicians to avoid bias and to ensure political impartiality?

Its precisely what John Key did so that the government could sell crown assets. Exactly why Luxon should do the same if he wants to campaign on housing next year. 

Make more sense now?

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Would you not rather someone be upfront about the assets that they own? Not sure about you but I'd prefer someone who is honest rather than tries to hide the truth, especially when it comes to NZ and the property market...

You're making zero sense these days IO... One minute you're crying about people not caring about FHB's the next you're saying you wouldn't vote for a leader unless they hid their  properties in a blind trust.

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I think you should do some reading on the benefits of blind trusts and their ability to reduce/remove conflicts of interests.

https://www.investopedia.com/terms/b/blindtrust.asp

Nothing to do with me but more to do how with how he will be perceived by the majority of voters.

It wouldn’t surprise me if he does end up with his assets in a blind trust prior to the election for these reasons as was the advice obviously given to John Key (or perhaps JK was smart enough to figure out the benefits of a blind trust for political reasons and others may not). 
 

If this doesn’t make sense to you then that is fine.

And that you don’t understand what a blind trust is and why it might be used, and how it differs from a generic trust, make me realise that you know far less than you should before going on the attack on these types of topics. 

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by Independent_Observer | 31st May 22, 6:03pm...he really needs to sell his rentals and put his assets into a blind trust. Until then, I just can't take him seriously as a leader who is worth voting for. 

Ummm you said it mate... shows what you find important when voting... 

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You need to understand the difference between a generic trust and a blind trust (there is a difference you need to understand)

Im trying to help you learn…

And in return you appear determined to try and insult or redicule 🙈

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No insults, just trying to help you learn...

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But you don’t even understand what a blind trust is or why it is used. If you understand those basics then you would quickly retract your argument above. But that you haven’t made it that far yet I realise that we are viewing these issues with very different levels of understanding. 
 

Any way I’m off for the night - but  honestly have a read of the blind trust benefits (please for your own benefit). They are used to remove conflicts of interest by the holders not knowing where there money is invested. It shows impartiality which is viewed favourably by voters. 
 

But if you know better than that, well good for you - I’ll have to let the University lecturers around the country who teach trust law to know that Nifty from interest.co.nz knows better. 

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If Luxon put his properties in a blind trust now he would get absolutely destroyed for it....

Do you think the public will forget he had 7 properties? Is a blind trust a magic trick that will make people forget aswell....

Come on...

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IO said sell the houses then put the proceeds into a blind trust.

Yes, people forget. 90% of them will, guaranteed, which will mean that it worked.

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Maybe one should only apply to be PM if one is destitute.

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yeah looks like they are tax cuts and immigration again to prop the housing market. Add Seymour in the mix, ugghhh !

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It's a rock/hard place choice next election between a failed economy (both Nat & Lab guilty) or a failed democracy (Lab/MP/Greens).

I'm personally picking democracy is a lot more important in the long run.

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Factory export orders are contracting as they have done every month for the past year.

China will have to add to its HSR network.

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The May ANZ business outlook survey isn't flash reading for the residential construction industry either, recording rapidly deteriorating sentiment in that sector, and overall inflation expectations are still 'far too high'.

Readers may recall that I have been saying, since about mid 2021 or even a bit earlier, that residential property development would start weakening significantly from mid-late 2022. 

I was sneered at by some. 

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Moreover, an expected decline in housing prices is, on balance, “a positive development from a system stability perspective, reducing the need for borrowers to borrow very high multiples of their incomes”.

Nevertheless, prudence is required – and APRA no longer sees housing loan portfolios as a ballast against riskier commercial lending.

“Aggregate dollar losses from housing portfolios now regularly exceed that from other portfolios in our stress tests,” he told the Summit in Sydney. “Of course, that can simply be a product of the calibration of the stress test itself, but more intuitively it reflects the combination of a growing proportion of housing loans in the total book, and rising risks within those portfolios from a larger share of more heavily indebted borrowers.”

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Be interesting to watch the market try and find equilibrium as the cost push inflation goes head to head with the demand pull destruction mission the central banks are now beginning. 

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Rental Listings of townhouses edging upwards in Auckland, as more new builds are completed. Got to mid-late 470's at one point today, before edging back to low 470's. 

 https://www.trademe.co.nz/a/property/residential/rent/auckland/search?p…

 

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Residential for rent in Wellington has been rising consistently for weeks. 10 - 20 increase in listings each week. No rush to fill them and prices are coming down.

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I just exempted myself from 2 years of electricity inflation with a fixed price deal and $200 cash for changing company. Might be worth a look for those not currently fixed. 

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Think probably the prompt payment discount will be absent from that package? In other words NZrs that pay their bills on time are to be treated as equal to those that do not bother to do so.

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I got a similar deal a few months ago. It helps to look at power switch site first to quote some alternative deals. Then they transfer you to customer loyalty section. I do the same for all utilities every time contract ends. It's amazing how often they just give you a credit. $150 to $200 is common.

Oh, doesn't work for water :)

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Some big re balancing at the close today for the end of month, MEL, AIA a couple. Fund managers forced to sell some growth eg FPH, RYM and buy some consevatives. Shows that some Kiwisavers are switching risk.

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Looks like banks have been going into PR overdrive today to talk down the market/economy... RE agents are next...

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I think there is still a lot of the unknown about inflation and interest rates worldwide in the next 5 years. Nothing is for certain. Interesting times ahead for investors in any case.

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