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
Bank of China raised its fixed rates today.
TERM DEPOSIT RATE CHANGES
Heartland Bank has stepped up with a 4.00% one year TD rate today, mirroring what SBS Bank had earlier offered (and has since withdrawn). They raised all their other TD rates too. ASB added +20 bps to their SavingsPlus account, but that only takes it to 1.25%. TSB raised its Youth Account by +40 bps to an even lower 1.10%.
PEAK DWELLING CONSENTS
A record 51,000 new dwellings were consented in the year to May, 4528 in May alone. It was Auckland townhouses that drove the result. But although Auckland and Wellington residential consent levels were up, those for most other regions are in decline now. While the building sector remains busy with this work, it is sure to tail off, if only for demographic reasons. Weakness will spread as the construction industry works through the backlog of new homes awaiting completion. This will be a tailing off of an industry that booked work worth more than $22 bln in the past year. ANZ is forecasting factors on both the demand and supply sides of the housing market to weaken to create "a soggy outlook for construction. We’re forecasting a -6% fall in residential investment in 2023".
AMPLE DEMAND
Maybe the housing market will get rescued by immigrants? Immigration NZ says it has received over 100,000 applications involving more than 200,000 people since the one-off simplified pathway to residence opened on 1 December 2021. These applications involve many people working in areas of skills shortages, including but not limited to, 5,975 health workers, 13,967 construction workers, 5,481 primary industry workers and 761 teachers. As at Wednesday this week 61,343 people have become New Zealand residents through this one-off policy.
DOWN BUT NOT OUT
Meanwhile, consumer confidence is staying low. But at least it isn't as low in June as it was in a couple of months ago, but as ANZ says, it is still very much in the “something to worry about” zone. Inflation expectations remain far too high, and consumers aren't about to rush out to buy durable goods. But it isn't all gloom. Economic fundamentals aren’t all weak and the labour market is extremely tight, which is supporting consumers’ perceptions of job security.
PEAK NON-RES CONSENTS
Non-residential consents topped $1 bln in May for the first time ever. Consent values were up +33% in May from a year ago, and Infometrics says even with cost growth estimated at over +10%, real growth is likely to be around +20% which makes these results impressive. Somewhat surprising is that consents for new office buildings are leading the way. Investors aren't worried about WFH, it seems.
MORE COVERED BONDS
BNZ has bundled up some of its mortgage book, using it as security for a €750 mln Covered Bonds issue. That takes the total of BNZ covered bonds to NZ$5.4 bln of a mortgage book that now totals $54.5 bln (as at March), so 10% is pledged in this way. The RBNZ has set a limit of 10%, but that is of a banks Total Assets, not just their mortgage book. BNZ's total assets at March 2022 were $124 bln.
LOSSES COMING
Australia’s housing market is on track for a -15% year-on-year fall by the middle of 2023, the weakest performance in more than fifty years, says Deutsche Bank.
GOOD EXPANSIONS
There were two PMI surveys out for Australia today, and both show that factory activity is expanding faster there now, and at a healthy rate. Here and here.
TIMID EXPANSIONS
The private sector factory PMI for China recorded that manufacturing output rebounded as their pandemic restrictions receded, much like the official PMI reported yesterday. But this one was actually a stronger result than the official one - not by much, but it is recording a better expansion. It was their best in more than a year. Japan and South Korea are still expanding, but the expansion in Taiwan has evaporated. All countries are reporting strong cost pressures and new order levels that are fading.
POOR NEGOTIATING RESULT
The Government has been taking a shellacking over its claim that the new EU trade FTA is a good one for us. Basically the EU is ignoring us, one of the world's most protectionist economic blocs, giving little but getting their red-lines protected. Just like the UK FTA, this EU FTA has been a non-event that does not justify the hype surrounding it.
A MONTH'S RAIN IN A DAY COMING
It should be fine at Eden Park on Saturday night, but note that parts of NSW could cop month’s worth of rain in a day tomorrow and warnings are out. It has been years since drought was the talk of Eastern Australia.
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SWAP RATES DROP
We don't have today's closing swap rates yet but they may sharply lower. The 90 day bank bill rate slipped -1 bp to 2.85% today. The Australian 10 year bond yield is now at 3.56% and down -13 bps from this time yesterday. The China 10 year bond rate is now at 2.83% and -1 bp lower. And the NZ Government 10 year bond rate is now at 3.75%, down -13 bps and still lower than the earlier RBNZ fix for this bond which was down -10 bps to 3.79%. The UST 10 year is now at 2.98% and down -12 bps from this time yesterday.
EQUITY PRICES MIXED
When the S&P500 opened on Wall Street today, it dived a worrying -2.0% in the first hour. But it clawed back more than half that to end down -0.9% in Thursday trade. So far this week it is down -3.3% as asset prices get re-rated as yields stay high. Tokyo is also down -0.9% in late morning trade, heading for a -2.2% weekly loss. Hong Kong is down -0.6% and heading for a +1.9% weekly gain. Shanghai is down -0.1% in early Friday trade, but still heading for a +0.9% weekly rise. The ASX200 is up +0.2% and if it can hold that today, it will end the week flat. The NZX50 is down -0.2% in late trade today, but should end the week up +0.4% - which given all the other wobbles in world markets is a creditable result. Air NZ has had a good day (for a change) as had ERoad and Auckland Airport.
GOLD DOWN
In early Asian trade, gold is down -US$16 from this time yesterday at US$1804/oz. No whale rescue here.
NZD LOWER
The Kiwi dollar is unchanged from this time yesterday at 62.2 USc. Against the AUD we have firmed marginally to 90.5 AUc. Against the euro we are little-changed at 59.4 euro cents. That means our TWI-5 is now just over 70.2.
BITCOIN VOLATILE
Bitcoin is now at US$20,210 and up +0.8% from this time yesterday. But in between it did get as low as US$18,631 before recovering. It just looks like whales jump in to bolster the price when it gets worryingly low from general trade. Volatility over the past 24 hours has been extreme at +/-5.9%.
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98 Comments
We need to raise interest rates at a significantly faster pace. This is the only way to protect the residual value of the NZ dollar and prevent even higher levels of inflation. The RBNZ must raise by 75 pbs this month, at the least. 50 bps would not be sufficient to have any impact.
RBNZ needs to raise rates at least 75 bp in July 2022 because they missed out on a 50 bp rate rise in June 2022 due to no OCR review meeting taking place.
NZD is not stable and falling down vs. USD and NZUDSD would hit 0.60 soon. Theoretically, the weakening NZD would warrant costlier imports denominated in local currency and will spur more domestic inflation.
If everyone can please email rbnz-info@rbnz.govt.nz to provide feedback regarding the need to raise rates over and above 50 bp each month, this would be great because it states on their website: "We welcome any feedback or comments you have about the Reserve Bank of New Zealand".
That's not really how it works, we already have the highest interest rate track of any Western economy. I mean, by your logic Turkey with 35% 5y rates should be the strongest currency in the world.
Raising rates too aggressively is going to obliterate the NZ into an irrecoverable death spiral - that's your weak Kiwi scenario.
The USA still has the world's reserve currency. BRICS will be the start of the fall of America's abuse of their fiat currency. Putin understands that.
For a fiat currency to work and not collapse, you must produce more than you consume. NZ is clearly living above it's means (trade deficit), aka USA. How much money has the NZ government and our central bank, created in the past 2 years, without tourism and dwindling productivity, in the name of Covid? People sat at home, living in fear and were paid! What a great 'business' model.
Definitely not outside of our reserve banks control.
Any further interest rate raises will lead to economic collapse in New Zealand, it is already beginning. After years of money printing through ultra-low official cash rates and COVID support packages handed out by the government, the purchase power of the NZD cannot be maintained.
NZD/USD and AUD/USD tanking pretty hard in afternoon trading, a (small-medium) long-squeeze for sure. As it's the beginning/end of the month [time-zones] - coming into the weekend open-interest-traders are probably re-evaluating and selling down market positions.
NZD/USD: 0.6177
AUD/USD: 0.6824
Australia's low cash rate of 0.85% and China's slowdown certainly haven't helped the AUD's woes.
https://news.realestate.co.nz/blog/new-zealand-property-market-begins-t…
whose tea leaves should I be reading to get an accurate grasp of reality in the housing market?
Nouriel Roubini on the potential disaster lining up with Japanese yen:
The risk is the so-called “yen-carry trade.” Ultra-low interest rates since the late 1990s morphed Japan into the world's largest creditor. Zero rates made Japan the funding source of choice for financiers everywhere. They would then carry those yen borrowings over into higher-yielding assets: U.S. Treasury securities, New Zealand corporate debt, Indian stocks, Thai real estate, Indonesian infrastructure, U.K. derivatives, South African futures, cryptocurrencies, you name it.
When the yen suddenly zigs and investors need to zag, markets across the globe feel the shockwaves. Big yen moves really are the financial equivalent of a rug being yanked out from under assets and sectors everywhere.
https://www.forbes.com/sites/williampesek/2022/06/30/nouriel-roubini-ra…
BNZ has bundled up some of its mortgage book, using it as security for a €750 mln Covered Bonds issue
For those who think negative equity doesn't matter, this is why it does. Even if you can keep making your mortgage payments, from the bank's perspective your loan is now undercollateralised, which makes it less attractive to investors as security for bond issues.
That makes it harder for banks to raise money in this way. One or two undercollateralised loans aren't going to matter, but if a significant number of mortgagors end up in negative equity, you better believe the banks will care about it.
Expect to see margin calls if this happens.
Might start seeing people's savings raided by the bank to shore up the equity as a right to set-off? According to ANZ General Terms and Conditions:
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You agree we have the right to use any amounts we owe you to pay any amounts you owe us. This is called ‘set-off’. For example, if you have money in an account with us, this is an amount we owe you. We can take that money and use it to pay any amounts you owe us, like fees or any overdrawn amounts in your other accounts.
- You agree we have the right to move money from one of your accounts with us into another account you have with us to pay an amount you owe us. This is called ‘combination’.
https://www.anz.co.nz/content/dam/anzconz/documents/common/ANZ-general-terms-conditions.pdf
Apologies, I should have linked the ANZ Home Loan Terms and Conditions. That clause is in there too, which puts to bed any ideas that the "right to set-off" is reserved to just personal loans and overdrafts.
For example, if you have money in a bank account with us, this is an amount we owe you. We can take that money and use it to pay amounts you owe us, including under your loan agreement.
There's nothing in the loan terms and conditions that I can see (ANZ) which would enable them to break your fixed term. The loan summary agreement would take precedence, and since it is signed by the borrower it's a contract.
https://www.anz.co.nz/content/dam/anzconz/documents/rates-fees-agreemen…
You might be surprised at what the bank can get away with under those very same terms. "Default" doesn't just mean missing a payment.
In any case, a margin call is not about accelerating payment. It's about making sure that the collateral you have pledged against the loan (normally the house) is sufficient to cover the loan itself. If it's not, then the bank can ask you to either pledge additional collateral, or pay down the loan. If you can't do either of those things, they can consider the loan to be in default, even if you're still judiciously making your monthly payments.
That's not to say that they would, or even that they want to. But they can. Mortgages in NZ are recourse loans, which means default opens up a whole raft of legal avenues the bank can use to recover funds which wouldn't be available to them otherwise. If they consider default to be the best chance of recovering as much as possible - even if it's not all of it - then it becomes purely a business decision, moral imperatives be damned.
That's right. The bank is unlikely to force people to make collateral payments if people don't have the means to, so still making your monthly payments is the better outcome for the bank. If you're in negative equity with a bit of savings, it won't be out of the equation for the bank to repurpose those savings without notice.
More instances have come to light of customers being unexpectedly caught out by their bank taking the profit of a house sale to pay off other mortgages.
https://www.stuff.co.nz/business/better-business/127677246/more-cases-e…
making your monthly payments is the better outcome for the bank
Yes, provided they're convinced that you're going to be able to keep making them. With cost of living going up, interest rates going up, and unemployment levels with nowhere to go but up, they might take a bit of convincing.
The primary source of repayment for a facility is the agreed repayments. The secondary source is the security and the third source is the guarantee. Personal loans are managed on a portfolio basis. The trend over the last few years is to rebalance the power inequality in favour of the borrower. This is at a personal level and at small business level where covenants are rarely taken anymore. You can surmise all you like but look at the regulatory and reputational context and you will get the most likely outcome.
Agree that negative equity does matter but whether the bank makes a margin call on you (presumably if you have multiple properties you are forced to sell one to pay down your borrowings) is an interesting one. If people are still servicing their loans but collectively the banks require a chunk of borrowers to sell their properties the negative equity situation gets worse as prices get suppressed.
"... more than 200'000 immigration applicants ...":
I hope they know what high cost of living/housing and low pay is awaiting them.
Not to mention that should they (or any Kiwi for that matter) leave NZ before age 65, those years or decades worked here in NZ are lost as far as NZ Super is concerned, because it is not portable, and the next country of residence generally will not make up for these lost years.
For a country that so desperately seeks a mobile workforce coming in, we don't accommodate that mobility very well. Immigrants be aware of the small print.
It sure is a beautiful country with several pluses, no doubt, but I wonder how many of those 200'000 applications are aware of the economic step down - compared with other OECD countries. If one has a skill that's in demand here, then it's probably also in demand elsewhere, where working hard will get them ahead. Working hard here isn't even enough to pay the bills and have a roof over the head. The above pluses fade quickly in that light. Many young NZers are leaving now for reasons other than the traditional OE for a few years, then return to NZ. I fear that many will not return, or worse, cannot afford to return.
I guess you're assuming economically "better" OECD nations are as open to migrants (both in terms of migrant laws and willingness of locals to accept foreigners), or as appealing as NZ in non-financial ways. Or that every migrant is moving for primarily financial reasons.
NZ doesn't really promote itself as a high income destination.
And if you're born after June 1977 you'll have to have been cumulatively resident in NZ for 20 years before you qualify for NZ Superannuation.
It used to be a blanket 10 years for all, but that progressively changed last year.
So dashing off to Aussie for a lucrative job will add to that consideration.
Well pointed out! And yes, with Australia we have a special set of rules.
In addition, should one retire in NZ after working for some years further afield overseas, most partial overseas pensions for those years worked there will be deducted from NZ Super, because NZ fully expects that those partial foreign pensions are made portable by the rest of the world. In return, NZ Super is not portable to another country of retirement, not even proportionally for the years worked here. How contradictory and unfair can it get? We were taught: If I expect to take more than I am prepared to give, don't be surprised to be called "selfish" and "greedy".
I don't begrudge the New Zealand government for the EU deal, however unfavourable. It should be realised though that the EU is probably not as lucrative as it might first appear as a foreign market due to subsidisation and intense competition.
The other thing is that the EU faces acute future demographic and fiscal challenges among its members. Various temporary bandaids have been applied like quantitative easing, debt mutualisation and ESM but essentially these have only deferred a future crisis. Essentially Mediterranean countries appear incapable of the reforms required to balancing budgets while Northern European countries poach young and educated from those countries to replace their own declining workforces. The situation is spiralling.
... if the EU & USA cannot be bothered to help us with a decent FTA then they can shut the F up about our close relationship with China ...
We're a tiny export nation ... we must trade ... screw them if they're unwilling to open a decent sliver of their market to us ...
GBH I make this point frequently.
So many posters here moan about the low wage economy while simulateously complaining about China and fretting over methane emission. Honestly, it's hilarious. The UK sell's weapons to Saudi that are used to murder Yemeni's and we fret over our agri and pastoral emissions. We need to do what's in our economic best interests first and worry about the rest second. \
Otherwise we go cap in hand to the IMF and you will quickly realise they are not our friends.
...nailed it , TK ... couldn't agree more ... after all the BS about needing to put our farmers into an ETS or our exports would be banned , Damian O'Conner claimed that it wasn't true , and he'd never said any such thing .... calling BS on you Damian , big fat hairy BS , pal ...
Little goody two shoes nation down at the south east of nowhere farting at thunder. At least the Swiss for example woke up to the fact that their emissions and such like, were as per ours negligible, and they voted to cancel all their self imposed restrictions because they saw little point in doing something about nothing when the great industrial powers are burning coal and ever increasingly belching out pollution hand over fist. We pop up and wave our little flag and as proven here by the EU, are not much more than a subject for cynical mirth.
In the league of the old tear jerker that goes “the boy stood on the burning deck” and on. Spike Milligan’s rendition though sums our lot up as “the boy stood on the burning deck, his lips all a quiver, he gave a cough, his leg fell off, and floated down the river.”
The EU and USA aren't the only ones who need to STFU about China. Our very own PM has once again traveled straight up China's left nostril with that 3 minutes of strung-together cliches at NATO. Cue discovery of bacteria in our exports, processing delays for perishables, and missing documentation. Nothing to see here, move right along.....
As I have been saying for ages Gummy, we are part of Asia and will never be a part of anywhere else whether we like it or not. Western countries only buy our stuff for political purposes, Asian countries buy our stuff because they want it.
Uum so who should we be careful about upsetting?
GBH,
What I can't understand is why our negotiators ever imagined that we would get a decent deal on agriculture. In Europe, their farmers have a degree of influence far exceeding their actual importance. French farmers literally riot when threatened with anything that would disturb their lifestyle.
No informed NZ farmer should be surprised by this. had i still been living in Scotland I would have voted against Brexit for purely pragmatic reasons, not for any love of the EU. In many ways, it's rotten to the core.
We all have our thoughts about where we go. I shared some Keizer reports here, where max last year was saying we are going for stagflation, I was blocked for that, because he would have extreme views. But that turns out not to be that extreme at all. I'm glad i follow his advice and locked in lot of mortgage for 5years over year ago at sub 3%. Bank manager said I was madman, I said this will do, I don't want to be a greedy farmer.
At least at this point, townhouses for rent in Auckland seem to be stable at around 500.
https://www.trademe.co.nz/a/property/residential/rent/auckland/search?p…
Let's see if it lifts again to closer to 550, as plenty more townhouses are completed over the next month or so.
Another excellent article by Oliver Hartwich:
Some notable exceptions aside, the New Zealand media is underfunded and not performing the functions of the Fourth Estate properly.
Despite the vast expansion in public service numbers, it lacks quality and focuses on trendy issues rather than its core functions. In particular, the Reserve Bank and the Productivity Commission need a reset. And across the political spectrum, again with notable exceptions, the political parties lack parliamentarians with the qualifications and experience necessary for a turnaround job.
https://www.nzinitiative.org.nz/reports-and-media/opinion/even-mediocre…
... if I could I'd boot out Jacinda's clowns immediately ... and install Oliver Hartwich for a 3 year term as a benevolent dictator ..
London-to-a-brick he'd transform our economy radically better .... and not waste his time frequently complaining about his predecessors , as Ardern's wastrals do ...
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