What happened Monday

A review of things you need to know before you go home on Monday; no retail rate changes, NZ arm pressures ANZ Group, DIA issues AML warning, swaps plumb new lows, NZGB yields sink, NZD soft, & more

29th Jul 19, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
No changes today.

TERM DEPOSIT RATE CHANGES
None here either. Do you value a true risk-free return? Currently that is 1.50% available with the Government's Kiwi Bonds. But just be aware; markets are strongly signaling that the RBNZ will cut its 1.50% OCR at the next review on August 7, so this rate will go down. Currently, Kiwi Bonds are available fixed for 6 months, one year and four years.

NZ MORTGAGE, FARM CAPITAL CHANGES SHAVE 20BPS OFF ANZ GROUP CAPITAL
The ANZ Banking Group says higher capital requirements for its New Zealand mortgage and farm lending is the equivalent to a 20 basis points reduction in the group's Level 2 Common Equity Tier 1 capital ratio. This comes after changes introduced by the Australian Prudential Regulation Authority, which follow the Reserve Bank of New Zealand increasing ANZ NZ's capital requirements for mortgage and farm lending. The ANZ Group says, as of June 30, its level 2 CET1 capital ratio was 11.8%, comfortably above APRA’s "Unquestionably Strong Requirement" of 10.5%.

DIA ISSUES WARNING AFTER 'REPEATED NON-COMPLIANCE WITH LITTLE REGARD FOR MONEY LAUNDERING RISKS'
The Department of Internal Affairs (DIA) says it has issued a formal warning under the Anti-Money Laundering and Countering Financing of Terrorism Act to Customhouse Safe Deposits Ltd, which is NZ's biggest safe deposit provider and trades in gold and silver bullion. The warning is a case of "repeated non-compliance, with little regard for money laundering risks," DIA says. The warning was issued for: Failing to meet AML/CFT Act requirements including failing to conduct customer due diligence and failing to adequately monitor accounts and transactions, failing to keep records, and failing to establish, implement or maintain an AML/CFT program. However DIA says it's not alleging Customhouse was involved in money laundering or the financing of terrorism.

NORMAL & NOT NORMAL
While New Zealand's hydro lake storage is above its long-run average, drinking water storage for Auckland is not recovering. It is still 65% of normal when the City's storage is usually running at 85% of normal at this time of year.

COMPLETELY DIFFERING TRACKS
In Australia, their equity market (ASX200) has pushed on up to a new record high. Everyone is excited. But that isn't all it seems; it has just moved above a record level that had been standing since October 2007. Meanwhile in New Zealand, the NZX50 has risen +153% over the same period.

THE COST OF INEQUALITY
In Hong Kong, the street rioting by young people who no longer feel they have a stake in the City and fear the encroachment of Beijing's heavy hand, is starting to affect their equity markets. The protests seem permanent now and permanently disruptive. Beijing is increasingly annoyed. The Hang Seng Index is down -1.1% today and -2.8% for the month, even as Shanghai is essentially unchanged today.

TRICKY NAVIGATION
Even in the Time of Trump, the US Fed is hosting a conference on how it needs to prepare for climate change. It says that "volatility induced by climate change" and efforts to prevent climate change are "increasingly relevant" for the Fed. It is trying to navigate between an unstable President and the impacts of a fast-changing climate. From any view, these moves are courageous.

SWAP RATES PLUMB NEW LOWS
Market acceptance that official interest rates are about to turn lower again is having a big impact on secondary markets. Local swap rates plumbed to new lows again today, down -3 bps across the board. But the 90-day bank bill rate is up +1 bp to 1.50%. Australian swap rates are up +1 bp across most terms. The Aussie Govt 10yr has dived another -5 bps to just under 1.20%. The China Govt 10yr is up +3 bps to 3.20%, while the NZ Govt 10 yr is down -5 bps to 1.51%. The UST 10yr yield is now at 2.06%, and down -1 bp since this morning.

NZ DOLLAR STABLE
The Kiwi dollar has been stable today, trading sideways at 66.4 USc. Against the Aussie we are still at 96 AU cents. Against the euro we are soft at 59.6 euro cents. That trims the TWI-5 to 71.6.

BITCOIN BUMPY
Bitcoin is now at US$9,651 and over the past 24 hours volatility has been +/- 2.8%. The bitcoin price is charted in the currency set below.

This chart is animated here.

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

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39 Comments

by The Person | 29th Jul 19, 4:04pm 1564373070

" the NZX50 has risen +153% over the same period."

NZX50 is a gross index so not comparable with the rest of the world. What would the NZSX40 be at?

by J.C. | 29th Jul 19, 5:52pm 1564379540

Unusual comment. NZX 50 Index is our main stock market index.

by Pragmatist | 30th Jul 19, 3:51am 1564415473

It was being compared to a capital index... So pointing out the nzx50 isn't a capital index is an entirely sensible thing to do.

by Uninterested | 29th Jul 19, 8:38pm 1564389496

Yep apples vs ?squirrels

by NoFax | 29th Jul 19, 4:16pm 1564373796

If CCP does a crack-down in Hong Kong like in Tienanmen Square I wonder if our "leaders" would even bat an eye. Are we that subservient to the communists?

by Gummy Bear Hero | 29th Jul 19, 5:05pm 1564376732

.. so subservient that when PM , John Key refused to meet the Delhi Llama who was visiting NZ ...

by Roger Witherspoon | 29th Jul 19, 5:22pm 1564377730

Strong the delusion is, that progress results when foreign capital jacks up house prices.

by Gummy Bear Hero | 29th Jul 19, 5:32pm 1564378327

Strong the delusion is , when GDP only grows because you've imported 75 000 immigrants each year , to help courier parcels and to squeeze cows ...

by Roger Witherspoon | 29th Jul 19, 5:42pm 1564378951

Great the reward is, if you've got an Auckland mansion to sell.

by Lapun | 29th Jul 19, 6:38pm 1564382333

You are not allowed to say that! Not even if as a Maori you have had historical experience of too fast a rate of immigration.
https://www.tvnz.co.nz/content/tvnz/onenews/story/2019/07/29/m_ori-coun…

by sharetrader | 29th Jul 19, 6:47pm 1564382874

basic godwins law.
,instead of debating the point call it racism to shout down the debate
instead of questioning effects a high immigration policy and what should be the optimum number that would allow us to grow without the side effects of big increases in government and council spending to accommodate infrastructure and services needed for the increase

by Lapun | 29th Jul 19, 7:45pm 1564386316

""co-host Jehan Casinader accused Mr Tukaki of a "xenophobic dog whistle".
Let's not blame migrants for the fact that we haven't dealt with the issues that have come from our colonisation for a long time," Casinader said.
"Immigrants prop up this economy - they do the jobs that other Kiwis are not willing to do."

and Mr Casinader doesn't see a problem with that last sentence.

by RickStrauss | 30th Jul 19, 9:19am 1564435178

The ideal some have in their minds is the Angela Merkel of old, borders open to everyone, no such thing as countries, no limit on incoming volumes, and no such thing as locals having the right to influence the volume of new folk incoming.

But this did not work. And Germany no longer has open borders. And it's naive to try to blame any and all resistance to the above on racism, rather than locals wanting some say in the rate and volume at which their own environment changes.

by solardb | 29th Jul 19, 4:36pm 1564374964

It seems Federal agents are willing to make such decisions , if they think it will fly below Trump's radar. I saw a similar move with California high speed rail , something Trump rages against .

by Advisor | 29th Jul 19, 4:42pm 1564375336

Trickle-down economics have failed the West for decades but RBA will continue to turn a blind ear to calls against rate cuts and stay on its path of allowing banks to offer cheaper credit to creditworthy lenders on the off-chance that this will ultimately prop up wages.

by Narrabeen Boy | 29th Jul 19, 5:00pm 1564376403

Just wondering if anyone is thinking this winter is much warmer than anything in the past decade?Or am i finally getting aclimateized.Board shorts and tee shirts all winter long!!!!

by linklater01 | 30th Jul 19, 6:57pm 1564469851

N B,

It couldn’t be anything to do with climate change? Nah,that’s silly. Why? Well Trump says it’s a Chinese plot and he should know,shouldn’t he?

Mind you,if it’s not true,why are glaciers retreating globally? Why have 24 US states formed a climate alliance? Why have 109 NZ companies formed the Climate Leaders Coalition? Perhaps they know something?

by Roger Witherspoon | 29th Jul 19, 5:14pm 1564377266

Teehee. Don't the ANZ realise that they should only lend to house buyers? Lending to productive business is just so 19th century.

Our dear leaders just want to get the next generation of debt serfs in harness, it seems. The alternative of helping productive businesses be more profitable would just make the people more self sufficient, you see.

by Roger Witherspoon | 29th Jul 19, 5:49pm 1564379353

The Hong Kong police are the people to watch. If they lose faith in the adminstration then there will be a revolution there. You can only fight your own people if you feel you are defending law and order, not tyranny. Did they turn a blind eye to a MSS operation involving hired mafia thugs?
https://www.asiatimes.com/2019/07/article/45-hurt-in-wild-attack-on-pro…
https://www.asiatimes.com/2019/07/article/hong-kong-reaches-a-protest-p…
https://en.wikipedia.org/wiki/Ministry_of_State_Security_(China)

by Fritz | 29th Jul 19, 6:28pm 1564381729

It's teetering

by Fritz | 29th Jul 19, 6:37pm 1564382257

China need to be careful to not be too heavy handed, even though the west has given China a lot of slack (too much), things have turned recently with Trump etc. I don't think China has a free licence to smash these protesters, this time....

by Audaxes | 29th Jul 19, 8:07pm 1564387647

China wants to remove Adelson (the Las Vegas casino mogul and main underwriter of Trump's presidential campaign) from his Macau casino operation. His instructions drive Trump to contain Iran which disrupts China's Belt and Road Initiative. Since Adelson is domestically untouchable his apparatchiks are the individuals China wishes to extradite for prosecution. And surely they will - the stakes are too high.

by linklater01 | 30th Jul 19, 8:27am 1564432041

Roger,

Do you really think that China will allow HK to go feral? I believe that they maintain 6000 troops there. Will they just sit in their barracks while the situation deteriorates? If they did nothing and watched HK spiral out of control,what message would that send to Taiwan or Tibet?

by Andrewj | 29th Jul 19, 5:12pm 1564377163

The giant sucking sound
https://wolfstreet.com/2019/07/28/the-wolf-street-report-the-giant-suck…

by Cowpat | 29th Jul 19, 5:49pm 1564379372

There is no doubt , we are a nation besotted by housing , at least the pricing as opposed to the amenity. Everyone appears familiar with the housing crisis that the United States endured , and with continued falling home ownership rates , which David supplied a link in this mornings news ,( which included rents and house prices) I suppose we should be thankful , that we did not endure the same calamity with our national median house prices touching upon record highs. Sadly , our home ownership rates are not better than the United States and have fallen at a quicker pace over the past decade from 66 percent to 62.2 percent. The United States having fallen from a higher starting level of 67.3 to 64.2 percent.( March quarter ) In the latter part of this last decade , our occupants per dwelling has surged from 2.67 to 2.80, a remarkable incremental change given the size of the underlying stock. I am left with the question whether our household debt to income measures are being challenged ( or if they are indeed adjusted ) as over the past decade,while we have accumulated an additional outstanding 100 Billion in mortgage debt,we have concentrated that mortgage debt , which provides the majority of household debt, against a smaller percentage of households, while at the same time our household income has been altered in part, but significantly by an almost doubling of rental income and a significant shift in individuals per household, who by default would provide an increase in household income. I appreciate that Jenee wants FHB to use Kiwisaver to access the ladder, I personally would drag my daughters from it.

by Fritz | 29th Jul 19, 6:30pm 1564381801

Another developer went bust, can't remember name, did the Sargeson apartments.
Another sign

by Glitzy | 29th Jul 19, 7:17pm 1564384635

Nice pick up. The article in nanny Herald mentioned of the 92 units 16 remained unsold and the developer had written to buyers requesting more funds as developer finance had dried up.

You would not bet any money that all of these big new build condo blocks in the CBD are actually going to be built.

by Fritz | 29th Jul 19, 7:27pm 1564385248

Yeah. I have said several times in the last few months that the development sector is hitting the wall. Watch out, economy

by JediNight | 29th Jul 19, 8:39pm 1564389567

Riddle me this: We keep hearing about the housing shortage, yet the guys building the houses are going bankrupt. What's going on here?

by Fritz | 29th Jul 19, 8:54pm 1564390494

Answer, master: the developers can't build at prices that are competitive enough because land and construction costs are too high, 18 months ago they could kind of get through it with overseas buyers etc, but they can't now.
Everything is out of whack. The sales prices they need to make profit are too high to offer investors even goodish yield, and the prices are too high for most of the population to buy.
The issue isn't confined to central apartments, it's also affecting townhouses in Greenfield developments in the north and south

by JediNight | 29th Jul 19, 9:03pm 1564391018

Right. So too expensive to buy and too expensive to build. How do we get out of this predicament?

by Fritz | 29th Jul 19, 10:23pm 1564395803

Market correction. Or Mexican stand off.
If the building work dries up, builders will need to lower prices. But that won't go far enough.

by Glitzy | 29th Jul 19, 11:15pm 1564398908

Yoda, good question.

If you look at the variables ...

1. Building material costs aren't going to change that much.

2. Labour cost ~ might come down a bit but not much

3. Margins (developer profit) can reduce a bit.

And then we come to the other one....

4. LAND COSTS CAN COLLAPSE because this is the only variable that has the ability to adjust quickly. And this is the only variable that can adjust to ensure building is affordable relative to wages.

And incidentally this is exactly what happened in every financial crisis.

by Fritz | 29th Jul 19, 11:17pm 1564399077

Yeah and there's a few recent stories of development sites being sold at big discounts, so it's starting to happen. Watch this space.

by JediNight | 30th Jul 19, 9:05am 1564434326

At what point do land prices reduce? What canary needs to die in the coal mine for land to get cheaper?

by Glitzy | 30th Jul 19, 9:39am 1564436346

Its already happening. Land price in premium Auckland suburbs is trading about 20% lower than peak and it's going down quite quickly.

Old houses on reasonable sized plots which need big renovations are the ones to watch as they tend to trade at land value.

But if you look hard you can see it everywhere. 60 Queens St project cancelled. Developer over in Takapuna gone bust (due to unsold units and banks pulling financing). Atkins Ave in St Heliers small mortgages sale where plans were for 20 units. There are hundreds of these stories out there.

Bear in mind this will take time to work though. One day at a time. One story at a time.

Hence RBNZ getting its house in order for a shit storm ~ higher capital requirements, deposit gtees being discussed, looking at its tool chest, rate cuts in the pipeline.

Not sure they can act fast enough though. We are starting to see Chinese money being pulled out of residential property ~ if this speeds up we are going to see the slide quicken up and at that point all bets are off.

by Nzdan | 30th Jul 19, 7:51am 1564429889

I'm hearing it from my colleague in Auckland too. We're a supplier/manufacturer to the 3 waters infrastructure market. The Sub Division market is falling off a cliff, there's a backlog of tenders that are being sat on yet to be awarded meanwhile contractors are in a predicament of paying wages to retain good employees without the work coming through to support it.

by Fritz | 30th Jul 19, 8:36am 1564432569

Informed anecdotes from people on the ground are invaluable. Trouble is brewing.

by Glitzy | 30th Jul 19, 9:40am 1564436418

Thanks for sharing NZdan.