Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
No changes today. All eyes are on the RBNZ now. If the RBNZ cuts tomorrow as anticipated, expect banks to respond quickly.
TERM DEPOSIT RATE CHANGES
Ditto.
A 'BOLSHY' LABOUR MARKET
The unemployment rate for June has come in lower than expected by the Reserve Bank and surprising most bank economists, falling to 3.9%. That is an eleven-year low. Wage gains were also better. Going the other way, the participation rate fell to levels we last saw in later 2017. (Don't forget however; labour market data is usually a lagging indicator.) Still, the annual rise in the employed labour force was only +44,100 to June 2019 and that compares poorly to the +93,000 gain in the year to June 2018.
RENTS UP FOR LOW INCOME RENTERS
The latest rent data from the tenancy bond database shows them stable in July. Three bedroom house rents are falling, especially in Wellington and Christchurch. But the socially sensitive 2 bedroom flat rates are rising sharply everywhere.
CAR BUYING RELUCTANCE GROWS
Used car sales in July picked up a bit from June but were still -7.6% lower than the same month a year ago. Weak consumer and business confidence, slowing population growth, softer employment growth (see above), and higher fuel prices (especially via tax) continue to make consumers and business reluctant to commit to large purchases.
EXPECTING LESS
The latest survey for the RBNZ of inflation expectations by consumers shows another dip. In one year, those surveyed thought CPU inflation would be at +1.7% (down from the previous survey three months ago of 2.0%), while in two years they thought CPI would be 1.9% (2.0%).
THE UNTARGETED SOURCE
The trade surplus in Australia just gets larger and larger. We had reported April as an all-time record surplus, then May was an even larger record. Now we can report that for June that it was another huge surplus, this time far, far larger than any previous month at +AU$8.6 bln (actual, not seasonally adjusted). That means for the year to June, they had a goods surplus of +AU$53.6 bln and far above the +AU$12.9 bln surplus on the same year to June 2018. (As Australia is selling minerals to China, who sells the resulting goods to the US, it really is Australia that the US Administration should be targeting to punish for their trade deficits. But Washington finds it much harder to demonise Australia, so they will give them a mulligan.) Today's announced surplus restrained the depreciation of the Aussie dollar.
OUTING THEMSELVES
Westpac NZ is refunding about 93,000 customers overcharged about $7 mln after self-reporting the issues to the FMA and the Commerce Commission.
SHAMING THE NAMER
The US has formally named China as a currency manipulator. China however is setting its yuan rate only marginally different today with the mid-point just under 7-to-the-dollar, although that means the buy-sell spread takes it over. So China hasn't yet really weaponsied its currency, despite what the US Administration claims. However, the US is removing any incentive to work with it on trade, an unbelievably poor negotiating strategy.
EYES ON STEVENS & ORR
All eyes are now on the RBA and its rate review at 4:30pm today. If it is anything but "no change" at 1.00% we will update this item. (Update: no change.) Then tomorrow the focus shifts to the RBNZ which will announce its OCR review at 2pm, and it is universally expected to cut by -25 bps to 1.25% and a new record, all-time low.
THE ROUT CONTINUES
Wall Street ended down -3% today. That means the S&P500 is down -4.6% so far in August. Asian markets are opening weak as well after a weak day yesterday, with both Hong Kong and Shanghai each down -2.25 and -2.5% respectively and Tokyo down -2% in early trade today. That means Shanghai, for example, is down -6.7% so far in August. Locally, the ASX200 is down -2.6% so far today, and the NZX50 is down -1.8% today. The global equity rout is spreading and deepening as the day progresses.
AUCKLAND WATER UPDATE
Yes, I know. Look out the window in Auckland and you might notice it is raining, as it has done since the weekend. But the City's water storage reservoirs are only 66% full still, whereas they should be 88% full at this time of year. Auckland needs a lot more wet weather to catch up. Nationally, hydro lakes are above normal for this time of year.
DEBT KINGS
Fears over China’s ability to manage its domestic economy alongside the trade war with the United States have further increased after 30 of the 31 provincial level governments are reported to have ran at a deficit in the first six months of 2019. All will be bailed out by tone of the big sate-owned banks in the usual fashion. Shanghai was the only authority that ran a surplus.
SWAP RATES SINK AGAIN
Wholesale swap rates moved lower and flatter today following the slump in international bond yields. The two year swap rate is now down to just 1.18%, the five year is also at 1.18%, while the ten year is down -5 bps to 1.46% - all record lows of course. The 90-day bank bill rate has slipped another -1 bp to 1.42%. Australian swap rates are also a little softer today ahead of a no-change rate review expected at 4:30 pm today. The Aussie Govt 10yr dipped under 1% at one point but is currently at 1.02%. The China Govt 10yr is down -3 bps at 3.08%, while the NZ Govt 10 yr down -5 bps today to just on 1.30%. The UST 10yr yield is down further, now at just 1.73% and another -3 bps since the open this time yesterday.
NZ DOLLAR FIRMS
Following the better-than-expected jobless rate, the Kiwi dollar rose and is now just on 65.5 USc. That has erased the small losses of the past few days. Against the Aussie we up at 96.4 AU cents. Against the euro we are firmer at 58.4 euro cents. That means the TWI-5 is now at 70.7.
BITCOIN JUMPS
Bitcoin is little-changed from this time yesterday, still at US$11,664. The bitcoin price is charted in the currency set below.
This chart is animated here.
Daily exchange rates
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Daily swap rates
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13 Comments
Unemployment figures lag, and history shows they are low at the end of the cycle, like before the GFC and before the Irish property market crash. Lower vehicle sales (as they are in the US too) which is leading indicator of economic downturn, and of course the (still small) declines of the Auckland housing market, which has real economic impact.
Auckland needs a lot more wet weather to catch up
The usual alternative: build a pipeline that carries water from neighbouring water-rich regions into Auckland.
I am sure the rest of NZ will gladly subsidize this capital cost for its economic capital's unsustainable growth.
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