A review of things you need to know before you go home on Monday; ANZ cuts rates, retail trade weak, Fonterra weakened, DTI data launched, 'responsible lending' in spotlight, swaps firm, NZD softish, & more

A review of things you need to know before you go home on Monday; ANZ cuts rates, retail trade weak, Fonterra weakened, DTI data launched, 'responsible lending' in spotlight, swaps firm, NZD softish, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
ANZ has cut all its fixed rates. SBS Bank has also cut its floating rate.

TERM DEPOSIT RATE CHANGES
ANZ has cut all its term deposit rates too, with most of the popular terms now below 3%.

RETAIL TRADE WEAK
Retails sales in July as measured by electronic card transactions have come in weak. The only reason they held up was because petrol prices were higher (and a large part of that was tax). Adjusting for the number of selling days and how weekend's occur (that is, seasonally adjusted), only petrol rose from June, hospitality was flat, and every other category was lower. Clothing was down -3.2% on that basis.

IT GETS UGLIER FOR FONTERRA ...
Fonterra says it is set to lose between $590 mln and $675 mln in the just-completed financial year after writing down the value of more of its assets. They will pay no dividend. Their $800 mln debt reduction target has not been achieved. The implications of this write-down go to the very heart of the tension between farmers (who want a high milk price) and the business (which needs retained earnings).

... AND FOR FONTERRA SHAREHOLDERS
This news has had a sharp effect on the Fonterra share price. Farmers will possibly be sweating how much this asset can be used to secure loans, and bankers too.

WMP PRICE SAGS
Since last week's dairy auction, the derivatives market has started pricing WMP lower, now my more than -1%. But in Australia, prices are moving up. Farmgate milk prices finished last season at or above AU$6 per kgMS. This season most prices have opened at AU$6.80 or higher with price signals above AU$7, according to Rabobank. Higher Aussie prices will put severe pressure on Fonterra's Australian performance.

A NEW SPOTLIGHT ON INCOME SUPPORT FOR HOUSING DEBT
The Reserve Bank has today released new debt-to-income (DTI) data for new mortgage applications in New Zealand, showing how total borrower debt compares with borrower income. This data shows 31% of borrower debt was at a DTI over five time income, down from 37% in June 2017. And 33% of first home buyer debt was at a DTI over five. In Auckland, almost half of first home buyer debt was at a DTI over five. First home buyers most commonly borrow between 4-5 times the size of their income. In June 2019, the average gross income of first home buyers was $116,000 per year, compared with $132,000 for other owner-occupiers. See C40 and C41. Our review is here.

DISCUSSING ELEPHANTS
There are public hearings today in Sydney called by regulator ASIC over how to regulate and enforce Australia's 'responsible lending' laws. They are likely to have an important impact here too depending on what ASIC decides. The core tension is whether to let banks assess the risks of borrower's credit (on a principles-based approach), or regulate it forensically (on a prescriptive approach) forcing banks to take every risk that meets a public test. Even parallel regulator APRA is worried about the prescriptive approach and what that means for banking. Another big shadow behind all this is that buy-now-pay-later 'lenders' aren't covered by any regulation at all (a 'wild west' corner) and their continued exclusion could upend banking.

SWAP RATES STABLISE
Wholesale swap rates are stable today for rates five years and less, but firmer for longer durations. The 90-day bank bill rate is up +1 bp to 1.22%. Australian swap rates are down -2 bps across the board so far today. The Aussie Govt 10yr is up +3 bps to 0.97%. The China Govt 10yr is unchanged at 3.05%, while the NZ Govt 10 yr is also unchanged at 1.12%. The UST 10yr yield is up +5 bps from Friday, now at just under 1.75%.

NZ DOLLAR HOLDS LOWER
The Kiwi dollar is still where we started today, at 64.7 USc. Against the Aussie we also unchanged at 95.3 AU cents. Against the euro we are softish at 57.7 euro cents. That means the TWI-5 is now at 69.9.

BITCOIN STABLE
Bitcoin is also little-changed today, now at US$11,478 - lower than this time on Friday, but up about +US$100 from this morning. The bitcoin price is charted in the currency set below.

A NEW WEEKLY RECORD
Perhaps unsurprisingly, we had our best traffic week ever last week. (Thank you RBNZ.) We delivered +60% more pages of content last week than we normally do in a usual 'good week'. In the past year, we have been read by 2,372,800 unique readers, a +17% rise from the equivalent prior period. If you are a new reader, welcome.

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We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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24 Comments

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Highlight new comments in the last hr(s).

That retail spending. Phew. Not looking flash. Fuel up (mostly tax - and fx, possibly?) and services up, but everything else down.

Wonder what the OCR drop is going to do to this in the coming months. Obviously pensioners' spending will be down, but what else?

I can't of course speak for others but our household is getting a bit more watchful on our spending, and also trying to pay down debt.
Also getting a bit more budget conscious in general eg. buying some new work trousers from Zara (which are fine -look stylish and are reasonably well made) for $40, rather than $100 from Barkers.
Given NZ is such an expensive country, it's good that there are few more options these days. Good to see Chemist Warehouse here, really good value that place.
We stocked up on quite a bit of Uniqlo in Japan.
And I've cut my booze expenditure in half, which is good both for my wallet and my body.

Fritz. I agree with you.Our biggest financial saving has been a shift to online grocery shopping. We have probably knocked a third or more off our weekly spend. The funny thing is it is an unintended outcome. We were just trying to free up a couple hours a week as we work long hours. Removing all the frivolous and spontaneous purchases done in store has also dropped our alcohol bill and surprisingly we are eating healthier.

always so tempting to throw a bar of chocolate and another bottle of wine in the trolley!
I don't drink at home in the evening on week days now (apart from Friday night). I allow myself the odd after work drink (catch up with friends) in town every couple of weeks, but otherwise don't drink on school nights.
Also cut back on red meat a lot too. Again healthier, and wealthier! (I still like the odd big juicy steak, although once every two weeks rather than twice a week is fine)

How much of the growth in total spending on services do you think could've come from the hikes in insurance premiums over the last few months?

Good to see readership up. MSM will not inform the public. I steer readers here where I can.

yes good news.
Seems to be a dearth of coverage /analysis on Fonterra in the MSM today.

There are certainly more articles here, and a bit more data, but I don't think the conclusions are really much different, except in the comments.

yeah good point. The likes of David Hargreaves push out the critical thinking a bit though.

Interesting. One wonders of there is a nationalist aspect too with Chinese companies pulling out of the USA.

Well done Interest on the new record number of pages and readers! Keep up the great work

New research on financial situation of Aussie h'holds.

50% of housholds hold less than $10K in cash savings. The lack of cash savings and the cost of neccessities are the two greatest financial worries.

Household financial comfort dragged down by residential property price falls and weakening labour market.

https://www.mebank.com.au/getmedia/b59491c6-778e-4fca-83c2-a3d11936eff1/...

I have what may seem as a counter - intuitive view of the four factors of production and why each should be in synch and not be allowed to be "destroyed ' without consequence

The four factors are Labour , Capital (savings ) Land , and Entrepreneurship

So communism failed because it effectively destroyed the value of land, and Entreprenuership was outlawed .

Zimbabwe and Venezuela destroyed the value of land by confiscating land and reducing its value to zero with terrifying consequences .

Now we are destroying the value of Capital by making it so cheap as to be worthless .

This may not end as well as we would like

David Harvey calls it accumulation by dispossession;

https://en.wikipedia.org/wiki/Accumulation_by_dispossession

'Hong Kong and Singapore, so similar yet so different – it’s all about housing, money and politics
Political power is supreme in Singapore, while money dominates politics in Hong Kong. Why can’t Beijing see how the dreams of Hong Kong youth are being crushed?
With housing so out of reach, any spark can trigger uncontrollable riots. Instead of being amazed by city’s turmoil, one should wonder why it took so long'
https://www.scmp.com/comment/opinion/article/3020789/hong-kong-and-singa...

So Kiwibuild ought to be a copy of Singapore's housing. Obvious benefits for the vast majority of normal families. Let foreign buyers have their own speculative market. Sounds great other than most commentators would have little to say.

Singapore's housing profile was developed as part of a national economic plan. Similar to Japan. NZ doesn't have (or never really had) anything similar.

We don't really have the density of population for major riots, although they have happened in our past. I was there to witness the Takapuna Beach Riot, but was down country when the Queen St one happened. Perhaps an interview with Dave Dobbyn is in order? We seem to have got more passive, the discontent of our young being expressed as a general disinterest and suicide. With the unhappiness present (but hidden by media) sentiment could quickly swing in the main centers.

We have mini riots usually as the result of excess drinking

I don't think things are bad enough here to kickstart riots. Sure an awful lot of people are on struggle street (including so called 'middle class'), but surviving. If unemployment rose to 7%, and homelessness doubled, then we might be inching to riot territory.

Leave this lot in for another term and we will be there!

Still better than the previous bunch though

Andrews,

Interesting place Singapore. I have just spent a few days there and couldn’t help but wonder whether NZ could learn a few things from them.

Their ability to plan and execute major projects is impressive. We were told that they plan to move an entire port to one of the offshore islands and build a new part of the city as part of their plan to raise the population from 5.70m to 6.90m. The new Jewel Centre at the airport is pretty impressive,with the world’s highest indoor waterfall-40metres.