A review of things you need to know before you go home on Friday; some big rate changes, factories gloomy, house price expectations up, big lift in ship cruise business, swaps fall; NZD flat, & more

A review of things you need to know before you go home on Friday; some big rate changes, factories gloomy, house price expectations up, big lift in ship cruise business, swaps fall; NZD flat, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
Kiwibank has launched two market-leading rates, one is the lowest fixed rate of all time. Housing NZ cut most of its rates.

TERM DEPOSIT RATE CHANGES
Kiwibank also cut all of its term deposit rates by between -10 and -25 bps. NBS also cut most TD rates. Treasury cut -50 bps from its Kiwi Bond offer, taking all rates down to 1.00%.

UNHAPPY IN FACTORYLAND
New Zealand's manufacturing sector fell into contraction for the first time since 2012, according to the latest BNZ - BusinessNZ PMI. The main cause for concern is that new orders weakened a lot. And employment really hit the skids in July with a a very weak index result. Current production might be ok but it is clear most New Zealand manufacturers are now very unsettled. There is no sign on investment anymore. By industry, only two (Petro-Chemical, and Machinery and Equipment) of the nine managed to show any expansion. By size, the largest firms appeared to be suffering by far the most.

MORE HOUSE PRICE RISES COMING
The RBNZ today released the results of its survey of household inflation expectations. They were little changed with most respondents seeing current inflation at 1.7% which is exactly where its at. They also see it at 2.1% in a year's time, a similar view to the last survey. (A year ago, respondents thought inflation now would be 3.0%, so they were quire wrong about that.) The big mover in this survey however was the proportion of people who thought house prices would rise in the next year; it is up from 41.5% in June to 49.1% in the latest survey.

BOOM INDUSTRY
Cruise ship spending is going full steam ahead, swelling +28% to $570 mln in the year ended June 2019, Stats NZ said today. The +$125 mln lift in annual cruise spending reflected a surge in the number of cruise voyages, port calls, and passengers. This followed an +11%increase for the June 2018 year.

WESTPAC REDUCING RATE ROLLOVER FOREX SERVICE
Westpac NZ says while it's stopping providing historic rate rollover foreign exchange transactions for some customers, it's continuing to provide them where there is a genuine underlying commercial requirement. The change is being implemented alongside Westpac NZ's Australian parent, and is to comply with global best practice, Westpac NZ says. Customers unable to continue using the historic rate rollover service for forex contracts will have to mark to market them on set dates and book a profit or loss.

TAKING A BREATHER
Equity markets are quiet today. In the end, Wall Street eeked out a small gain (+0.2%). And Asian markets are trading similarly flat. The ASX200 is down -0.1% but the NZX50 is sharply lower in late trade, down -0.6%.

CHANGE AT THE TOP
As the trade war intensified, there has been a switch in the largest foreign holders of US Treasury debt. Now Japan has edged out China at the top of this list. It wasn't China selling down - they didn't - it was that Japan has increased its holdings. All foreign holders of US Treasury issues account for 40.3% of all debt held by non-Government agencies (so 60% is held by US citizens and private entities).

SWAP RATES FALL
Wholesale swap rates have fallen again today. They are down -2 bps for 2 year, down -3 bps for 5 years, and down -4 bps for ten years. The 90-day bank bill rate is unchanged at 1.21%. Australian swap rates are down similarly. The Aussie Govt 10yr is down -3 bps to under 0.87%. The China Govt 10yr is unchanged at 3.02%, while the NZ Govt 10 yr is down -5 bps to just under 1.00%. That is quite something as it started August at 1.47%. The UST 10yr yield is down -3 bps from yesterday, now at just under 1.53%. And this is why markets are worried about the big US Treasury yield inversions. It worsened today to -53 bps and levels last seen in 2007.

NZ DOLLAR UNCHANGED
The bond market may be in turmoil but the currency market is tame. The Kiwi dollar is soft at 64.3 USc. Against the Aussie we are lower since this time yesterday at 94.9 AU cents. Against the euro we are actually firmer at 58 euro cents. That means the TWI-5 is unchanged at 69.7.

BITCOIN UP
Bitcoin has risen in the past 24 hours, now at US$10,307, up +2.2% from this time yesterday. The bitcoin price is charted in the currency set below.

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22 Comments

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Hard to believe that Westpac is still doing Historic Rate Roll-Overs in the FX retail market. (Are other banks?).
It was always the easiest way for FX 'guesses-gone-bad' to rollover unrealised losses, hoping that they 'come good' by the time of the next maturity. AWA in Sydney, back in the '80s, cost their bankers and the company itself ( (A$30 million from memory) quite a lot using that method, and I'd have thought they would have learned their lesson back then. Seem not. Bank, eh....

My memory failed me! Looks like it was $50 million. But a sobering sentence in the historical piece notes that "the Wizz Kid FX dealer was earning.....(tada!) $30,000 a year!"( NB: Competent 'strategists' these days would make that a week)
https://www.smh.com.au/business/whiz-turned-rogue-sentenced-in-belated-s...

Interesting to see 49.1% of people in NZ expect house prices to rise. I would say this proportion is very different in Interest's comment section. Without trying to start an argument, why would that be? Any opinions?

People have jobs? They don't have any close friends who have been laid off recently?

So are you insinuating that, since there are many more property bears on Interest, that these people don't have jobs?

Not at all. Just that people get fearful when unemployment starts going up and they know people who have lost their jobs.

In good times my wife and her friends talk about who has a new car and what colour it is. In a slowdown it is more about people they know who are in financial strife.

I understand that RW, my question was about the DIFFERENCE in opinion between the general NZ public and the majority of Interest commenters, why is that ?

Simple: the latter are better informed.

10
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I think most likely its because the main stream media havent picked up on the coming recession, only people who watch data closely like inverting yield curves etc think a recession is coming. I think that 49% will change quite quickly once recession talk offically hits main stream media. Just my opinion anyway.

It'd be interesting to see that broken down by regions. I suspect that what most people expect is a continuation of whatever trend they've been seeing, so I would expect Aucklanders to be more pessimistic than the rest of the country.
The interest.co.nz commentariat are quite Auckland-focused.

Good point

I suspect that what most people expect is a continuation of whatever trend they've been seeing...

That's why people think that asset prices increase by 100% every 7-10 years. They're told that and then they will see some rudimentary data that confirms that it is real.

Well it's not a popularity contest. Much of the population don't have much interest in economics

I agree. Usually economics is discussed by most at an emotional level as to what they've experienced and what they want to believe.

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Yvil its incorrect to state 49.1 % expect house prices to rise. The net number of respondents seeing an increase is barely changed y/y, notwithstanding the change in the OCR and capital gains The median increase is seen at 1.7 percent, which is the same median increase expectation of general inflation. The M14 data , showed 45.7 percent of respondents seeing 1 year house price inflation below 2.0 percent (somewhat below Westpacs). As a question, we all know , that many Kiwis have been affected by leaky homes, plastic sheeting seen around Auckland is testament to this, yet I cannot recall a single factual comment, where there has been reference to the financial distress of having purchased such a property. Why would that be.?Psychology plays an immense part in many surveys.

Excellent comment Cowpat!

Whereas leaky home financial distress is probably more AKL-centred, we've got EQ strengthening financial distress in WGN. Same effect.

Good job Boris. The rare politician that honours a referendum.
"Boris Johnson
‏The referendum result must be respected.
We will leave the EU on 31st October. "
https://twitter.com/BorisJohnson/status/1162055460104613890

Can he be trusted, though? Or will he capitulate, too?

There would have to be a law change for it to not go through on the 31st Oct.

So is Boris going to personally write a cheque to the NHS for 350 million, every week?

Seen as he personally campaigned on that result, and it turned out to be completely false, that would surely be the best way to respect the referendum

The judge thought otherwise. Figure is over 360 mill GBP/week.