What happened Monday

A review of things you need to know before you go home on Monday: new record low rate, a bond killing, FHB deposit struggles, more zeros, job loss payments, swaps unchanged, NZD soft, & more

25th May 20, 3:59pm by David Chaston

ID 22702269 © Daniaphoto | Dreamstime.com

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

MORTGAGE RATE CHANGES
ICBC cut all its home loan rates, including its variable rate. HSBC has launched a one year Premier rate of 2.60%, the new all-time lowest rate. It has also grabbed the low-rate mantle for every other term at the same time.

TERM DEPOSIT RATE CHANGES
ICBC also cut its TD rates, as did Westpac who cut rates from 3 months to three years. There will be more rate cuts tomorrow from other institutions.

EXTREME RISK, EXTREME REWARD
At the end of March, Sky TV was in a tough position and its future was shaky. That resulted in its NZX traded bonds being dumped by investors who though they might become worthless if they weren't careful. In a six week period more than 2.1 mln of these bonds were sold - and bought by other investors with yields of 40% to as much as 60% pa. Then magic happened. Sky TV did an underwritten capital raising, promising to redeem those bonds (at par). The investors who bought them are in for a fantastic return. And of course the yield on those bonds has returned to polite com[pany levels - 5.50% pa for bonds that are set to mature at 31 March 2021 and that had a coupon of 6.25%.

HOW DEPOSIT-POOR BUYERS ARE FARING
The removal of LVR restrictions on new mortgage lending probably won't be much help to first home buyers in high priced areas like Auckland, Bay of Plenty, Wellington and Nelson. Today we updated our home loan affordability review, focusing on how it affects buyers who don't have a full 20% deposit.

BUDGET 2020
We have updated our user-friendly summaries of last week's Budget, showing both how the money has been allocated to be spent, and where the Government expected to get the revenue it needs. These allocations can be compared with the past five years.

SOFTENING THE BLOW
People who lose their jobs could be eligible for a $250-$490 a week payment for 12 weeks under a new COVID-19 relief scheme announced today.

LOCAL UPDATE
There were zero cases added today, leaving the total at 1504 cases identified as either confirmed (1154) or probable (350). Twenty-one people have died (unchanged). There is still only one person left in hospital with the disease, and they are not in ICU. Our recovery rate is still just under 97%, with only 27 people known to be still fighting the infection (unchanged).

AUSTRALIA UPDATE
In Australia, there are now 7114 cases (+19 since yesterday), 102 deaths (+1) and a recovery rate of just over 91% (unchanged). 36 people are in hospital there (-6) with 5 in ICU (unchanged). There are now 501 active cases in Australia (-9).

GLOBAL UPDATE
The latest compilation of Covid-19 data is here. The global tally is now 5,407,600 and up +46,800 from this morning. Now, just 30% of all cases globally are in the US, which is up +10,000 to 1,643,000. US deaths are now exceed 98,000. Global deaths now exceed 345,000.

EQUITY MARKET UPDATES
Hong Kong's share market continues to drop following Beijing's heavy-handed moves on their freedoms. It is down another -1.0% so far today on top of Friday's -5% dump, while Shanghai has opened flat. Tokyo has opened +1.5% higher. Meanwhile the ASX200 is +1.4% higher today and the NZX50 Capital Index is +1.3% higher.

SWAP RATES UPDATE
We don't have wholesale swap rates movement details today yet but early suggestions are little-changed. We will update this later in the day if they show a significant movement. The 90-day bank bill rate is up +1 bp to 0.26%. The Aussie Govt 10yr is -3 bps lower at 0.86%. The China Govt 10yr is unchanged at 2.65%. The NZ Govt 10 yr yield is down -2 bps at 0.61%. The UST 10yr is unchanged at 0.66%.

NZ DOLLAR SOFTISH
The Kiwi dollar is just a little softer today, now just under 61 USc. Against the Aussie we are softer at 93.3 AUc. Against the euro we are holding at 56 euro cents. That means the TWI-5 is down marginally to 66.9.

BITCOIN DOWN AGAIN
The price of Bitcoin is lower by -1.8% since when we opened this morning, down to US$8,778. The bitcoin price is charted in the currency set below.

This soil moisture chart is animated here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

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75 Comments

by Yvil | 25th May 20, 4:08pm 1590379738

https://www.oneroof.co.nz/news/37939

by Albert2020 | 25th May 20, 4:32pm 1590381141

C'mon Yvil, you're better than that...lets keep the spam to a minimum can we?

by Yvil | 25th May 20, 4:49pm 1590382191

That's because you don't know the reason why I posted this link, one of these houses was mine : )

by Kezza R | 25th May 20, 4:52pm 1590382373

Well done.

by Albert2020 | 25th May 20, 5:50pm 1590385809

Then I am even more perplexed as to why you posted it? Are you wanting some type of praise from the fellow interest readers or something? Why don't you take out a full-page spread in the NZ Herald tomorrow for maximum effect? I don't get it?

by Yvil | 25th May 20, 5:55pm 1590386128

No you don't

by Glitzy | 25th May 20, 6:08pm 1590386929

Albert, no he just wants everyone to know his name. Isnt that right Yves. You post personal details mate and every Tom Dick and Harry will know where you live, your wife's name etc. Seriously mate, delete the post ~ you provide one property details and anyone can get full access to your property holdings, company names, wife's details. It ain't funny.

by Fritz | 25th May 20, 6:30pm 1590388202

Yep given it away.
Yves st Laurent?

by Yvil | 25th May 20, 8:14pm 1590394474

Glitzy, it's not a problem when you have nothing to hide

by MisterB | 25th May 20, 10:59pm 1590404372

IRD read this please.

by Yvil | 26th May 20, 8:38am 1590439122

Of course IRD know of this sale & how much and when I bought the house for. What's your point?

by vman | 25th May 20, 6:13pm 1590387218

Summer St ?

by Te Kooti | 25th May 20, 6:16pm 1590387409

If anything, those auction results point to higher prices.

Is that your S Yvil?

by Yvil | 26th May 20, 8:36am 1590438988

; )

by Zachary Smith | 25th May 20, 4:34pm 1590381292

Nothing can stop the Auckland housing market.

by Becnz | 25th May 20, 4:40pm 1590381623

Thats a lot of money for very little.
Better to spend that in Brisbane/Sydney even Hawaii and get a mansion.
Idiots are easy to part from their money or banks money ???.
Also why do people call themselves home owners when the bank is the owner due to debt.

by Yvil | 25th May 20, 4:53pm 1590382382

"Also why do people call themselves home owners when the bank is the owner due to debt."

One of the dumbest belief by jealous people that will keep them poor forever. I just made $980k after tax in 7 1/2 years on a my house that I sold last week, does that open your eyes?

by Independent_Observer | 25th May 20, 4:57pm 1590382651

It opens my eyes to how insane our housing market is (further than they were). How long do you think this is sustainable for?

(congratulations though, that's a fine profit. Hope you left the new owners a decent bottle of champagne to celebrate!)

Oh and are you going to keep talking the market up now that you've sucked your buyer/s in?

by Ben72 | 25th May 20, 5:22pm 1590384124

Please be mindful of others who is less off than you. This is not the time to show off who you are during this tough times.

by Independent_Observer | 25th May 20, 5:40pm 1590385253

Yes that is $980k of debt that somebody else, probably a younger generation, is going to have to pay for now for the rest of their lives. But at least Yvil is feeling financially rich (but morally poor?)

I'd be feeling quite embarrassed and almost ashamed if I were in the same situation. A house is where people are supposed to live, have security and raise families, not be used as a casino for people to make a million dollars in capital gains in 7 years. Its no good for the future of our society.

by kiwichas | 25th May 20, 5:55pm 1590386146

The people who do the hardest work get the crappiest pay, those who do absolutely nothing hard get money for jam; don't be Yvil people

by Yvil | 25th May 20, 8:22pm 1590394941

I certainly agree with you kiwichas, I've had my Architectural business for 18 years, I now own a Motel and another business, RE returns far more money, has better tax advantages and requires for less effort.

by Yvil | 25th May 20, 6:01pm 1590386488

IO, I can assure you no one put a gun to the purchasers head and said "pay the price or I'll pull the trigger" it was their choice to pay that amount because they thought it was good value.
As for your moral pep talk...com'on you know it's nothing more than very thinly veiled envy

by Independent_Observer | 25th May 20, 6:35pm 1590388555

Envy:

"occurs when a person lacks another's superior quality, achievement, or possession and either desires it or wishes that the other lacked it"

Do you think you have superior qualities to me - is that why I should be envious? That might be quite an arrogant position to take.

As you know I think property investment with all its social implications is a profession or practise for corrupt souls.

Have you considered making a charitable donation to one of NZ's deserving charities for the poor or less off? You know, you probably don't need all that $980K - you could easily donate half to a good cause? Surely?

by Yvil | 25th May 20, 8:22pm 1590394977

I regularly donate to 10 different charities (mostly for kids), my wife cooked 96 meals for the needy with another 3 women last week and will do so again this week.
Which charities do you donate to IO?

by Independent_Observer | 25th May 20, 9:17pm 1590398250

Good to hear Yvil - those kids will eat well this year then given your newly arrived wealth. Great news all round.

Yes both domestic and international charities, but by no means have I been making a million dollars of capital gains in the last 7 years from a housing market that is meant to be about homes and families, not a casino. Nor would I ever brag about it on the internet. It would be about humility especially at a time when people are losing jobs and could be worried about defaulting on their debts (because our housing market is so expensive).

by Shoreman | 25th May 20, 8:16pm 1590394565

Yvil - Nice one a great investment seems alot on here are upset ?? Only upset that it wasn't them that had made a good choice 7 years ago and booked a million dollar profit now. By the way right now as in before the end of the year it's a perfect time for FHB to get into the market, 2 of our off spring have just purchased with a little help from us really happy for them.

by Yvil | 25th May 20, 8:23pm 1590395025

Thanks and good luck to them

by Handy Andy | 25th May 20, 5:42pm 1590385366

Well done that is impressive!

by CJ099 | 25th May 20, 5:51pm 1590385865

Just think Yvil, if you had sold a few years earlier you probably would have made double. ;)

by 8014 | 25th May 20, 6:04pm 1590386646

For perspective, that's a CAGR of 7.3% ($1.4m > $2.38m over 7.5 years).

The same $1.4m amount invested in the NZX50 index in October 2012 would be $3.8m on a 14.5% CAGR, even after the March collapse.

by JimboJones | 25th May 20, 6:38pm 1590388732

Why sell Yvil? You could make another mil or two over the next few years surely.

by Fritz | 25th May 20, 7:15pm 1590390931

Despite his bravado, he knows the writing is on the wall, and the motel in Timaru is probably leaking money. Good on him for getting out now.

by JimboJones | 25th May 20, 7:37pm 1590392265

Fritz I suggest you go to a property seminar or two as you are sounding very uneducated. Surely everyone knows by now that property prices double every 10 years!

by MisterB | 25th May 20, 11:02pm 1590404527

Definitely, 2034 prices will absolutely have a median of $8.4m in Auckland. Why would yvil sell at all?

by MisterB | 25th May 20, 11:01pm 1590404460

#ponzi

by Brock Landers | 26th May 20, 1:39am 1590413960

How much tax?

by Yvil | 26th May 20, 8:35am 1590438941

There is no tax on capital gain in NZ. There is a brightline test (similar to CGT) for up to 5 years

by Independent_Observer | 25th May 20, 4:52pm 1590382325

This be a bit like watching the share markets go up with people are losing jobs and taking pay cuts left right and centre. I'm going to call it insane...but each to their own.

by Audaxes | 25th May 20, 5:18pm 1590383919

A Slow-Motion Looting

by Kate | 25th May 20, 5:41pm 1590385305

Yup, great link.

by iconoclast | 25th May 20, 5:47pm 1590385646

You forgot the $ billions the Americans have fined and extracted out of the European Banks

by Independent_Observer | 25th May 20, 5:47pm 1590385666

Looks like an interesting link - thanks Audaxes - will read tomorrow when I have some time.

Just working my way through the book Benjamin Franklin by Walter Isaacson and getting to the drafting of the Declaratrion of Rights (way back around 1777) and Franklin wanted the following wording added:

"discourage large holdings of property or concentrations of wealth as they are a danger to the happiness of mankind"

It was deemed to radical however so didn't get included.

But I wonder what this founding father of the United States would think of his country now when even the billionaires are coming out and saying its broken.

by Lapun | 25th May 20, 10:43pm 1590403417

""discourage large holdings of property or concentrations of wealth as they are a danger to the happiness of mankind"" - True.

by Jolly Penguin | 25th May 20, 7:37pm 1590392221

Awesome article, thanks. Talk about a bottomless pit...

by Jolly Penguin | 25th May 20, 7:37pm 1590392223

Awesome article, thanks. Talk about a bottomless pit...

by Ahuhyeah | 25th May 20, 7:50pm 1590393016

I hated reading this. It reiterates ... something has smelled rotten for a long time. Financial wizardry and lawyers ... argh...

by The Lark | 25th May 20, 10:51pm 1590403909

Always interesting, and worthwhile.
Cheers Audaxes.

by Rosenstein | 25th May 20, 6:22pm 1590387734

Congratulations on your sale! You don't get much for 2 mil in Ponsonby, but as you say - market forces - unless this is some clever insider ploy to manufacture sentiment that the housing market has returned to life. What a time to sell! And a story so quickly picked up by OneRoof, but why not? A success story set against such murky economic outlooks and upon the eve of quite possibly the most incredible economic downturn in a generation. To even have a listing at this time, you must have been sh*tting bricks, yet you were solidly commenting on here throughout, with bulletproof self assurance that things were going to turn out alright. You have balls of steel! The obvious question for such an astute investor such as yourself, and one with impeccable timing, is - considering the array of deflationary forces set against assets in NZ and inflationary forces mustering in the CPI - what will you do with 980k of NZ Dollar oh Yvil the wise?

by Ben72 | 25th May 20, 5:02pm 1590382920

https://i.stuff.co.nz/business/121614234/coronavirus-invercargill-licen…

https://i.stuff.co.nz/business/300020120/tab-axing-jobs-as-it-consulted…

https://www.google.co.nz/amp/s/amp.rnz.co.nz/article/517cf9b6-0acf-4fb8…

by Albert2020 | 25th May 20, 5:07pm 1590383249

That's sad but add these job losses to AirNZ, Fletcher, Sky City etc and unfortunately, they are still only the beginning.

by Kezza R | 25th May 20, 5:18pm 1590383905

Bankrupties in mass to come if the world gets the Wuflu under control and even more if not.

by Ben72 | 25th May 20, 7:46pm 1590392802

Another 175 jobs in limbo

https://i.stuff.co.nz/business/121622544/proposal-to-close-six-hj-smith…

by Independent_Observer | 25th May 20, 7:51pm 1590393098

Question for Kate as she seems to be good at these types of questions.

As a society we get to vote for political parties to set fiscal policy. But I don't see a mechanism that allows society to vote for monetary policy. Yet it would appear that monetary policy has just as big an impact on our lives (if not more sometimes) than fiscal policy.

Is that fair in our 'democratic' society? Are we supposed to believe that the gods in the central banks are always operating with the intent to maximise benefits for as much of society as possible? And how long will we continue to believe that while inequality continues to gets worse under their QE and lowering rates policies?

by Te Kooti | 25th May 20, 7:41pm 1590392475

They're independent as per the Reserve Bank Act (1989). You should read it, it is very transparent what their mandate is and how they are governed. They produce an Annual Report as well. They would have been well within their mandate to have cut interest rates a lot lower, and boost house prices a lot more, as they have been below their inflation mandate consistently.

by Independent_Observer | 25th May 20, 7:53pm 1590393201

Section 1A: Purpose

(1)The purpose of this Act is to promote the prosperity and well-being of New Zealanders, and contribute to a sustainable and productive economy.

If the rate of home ownership in NZ is falling rapidly due to QE/lowering rates and blowing property bubbles - how are they achieving this first line of the act and where do I vote to change their policies/behaviour?

by Whatwillhappen | 25th May 20, 7:59pm 1590393599

You pick the party that says they will do it, and then get over your disappointment in a few decades or so.

by Independent_Observer | 25th May 20, 9:19pm 1590398392

Unfortunately the thinking of either the government or the opposition is limited to 3 years.

by Independent_Observer | 25th May 20, 8:26pm 1590395210

1A)The economic objectives are—
(a)achieving and maintaining stability in the general level of prices over the medium term; and
(b)supporting maximum sustainable employment

Well house prices have gone through the roof (excuse the pun) so where is the price stability there? And just remind me how many people are losing their jobs at the moment? So that would be two fails on both their primary objectives in my view. Yet we don't get to vote for this...so my question is why not?

by Pragmatist | 25th May 20, 8:51pm 1590396662

The magic CPI ruler doesn't "see" house prices.. not the existing stock anyway, only the building of a new house (and i'm fairly sure it doesn't see most of the regulatory costs, just the builder, sparkie etc and materials)

by Independent_Observer | 25th May 20, 9:11pm 1590397868

Yes aware of that thanks Pragmatist. Convenient right? In theory inflation should be measured against money supply, not CPI. And wouldn't that prevent debt bubbles creating asset bubbles? But no, we measure a basket of goods instead.

by Pragmatist | 25th May 20, 9:33pm 1590399234

And the basket of goods we measure poorly too. Hedonic adjustments distort the crap out of it all.

The introduction of the Building Act (2004) resulted in improvements to practices and materials used in constructing new house plans, including those tracked in the CPI survey. The value of any improvement in materials and the value of any additional labour resulting from improved building practices were removed from any quote increases, as these were regarded as improvements in quality. In addition, as increased consent fees and other local authority charges were often reported as a reason for increases in prices, a proportion of this was removed. This proportion was removed as it was deemed to be attributable to an increase in the overall quality of the dwelling, through better monitoring of building practices.

Yep, that didn't result in the CPI largely ignoring the real increase in costs of a new build. After all, having three different inspectors walk round and tick things off (with a hefty fee associated with each inspection) definitely improved the way houses were put together right? ( (c) Tui )

I'm sure if I found out what my grandmother paid for her 1984 corolla (a modest budget car then, and still a modest budget car now) , and followed the CPI vehicle sub-index adjustments to arrive at todays prices, a new corolla should cost about $6000.

by Kate | 25th May 20, 9:23pm 1590398599

In a sense, we do get to vote indirectly via normal Parliamentary processes.

There has been a legislative process underway to amend the RBA in two phases - Phase 1 saw inclusion of the objective (b) above. Phase 2 is happening now (consultation extended due to COVID);

https://treasury.govt.nz/news-and-events/reviews-consultation/reviewing…

The CPI basket (i.e., RB objective a) is where change could be made to better reflect prices 'on the ground', so to speak. For example, under housing, they could include not only the changes in cost of new builds - but changes in land prices generally (as that captures the price rises across the entire housing market). Stats reviews the CPI basket every 3 years;

https://www.interest.co.nz/news/91579/statistics-nz-completes-its-3-yea…

But, what average citizen has the time or the inclination to participate in these processes? For years NZF campaigned on amending the Reserve Bank Act - and in that respect they got that inclusion of objective (b) - which was their point I believe.

You are sooo right, the RB is failing on both objectives at the moment. Audaxes often links to the definitions used by the RB that push lending towards residential housing and away from productive industry. Again, if the government wanted to they could force change in that regard too. I suspect it will happen going forward, only because their hand has been forced by the COVID recession/depression.

Right now they are probably thinking - how do we both keep people in their existing dwellings (i.e., prevent collapse leading to foreclosure and evictions) AND at the same time encourage new productive entrepreneurship (i.e., business borrowing for start-ups). They really need some radical thinking.

by Andrewj | 25th May 20, 8:01pm 1590393674

House prices are not included in CPI, or we would have had record inflation for a while.

by Independent_Observer | 25th May 20, 9:23pm 1590398598

In theory inflation should be measured via money supply...so we've had massive inflation. But its going into our house prices, then we wonder why we can't measure it via a basket of goods that are probably mostly imported using cheap labor in China or Vietnam, or now being built by a robot more efficiently for a cheaper price with smaller margins. Technology could be pushing price levels down, then we can't find any inflation, so we lower rates, then people take on more debt against the housing market as a result. Cycle repeats...Recipe for disaster in my opinion.

by Kate | 25th May 20, 9:25pm 1590398756

Housing is included in the CPI - here is the detail at the last review;

https://www.interest.co.nz/news/91579/statistics-nz-completes-its-3-yea…

by Pragmatist | 25th May 20, 9:37pm 1590399427

The cost of building a new house is.. partially. The cost of renting is, but the cost of land, and many other real costs get ignored, or 'adjusted'.

http://archive.stats.govt.nz/tools_and_services/newsletters/price-index…

http://archive.stats.govt.nz/browse_for_stats/economic_indicators/cpi_i…

by Kate | 25th May 20, 10:01pm 1590400867

Totally agree - they pay more attention to changes in discretionary expenditures and not enough attention, nor weighting, on essentials.

by iconoclast | 26th May 20, 8:21am 1590438086

The fallacy is this - the number of new houses built each year is 6% of the total housing stock. Because it is only 6% it is re-weighted to the extent it has very little impact on the CPI

by Whatwillhappen | 25th May 20, 7:41pm 1590392510

I'm no Kate, but I say the electoral system is broken. We have to choose one or two parties to fulfill all of our political aspirations, from how people should be treated, to how we treat the environment, to how much government intervention we have, to whether or not babies should be killed in vitro. No party can meet all of those expectations, which is why a lot of people wanted MMP - proportional representation. However, people are morons and don't vote the way they want to because they don't want to 'waste' their votes. So, nothing really changes but the rhetoric. Some point to Switzerland and making decision making by referendum. I say we should use STV so we can actively vote or not vote for a person to represent us, and not end up with ex-spies in one party or foreign government activists in another. The list system bites.

by Andrewj | 25th May 20, 7:19pm 1590391140

The trough
https://pointofordernz.wordpress.com/2020/05/25/apollo-foods-moves-on-t…

by theglc | 25th May 20, 9:13pm 1590398008

I would dearly like to see what research has been done before throwing around all that cash and what return on investment is expected...

Answer to both... None!

by Squishy | 25th May 20, 9:32pm 1590399178

I'm astonished at how well my share portfolio is going, it's like there isn't even a recession or global pandemic or trade war any more. Finally the system is working for those of us with money to invest!

Too bad about the kids without jobs, my commiserations...chin up.

by The Lark | 25th May 20, 9:33pm 1590399217

If the system is built to reward profit, with currency, then that is what it will do. So my hats off to Yvil for his profit.
As for the system of democracy, for you IO, I fully recommend "Voltaires Bastards" the age of reason, by John Raulston-Saul.
It is simply a fantastic, and thorough explanation of why our system creates apparent complete nonsense, while proclaiming to be based solely on logic, or reason.
As for the rbnz, they are wolves dressed up in lambs clothing, and the question regarding monetary policy is the most prudent of questions. I can only refer Mike Maloney and "Hidden secrets of money" for a lead in to this.
Central banking is a complete sham, and our money should be decentralised, known as a "free banking" system.
There are some great pieces on free banking.
Decentralisation is the only choice for citizens that place freedom at the top of the list.

by jetski00 | 26th May 20, 2:12pm 1590459135

Nice work Yvil, yes it proves a point nice evidence. Makes me giggle about the ponzi comments etc, these comments have not changed for the last 30 years I have been involved in this market.. At the end of the day property is the most wanted commodity and NZ is moving towards the top. In New Zealand property growth averages 10% p.a for the last 150 years which includes world wars, depressions, pandemics etc.. so a 1 month shut down is not going to change the growth momentum sorry.