Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
None to report today, yet.
TERM DEPOSIT RATE CHANGES
Kiwibank. HSBC and NZCU Auckland have all trimmed term deposit rates today.
UNCHANGED
ACC has committed to keeping its levies unchanged for the next two years.
COMMODITY PRICES STABLE
Commodity prices have slipped slightly in June from May, and are marginally lower in a year. Dairy prices are the main reason for the year-on-year shift. Aluminium prices are also lower. But there has been a good recovery in horticulture prices in June and meat prices have also held up well.
VICTORIAN RELAPSE
Although we are not regularly reporting updates for COVID-19 data in this review, the Australian situation is getting more serious by the day and will impact the New Zealand economy. The hard lockdown of residential high rises (the new cruise ships?) in Melbourne is an ominous development. Victoria's borders are now closed. They have reported another +127 cases so far today, almost all community transfer. Early reopenings and leaky lockdown rules have proven to be a major public health mistake. To move from Victoria to NSW you are about to need "a permit", a sort of internal passport-and-visa system.
NZBA FIGURES SHOW PAYMENTS ON $44.2 BLN OF CONSUMER LENDING REDUCED OR DEFERRED
Latest figures from the New Zealand Bankers' Association show take-up of the Business Finance Guarantee Scheme (BFGS), through which the Government guarantees up to 80% of loans, remains sluggish. As at June 30, NZBA says $121 million had been lent to 664 customers via the BFGS. Meanwhile on the consumer lending side, 79,166 customers had $24 billion of loan repayments reduced, and 59,885 customers had all their loan repayments deferred on $20.2 billion of lending.
LOOKING AHEAD
NZX dairy futures trading suggests that Wednesday's auction may result in a minor positive, at least for milk powders. WMP is anticipating a +1% rise on top of the prior +2.2% rise. SMP is anticipating flat trading.
EQUITY MARKET UPDATES
The S&P500 futures index is signalling that Wall Street will open up +0.6% on rumours of vaccine progress. Meanwhile, the NZX50 Capital Index is also up +0.5% in late trade here today. The ASX200 is basically unchanged in early afternoon trade. Shanghai has opened up very strongly, up almost +4.0%. Hong Kong is up +2.5% and Tokyo has opened up +1.4% to start the week.
SWAP RATES UPDATE
Swap rates are probably unchanged today. We don't have final wholesale swap rates movement details yet but we will update this later in the day if they show a significant movement. The 90-day bank bill rate is unchanged at 0.31%. The Aussie Govt 10yr is up +3 bps to 0.94%. The China Govt 10yr is up a very strong and surprising +8 bps to just on 3.00%. The NZ Govt 10yr yield is also higher, up +5 bps to 1.01%. The UST 10yr is up +2 bps at 0.69%.
NZ DOLLAR FIRMER AGAIN
The Kiwi dollar just keeps on rising, now at 65.5 USc. Against the Aussie we are also firmish at 94.2 AUc. Against the euro we are up at just over 58.1 euro cents. And that means the TWI-5 is now up over 70..3 and it hasn't been this high in the past five months.
BITCOIN STAYS LOWER
The price of Bitcoin is marginally firmer that where it opened this morning, now at US$9,117. 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 ».
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93 Comments
We had low government debt to start with, if it doubled or tripled or quadrupled it would still be low by world standards. Our unemployment rate is still low, possibly because of the stimulus our government can afford (for now at least). Most of our businesses are open except for tourism etc. people are out spending, I’m hearing that from almost everyone I talk to. It’s a lot better than most places at the moment.
Hook, Jimbo... have a look at the rest of the world (the so called western one a least). We in NZ have benefited from going into this shemozzle with a low Crown debt base and, although we are moving to scarily high debt/GDP levels (about the same as the last National Government was pushing us towards without a pandemic) we look great compared to the trainwreck that is USA. And we still have tradeable commodities and a reasonably-intact domestic economy.
I'm happy even though my own business has suffered a more-than-50% cashflow hit. Happier that I've cashed out of high risk investments and consolidated.
Life is shit at the moment, but perspective is still a wonderful thing.
Anyone remember the whiners of March/April complaining bitterly that the NZ lock down was unduly harsh compared to the Australian lock down 'which was getting the same result'? Where, oh where, have those angry voices gone now?
https://www.news.com.au/travel/travel-updates/health-safety/strong-chan…
Sheer breathtakingly good luck. Over the weekend I learned from someone very close to the action the extent of our astonishingly good fortune to have avoided community transmission. NZ's quarantine management debacle is a tale of profound incompetence. We are in no position to be pointing the finger at the Victorian govt.
Err, hotel, escapees, neglect to test first etc etc. Self evident it was a SNAFU where incompetents played fast and loose with our safety and futures. It's called the news which some people read and understand. The real background to which emerges privately over a few pinots. On tour, stays on tour. Believe it or not, I care not a jot.
Didn't need a drinking buddy to tell me Clark was incompetent and saint Ashley cocked up. The only thing in doubt is the extent of risk they actually exposed us all to. The answer is very muchly but you are just gonna have to contain yourself until that detail comes out.
Who's at fault? The management for not checking on the "squaddies" or the "squaddies" for not exercising that very rare commodity called common sense. Even with the military overseeing things one slipped through. Won't be long and all internees will be wearing ankle bracelets. Although there is a very effective and quite cheap dog training device available which I'm sure would discourage fence jumpers.. it sure works with Fido.
Still some amazing bargains to be had on the property market too! What millennial wouldn't want to spend every hour working and living frugally for 30 years to spend a mere 500k on this gem? #Broken
https://www.trademe.co.nz/a/property/residential/sale/listing/269055357…
It's a two-beddie if you count the garage! In convenient Papatoetoe, only an hour from the CBD by public transport! With *several* windows! Why wouldn't I spend 10x my annual income on such a bargain?? After all, it will inevitably be worth twice that in 2027 -- it's physics!
"...so you can use this space as you wish." Not legally, you can't. You can convert a garage to habitable space (i.e., a place a person is going to sleep in) provided you get building consent. Unless they have that - it's not very good (possibly misleading) to be advertising it with a bed in it. Someone might think they can let it out as a bedroom; which they can't unless it is now deemed habitable.
Closer to home. Flesh-Eating Disease. Must be something about Victoria at the moment...
https://www.theatlantic.com/health/archive/2020/07/flesh-eating-bacteri…
"It was just a little spot, but I felt there was something different about it,” he said. “What you’ve got—the infection is that big,” he sketched a circle around the wound, like the flanks of a small volcano. “But it’s going to get bigger.” He warned that the antibiotics had shut down his defences, and now the body would launch an attack on the infected tissue. The pus was building up under the skin, and it was about to blow. “Once it breaks through,” he said, “it will feel a lot better.” Buruli gets its name from a former county in Uganda.
Except the 'going to get bigger' bit though. The greens ratcheting up the class warfare by proposing swingeing taxes on asset owners is an admission they think extinction is possible and as a survival response are trying to lock down their trotskyist core support. Leafy suburban airheads and affluently cushioned wellington bureaucrats ditched in a desperate struggle to avoid the looming 5% threshold plunge.
Come on Fb.. even you aren't that myopic. The "major border dispute" was a few platoons (maybe Company's at most) getting into a slagging match and sorting it with some good old fashioned biffo.. Unfortunately the Indians got their butts kicked. Shanghai moved higher today on last weeks PMI and other data.. admittedly probably bogus
Be careful what you wish for buddy, if the market drops significantly (> 10%) there will be a lot of FHBs caught with negative equity. The banks will reassess their exposure and probably require further lumpsum injections from said owners to rebalance. The FHBs who can't find the capital injection ( quite possibly a large %) may find themselves in a "distressed mortgagee" situation. The resultant damage to their credit rating may well last for some time and could seriously impact their future creditworthiness. NZs consumer debt is very high by western standards and a collapse in individual credit ratings will have significant effects to all.
It is a sad fact that lots of new FHB's have listened to the spruikers and bought a home during a bubble. They were warned repeatedly that this is a bubble and decided to buy anyway. They actually kept the market inflated, keeping lots of less fortunate potential FHB's out of the market. If the market now crashes, I believe that lots more less fortunate people will benefit and finally have a chance to own their own home.
Now China going after its small neighbour Bhutan
https://m.hindustantimes.com/india-news/china-s-bhutan-move-aimed-at-in…
China has become a rouge state to be boycotted by world.
The move to dictatorship, increasing public spend on internal security, the imposition of laws purely to promote control of the pollution, the constant publication of factually inaccurate economic data, the provocation of the brain drain that we will see in HK, over spend on military assets etc etc etc. Its not hard to miss if you are looking for it.
Add to this pissing off pretty much everyone of its regional neighbours and internal politics purely designed to maintain power in the hands of a few and yourselves got the ingredients for a failed state because what comes next is economic collapse.
If we have 1.7mm people on wage support and we aren't the world's factory (which is idle) the implication is that China currently has about 350~400mm people Ue or underemployed.
Now you do the math on how much that costs.
https://www.oneroof.co.nz/news/oneroof-and-reinz-support-kiwi-property-…
A nice bit of spruiky news being pumped through Oneroof c/o the real estate trade association REINZ.
Perhaps they could include the number of purchasers who have walked away from deposits in their stats and the number of built but empty apartments and houses on the fringes of Auckland.
Or better still release their actual raw data so that people can make an informed decision on their purchases.
Edit - I see Tony Alexander is pumping his speil one of the first articles on this 'news' platform, these guys just dont give up.
And many people may not realise that the 10% deposit is not the only cost that may accrue from 'walking away' from a deal.
"If the developer suffers a loss on the re-sale of the property, it can claim damages for that loss"
https://www.thisismoney.co.uk/money/mortgageshome/article-8319005/Will-…
If the resale of the property is, say, 15% less than the contracted amount, then the 10% deposit is forfeit AND the vendor can and will come after the defaulter for the remaining 5%.
It's a good point to note. To be honest tho I'm pretty sure the presales on these large blocks were dominated by mainland buyers until they pretty much ground to a halt in mid 2017.
If you look at Barfoots actual sales data they only got a handful of sales in the Antipodean between Oct 2016 and the actual completion date last month. Pacifica is at a standstill (Chinese developer funded by Chinese bank for Chinese investors). Looks like that party is well and truly over.
"I see Tony Alexander is pumping his speil one of the first articles on this 'news' platform, these guys just dont give up."
Let's follow the money trail with Tony Alexander (after leaving employment with BNZ) and find his vested financial self interests.
He describes himself as a professional speaker. He clearly states his target audience and there is potential for some bias there for his audience - "My audience has always been the average home buyer and property investor, plus small to medium-sized businesses." - https://www.linkedin.com/in/tony-alexander-145887193/
Here are some of his potential revenue sources:
i) subscribers to his newsletters - TView Premium - http://www.tonyalexander.nz/test.php
ii) his articles in OneRoof.co.nz, etc - unconfirmed - per click for his article contributions? / fixed monthly amount for a fixed number of contributions?
iii) property seminars, webinars - potential one off fee (unconfirmed) - "For enquiries about presentations, webinars, bespoke columns,email me at tony@tonyalexander.nz" http://www.tonyalexander.nz/
In terms of (ii) and (iii) above, those potential fee paying clients are more likely to want to hire a property perspective with a positive spin. Very few people (if any) are going to want to pay for an article or speaker with a negative spin on the property market. There is no disclosure of his potential conflict of interests here.
As the adage goes, "whose bread I eat, his song I sing" ...
CAVEAT EMPTOR ...
This is what a widely followed & high profile economist (previously employed by the BNZ), was saying in February 2020 (4 months ago) - no reservations or warnings whatsoever of any property price risks. Any owner occupier who acted on the economist's property price forecasts and purchased in January, February this year in Queenstown, on an 80% LVR mortgage could face the risk of being in negative equity (and a potential 100% or higher unrealised loss in their equity, which could become a realised loss if the purchaser is forced to sell due to closure of business, unemployment, etc).
Meanwhile, the "economist" just changes his forecast on 6 April 2020 for property prices to fall and goes on to tell his audience how he was "right". What happened to the collateral damage / road kill that the economist just left behind? - the purchaser's entire financial future may now be ruined, lives changed forever, future financial security of the family now in entire doubt, potentially leading to mental health issues ..] - this is the reason that I have continued to highlight the property price risk warnings to potential owner occupier buyers, so that they can make a fully informed purchase decision. (contrary to the property price bulls claims that the property price bear's motivation for speaking up is due to envy, or personal desire to purchase a property at a knock down price, or being "anti-property").
Hard working potential owner occupier buyers in New Zealand have been denied an honest discussion of property price risks that put their entire financial futures at risk (due to the huge vested financial self interests). These are real people, real lives that are potentially forever affected.
20 February 2020:
A reader asked for my comments regarding a report released last week by a research foundation set up by ex-Prime Minister Helen Clark looking at housing affordability. So, I had a quick look just in case it offered something with a realistic chance of being introduced to the effect that prospects for future house price gains would be reduced. It did not.
Do I think price growth will continue? Yes. Interest rate rises lie a long way down the track. Our population continues to get a 0.9% boost per annum from net migration flows. Wages growth has accelerated. Construction growth is strong but will be retarded by shortages of labour and also shortages soon of some materials because of factory shutdowns and supply chain disruptions associated with China’s latest virus.
"Meanwhile on the consumer lending side, 79,166 customers had $24 billion of loan repayments reduced, and 59,885 customers had all their loan repayments deferred on $20.2 billion of lending."
Just to remind people that this is since March 26, 2020 to 30 June 2020.
The total of $44.2bn is 15.3% of total consumer lending book at the NZ banks.
Other observations:
i) Owner occupier borrowers on Interest only payment terms increased by 44% since February 2020 (i.e before COVID 19 lockdown)
ii) Non owner occupier borrowers on Interest only payment terms increased by 11% since February 2020 (i.e before COVID 19 lockdown)
https://www.rbnz.govt.nz/statistics/s32-banks-assets-loans-by-product
How much of this balance, and how many borrowers are going to be unable to meet their debt service payments when the mortgage deferral expiry period & the wage subsidies end? Then what will those property owners do? How will this impact the balance between effective demand and effective supply?
The above numbers exclude the small and medium business borrowers who may also have pledged real estate as collateral for business loans. Some of these small and medium business borrowers may be facing financial stress due to significant falls in revenues.
I think people are making a bigger deal out of the amount of debt that's been deferred than is really warranted.
The banks normally offer repayment holidays and interest-free terms to people who are in good equity positions and payment histories, a lot of people will have these offers extended to them if needed once the initial period expires. Mortgagee sales are really the last recourse and no-one wants them. Furthermore Kiwisaver can be used to avoid mortgagee sales, and a lot of Kiwisaver balances are held with the same bank as the mortgage is - I'm not suggesting the trustees of the kiwisaver fund will bail the banking arm out, more that the banks would proactively look at tapping such balances where possible to stave off a mortgagee sale.
Better to look at the banks provisions for bad debts as a general gauge for where things are going, rather than these very gross figures and extrapolating doom from them.
"Better to look at the banks provisions for bad debts as a general gauge for where things are going"
FYI, the provisions in the NZ banks cumulatively increased by 42% from Feb 2020 (i.e pre COVID19) to May 2020 (whilst total gross loans remained relatively unchanged).
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